Sep. 12th, 2019
In Brief:
Crypto-currency mining is the act of recording a “block” (all transactions that
occurred within the last ~10 minutes) to the digital general ledger record (blockchain) of that currency.
Nodes, referred to as “miners”, make money by being the first node to verify
~10
minutes of transactions (a “block”) and posting them to the digital blockchain general ledger.
The first miner to guess the correct “hash” for the desired “block” announces
its
victory to the rest of the network.
All bitcoin transactions are included within the public ledger via user
personal
ID’s. No user name is listed.
The financial news, and essentially all news, keep mentioning and reporting on these terms Now, what is
crypto-currency, mining, and blockchain technology? What are they used for? What do they accomplish? What do the
terms mean and why use crypto-currency at all? Why not just stick with simple dollars? Let’s make it a bit
simpler
to understand, then you make your own decision.
– Crypto-currency mining is the act of recording a “block” (all transactions that occurred within the last
~10
minutes) to the digital general ledger record (blockchain) of that currency. Then upon that posting, every ~10
minutes, the updated digital ledger is uploaded to all peer-to-peer “nodes”. Nodes are privately owned
computers
registered to participate in the peer-to-peer network.
– A blockchain is the public ledger shared amongst all nodes via peer-to-peer networking. It is a shared
database recording all the approved transactions. The name developed because all of the transactions coming
onto
the network were grouped into “blocks” of data, and then “chained” together. Each block contains a
cryptographic
“hash” (64-digit numeric string) recording of the previous block, a timestamp, and all prior transactions. By
design, a blockchain is resistant to modification of the data
– Mining is the posting of transactions to the public, peer-to-peer network, ledger (blockchain)
Block – all transactions generated within the last ~10 minutes
Chain – posting of that block to the single public ledger, accessible by all nodes/members
of
the peer-to-peer network
– Nodes, referred to as “miners”, make money by being the first node to verify ~10 minutes of transactions (a
“block”) and posting them to the digital blockchain general ledger. The work necessary to post the block is
called “mining”.
– The successful node is paid 12.5 bitcoins (the amount is cut in half every few years). That amount (12.5
bitcoins) is paid every ~10 minutes to the first node/miner that is able to validate and verify the block and
post it to the digital ledger. Many nodes exist that compete against each other, so essentially the nodes with
the fastest computer hardware and software are more likely to win. To validate block transactions, the nodes
must analyze huge bits of 64 digit numbers (each transaction within the node is reported via 64 digit
numbers).
Because the numbers are so large with so many numbers, mining requires significant numbers of extremely fast
computers, which inherently requires large amounts of (cheap) electricity.
– The first miner to guess the correct “hash” for the desired “block” announces its victory to the rest of
the
network. Then all the other miners immediately stop work on that block and start trying to figure out the
mystery number for the next one. As a reward for its work, the victorious miner is paid 12.5 bitcoins (the
amount is cut in half every few years). That amount (12.5 bitcoins) is paid every ~10 minutes to the first
node/miner that is able to validate and verify the block and post it to the digital ledger. The successful
node
gets this as a reward creating a block of validated transactions and including them in the blockchain.
– How do they find this correct number hash? They need to guess at random. The 64-digit mystery number hash
function is impossible to predict, so miners essentially guess at the mystery number. What’s more, there may
be
several nodes that produce the correct number hash, or there may be none (in which case the miners keep
trying,
but with a different block).
– There are a lot of mining nodes competing for that reward, and who wins is dependent upon luck and
computing
power (the more guessing calculations you can perform, the luckier you are). The costs of being a mining node
are considerable, not only because of the powerful hardware needed (if you have a faster processor than your
competitors, you have a better chance of finding the correct number before they do) but also because of the
large amounts of electricity that running these processors consumes.
– A primary advantage of blockchain technology is that its’ ledger and data is peer-to-peer, so it is stored
and maintained within many data sources –it is stored within all computer nodes included within the
peer-to-peer
network, so the risk goes away that a single central bank or data source can be hacked. The result is that the
essential data underlying monetary records becomes absolutely protected and secure, and faster to obtain.
– There is a maximum of 21 million bitcoins that can be issued. As of now, 17 million bitcoins have already
been issued. It is projected that the 21 million maximum will be issued by the year 2040. After all the
bitcoins
are issued to Node miners, they will likely continue to make monies for maintaining the digital ledger by
charging transaction fees.
– All of the current 17 million bitcoins have been issued to Miner nodes as compensation for maintaining the
digital ledger or kept by the Bitcoin founder (“Satoshi Nakamoto” team). No bitcoins were granted to initial
buyers. Because the maximum amount to be issued is 21 million, there is speculation that the value of each
bitcoin will increase substantially over time.
– The way that this bitcoin (and all other digital) currency becomes valuable is when it can be used to pay
for
goods and services, or it can be converted to US or other existing and recognized dollars. If digital currency
cannot be used for goods or services AND it cannot be converted to recognized dollars, then digital currency
effectively becomes worthless.
– All bitcoin transactions are included within the public ledger via user personal ID’s. No user name is
listed. However, if a personal ID becomes public all of that person’s history and ledger of transactions can
be
viewed via the public Blockchain/public ledger.
– The rumor that this privacy would encourage all criminals to transfer illegal dollars via cryptocurrency is
not practical. The exchange of US dollars and other cash would accomplish that better as there is no record of
who is paid via cash.
– I hope this helped…Now make your own decisions – does it work, will it last – in fact, SHOULD it last and
continue? Does it actually improve the central banking currency system that we now use? Crypto-currency is
still
new, yet it keeps gaining steam? Here is my conjecture … the key to what makes
crypto-currency beneficial is the blockchain, peer-to-peer network process. Using a peer-to-peer network to
generate and record transactions eliminates the risk that computer viral attacks may impact the sole record
of
transactions now used – central banks. My conjecture is that because of the safety-net that
peer-to-peer networks provide, blockchain technology shall continue. Whether Bitcoin or the other specific
crypto-currencies that are now in place continue — that is a whole other question.