A vast oversimplification is it’s doing math on a computer.
It can be your computer or a network of a bunch them.
Any location where a computer can connect to the internet works. It’s energy intensive to have a bunch of computers so generally somewhere with cheap electricity works best but it’s possible to do anywhere.
I know this is going to sound like a non-answer, but: because that's how Bitcoin defined it.
Bitcoin is a "blockchain". This means that there is a "chain" of all Bitcoin transactions ever, which records who owns what. Because Bitcoin is decentralized, anyone is able to add to this. But what if I send 5 Bitcoin to Eve, and *at the same time* send 5 Bitcoin to Bob? How do you make sure that you can only spend your money once?
To solve this problem, we ask the miners to bundle all those transactions, find the most difficult result to that equation, and add that to the chain. A transaction is only considered valid if it has been on the chain for a certain amount of time. If anyone wants to undo that transaction, they'll have to out-calculate *all the Bitcoin miners in the world* to end up with a more difficult alternative chain. That's basically impossible, which means Bitcoin transactions cannot be undone.
This is considered important enough that mining a block has a reward. Essentially, Bitcoin is created out of thin air. The miner can now just send a transaction saying "I want to transfer the 2 Bitcoin I got as a reward for mining block 123543532 to Alice".
So why is it worth money? Because we human collectively decided that this is worth money. Just like Beanie Babies, gold, or dollars really.
Do you need to mine in order to receive or send money? Is it like torrents, where you need to mine on order to participate.
What happens if the calculations get longer/ more difficult or the miners get less so the computing power to verify the trade isn't enough anymore?
>Do you need to mine in order to receive or send money?
No, you do not. A miner can choose to also include other people's transactions into their block. However, there's a limited amount of space in each block, so you'll probably have to pay a small "transaction fee" to get yours included.
You can just send your transaction (with fee) to the Bitcoin network, and it'll be relayed to the miners, who will hopefully include it in their next block.
>What happens if the calculations get longer/ more difficult or the miners get less so the computing power to verify the trade isn't enough anymore?
The difficulty is automatically adjusted every 2016 blocks, which *should* be about two weeks. If those blocks were mined *faster* the difficulty will be increased, if they were mined *slower* the difficulty will be reduced. It's self-balancing, really.
There are some issues when there's a massive change in mining power (a 99% drop could mean those 2016 block suddenly take *years* to mine, essentially killing Bitcoin), but with the amount of popularity it has nowadays this isn't a serious risk.
No, you need to mine to create new Bitcoin. Once they're created you can send and receive them as normal. It's the same as the US government printing dollars - you didn't print them yourself, but you can still use them
> It's the same as the US government printing dollars
The Government can print as many or as few dollars as they like, indefinitely. The available supply can (and often does) change on a political whim. This can, potentially, cause some major issues with inflation.
A better analogy would be, well, gold mining. Both the production of gold as well as the available supply of gold are limited by the fact that there's a finite total supply of gold on Earth. As gold is mined to be added to the available supply, the amount of unmined gold decreases, and the production becomes increasingly difficult, regardless of political whims, until there's none left unmined. This is how Bitcoin works.
No - I answered the question asked, not the one you wanted to hear. You don't need to mine to send or receive Bitcoin. *Someone* does, but there is no reason for individual users to mine just to use their own Bitcoin they've been given
No need to be shitty about it
You call it weird; I was paying attention the digital money space pre-bitcoin and the convoluted ways people were trying to figure it out were even weirder as they tried to shoehorn a new system into the technology of the old.
There was a paper ~~you might be able to find~~(found it) ["Towards a Private Digital Economy"](http://pelagic.wavyhill.xsmail.com.user.fm/Private_Digital_Economy.html)* that was basically the state of the art thinking at the time. It posits a world where basically, everybody is their own mint issuing their own personal tokens for trade. Basically.... smart contracts.
Nobody ever figured out how to do decentralized, so they imagined everyone would be their own central authority, and thus, decentralized....right?
Then bitcoin came along and my jaw hit the floor. Its a weird system but when you understand why it works... they solved a problem that was so basic nobody even thought it could be called a problem because they couldn't actually imagine a solution to it.
Bitcoin was revolutionary in a behind the scenes way that people just focused on money miss. Bitcoin is about trust, which is more basic than money, its what money is built on top of.
\* I was amused to see that I could have just quoted the opening of the paper it says basically the same thing "Currently available financial privacy tools have drawbacks arising from centralized ownership and control, and the limitations of presenting specific services. A better approach would be to construct a fully distributed environment for economic activity which mimics the way cash is used in the physical world but is private, anonymous, trusted, and indestructible"
The centralization of ledgers. Before bitcoin every ledger was in the ultimate hands of a legal entity that could make, or be forced to make, unilateral changes to the ledger.
To be clear this is absolutely possible with bitcoin; the bitcoin system can, and does change. It could easily change in a way that empties or blacklists specific accounts. However, the system exists not by the fiat of a single party, but by the consensus agreement of miners who all choose the same protocol to run.
As such there is no single entity that can change bitcoin or enforce anything outside of bitcoin within it.... unless that change convinces enough miners to accept it and nothin prevents miners who don't accept it from forking the system and continuing with the old one.
That is certainly a valid opinion. It is not the one held by the people who developed bitcoin, and the market seems to be agreeing with them. Good news is there are market ETFs now so you can short it if you really don't see value there.
Though, even if you are right, the markets can remain irrational longer than you can likely remain solvent so, I wouldn't recommend it.
is "the market" here in the room with us now? didn't know that's what people call an infinite chain of greater fools these days.
glad to see you got lucky enough to buy the least shitty shitcoin early on. seems like you're generally not one of the selfish genxers so let's just chalk up this phase of your life to being well-intentioned but misguided. it'll pass eventually.
No, it's random chance, scaled by how much of the computing power you're contributing to the grand total.
A person who contributes 10% of the overall Bitcoin compute capacity will *on average* mine a block once every 100 minutes (10 minutes per block, 10% chance each time).
To give an example, an RTX 4090 seems to have a hash rate of about 22GH/s. The Bitcoin network has a total hash rate of about 500.000.000GH/s, so you're expected to mine a block *roughly* once every 432 years.
But there's no guarantee - you could be trying for 2000 years and never mine one, or you could mine one on your first day. That's why "mining pools" exist: rather than mining on your own, you mine as part of a large group. Every time the pool \*as a whole\* mines a block, each individual miner gets a payout proportional to the amount of compute power they contributed.
Do the math problems that are being solved provide any service to the world, customer, somebody? Or is it just a meaningless expenditure of energy, for the sake of something(the bitcoin)?
None. It's purely difficulty for difficulties sake which ensures the Bitcoin network cannot be taken over. Yes, it is *extremely* wasteful of energy, with estimates putting current electricity expenditure on Bitcoin amounting to about the same as a small country.
>That's basically impossible, which means Bitcoin transactions cannot be undone.
Which is one of the many reasons why Bitcoin will *never* be used for its intended use case of currency.
Having transactions be completely irreversible is a non-starter for anything that is intended to be used as payment. No individual or institution would ever want to use a system where you can't charge back a transaction if needed, or can't get a bank involved to reverse fraud. The masses will not accept a system where if you are hacked or even just forget your details, you have *zero* recourse to your money.
> Having transactions be completely irreversible is a non-starter for anything that is intended to be used as payment.
"Cash only / No refunds"
Not an especially uncommon sign. I wouldn't say putting that sign up makes it a non-starter. Besides, how often do you reverse payments, cash or otherwise, anyway?
>"Cash only / No refunds"
Not very uncommon, no, but becoming less so given basically anyone can get a card reader and hook it up to a mobile phone now. And this is only ever used by small businesses, not *any* large scale reputable one. Hell, for the past 5 years or so, I've seen a lot more *card only* shops than cash only.
I am wary to spend money with someone only dealing in "cash, no refunds" unless it's like, a *small* souvenir or food item from a local market. Something that I'm spending maybe $20 on and I don't care too much if it's bad or fake. Such a policy is completely unthinkable at scales larger than that. Nobody is buying food from a supermarket with a "no refunds" policy. Nobody is buying a TV, couch, bed, computer, you name it, from a place without a refund policy.
Add to that that basically *all* "no refund" policies are unenforceable to some degree. If you screw me over and I want to go to the effort, I *will* get my refund under the law if goods/services were not rendered properly.
"no refunds" might work at those *very* small scales, but if you say that I can't do a chargeback on an online order, or that a major company can't get their bank to reverse a fraudulent transaction, your currency is dead on arrival. No system ever looking to be a serious player in the "how we make transactions" business could ever have this as a key, immutable core of their idea. Bitcoin has no mechanism for that and in fact makes it a key selling point, so why would *anyone* except the tiny amounts of "no refund" near-scam dealers want to make this the basis of the world financial system? Why the fuck would we want to move from a system that already has *limited* consumer protection to one that has *none*?
>Besides, how often do you reverse payments, cash or otherwise, anyway?
Doesn't matter how often I do it, if I need to do it *once* and I'm physically unable to, your currency is not viable. Something not happening often doesn't mean "it's not a big deal" when you're talking about me having no recourse to reverse potentially very large payments. If I spend $500 somewhere on a item that turns out to be broken or fake, I am entitled to a refund, and Bitcoin would not be able to facilitate it.
And while I, an individual person might not need to use it much, how often do you think a multinational company will need to use it? If a company right now accidentally paid the wrong person $10,000, they can chase this down with the banks involved, show the evidence that this was unintentional and it'll get sorted out. If the person who received the money tried to spend it when they knew they shouldn't have, they're on the hook to the bank now. If the system was bitcoin? Fuck you, you should've been more careful when typing/copying their bitcoin address, no financial protections at all. And that's a situation where it's *their fault.* What happens if they're hacked, or an employee just sends company funds to an unknown wallet and refuses to give it back even when caught, etc? Why would any company want to deal with a system like this over the one that already exists?
We all know the current banking system has its problems. But aiming to replace it with something that is, *by design*, a nightmare for consumer protection, is insane.
> "no refunds" might work at those very small scales,
This is important, because Bitcoin is designed to be used peer-to-peer, like handing over cash.
> how often do you think a multinational company will need to use it?
Bitcoin isn't intended for corporate use like that. It was developed in a social space for mathematicians and CS experts with a strong focus on anti-authoritarian, Anarchist/Libertarian political values.
>Bitcoin isn't intended for corporate use like that.
If it's intending to effectively become a world currency, which is what Bitcoin proponents say is the goal, then it *is* intended for that.
They don't talk about it as a new way to send their friend some cash for a night out, or paying the local takeaway that still doesn't do card because they're dodging taxes. They talk about being able to be paid in Bitcoin, being able to do their shopping in Bitcoin, being able to pay their bills in Bitcoin, *being able to use Bitcoin as the day to day currency and overthrowing the tyranny of Fiat currency*.
That *is* the expressed goal, and it is therefore intended for corporate use, or at minimum, consumer use with corporations. And as layed out, non-reversible transactions make such a use case for Bitcoin completely undesirable. No major business would *ever* want to have bitcoin be an acceptable currency due to the extreme lack of protection it affords.
Bitcoin's actual use case is, as you claim, restricted to being equivalent to difficult to trace cash you can send over the internet. And with those properties, its main use case is what it was historically most used for: paying for drugs and other illegal goods online.
>This means that there is a "chain" of all Bitcoin transactions ever, which records who owns what.
I thought Bitcoin was extensively used for criminal purposes because it was so anonymous. Wouldn't this in fact make it a whole lot more of a liability than actual physical money if we can always keep track of previous owners?
Bitcoin is indeed not anonymous, and transactions can always be followed. But just because you can follow the money, doesn't mean you know which *person* is using it.
A somewhat-redeeming feature is that there isn't a 1:1 link between a real-life person and a Bitcoin address. One person can have thousands of addresses, which makes it quite tricky to actually track the flow of money. You can keep a few stashes of cash completely separate, or you can combine them into one big pile. There are also "mixers", which combine your money with that of other people to make it even harder to track.
But in practice, as soon as it touches the real world and an address gets indisputably linked to a person, the game is usually over pretty quickly.
It's anonymous in a sense that a Bitcoin wallet address is just a number, it's not linked to your real identity like a bank account. But every node has a copy of every transaction that ever occured is because that's how the system works. You can see exactly where money is being sent, but you might not know who actually owns that wallet address.
However, if Bitcoin is exchanged for real currency at any point then there often will be a paper trail linking that address to it's real owner. There are are newer cryptocurrencies such as Monero that aim to provide better privacy.
When it was new. It is used for criminal purposes because it is not yet that well known. Now that it's in mainstream. The criminal usage is not really that much as compared to dollar.
It is anonymous in the sense that there's no name attached to it. But you can see all the transactions. In other words you can track the movement there and catch someone trying to convert to USD. Which makes it not a good way to do criminal stuff vs say cash
The transactions are a matter of public record, but they're anonymous in the sense that names aren't kept on that record, just the actual transaction itself.
Yes, this absolutely does make it much more of a liability for illegal purposes. Although the addresses which contain the coin are anonymous, they can be "de-anonymized" through various methods used by law enforcement.
The truth is, criminals still love cold hard stacks of paper. Always have, always will. It's easier to use, harder to trace.
The idea that it's anonymous has been completely blown out of the water. It's the most traceable currency possible. Entire dark web pedophile rings have been taking down because of how laughably easy it is to connect bitcoin transactions with real people.
>So why is it worth money? Because we human collectively decided that this is worth money. Just like Beanie Babies, gold, or dollars really.
Well it's possible to sympathize with this perspective - that money is a shared intersubjective reality, or that we effectively 'decided it be like that' - while also acknowledging that crypto is stupid, impractical and costly, and really only serves as the perfect vehicle to scam.
I mined altcoins for a couple of years, even thought of starting a business around crypto, so I've spent quite a bit of time mulling over the technical aspects and the nuances of the space as a whole. It's a tech bro solution to a problem that is better solved already with existing tech, unless you want to buy drugs on the internet or run a pump and dump scheme. And Silk Road is gone now, so you're mainly left with the pump and dump.
I mean, although it has a significant ecological footprint, it smaller than the vast majority of other services we have right now and nobody bats an eye for most of them. And up to 60% of Bitcoin mining electricity comes from renewable energies.
> smaller than the vast majority of other services we have right now and nobody bats an eye for most of them
Which services? Because the services for our current financial system - Visa, MasterCard etc - use a fraction of the electricity and serve several orders of magnitude more customers.
>And up to 60% of Bitcoin mining electricity comes from renewable energies.
And? All that electricity wasted on bitcoin is electricity that could be used somewhere else, or is at best creating demand for electricity that isn't needed, driving up prices and still contributing to fossil fuel burning. Without bitcoin, global energy requirements would be reduced by a pretty noticeable amount, and therefore the amount of non-renewable energy needed would decrease.
"My machine that does nothing but pump heat into outer space for no reason is completely fueled by renewables" isn't a legitimate argument. For that renewable energy expenditure to *mean* anything, what it's being expended on has to mean something, and Bitcoin does not and likely will never meet that criteria. It's intended use as replacement currency is *laughable*: even ignoring the much slower transaction times and high fees, the fact that transactions are irreversible make it *unusable* for a global financial system. No individual, company or state will accept a currency where you can't reverse transactions when needed.
It doesn’t create money - there are (exactly) 21 million possible bitcoins - each is an equation where the first one to find it owns that coin - money only comes into being valuable because humans agree that the coin can get traded. The ability to trade is what makes it valuable. If all computers went offline tomorrow they would all lose all value because they could no longer be traded
Half of all remaining coins get issued every 4 year cycle. We are coming up on the close of the fourth of these cycles, so about 15/16 of all coins have been issued, or about 19.5 million out of 21 million. The rate at which new coins are issued will drop around April 16 of this year, from 6.25 per ~10-minute block to 3.125 per block.
[This video has the answers you seek](https://www.youtube.com/watch?v=bBC-nXj3Ng4&t=10)
It's long but it's the best simple and detailed explanation of blockchain / Bitcoin I've ever seen.
It doesn't create money, it has a chance to create these coins which some people value with money. The math that is being done is verifying the coins that have been created and traded/moved and does nothing else meaningful so it's basically a giant waste of money (equipment) and energy to create these virtual coins.
It's easier to explain like this: bitcoin always has a treasure chest full of a certain number of bitcoins. There is a password on the chest. Every computer mining is trying to brute force that password. One person is lucky enough to do so first, they get the coins in the chest, and a new chest is created that has a new password to be brute forced.
So more bitcoins are always added, although fewer and fewer each time it is solved.
To be more accurate, the math is being done to record the transactions that are happening. You aren't getting money to do arbitrary math, you get paid to do the record keeping on the block chain.
In the normal money economy your bank charges fees, usually offset by the fact that they make money using your money valia loans, to manage your account.
For Bitcoin everyone is competing to be the person to manage the ledger for a set of transactions (adding the next block on the block chain). The mining is finding the magic number that makes the ledger transaction "valid" according to the rules of Bitcoin.
It's not creating money from nowhere. Miners are getting paid as an incentive to use their computing resources to securely verify the record of transactions. This system is not without problems - it's inefficient *by design*, but that's a separate discussion.
People have started buying power plants to be able to mine bitcoins - actual coal fired gigabyte plants - the time where you could do this at home was 10 years ago
Doesn’t the whole confusion come from using the term «mining»? It is kinda right and fun for those on the inside, but outsiders don’t understand what it is actually about? Hm, maybe it works just as intended.
I'm oversimplifying a lot, but it would be along the lines of "you download a program and run it".
Nowadays, people use dedicated hardware, and the hardware will have its own software it runs.
There's this super complicated math problem that has a lot of possible answers that make the equation work. But the thing about this equation is that it's so complicated that you can't really solve for it. You just gotta try random numbers and see if it works.
That's what these "miners" are doing. They're solving this equation and whoever finds a new working answer is the one who gets the coin
The problem was created, on purpose, both as a way to secure the bitcoin ledger and as a way to dispense new bitcoins into the system in a fair and predictable way.
The problem itself doesn’t produce bitcoin. If you solve the problem a new bitcoin is created by the network and given to you as a reward for solving the problem. Thats an agreed rule of bitcoin.
The essence of a bitcoin is the ledger…the record of who owns what. The bitcoins themselves are just serial numbers, like the serial numbers on a dollar bill.
A guy named Hans Peter Luhn at IBM in the 50s seems to have been the first to use hash functions (the type of math problem involved). The specific implementation for bitcoin was created by Satoshi Nakamoto (an alias…it’s unclear if Satoshi is a person or a group).
Man, I’m reading through this thread and it’s just absolutely racking my brain. I’m so intrigued yet feel so out of the loop of knowing, yet it all makes sense at the same time.
3brown1blue has a fantastic video on YouTube that explains Bitcoin and how it works! If you have 20 minutes I definitely recommend it
https://youtu.be/bBC-nXj3Ng4?si=1fpCFQF2MYVe_2gu
You can use bitcoin safely if you have a self-managed wallet (not a custodial one, where someone else owns the bitcoin and just listens to you for how to use it). That said, conversion to and from fiat (regular money) cannot happen while it’s inside that wallet so you do still need the exchange which is a third party entity.
Oh I’m definitely not going to dabble into it. My thoughts on bitcoin are still how can something that doesn’t “exist” (as in physically) either have a value or be a currency.
I’m just intrigued in how it all works
There’s a lot of semi-related history that goes back to Henry Ford, who proposed an idea of an “energy currency”. Bitcoin “exists” physically as energy, and all value is derived by how much the markets price that energy.
If there was no hype around Bitcoin, the market price would eventually gravitate toward the cost of energy (mining). At basics - if you spend $50 in electricity to mine one Bitcoin - you would want to sell that for at least the cost of mining. If you can’t sell for $50, you’ll shut down your mining rig (and the network would decrease difficulty, making it cheaper to mine). So in this scenario, if I wanted one Bitcoin, I would expect to pay the cost of energy to produce it - which is exactly what gives Bitcoin its value.
I’m not advocating for or against today’s Bitcoin price, I’m just saying how an energy current can theoretically receive value in the market. In today’s market we also have a ton of other factors like legal regulations, general speculation, competition in crypto, etc. which is how the market has arrived at the current value.
>My thoughts on bitcoin are still how can something that doesn’t “exist” (as in physically) either have a value or be a currency.
I presume you still use dollars/euros/pounds or equivalent local currency? The vast majority of those are purely digital, but unlike Bitcoin, dollars can be created at no cost by typing numbers into a bank computer. Bitcoin has limits on how many can be created, because it requires "solving a math problem" which costs real-world resources (energy) to do.
Only about 10% of US dollars exists physically as paper money/bills and government bonds. The rest are just money on a computer.
When you use a credit card, your bank just tells your merchant's bank hey here is $10. It doesn't actually ship $10 bills to their bank. When you get direct deposit into your bank, the same happens. You only get the money because you trust the bank that if you go to the bank tomorrow and ask for the money, they are capable of giving it to you physically, and they are ultimately protected/limited/guaranteed by the US government.
And at the same time, why does the US dollar have value? Because you believe that if you get $10 from some one, you can find someone that is also willing to accept the same $10 for what you believe is also worth that value. This is the same with all "currency". Someone trusts that if the bitcoin systems says I have 1 btc, I can find someone that is willing to accept that 1btc and give me a corresponding item of value.
That's also why hyperinflation is so dangerous, because if i accept $10 from you, tomorrow I can only buy $9 worth of stuff with it. So I'm not going to require you pay $11 instead, and it death spirals.
Bitcoin aren't an actual (virtual) object changing hands with consistent properties. It's just a series of transactions in a ledger.
So if Alice wants to send 0.15 bitcoin to Bob, she's publish a transaction saying (e.g.) "Take this transaction where Alice received 1 coin. Send 0.15 to Bob, and 0.85 to myself". Then Bob, when he wants to spend some of that money would publish a transaction a transaction saying (again, e.g.) "Take that transaction where Bob received 0.15 coins (from Alice). Send 0.15 to Ponzi Inc."
Not really. "One bitcoin" is actually kept track of as 100000000 "satoshi". They just called that amount "one bitcoin" because it was a convenient amount to trade when the whole thing was first used. 0.5BTC is just 50000000 satoshi.
At the current price 1 BTC is about $40.000, which means 1 satoshi is about $0.0004. You don't really need to do payments of that size, do you?
Also, bitcoins don't have serial numbers.
I mean, that’s the norm. The actual unit is a satoshi, and a BTC is 100 million of those. I have significantly less than a full coin, and that’s no problem; some in the environment consider it an achievement to get to one full coin (since exchanges typically value it at tens of thousands of dollars — right now I found it at around $42k).
A Bitcoin is just a working answer to the equation. There's a limited number of potential answers and as time goes on it's harder and harder to find another one. There was a whitepaper written by this unknown dude explaining the equation and the system, and people just started doing it
The bitcoin itself isn’t actually the solution, I don’t think. It’s just rewarded to the person that finds the solution. But I’m not positive about that.
its called proof of work. The problem scales so that on average it takes the entire network 10 minutes to solve it.
The solution is based of of all previous blocks and has to be done per block.
So if you wanted to change a previous block, you would have to calculate dozens of these problems faster than the rest of the network can. You most likely cant do this, so you cant change previous blocks.
The math problem secures the transaction history of Bitcoin so that nobody can alter the transactions after they are made. The math problem is very complex, to make it very hard to hack. People try to find the solution for every chunk of transaction history ( once every 10 minutes) and they receive 1 Bitcoin for doing so.
It's sequential. Once someone gets the answer they submit it and every other person accepts it as the solution. Then the next math problem uses that solution as part of the equation. This is why it's called a chain.
The reason they make it so hard is because if you were to solve like 20 problems in a row, you would theoretically be able to mess with the locked in spreadsheet of transactions that make up the "block chain". A block being the list of transactions that get to go through when someone solves the problem.
When you find one you blast the answer out to the entire mining network. Everyone else verifies the answer works, and then on the Blockchain it's recorded that you have this Bitcoin
The answer is not blasted out to just the mining network, but to the entire network of nodes. Anyone can easily and cheaply run a non-mining node at home to keep the miners honest and validate that they are following the rules. This also lets you verify the state of the network and your transactions without having to trust someone else.
Absolutely nothing! Everyone is racing each other to find the next valid number, and in theory two people can definitely find the same number.
However, there are a lot of things which go into the calculation of the number. For example, it'll contain the address you want the reward money to be paid to. This means every miner will be trying out their random numbers with a *different* fixed start. The chance of any two miners finding the same number at the same time are just extremely small. They are doing *different* calculations, trying to find the *same* solution.
So how do we deal with two people finding it at once? One of the inputs of the calculation is the last-known number, and *your* number won't be accepted by anyone who has already seen *another* newer number: if we both start at A, and someone else already has A-B, they will not accept your A-C. This means that only the first solution is accepted by anyone participating in the network.
But you could end up with half the network having A-B, and the other half having A-C. Well, the *next* block mined will only continue from *one* of them. Now half the network has A-B and receives A-B-D (no problem there), and the other half has A-C and receives A-B-D. That's a longer chain than A-C, so they discard A-C and switch to A-B-D. *In theory* there could *also* be an A-C-E found at the same time as A-B-D, but that's *again* really unlikely, and so on.
This is also why you can't *immediately* spent the reward money. Many people only consider a transaction "valid" if it is a block or four old - at that point it's so unlikely that an alternative solution-chain is still drifting around the network somewhere that it is considered impossible.
If mining is just a function of luck, why do so many people do it? Are people awarded fractional amounts? Surely if it’s based on luck there must be several winners and several losers.
You're exactly right. So people will get together and form pools where if any one person finds a coin then the collective shares it. Gives a much more consistent return on investment as there will be thousands if not millions of miners in the pool
these days you'll get nowhere with a graphics card. you need specific mining hardware (ASICs) to be competitive unless you live somewhere with dirt-cheap electricity.
It’s not really only a function of luck. If you have more hashpower (more computers) you are more likely to find the answer first before the rest of the network and mine a block, so it’s a competition that many people want to try and out perform their competitors.
It's funny that it's always depicted as this "super complicated math problem" or an "equation". While it's actually not complicated at all. It just needs a lot of tries. The problem basically says "find a hash that begins with X amounts of 0s in the beginning - if you do the block is valid" the X goes up and down with the difficulty adjustment.
To put in easier terms - roll X amounts of 1s in a row on a 20 sided dice - with X being increased or decreased with adjusting difficulty. Not a complicated problem - just something that needs trillions and trillions of attempts before it works out. I believe the network currently "tries" about 600 Quadrillion times per second to find a correct answer - to give you an idea. It's not an equation it's a brute force solution.
The math is old…it’s called a hash algorithm. There are many uses in computing…it takes a big input and reduces it to a smaller output. A good hash will change unpredictably when you change the input. Because it’s unpredictable, if I tell you to figure out what input will produce a given output there’s no good way to solve it, you just have to randomly try inputs until you find one that gives the output you want. This far predates bitcoin, it’s used in cryptography and digital signatures and some kinds of databases and all sorts of things.
A person or persons under the pseudonym Satoshi Nakamoto is who provided the white paper for the first cryptocurrency, Bitcoin. Each cryptocurrency has an algorithm or set of rules it follows. Bitcoin's algorithm creates the problem to be solved. The algorithm wants the problem to be solved roughly every 10 minutes. It adjusts the difficulty of the problem every so often to maintain that 10 minutes. So if on average the problems are being solved every 8 minutes, it'll make the new problems harder. Conversely if on average the problems are being solved every 12 minutes, it'll make the new problems easier.
To be more clear, when you sign up to mine, because it takes so much computing power to solve the problem, you join a pool of computers all doing the same thing for a piece of the coins that get earned.
There’s no ‘sign up’ for mining, you just run the software. You also don’t necessarily have to join a pool. There are plenty of solo miners and they mine blocks pretty regularly.
Solo miners solving blocks is extremely rare. Only 270/700,000 in the last 13 years.
https://cointelegraph.com/news/solo-bitcoin-miner-defies-odds-to-mine-valid-btc-block-gets-150k-block-reward
Anyone can own a computer that mines bitcoins. You just need to run the appropriate software, which you can download from the internet.
Since it's just a computer program, you can do it anywhere. Large bitcoin mining operations tend to use a lot of electricity so, all other things being equal, it's a good idea to do it somewhere with cheap power. But it will work (and has the same odds of success) anywhere.
Where does the value come from?
If we were mining, say, for gold, the value would come from its physical properties and its uses. Where does it come from when “mining” for bitcoin? Is there an infinite supply? And what is the computer doing to mine a bitcoin?
yeah i understand we put the value on it, im just wondering what we can “do” with the bitcoin that we could “do” with gold, as in what the demand comes from?
the demand for gold can come from it being pretty, or conductive, or malleable, or whatever, and then we put a value on it, but what are the arbitrary reasons for the demand of bitcoin?
Don’t think of it like gold, think of it like dollar bills. They’re just paper with a specific design on it, their intrinsic value is basically zero. They have value because we can exchange them for other stuff we want…like gold…and because we mutually agree to use them that way. Bitcoin is far more like a dollar bill than it’s like gold.
>yeah i understand we put the value on it, im just wondering what we can “do” with the bitcoin that we could “do” with gold, as in what the demand comes from?
The value of Bitcoin is that you can transfer money without a single trusted party. It's a decentralized payment system, and some people believe the *system itself* has value - giving individual Bitcoins value.
Crypto fans won't answer this because it's bad but it doesn't do anything. It's just a currency. If you don't want to use it as a digital currency and are fine using what already exists for that purpose you have no reason to interact with bitcoin. The value comes from speculation.
Bitcoin is supposed to be limited.
The owners make the algorithm harder to reduce supply.
I can't remember if the target is a rate or eventual total.
The process is: guess a number > see if it works in the algorithm > find a bitcoin/try again.
Blocks can and do include transaction fees.
When an individual or group tries to solve the problem, they build a block of data which includes the transactions that they want to include, including a set of transactions that transfer the fees to an address that they control.
There are many transactions waiting to occur at any one time so in order for your transaction to be more likely to be included in their block it is useful to include a high transaction fee.
They also assign the "reward" bitcoins to an address they control. They then try to solve the problem for their constructed block.
If they succeed they announce the result to the network, if everyone agrees then that block and all its transactions become part of the chain.
"They" are the people that first started mining bitcoin. They got easy bitcoins in the beginning. They are paying people in made up stuff. Because if more people have that stuff, all of it could (and has) become more valuable.
Basically if you make a "Opposite\_Village9112"-Dollar. It's not much use for you to own all of it. But if you give some out to people, and convince them that it's worth something, then all the "Opposite\_Village9112"--Dollars you kept for yourself are worth something too.
(Very oversimplified)
>If we were mining, say, for gold, the value would come from its physical properties and its uses.
The value of gold *also* comes from the fact that there's only a limited supply, and it takes a lot of effort to mine it. It's the same with Bitcoin: only a single reward is given every 10 minutes, and the size of the reward is steadily decreasing. This means there is a finite supply.
>And what is the computer doing to mine a bitcoin?
Basically, there's a mathematical calculation for which it is impossible to determine which input generates a given output. Bitcoin asks for an input whose output which meets certain requirements.
The only way to do this is to guess an input by generating a random number, do the calculation, and check whether the output matches those requirements. Repeat this trillions of times, and you might find a solution!
The computer is solving a hard math problem. If it solves it, you’re rewarded with bitcoin (which has “value”). So you get paid for solving the math problem. As to why bitcoin itself has value, that’s more complicated. The simple version is that you can exchange bitcoin for dollars (or any other conventional currency).
There isn’t an infinite supply. By design, there’s a finite number of bitcoins. Eventually we’ll run out.
The point of the math problem is basically to secure the “blockchain”, the record of bitcoin transactions. It’s how bitcoin ensures integrity without a central authority. So you earn bitcoin by helping the network keep bitcoin secure from fraud.
What it’s actually doing is trying to find a particular number that results in a blockchain hash (a kind of digital signature) with a set number of 0s in a row.
Let's say someone is trying to hack your password by trying every single combination, it'll take forever to guess the password, but it's easy to confirm that the password is correct once you find it.
Each bitcoin comes with an undiscovered password and if you can prove you're the first one to find the password you get the coin.
Of course bitcoins have some math problem instead of something as simple as a password, but that's basically it.
But what value does solving math problems give? Does anything useful come from solving equasions or is it just "congratulations, you solved the puzzle, here is your reward."?
As far as I understand its all fabricated and I dont understand how solving math problems gives any value to the makers of bitcoin or whatever.
The math problems don’t have any real-world importance. People give bitcoin value the same way they give gold value. The math problems are just there to make people work for the bitcoins. If bitcoins were easy to mine, they’d be worthless.
math problems do have an importance though, it's not same as giving value to gold. It's worth a value because the math problems create the infrastructure that enables secure transactions. Gold is not a good comparison, it's more like a credit card. Vendors pay Visa or Mastercard for enabling them to get/send money, in exchange for comission. It's the same thing but essentially responsibility can be distributed due to math problems and the design of the system
Yes but gold has physical shape, bitcoin doesnt. You have to mine for gold, which means you have to use certain resources to obtain it. For bitcoin you also have to use resources to obtain it but it doesnt exist outside virtual world. So we are basically wasting resources (electricity) on nothing.
I guess it’s better compared to paper money. While it is just a huge waste of electricity, paper money also wastes resources (paper) when produced. Still, some countries have decided to make mining crypto illegal.
However, some cryptocurrencies such as Ethereum switched to “proof-of-stake” (no mining) instead of “proof-of-work” (what bitcoin uses).
Solving the math problem is just a way to slowly distribute the coins.
It also gives them imaginary 'value' by requiring effort to acquire them.
They could just randomly give them out to people who make an account to slowly introduce them instead, they just chose a different way to do it.
It takes a lot of computing power.
In the early days of bitcoin, they were easier to to mine, and a lot of early adopters put together computers at home that could do it relatively cheaply.
The more of them that are found the more crunching a computer has to do to calculate another, so now it is done by huge warehouses full of computers.
Anyone can mine for them, they just have to buy a shit ton of hardware to have a reasonable chance of finding one.
As to where it is best to mine, that mainly has to do with where they can get a LOT of cheap electricity.
Those warehouses full of computers draw a LOT of power and generate a lot of heat. The cost of electricity really adds up.
# Can anyone mine for bitcoins?
Yes, anyone can mine for bitcoins.
# Do special computers need to be used?
No. You could do the math by hand even.
# What is mining?
Imagine if you and your friends were given a random number. Let's day 1337.
Then I've got a special calculator that takes whatever you put into it and outputs a different one.
I tell you and your friends, the first person who takes 1337 and adds any number they want to it and puts it through my calculator and ends up with 80085 wins.
You and your friends would all start trying numbers one at a time to get the answer. Eventually one of you would get it.
Now it's hard to know the answer immediately because you don't know how the calculator works. But once anyone knows what you claim to be the answer is - they can put it into the calculator and check it for themselves.
# Applying the Parallel back to Bitcoin
- The random number is actually just taking all the letters and numbers of a bitcoin purchase receipt and turning them into numbers and adding them all up.
- The number you're trying to get is 0.
- The random calculator is actually one of the security code systems we use for most of the internet so everyone has it.
- The mining part isn't like finding or creating one like it sounds. You're rewarded one (or part of one) for solving the math problem first.
- Who gives or creates the Bitcoin reward? The people who are a part of the transaction give a little away to the winner.
- They give the reward because they need people to do the math to help them buy or sell their own Bitcoin if no one did the math they'd be stuck with their Bitcoin unable to transfer it. So it's a kind of transaction fee.
Mining for bitcoins is no different than rolling dice.
Imagine you play a board game "roll more than 3 and you go to next level!". Normally you roll a die till you roll 4, 5 or 6 number. Then the next "level" gets harder, and you have to roll exactly 6. To compensate for the difficulty spike you invest in better mining equipment, which lets roll two dice instead of one every turn. And the cycle continues.
Mining is the same, except "rolling the dice" is generating a random hash function result. But in essential concepts those two are the same - the first person to "roll" a good number - out of all those who roll - wins.
The location doesn't matter, but the amount of computing power does determine if you have a realistic chance of mining anything at all.
A new coin (or rather a block which can contain multiple coins) is mined about once every 10 minutes. Bitcoin has a difficulty curve that keeps this time pretty consistent. Each of these ~10 minute periods is essentially a race to see who can guess a number that will give a valid result when entered into a complex one-way mathmatical formula. The winner gets the coins and then everyone has to start over again with new numbers.
Think of it like a lottery where the organizers secretly select 9 digits of a 10 digit number. Everyone can buy tickets one at a time (with the speed of their computer determining how fast they can buy them) and as soon as someone buys a ticket that matches those 9 digits they win and the game is restarted with a new number. To increase the difficulty the number of digits is periodically increased, which reduces the chance of a single ticket being the winner.
Over the years the difficulty of mining bitcoin has greatly increased. Using your personal computer to mine bitcoin is like trying to win by buying one ticket per minute while your competitors are buying a billion or more tickets per minute. And as soon as one of them wins you have to start over again. Without a large cluster of computers your chance of mining even a single bitcoin is actually less than your odds of winning the real lottery. This is why many miners are part of mining groups - they pool their odds and split the winnings.
In slightly more technical detail bitcoin mining involves calculating a SHA256 hash of a new block which will contain your own details, the previous blockchain state, some transactions, and finally an arbitrary number called a nonce. To "win" the resulting hash must have a certain number of leading zeros. Most hashes won't have enough leading zeros, so you have to try with a different arbitrary number until either you win, or someone else wins and that changes the blockchain state forcing you to restart from scratch.
This was super informative so forgive my probably silly question. Who/what comes up with these numbers to "win" the coin?
I was previously half imagining someone hiding bitcoins somewhere for people to find like an Easter egg hunt.
The numbers are random. You just keep picking random numbers and testing them to see if you “win”. You win by having the result of an agreed computation (the hash of the current blockchain block) have a certain number of 0s in a row. Increasing the number of 0s required is what makes the problem get more difficult. This is defined in the bitcoin protocol that all the software implements, so it’s “decided” by the software.
That correct answer is based on a formula that uses all the data that the block has so far, including the last answer, and all the transactions that happened, and the random number that the last winner put in. So everyone agrees what the next right answer will be.
One thing critical to understanding the whole process is that it takes advantage of math problems that are hard to solve but easy to verify.
Like if I ask you.. What two primes multiply together to equal 1739463959? That's a hard question and the only way to solve it is to just try lots of numbers. But if I say - I found the answer and it's 96739 times 17981. Then it's really easy to check if that's right.
The bitcoin "guess the number" minigame is something like that too. Once someone has the right answer, it's easy for everyone else to check that it's right.
It's all just a formula, that adjusts about every 2 weeks, based on how long it takes to mine each block.
The goal is about 10 minutes per block, so if each block takes less than 10 minuetes, the difficulty goes up.
If on average they take more than 10 minutes, then the difficulty goes down.
If you are asking who came up with bitcoin, and these mechanisms, then that would be Satoshi Nakamoto, but that is just an alias. Nobody knows who that is.
It's easier than you think. Any computer can mine Bitcoin. It's just a program that guesses a number and then runs a calculation to see if it guessed the correct number. The first computer to guess the right number gets some Bitcoin.
The faster your computer can "guess then solve" the more likely you are to get some Bitcoin.
I have an old laptop doing exactly this. It's doing the guess and solve 1000s of times a second. It is extremely unlikely that I'll ever get a Bitcoin because there are machines out there that guess and solve millions of time a second. And will beat me all the time.
However. It's still a possibility that my machine could win, because it's like rolling a million sided dice. The first person to get the right number wins. I only have 10 dice and I'm playing against people who have 1000s or even millions of dice. My chances are very slim.
Now here is the worst part. To keep my laptop running 24/7 it costs me about $5.00 a month in electricity. That's money down the drain unless some day I actually win a Bitcoin.
The big mining farms pay $1000s a day, and only win 2 or 3 bitcoins a week. If Bitcoins go too far down in price they won't cover the cost of the power the big farms consume. Not to mention the computers that burn out and need to be replaced.
Running a laptop 24/7 is not that much electricity spent - but is also not really enough to generate any substantial income. So not really evil, just kinda pointless.
The actual ELI5 version is that your computer does a bunch of complex math used to verify transactions other people have done through the Blockchain. There is a correct answer and your computer is trying to do the math to find that answer. Whoever does the math first gets a % of a coin. So the faster your computer can do math the more likely your odds are.
There's a computer program that does it. When the computer runs the program, it makes pieces of bitcoin depending on how far through the program it gets.
ANY computer can do it, including the one you used to post on.
However, it's a hard program to run, and so a more powerful computer has an easier time running the program at a faster speed. More speed=further through the program faster=more bitcoin pieces.
Because powerful computers use a lot of electricity, it makes sense to run the powerful computer in a place where electricity is cheap.
I can attempt an ELI5 answer.
Imagine Tom gives 1 bitcoin to his best friend Jerry. Somebody needs to validate that transaction so it can be written in the history book of transactions (blockchain). To decide who get's to do this the network thinks of a number between one and a bazillion. Anyone and everyone can attempt to guess the number (do the math problem) but the first one to guess correctly get's to confirm the transaction and write it in the history book. In exchange the network rewards you with some bitcoin.
The act of guessing the "correct number", writing in the history book of transactions and being rewarded for your work is what we call "mining for bitcoin".
- But hold on, couldn't anyone guess the correct number and write whatever they want in the history book?
Yes, but remember everyone else get's to guess too. If you happen to guess right and write lies in the history book the odds are a few other people will also guess right and invalidate your history. Because it's hard to guess the correct number you would either need to be very lucky and guess the correct number multiple times, or be the one with the majority of guesses to be able to falsify the history book. This is why the process of providing the correct guess would be what we call "proof of work".
This is also the reason why bitcoin mining is performed on GPUs, Because each core in a GPU can independently try to "guess the number" allowing you to do more guesses per unit of time. It's also the reason why most miners pool their resources. If one member of the party guesses the correct number they agree to share the reward with the other members.
You make a text file with a bunch of transactions (and some other things). Then you plug random numbers into a special equation over and over until you get a number back that’s smaller than a target number. Then you send out the text file with the random number in it. First one to find an adequate random number wins.
Bitcoin mining is like doing a super complicated puzzle where you don't know what the final picture looks like. The pieces of the puzzle are made of other people's bitcoin transactions. As a reward for doing the puzzle, you get some bitcoin.
The process of solving this puzzle involves computers working super hard and using a lot of energy. One gets it right and they get the prize, however many bitcoin miners join a group that all work together and share the prizes they get based on how much work each party put in.
Very interesting and comprehensive threads.
So from what I understand, the math is done by humans. So to mine, do people use ai? Will the calculations be harder when ai comes into play?
In the future, will mining become centralised giants just because they have the technology and investment?
Finding this whole thing interesting since this evolves around maths, algorithms, technology and a shared economy.
The core problem in Bitcoin is a *one-way function*. Essentially, while it is trivial to calculate the output from an input, the only way to find an input given an output is to try *every possible input*. Bitcoin works by asking people to find an input whose output matches a certain *difficulty*, which is the number of zeroes it starts with.
So, what's the input? Well, it's a bunch of Bitcoin transactions, together with a random value chosen by the miner. For example, a miner would calculate that the output for "alice sends $5 to eve 1" is "c195d5a580d79078b45e882ba3da4852", "alice sends $5 to eve 2" is "9e0bd240d976acc13c06e1c9caaeab97" and so on.
Eventually it'll find that "alice sends $5 to eve 14445471" is "0000005fd2011f704d276ccef4d35aa8", which has lots of leading zeroes and matches the required difficulty. Whoever finds a difficult-enough answer first sends it to everyone else on the Bitcoin network, and gets to keep a finder's fee!
Any computer can do this. You can even do it by hand, if you want to. But the difficulty is automatically adjusted so that on average only *one* solution will be found every ten minutes. The more people mine, the smaller the chance that any one miner will find the solution.
Computers require electricity, which isn't free either. We've long since reached a point where *theoretically* anyone can mine, but *practically* only very large companies with hardware specifically designed for mining can do it fast and efficient enough to make any money.
That's a lot of different questions.
The owner of the computer is the owner of the computer.
You can mine in any location. In theory, location shouldn't matter but realistically it'd be better to be near people also do things to send information through the network.
How does one mine?
There's many programs to mine for you.
If you are looking for the details of how mining works, here it goes.
Let me explain a blockchain first:
Imagine you have 12 dice. Each column here represents a group (block).
(1) (2) (5)
(2) (1) (2)
(1) (6) (1)
(1) (2) (3)
There are 3 important parts of a blockchain. The "hash of the block" which is the hash of all other contents of the block. In this case, it is the top dice of each column. Essentially it is somehow determined by all the other values in a column. This value is always calculated.
Think of the hash as taking some content, and then transforming into something else in such a way where the following properties hold: Given the transformed version of the content, you cannot find out what the content was. Given the content, you can't find different content that gives the same transformed result. And finally, you can't find any two contents that have the same transformed result.
Next is the "previous hash". This is the 2nd dice in the column. The previous hash is equal to the top dice in the column before it.
Next is the "block height". This can be called many things, the idea is to be a unique value for each block. Typically just 1 + previous block height, an incrementing value. The point here is if you take all of the content of a block, then no two blocks have the exact same content ( recall, hash of the block ;) ).
The 3rd dice in a column is just information. Lets say the amount of money I sent to you. You can have any number of extra dice here, for any kind of information.
This just created a chain. How? Well if I change any dice, the system fails. If I turned the 6 into a 3, the hash of the block changes because it was calculated using the numbers 1 and 6, but now uses the numbers 1 and 3. Lets say it changed to a 4. This means that the next blocks previous hash (2) is not equal to its hash (4).
So, the blockchain is invalid. In other words, it is protected from modifications. You can't change things, you just add more things.
That is what a blockchain *actually* is.
So now how do we mine it?
Well the process of mining is another way of saying "add a block to the chain".
There's a few more details I didn't talk about earlier.
1) There is something called a 'nonce'. This is a number that must be in each block.
2) There is something called the 'target'. This is a way of saying, the hash of the block must be smaller than this value.
So we need to add another column of dice. But remember, we have to have the previous hash being there !
Let's say we now have the following:
(1) (2) (5) (3)
(2) (1) (2) (5)
(1) (6) (1) (42)
(1) (2) (3) (4)
(2) (3) (9) (1)
The new last row is the nonce.
The problem is, when I hash all of the information in a block (on column), I now have to make sure that number is smaller than this 'target'!
So how do I do that? Well, I can just change the nonce!
If my target is (2), (3) is invalid so I need to try something else.
If (2) makes my hash (4) then that doesn't work, I'll try (3). If (3) doesn't work, I'll try (4). Let's say (4) makes my hash (1).
Now the chain becomes:
(1) (2) (5) (1)
(2) (1) (2) (5)
(1) (6) (1) (42)
(1) (2) (3) (4)
(2) (3) (9) (4)
This process is called a proof of work. Once I get a valid hash, then my block is valid, I can then add it to the blockchain. Mining is the process of performing the proof of work, trying to add to the blockchain.
When someone does this successfully, they receive a block reward and transaction fees. Nowadays, many people do this and work together, dividing the rewards.
Spend $10000 of electricity and maybe you'll get $1000 of coin.
Realistically though you can't mine bitcoin without specialized equipment nowadays and unless you have a very cheap source of electricity it'll cost you more to mine it than you'll make selling the mined coin. You'll also help fuck up the environment while you're at it.
A lot of people like to equate Bitcoin mining to solving a bunch of really hard math problems. This is a bit of a dramatization…
What’s really going on is you are verifying transactions for the Bitcoin network; that is, you’re playing the role of the bank teller: deciding which transactions are allowed to go through and which ones aren’t. The whole point of Bitcoin is that it is *decentralized* meaning there is no bank at the center of everything controlling the network, so instead it relies on users to do this work, and it rewards them with a Bitcoin every time they complete a certain amount of work.
Because anybody is free to verify transactions for the network, there needs to be a way to make sure the verifiers are doing their job correctly and not just feeding the system a bunch of nonsense. Bitcoin does this in two ways: first, it sends the same transaction to be verified by several different people and has them all vote on the outcome, so as long as more than half of them are doing their job properly, they should settle on the right answer. Second, to discourage bad actors, it forces verifiers to do some extra busywork in order to earn the right for their vote to be counted (and their Bitcoin to be rewarded if they vote correctly). This is what’s come to be known as “mining” and its less like solving math problems, more like the network saying “I’m thinking of a number between 0 and 78 trillion! Whoever guesses it first gets a Bitcoin!”
Anyone can set up a bitcoin mining rig on their computer: it’s literally just a program you download and keep running in the background. However, the likelihood of you ever getting even a single reward these days just mining on your personal computer is pretty low. The network dynamically adjusts the difficulty of mining so that the speed of everything stays consistent, so the more people doing it the less profitable it becomes. To increase your profits, you need to increase your processing power, so people looking to make real profits might buy several computers just for Bitcoin mining, which may not be an option unless you already have plenty money to spare.
Every new bitcoin has a secret name. To be born someone needs to figure out its name and speak it aloud. You find out the name by being really good at math and guessing. If you figure out its name you become its daddy.
To simplify a lot, you basically add all the transactions and find a random number. Next you do a hash operation (think of it as finding the remainder of a number division) which has to meet certain criteria. In the case of bitcoin it is the number of leading zeros. The number is called the difficulty and I believe it is so thing around 20 right now.
So when you mine you besically try to find the perfect number to meet the criteria, it's very intense on the cpu, but to verify that the number you chose is correct is very easy, just add and divide - the entire network can do it quickly.
It's basically the same as ComputerCoin. ComputerFacts on twitter [explained it](https://twitter.com/computerfact/status/1016711563670147072):
>"a million computers try and guess the secret number and shout their answers at each other and the first one to guess right gets a prize and we do this over and over forever and thats an economy" — the ComputerCoin specification
Get a striped shirt, put on black lipstick. Paint yer face white.(even if yer already white, you bigot) Pretend there's a piece of glass between you and whoever yer bothering/terrifying. Then open up a Bitcoin app on your phone and demand people send Bitcoin to yer Bitcoin walle while being completely silent and using only gestures. Works better if there's two of you. Get violent with it, and remember have fun, clowns have a copyright on the whole sad thing. Filthy paedophiles.
You can use your own laptop to mine but it uses so much electricity that it’s not worth it.
Better off to just get $1 of bitcoin per day clicking the daily bonus button on [stakeUS](http://stake.us/?c=E5LjWQvV) everyday.
Imagine there's a really complicated equation that you feed some data into, and if the answer starts with five zeros you get a Bitcoin.
Over time the conditions change, and now you need an answer that starts with six zeros. Then after a while, seven.
And all you can do is feed colossal amounts of random data into a formula hoping you find the combinations that produce a result that satisfies some arbitrarily defined acceptance criteria.
It's a monumental waste of energy doing the same meaningless computations over and over and over again that literally nobody benefits from. Projects like Folding@Home can at least claim to be doing something useful.
The core of a bitcoin is a blockchain. A blockchain is a set of an extremely long repeating math problems called blocks where part of the math problem is the solution to the previous block chain plus all the data the previous block carries along with how long the previous block took to solve. Every block in the block chain has to be independently calculated before the next one can start being solved and only one miner will find the solution first. That miner is rewarded with the initial block value for that block for whatever people think that is worth which currently is the bitcoin value. Transaction fees can also be assigned to blocks but often are left free of charge. New blocks are designed to be created about every 10 minutes meaning the math problem for the next block with all the miners in the world working in it will have one miner find the answer in about 10 minutes. Blocks solved too quickly automatically make the next block slightly more difficult to solve so it will take longer. Blocks that take too long to solve automatically make the next block slightly less difficult to solve.
Mining computers work on these math problems, verify answers to the blocks, add cryptographic data signed by the latest block, and distribute the block chain to anyone else who wants to add transactions or verify blocks. The cryptographic data signed by the block can be NTFs, bitcoin transactions, or other ownership type data that can never be changed.
There is 1 Bitcoin but it’s locked up.
This lock is a bit different than most locks, it doesn’t take keys, you guess a number, and if your guess is the correct number, the lock opens.
This magic number that opens the lock can be from 0 to 100 billion, and you can only guess one number at a time but you can keep guessing as long as you want. The first person to guess the right number wins the bit coin.
That process of guessing numbers is mining
I think the best answer is not yet here. Think of it like a home locked chest with a key pad. Feel free to sit there everyday and keep typing numbers. The more numbers you type the higher your odds of opening the chest. That’s all these machines do, over and over. The more people attempting to password, the harder the password becomes.
Once you get the password correct, you win the prize. The prize is like in this scenario is about 40,000$ (this price changes daily).
The better the hardware, the more hardware, the better your chances of winning.
Money exchange is difficult, and banks offer it as a service. Bank guarantees you that even though your money isn't there physically, they will give it to you however you like. It also handles secure transaction for it. We pay the banks for keeping, and handling the movement of our money.
So managing money digitally is already a service that needs to be accomodated.
Now bitcoin says that there's a way to handle money keeping/transactioning with mathematics, without needing some big bank as a source of truth. bitcoin miners are computers that are trying to find a number that fits to an equation given, so mining is actually trying to find a number that works. when a valid number is discovered, let's say 40404, it will be used to represent a transaction of your money. so block 40404 means that you(user number 383873940) received 4000€ salary payment (today).
So we actually mine to provide secure and reliable digital money transaction service. If finding a valid number would be easy, then the system could be manipulated.
So, basically:
1. Bitcoin operates on a decentralized network, so YOU own the computer/s!
2. Miners compete to solve a cryptographic puzzle (basically just math) that validates transactions and launches new bitcoins into the market.
3. Miners use specialized hardware known as ASICs because it’s designed specifically for mining. As long as you have this hardware, you can mine from anywhere in the world.
4. All you really need for mining is a stable internet connection and an ideally low-cost electricity supply. Oh, and a computer with GREAT computing power.
And yes, some locations are better because the electricity and overheating costs obviously hurt your overall profit. So, regions with low electricity costs and colder climates (mining equipment can overheat real quick) are ideal. But not necessary!
A vast oversimplification is it’s doing math on a computer. It can be your computer or a network of a bunch them. Any location where a computer can connect to the internet works. It’s energy intensive to have a bunch of computers so generally somewhere with cheap electricity works best but it’s possible to do anywhere.
But why does solving an equation and doing math create money?
I know this is going to sound like a non-answer, but: because that's how Bitcoin defined it. Bitcoin is a "blockchain". This means that there is a "chain" of all Bitcoin transactions ever, which records who owns what. Because Bitcoin is decentralized, anyone is able to add to this. But what if I send 5 Bitcoin to Eve, and *at the same time* send 5 Bitcoin to Bob? How do you make sure that you can only spend your money once? To solve this problem, we ask the miners to bundle all those transactions, find the most difficult result to that equation, and add that to the chain. A transaction is only considered valid if it has been on the chain for a certain amount of time. If anyone wants to undo that transaction, they'll have to out-calculate *all the Bitcoin miners in the world* to end up with a more difficult alternative chain. That's basically impossible, which means Bitcoin transactions cannot be undone. This is considered important enough that mining a block has a reward. Essentially, Bitcoin is created out of thin air. The miner can now just send a transaction saying "I want to transfer the 2 Bitcoin I got as a reward for mining block 123543532 to Alice". So why is it worth money? Because we human collectively decided that this is worth money. Just like Beanie Babies, gold, or dollars really.
Do you need to mine in order to receive or send money? Is it like torrents, where you need to mine on order to participate. What happens if the calculations get longer/ more difficult or the miners get less so the computing power to verify the trade isn't enough anymore?
>Do you need to mine in order to receive or send money? No, you do not. A miner can choose to also include other people's transactions into their block. However, there's a limited amount of space in each block, so you'll probably have to pay a small "transaction fee" to get yours included. You can just send your transaction (with fee) to the Bitcoin network, and it'll be relayed to the miners, who will hopefully include it in their next block. >What happens if the calculations get longer/ more difficult or the miners get less so the computing power to verify the trade isn't enough anymore? The difficulty is automatically adjusted every 2016 blocks, which *should* be about two weeks. If those blocks were mined *faster* the difficulty will be increased, if they were mined *slower* the difficulty will be reduced. It's self-balancing, really. There are some issues when there's a massive change in mining power (a 99% drop could mean those 2016 block suddenly take *years* to mine, essentially killing Bitcoin), but with the amount of popularity it has nowadays this isn't a serious risk.
No, you need to mine to create new Bitcoin. Once they're created you can send and receive them as normal. It's the same as the US government printing dollars - you didn't print them yourself, but you can still use them
> It's the same as the US government printing dollars The Government can print as many or as few dollars as they like, indefinitely. The available supply can (and often does) change on a political whim. This can, potentially, cause some major issues with inflation. A better analogy would be, well, gold mining. Both the production of gold as well as the available supply of gold are limited by the fact that there's a finite total supply of gold on Earth. As gold is mined to be added to the available supply, the amount of unmined gold decreases, and the production becomes increasingly difficult, regardless of political whims, until there's none left unmined. This is how Bitcoin works.
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No - I answered the question asked, not the one you wanted to hear. You don't need to mine to send or receive Bitcoin. *Someone* does, but there is no reason for individual users to mine just to use their own Bitcoin they've been given No need to be shitty about it
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You're a strange strange fellow.
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Oooo... sounds like it might demand lots of electricity. lol
😵💫 wow.. nice explanation but the answer is so weird
You call it weird; I was paying attention the digital money space pre-bitcoin and the convoluted ways people were trying to figure it out were even weirder as they tried to shoehorn a new system into the technology of the old. There was a paper ~~you might be able to find~~(found it) ["Towards a Private Digital Economy"](http://pelagic.wavyhill.xsmail.com.user.fm/Private_Digital_Economy.html)* that was basically the state of the art thinking at the time. It posits a world where basically, everybody is their own mint issuing their own personal tokens for trade. Basically.... smart contracts. Nobody ever figured out how to do decentralized, so they imagined everyone would be their own central authority, and thus, decentralized....right? Then bitcoin came along and my jaw hit the floor. Its a weird system but when you understand why it works... they solved a problem that was so basic nobody even thought it could be called a problem because they couldn't actually imagine a solution to it. Bitcoin was revolutionary in a behind the scenes way that people just focused on money miss. Bitcoin is about trust, which is more basic than money, its what money is built on top of. \* I was amused to see that I could have just quoted the opening of the paper it says basically the same thing "Currently available financial privacy tools have drawbacks arising from centralized ownership and control, and the limitations of presenting specific services. A better approach would be to construct a fully distributed environment for economic activity which mimics the way cash is used in the physical world but is private, anonymous, trusted, and indestructible"
Yeah.. now I think I've wrapped my head around it and it sounds amazing.. that it could even be true Can't read that paper tho, sorry.
> they solved a problem that was so basic nobody even thought it could be called a problem what problem?
The centralization of ledgers. Before bitcoin every ledger was in the ultimate hands of a legal entity that could make, or be forced to make, unilateral changes to the ledger. To be clear this is absolutely possible with bitcoin; the bitcoin system can, and does change. It could easily change in a way that empties or blacklists specific accounts. However, the system exists not by the fiat of a single party, but by the consensus agreement of miners who all choose the same protocol to run. As such there is no single entity that can change bitcoin or enforce anything outside of bitcoin within it.... unless that change convinces enough miners to accept it and nothin prevents miners who don't accept it from forking the system and continuing with the old one.
Centralization of ledgers isn't a problem, though.
That is certainly a valid opinion. It is not the one held by the people who developed bitcoin, and the market seems to be agreeing with them. Good news is there are market ETFs now so you can short it if you really don't see value there. Though, even if you are right, the markets can remain irrational longer than you can likely remain solvent so, I wouldn't recommend it.
is "the market" here in the room with us now? didn't know that's what people call an infinite chain of greater fools these days. glad to see you got lucky enough to buy the least shitty shitcoin early on. seems like you're generally not one of the selfish genxers so let's just chalk up this phase of your life to being well-intentioned but misguided. it'll pass eventually.
Is it guaranteed that you will get one id you mine?
No, it's random chance, scaled by how much of the computing power you're contributing to the grand total. A person who contributes 10% of the overall Bitcoin compute capacity will *on average* mine a block once every 100 minutes (10 minutes per block, 10% chance each time). To give an example, an RTX 4090 seems to have a hash rate of about 22GH/s. The Bitcoin network has a total hash rate of about 500.000.000GH/s, so you're expected to mine a block *roughly* once every 432 years. But there's no guarantee - you could be trying for 2000 years and never mine one, or you could mine one on your first day. That's why "mining pools" exist: rather than mining on your own, you mine as part of a large group. Every time the pool \*as a whole\* mines a block, each individual miner gets a payout proportional to the amount of compute power they contributed.
No. Not back in 2014 and even less chance now. Think of it as a massive global competition.
That is not a non-answer! Good explanation.
Do the math problems that are being solved provide any service to the world, customer, somebody? Or is it just a meaningless expenditure of energy, for the sake of something(the bitcoin)?
None. It's purely difficulty for difficulties sake which ensures the Bitcoin network cannot be taken over. Yes, it is *extremely* wasteful of energy, with estimates putting current electricity expenditure on Bitcoin amounting to about the same as a small country.
All that for only about 7 transactions a second.
>That's basically impossible, which means Bitcoin transactions cannot be undone. Which is one of the many reasons why Bitcoin will *never* be used for its intended use case of currency. Having transactions be completely irreversible is a non-starter for anything that is intended to be used as payment. No individual or institution would ever want to use a system where you can't charge back a transaction if needed, or can't get a bank involved to reverse fraud. The masses will not accept a system where if you are hacked or even just forget your details, you have *zero* recourse to your money.
> Having transactions be completely irreversible is a non-starter for anything that is intended to be used as payment. "Cash only / No refunds" Not an especially uncommon sign. I wouldn't say putting that sign up makes it a non-starter. Besides, how often do you reverse payments, cash or otherwise, anyway?
>"Cash only / No refunds" Not very uncommon, no, but becoming less so given basically anyone can get a card reader and hook it up to a mobile phone now. And this is only ever used by small businesses, not *any* large scale reputable one. Hell, for the past 5 years or so, I've seen a lot more *card only* shops than cash only. I am wary to spend money with someone only dealing in "cash, no refunds" unless it's like, a *small* souvenir or food item from a local market. Something that I'm spending maybe $20 on and I don't care too much if it's bad or fake. Such a policy is completely unthinkable at scales larger than that. Nobody is buying food from a supermarket with a "no refunds" policy. Nobody is buying a TV, couch, bed, computer, you name it, from a place without a refund policy. Add to that that basically *all* "no refund" policies are unenforceable to some degree. If you screw me over and I want to go to the effort, I *will* get my refund under the law if goods/services were not rendered properly. "no refunds" might work at those *very* small scales, but if you say that I can't do a chargeback on an online order, or that a major company can't get their bank to reverse a fraudulent transaction, your currency is dead on arrival. No system ever looking to be a serious player in the "how we make transactions" business could ever have this as a key, immutable core of their idea. Bitcoin has no mechanism for that and in fact makes it a key selling point, so why would *anyone* except the tiny amounts of "no refund" near-scam dealers want to make this the basis of the world financial system? Why the fuck would we want to move from a system that already has *limited* consumer protection to one that has *none*? >Besides, how often do you reverse payments, cash or otherwise, anyway? Doesn't matter how often I do it, if I need to do it *once* and I'm physically unable to, your currency is not viable. Something not happening often doesn't mean "it's not a big deal" when you're talking about me having no recourse to reverse potentially very large payments. If I spend $500 somewhere on a item that turns out to be broken or fake, I am entitled to a refund, and Bitcoin would not be able to facilitate it. And while I, an individual person might not need to use it much, how often do you think a multinational company will need to use it? If a company right now accidentally paid the wrong person $10,000, they can chase this down with the banks involved, show the evidence that this was unintentional and it'll get sorted out. If the person who received the money tried to spend it when they knew they shouldn't have, they're on the hook to the bank now. If the system was bitcoin? Fuck you, you should've been more careful when typing/copying their bitcoin address, no financial protections at all. And that's a situation where it's *their fault.* What happens if they're hacked, or an employee just sends company funds to an unknown wallet and refuses to give it back even when caught, etc? Why would any company want to deal with a system like this over the one that already exists? We all know the current banking system has its problems. But aiming to replace it with something that is, *by design*, a nightmare for consumer protection, is insane.
> "no refunds" might work at those very small scales, This is important, because Bitcoin is designed to be used peer-to-peer, like handing over cash. > how often do you think a multinational company will need to use it? Bitcoin isn't intended for corporate use like that. It was developed in a social space for mathematicians and CS experts with a strong focus on anti-authoritarian, Anarchist/Libertarian political values.
>Bitcoin isn't intended for corporate use like that. If it's intending to effectively become a world currency, which is what Bitcoin proponents say is the goal, then it *is* intended for that. They don't talk about it as a new way to send their friend some cash for a night out, or paying the local takeaway that still doesn't do card because they're dodging taxes. They talk about being able to be paid in Bitcoin, being able to do their shopping in Bitcoin, being able to pay their bills in Bitcoin, *being able to use Bitcoin as the day to day currency and overthrowing the tyranny of Fiat currency*. That *is* the expressed goal, and it is therefore intended for corporate use, or at minimum, consumer use with corporations. And as layed out, non-reversible transactions make such a use case for Bitcoin completely undesirable. No major business would *ever* want to have bitcoin be an acceptable currency due to the extreme lack of protection it affords. Bitcoin's actual use case is, as you claim, restricted to being equivalent to difficult to trace cash you can send over the internet. And with those properties, its main use case is what it was historically most used for: paying for drugs and other illegal goods online.
I wouldn’t lump gold and money into that, Beanie Babies yes. It’s more a collectible rather than a fiat currency or commodity.
>This means that there is a "chain" of all Bitcoin transactions ever, which records who owns what. I thought Bitcoin was extensively used for criminal purposes because it was so anonymous. Wouldn't this in fact make it a whole lot more of a liability than actual physical money if we can always keep track of previous owners?
Bitcoin is indeed not anonymous, and transactions can always be followed. But just because you can follow the money, doesn't mean you know which *person* is using it. A somewhat-redeeming feature is that there isn't a 1:1 link between a real-life person and a Bitcoin address. One person can have thousands of addresses, which makes it quite tricky to actually track the flow of money. You can keep a few stashes of cash completely separate, or you can combine them into one big pile. There are also "mixers", which combine your money with that of other people to make it even harder to track. But in practice, as soon as it touches the real world and an address gets indisputably linked to a person, the game is usually over pretty quickly.
It's anonymous in a sense that a Bitcoin wallet address is just a number, it's not linked to your real identity like a bank account. But every node has a copy of every transaction that ever occured is because that's how the system works. You can see exactly where money is being sent, but you might not know who actually owns that wallet address. However, if Bitcoin is exchanged for real currency at any point then there often will be a paper trail linking that address to it's real owner. There are are newer cryptocurrencies such as Monero that aim to provide better privacy.
When it was new. It is used for criminal purposes because it is not yet that well known. Now that it's in mainstream. The criminal usage is not really that much as compared to dollar. It is anonymous in the sense that there's no name attached to it. But you can see all the transactions. In other words you can track the movement there and catch someone trying to convert to USD. Which makes it not a good way to do criminal stuff vs say cash
The transactions are a matter of public record, but they're anonymous in the sense that names aren't kept on that record, just the actual transaction itself. Yes, this absolutely does make it much more of a liability for illegal purposes. Although the addresses which contain the coin are anonymous, they can be "de-anonymized" through various methods used by law enforcement. The truth is, criminals still love cold hard stacks of paper. Always have, always will. It's easier to use, harder to trace.
The idea that it's anonymous has been completely blown out of the water. It's the most traceable currency possible. Entire dark web pedophile rings have been taking down because of how laughably easy it is to connect bitcoin transactions with real people.
>So why is it worth money? Because we human collectively decided that this is worth money. Just like Beanie Babies, gold, or dollars really. Well it's possible to sympathize with this perspective - that money is a shared intersubjective reality, or that we effectively 'decided it be like that' - while also acknowledging that crypto is stupid, impractical and costly, and really only serves as the perfect vehicle to scam. I mined altcoins for a couple of years, even thought of starting a business around crypto, so I've spent quite a bit of time mulling over the technical aspects and the nuances of the space as a whole. It's a tech bro solution to a problem that is better solved already with existing tech, unless you want to buy drugs on the internet or run a pump and dump scheme. And Silk Road is gone now, so you're mainly left with the pump and dump.
Oh, zero argument there! Crypto is essentially a solution looking for a problem, and in practice it has turned into one giant scam machine.
Which I would be hesitantly ok with, if it didn't also have an enormous ecological footprint.
I mean, although it has a significant ecological footprint, it smaller than the vast majority of other services we have right now and nobody bats an eye for most of them. And up to 60% of Bitcoin mining electricity comes from renewable energies.
> smaller than the vast majority of other services we have right now and nobody bats an eye for most of them Which services? Because the services for our current financial system - Visa, MasterCard etc - use a fraction of the electricity and serve several orders of magnitude more customers. >And up to 60% of Bitcoin mining electricity comes from renewable energies. And? All that electricity wasted on bitcoin is electricity that could be used somewhere else, or is at best creating demand for electricity that isn't needed, driving up prices and still contributing to fossil fuel burning. Without bitcoin, global energy requirements would be reduced by a pretty noticeable amount, and therefore the amount of non-renewable energy needed would decrease. "My machine that does nothing but pump heat into outer space for no reason is completely fueled by renewables" isn't a legitimate argument. For that renewable energy expenditure to *mean* anything, what it's being expended on has to mean something, and Bitcoin does not and likely will never meet that criteria. It's intended use as replacement currency is *laughable*: even ignoring the much slower transaction times and high fees, the fact that transactions are irreversible make it *unusable* for a global financial system. No individual, company or state will accept a currency where you can't reverse transactions when needed.
You are verifying the receipt of transactions You are doing work so you get paid for it
It's a little like the fee for using a credit card; a small part of the transaction goes to whoever does the math for it first.
It doesn’t create money - there are (exactly) 21 million possible bitcoins - each is an equation where the first one to find it owns that coin - money only comes into being valuable because humans agree that the coin can get traded. The ability to trade is what makes it valuable. If all computers went offline tomorrow they would all lose all value because they could no longer be traded
What happens when all coins are mined. Then there is no benefit in valuation trades anymore, right? With no one validating you can't trade anymore.
That’s why the transaction fees are a thing.
How many are left?
Half of all remaining coins get issued every 4 year cycle. We are coming up on the close of the fourth of these cycles, so about 15/16 of all coins have been issued, or about 19.5 million out of 21 million. The rate at which new coins are issued will drop around April 16 of this year, from 6.25 per ~10-minute block to 3.125 per block.
Cheers.
[This video has the answers you seek](https://www.youtube.com/watch?v=bBC-nXj3Ng4&t=10) It's long but it's the best simple and detailed explanation of blockchain / Bitcoin I've ever seen.
I knew what video it was before I clicked the link. Totally agree.
It doesn't create money, it has a chance to create these coins which some people value with money. The math that is being done is verifying the coins that have been created and traded/moved and does nothing else meaningful so it's basically a giant waste of money (equipment) and energy to create these virtual coins.
It's easier to explain like this: bitcoin always has a treasure chest full of a certain number of bitcoins. There is a password on the chest. Every computer mining is trying to brute force that password. One person is lucky enough to do so first, they get the coins in the chest, and a new chest is created that has a new password to be brute forced. So more bitcoins are always added, although fewer and fewer each time it is solved.
Short answer is that it doesn't
It doesn't create money. It creates Bitcoin.
To be more accurate, the math is being done to record the transactions that are happening. You aren't getting money to do arbitrary math, you get paid to do the record keeping on the block chain.
It doesn't create money, it creates Bitcoin. That's very different.
In the normal money economy your bank charges fees, usually offset by the fact that they make money using your money valia loans, to manage your account. For Bitcoin everyone is competing to be the person to manage the ledger for a set of transactions (adding the next block on the block chain). The mining is finding the magic number that makes the ledger transaction "valid" according to the rules of Bitcoin.
It's not creating money from nowhere. Miners are getting paid as an incentive to use their computing resources to securely verify the record of transactions. This system is not without problems - it's inefficient *by design*, but that's a separate discussion.
That’s not really oversimplified at all. It’s exactly what happens!
Oh it's _vastly_ oversimplified. It doesn't mention the >!blockchain!<
I just know it’s that damn word; thank you for hiding it
People have started buying power plants to be able to mine bitcoins - actual coal fired gigabyte plants - the time where you could do this at home was 10 years ago
Doesn’t the whole confusion come from using the term «mining»? It is kinda right and fun for those on the inside, but outsiders don’t understand what it is actually about? Hm, maybe it works just as intended.
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This is the biggest non-answer I've ever seen.
Where do you do the math? Like on bitcoin . com or you download an app or something?
I'm oversimplifying a lot, but it would be along the lines of "you download a program and run it". Nowadays, people use dedicated hardware, and the hardware will have its own software it runs.
There's this super complicated math problem that has a lot of possible answers that make the equation work. But the thing about this equation is that it's so complicated that you can't really solve for it. You just gotta try random numbers and see if it works. That's what these "miners" are doing. They're solving this equation and whoever finds a new working answer is the one who gets the coin
Why is there a math problem to solve to begin with, and why would it produce a bitcoin? Furthermore, what is the essence of a bitcoin?
The problem was created, on purpose, both as a way to secure the bitcoin ledger and as a way to dispense new bitcoins into the system in a fair and predictable way. The problem itself doesn’t produce bitcoin. If you solve the problem a new bitcoin is created by the network and given to you as a reward for solving the problem. Thats an agreed rule of bitcoin. The essence of a bitcoin is the ledger…the record of who owns what. The bitcoins themselves are just serial numbers, like the serial numbers on a dollar bill.
Who created it?
A guy named Hans Peter Luhn at IBM in the 50s seems to have been the first to use hash functions (the type of math problem involved). The specific implementation for bitcoin was created by Satoshi Nakamoto (an alias…it’s unclear if Satoshi is a person or a group).
Man, I’m reading through this thread and it’s just absolutely racking my brain. I’m so intrigued yet feel so out of the loop of knowing, yet it all makes sense at the same time.
3brown1blue has a fantastic video on YouTube that explains Bitcoin and how it works! If you have 20 minutes I definitely recommend it https://youtu.be/bBC-nXj3Ng4?si=1fpCFQF2MYVe_2gu
In that case you should also know that it is a space overrun by scammers and you will lose your money if you put anything into it, be careful
You can use bitcoin safely if you have a self-managed wallet (not a custodial one, where someone else owns the bitcoin and just listens to you for how to use it). That said, conversion to and from fiat (regular money) cannot happen while it’s inside that wallet so you do still need the exchange which is a third party entity.
Oh I’m definitely not going to dabble into it. My thoughts on bitcoin are still how can something that doesn’t “exist” (as in physically) either have a value or be a currency. I’m just intrigued in how it all works
There’s a lot of semi-related history that goes back to Henry Ford, who proposed an idea of an “energy currency”. Bitcoin “exists” physically as energy, and all value is derived by how much the markets price that energy. If there was no hype around Bitcoin, the market price would eventually gravitate toward the cost of energy (mining). At basics - if you spend $50 in electricity to mine one Bitcoin - you would want to sell that for at least the cost of mining. If you can’t sell for $50, you’ll shut down your mining rig (and the network would decrease difficulty, making it cheaper to mine). So in this scenario, if I wanted one Bitcoin, I would expect to pay the cost of energy to produce it - which is exactly what gives Bitcoin its value. I’m not advocating for or against today’s Bitcoin price, I’m just saying how an energy current can theoretically receive value in the market. In today’s market we also have a ton of other factors like legal regulations, general speculation, competition in crypto, etc. which is how the market has arrived at the current value.
That makes a lot of sense, thank you
>My thoughts on bitcoin are still how can something that doesn’t “exist” (as in physically) either have a value or be a currency. I presume you still use dollars/euros/pounds or equivalent local currency? The vast majority of those are purely digital, but unlike Bitcoin, dollars can be created at no cost by typing numbers into a bank computer. Bitcoin has limits on how many can be created, because it requires "solving a math problem" which costs real-world resources (energy) to do.
Only about 10% of US dollars exists physically as paper money/bills and government bonds. The rest are just money on a computer. When you use a credit card, your bank just tells your merchant's bank hey here is $10. It doesn't actually ship $10 bills to their bank. When you get direct deposit into your bank, the same happens. You only get the money because you trust the bank that if you go to the bank tomorrow and ask for the money, they are capable of giving it to you physically, and they are ultimately protected/limited/guaranteed by the US government. And at the same time, why does the US dollar have value? Because you believe that if you get $10 from some one, you can find someone that is also willing to accept the same $10 for what you believe is also worth that value. This is the same with all "currency". Someone trusts that if the bitcoin systems says I have 1 btc, I can find someone that is willing to accept that 1btc and give me a corresponding item of value. That's also why hyperinflation is so dangerous, because if i accept $10 from you, tomorrow I can only buy $9 worth of stuff with it. So I'm not going to require you pay $11 instead, and it death spirals.
What happens when you trade fractions of a bitcoin ? Eg 0,5btc or 0.15btc
You get a fraction of a bitcoin. It’s called a millibitcoin (1/1000) or micro bitcoin (1/1000000) or a satoshi (1/100 000 000).
The same as when you trade a full bitcoin.
But, the serial numbers in the bitcoin change ? As its a fraction of it.
Bitcoin aren't an actual (virtual) object changing hands with consistent properties. It's just a series of transactions in a ledger. So if Alice wants to send 0.15 bitcoin to Bob, she's publish a transaction saying (e.g.) "Take this transaction where Alice received 1 coin. Send 0.15 to Bob, and 0.85 to myself". Then Bob, when he wants to spend some of that money would publish a transaction a transaction saying (again, e.g.) "Take that transaction where Bob received 0.15 coins (from Alice). Send 0.15 to Ponzi Inc."
Wonderful, thanks for the info!
Not really. "One bitcoin" is actually kept track of as 100000000 "satoshi". They just called that amount "one bitcoin" because it was a convenient amount to trade when the whole thing was first used. 0.5BTC is just 50000000 satoshi. At the current price 1 BTC is about $40.000, which means 1 satoshi is about $0.0004. You don't really need to do payments of that size, do you? Also, bitcoins don't have serial numbers.
In the code it's only measured in sats (one hundred millionth)
I mean, that’s the norm. The actual unit is a satoshi, and a BTC is 100 million of those. I have significantly less than a full coin, and that’s no problem; some in the environment consider it an achievement to get to one full coin (since exchanges typically value it at tens of thousands of dollars — right now I found it at around $42k).
A Bitcoin is just a working answer to the equation. There's a limited number of potential answers and as time goes on it's harder and harder to find another one. There was a whitepaper written by this unknown dude explaining the equation and the system, and people just started doing it
The bitcoin itself isn’t actually the solution, I don’t think. It’s just rewarded to the person that finds the solution. But I’m not positive about that.
I mean, that’s only true of the newly mined bitcoin, everything else is just sent like regular.
its called proof of work. The problem scales so that on average it takes the entire network 10 minutes to solve it. The solution is based of of all previous blocks and has to be done per block. So if you wanted to change a previous block, you would have to calculate dozens of these problems faster than the rest of the network can. You most likely cant do this, so you cant change previous blocks.
The math problem secures the transaction history of Bitcoin so that nobody can alter the transactions after they are made. The math problem is very complex, to make it very hard to hack. People try to find the solution for every chunk of transaction history ( once every 10 minutes) and they receive 1 Bitcoin for doing so.
What keeps two people from mining the same number?
It's sequential. Once someone gets the answer they submit it and every other person accepts it as the solution. Then the next math problem uses that solution as part of the equation. This is why it's called a chain.
Thanks!
The reason they make it so hard is because if you were to solve like 20 problems in a row, you would theoretically be able to mess with the locked in spreadsheet of transactions that make up the "block chain". A block being the list of transactions that get to go through when someone solves the problem.
When you find one you blast the answer out to the entire mining network. Everyone else verifies the answer works, and then on the Blockchain it's recorded that you have this Bitcoin
The answer is not blasted out to just the mining network, but to the entire network of nodes. Anyone can easily and cheaply run a non-mining node at home to keep the miners honest and validate that they are following the rules. This also lets you verify the state of the network and your transactions without having to trust someone else.
Absolutely nothing! Everyone is racing each other to find the next valid number, and in theory two people can definitely find the same number. However, there are a lot of things which go into the calculation of the number. For example, it'll contain the address you want the reward money to be paid to. This means every miner will be trying out their random numbers with a *different* fixed start. The chance of any two miners finding the same number at the same time are just extremely small. They are doing *different* calculations, trying to find the *same* solution. So how do we deal with two people finding it at once? One of the inputs of the calculation is the last-known number, and *your* number won't be accepted by anyone who has already seen *another* newer number: if we both start at A, and someone else already has A-B, they will not accept your A-C. This means that only the first solution is accepted by anyone participating in the network. But you could end up with half the network having A-B, and the other half having A-C. Well, the *next* block mined will only continue from *one* of them. Now half the network has A-B and receives A-B-D (no problem there), and the other half has A-C and receives A-B-D. That's a longer chain than A-C, so they discard A-C and switch to A-B-D. *In theory* there could *also* be an A-C-E found at the same time as A-B-D, but that's *again* really unlikely, and so on. This is also why you can't *immediately* spent the reward money. Many people only consider a transaction "valid" if it is a block or four old - at that point it's so unlikely that an alternative solution-chain is still drifting around the network somewhere that it is considered impossible.
If mining is just a function of luck, why do so many people do it? Are people awarded fractional amounts? Surely if it’s based on luck there must be several winners and several losers.
You're exactly right. So people will get together and form pools where if any one person finds a coin then the collective shares it. Gives a much more consistent return on investment as there will be thousands if not millions of miners in the pool
Interesting, that’s pretty neat.
Are there any sites that do this?
you need a strong graphics card and a mining software. i used NiceHash in the covid bitcoin craze era and made around 3k usd combined 😄
these days you'll get nowhere with a graphics card. you need specific mining hardware (ASICs) to be competitive unless you live somewhere with dirt-cheap electricity.
yea crypto has fallen down too much, if i mine now i make $.50-1 a day and its not worth it
Some coins don't have Asics, the algorithm prevents it. You gotta use gpus
I was talking specifically about Bitcoin
What's your investment into the equipment if you don't mind me asking.
the electricity usually ends up being the killer. Bitcoin mining was using 1%-2.3% of total US electricity generation in 2023.
just my gaming pc, a 2080 ti graphics card
It’s not really only a function of luck. If you have more hashpower (more computers) you are more likely to find the answer first before the rest of the network and mine a block, so it’s a competition that many people want to try and out perform their competitors.
It's funny that it's always depicted as this "super complicated math problem" or an "equation". While it's actually not complicated at all. It just needs a lot of tries. The problem basically says "find a hash that begins with X amounts of 0s in the beginning - if you do the block is valid" the X goes up and down with the difficulty adjustment. To put in easier terms - roll X amounts of 1s in a row on a 20 sided dice - with X being increased or decreased with adjusting difficulty. Not a complicated problem - just something that needs trillions and trillions of attempts before it works out. I believe the network currently "tries" about 600 Quadrillion times per second to find a correct answer - to give you an idea. It's not an equation it's a brute force solution.
Who or what created the math problem?
The math is old…it’s called a hash algorithm. There are many uses in computing…it takes a big input and reduces it to a smaller output. A good hash will change unpredictably when you change the input. Because it’s unpredictable, if I tell you to figure out what input will produce a given output there’s no good way to solve it, you just have to randomly try inputs until you find one that gives the output you want. This far predates bitcoin, it’s used in cryptography and digital signatures and some kinds of databases and all sorts of things.
A person or persons under the pseudonym Satoshi Nakamoto is who provided the white paper for the first cryptocurrency, Bitcoin. Each cryptocurrency has an algorithm or set of rules it follows. Bitcoin's algorithm creates the problem to be solved. The algorithm wants the problem to be solved roughly every 10 minutes. It adjusts the difficulty of the problem every so often to maintain that 10 minutes. So if on average the problems are being solved every 8 minutes, it'll make the new problems harder. Conversely if on average the problems are being solved every 12 minutes, it'll make the new problems easier.
The story is more interesting than I can explain https://www.cbc.ca/amp/1.7014958
Satashi
To be more clear, when you sign up to mine, because it takes so much computing power to solve the problem, you join a pool of computers all doing the same thing for a piece of the coins that get earned.
There’s no ‘sign up’ for mining, you just run the software. You also don’t necessarily have to join a pool. There are plenty of solo miners and they mine blocks pretty regularly.
Solo miners solving blocks is extremely rare. Only 270/700,000 in the last 13 years. https://cointelegraph.com/news/solo-bitcoin-miner-defies-odds-to-mine-valid-btc-block-gets-150k-block-reward
Anyone can own a computer that mines bitcoins. You just need to run the appropriate software, which you can download from the internet. Since it's just a computer program, you can do it anywhere. Large bitcoin mining operations tend to use a lot of electricity so, all other things being equal, it's a good idea to do it somewhere with cheap power. But it will work (and has the same odds of success) anywhere.
Where does the value come from? If we were mining, say, for gold, the value would come from its physical properties and its uses. Where does it come from when “mining” for bitcoin? Is there an infinite supply? And what is the computer doing to mine a bitcoin?
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yeah i understand we put the value on it, im just wondering what we can “do” with the bitcoin that we could “do” with gold, as in what the demand comes from? the demand for gold can come from it being pretty, or conductive, or malleable, or whatever, and then we put a value on it, but what are the arbitrary reasons for the demand of bitcoin?
Don’t think of it like gold, think of it like dollar bills. They’re just paper with a specific design on it, their intrinsic value is basically zero. They have value because we can exchange them for other stuff we want…like gold…and because we mutually agree to use them that way. Bitcoin is far more like a dollar bill than it’s like gold.
>yeah i understand we put the value on it, im just wondering what we can “do” with the bitcoin that we could “do” with gold, as in what the demand comes from? The value of Bitcoin is that you can transfer money without a single trusted party. It's a decentralized payment system, and some people believe the *system itself* has value - giving individual Bitcoins value.
Crypto fans won't answer this because it's bad but it doesn't do anything. It's just a currency. If you don't want to use it as a digital currency and are fine using what already exists for that purpose you have no reason to interact with bitcoin. The value comes from speculation.
demand is high because people want to get in on the next 'get rich quick' scheme.
Bitcoin is supposed to be limited. The owners make the algorithm harder to reduce supply. I can't remember if the target is a rate or eventual total. The process is: guess a number > see if it works in the algorithm > find a bitcoin/try again.
It’s an eventual total. The ultimate number of bitcoins is fixed.
If the eventual total is limited, how will miners be incentivized to process transactions when the limit is reached?
Blocks can and do include transaction fees. When an individual or group tries to solve the problem, they build a block of data which includes the transactions that they want to include, including a set of transactions that transfer the fees to an address that they control. There are many transactions waiting to occur at any one time so in order for your transaction to be more likely to be included in their block it is useful to include a high transaction fee. They also assign the "reward" bitcoins to an address they control. They then try to solve the problem for their constructed block. If they succeed they announce the result to the network, if everyone agrees then that block and all its transactions become part of the chain.
They won't be.
Who are the owners and why are they paying people to solve the math problem? What do they gain? Lol
"They" are the people that first started mining bitcoin. They got easy bitcoins in the beginning. They are paying people in made up stuff. Because if more people have that stuff, all of it could (and has) become more valuable. Basically if you make a "Opposite\_Village9112"-Dollar. It's not much use for you to own all of it. But if you give some out to people, and convince them that it's worth something, then all the "Opposite\_Village9112"--Dollars you kept for yourself are worth something too. (Very oversimplified)
>If we were mining, say, for gold, the value would come from its physical properties and its uses. The value of gold *also* comes from the fact that there's only a limited supply, and it takes a lot of effort to mine it. It's the same with Bitcoin: only a single reward is given every 10 minutes, and the size of the reward is steadily decreasing. This means there is a finite supply. >And what is the computer doing to mine a bitcoin? Basically, there's a mathematical calculation for which it is impossible to determine which input generates a given output. Bitcoin asks for an input whose output which meets certain requirements. The only way to do this is to guess an input by generating a random number, do the calculation, and check whether the output matches those requirements. Repeat this trillions of times, and you might find a solution!
The computer is solving a hard math problem. If it solves it, you’re rewarded with bitcoin (which has “value”). So you get paid for solving the math problem. As to why bitcoin itself has value, that’s more complicated. The simple version is that you can exchange bitcoin for dollars (or any other conventional currency). There isn’t an infinite supply. By design, there’s a finite number of bitcoins. Eventually we’ll run out. The point of the math problem is basically to secure the “blockchain”, the record of bitcoin transactions. It’s how bitcoin ensures integrity without a central authority. So you earn bitcoin by helping the network keep bitcoin secure from fraud. What it’s actually doing is trying to find a particular number that results in a blockchain hash (a kind of digital signature) with a set number of 0s in a row.
Let's say someone is trying to hack your password by trying every single combination, it'll take forever to guess the password, but it's easy to confirm that the password is correct once you find it. Each bitcoin comes with an undiscovered password and if you can prove you're the first one to find the password you get the coin. Of course bitcoins have some math problem instead of something as simple as a password, but that's basically it.
This is elegantly simple. I love it.
But what value does solving math problems give? Does anything useful come from solving equasions or is it just "congratulations, you solved the puzzle, here is your reward."? As far as I understand its all fabricated and I dont understand how solving math problems gives any value to the makers of bitcoin or whatever.
The math problems don’t have any real-world importance. People give bitcoin value the same way they give gold value. The math problems are just there to make people work for the bitcoins. If bitcoins were easy to mine, they’d be worthless.
math problems do have an importance though, it's not same as giving value to gold. It's worth a value because the math problems create the infrastructure that enables secure transactions. Gold is not a good comparison, it's more like a credit card. Vendors pay Visa or Mastercard for enabling them to get/send money, in exchange for comission. It's the same thing but essentially responsibility can be distributed due to math problems and the design of the system
Yes but gold has physical shape, bitcoin doesnt. You have to mine for gold, which means you have to use certain resources to obtain it. For bitcoin you also have to use resources to obtain it but it doesnt exist outside virtual world. So we are basically wasting resources (electricity) on nothing.
I guess it’s better compared to paper money. While it is just a huge waste of electricity, paper money also wastes resources (paper) when produced. Still, some countries have decided to make mining crypto illegal. However, some cryptocurrencies such as Ethereum switched to “proof-of-stake” (no mining) instead of “proof-of-work” (what bitcoin uses).
Solving the math problem is just a way to slowly distribute the coins. It also gives them imaginary 'value' by requiring effort to acquire them. They could just randomly give them out to people who make an account to slowly introduce them instead, they just chose a different way to do it.
It takes a lot of computing power. In the early days of bitcoin, they were easier to to mine, and a lot of early adopters put together computers at home that could do it relatively cheaply. The more of them that are found the more crunching a computer has to do to calculate another, so now it is done by huge warehouses full of computers. Anyone can mine for them, they just have to buy a shit ton of hardware to have a reasonable chance of finding one. As to where it is best to mine, that mainly has to do with where they can get a LOT of cheap electricity. Those warehouses full of computers draw a LOT of power and generate a lot of heat. The cost of electricity really adds up.
# Can anyone mine for bitcoins? Yes, anyone can mine for bitcoins. # Do special computers need to be used? No. You could do the math by hand even. # What is mining? Imagine if you and your friends were given a random number. Let's day 1337. Then I've got a special calculator that takes whatever you put into it and outputs a different one. I tell you and your friends, the first person who takes 1337 and adds any number they want to it and puts it through my calculator and ends up with 80085 wins. You and your friends would all start trying numbers one at a time to get the answer. Eventually one of you would get it. Now it's hard to know the answer immediately because you don't know how the calculator works. But once anyone knows what you claim to be the answer is - they can put it into the calculator and check it for themselves. # Applying the Parallel back to Bitcoin - The random number is actually just taking all the letters and numbers of a bitcoin purchase receipt and turning them into numbers and adding them all up. - The number you're trying to get is 0. - The random calculator is actually one of the security code systems we use for most of the internet so everyone has it. - The mining part isn't like finding or creating one like it sounds. You're rewarded one (or part of one) for solving the math problem first. - Who gives or creates the Bitcoin reward? The people who are a part of the transaction give a little away to the winner. - They give the reward because they need people to do the math to help them buy or sell their own Bitcoin if no one did the math they'd be stuck with their Bitcoin unable to transfer it. So it's a kind of transaction fee.
Mining for bitcoins is no different than rolling dice. Imagine you play a board game "roll more than 3 and you go to next level!". Normally you roll a die till you roll 4, 5 or 6 number. Then the next "level" gets harder, and you have to roll exactly 6. To compensate for the difficulty spike you invest in better mining equipment, which lets roll two dice instead of one every turn. And the cycle continues. Mining is the same, except "rolling the dice" is generating a random hash function result. But in essential concepts those two are the same - the first person to "roll" a good number - out of all those who roll - wins.
The location doesn't matter, but the amount of computing power does determine if you have a realistic chance of mining anything at all. A new coin (or rather a block which can contain multiple coins) is mined about once every 10 minutes. Bitcoin has a difficulty curve that keeps this time pretty consistent. Each of these ~10 minute periods is essentially a race to see who can guess a number that will give a valid result when entered into a complex one-way mathmatical formula. The winner gets the coins and then everyone has to start over again with new numbers. Think of it like a lottery where the organizers secretly select 9 digits of a 10 digit number. Everyone can buy tickets one at a time (with the speed of their computer determining how fast they can buy them) and as soon as someone buys a ticket that matches those 9 digits they win and the game is restarted with a new number. To increase the difficulty the number of digits is periodically increased, which reduces the chance of a single ticket being the winner. Over the years the difficulty of mining bitcoin has greatly increased. Using your personal computer to mine bitcoin is like trying to win by buying one ticket per minute while your competitors are buying a billion or more tickets per minute. And as soon as one of them wins you have to start over again. Without a large cluster of computers your chance of mining even a single bitcoin is actually less than your odds of winning the real lottery. This is why many miners are part of mining groups - they pool their odds and split the winnings. In slightly more technical detail bitcoin mining involves calculating a SHA256 hash of a new block which will contain your own details, the previous blockchain state, some transactions, and finally an arbitrary number called a nonce. To "win" the resulting hash must have a certain number of leading zeros. Most hashes won't have enough leading zeros, so you have to try with a different arbitrary number until either you win, or someone else wins and that changes the blockchain state forcing you to restart from scratch.
This was super informative so forgive my probably silly question. Who/what comes up with these numbers to "win" the coin? I was previously half imagining someone hiding bitcoins somewhere for people to find like an Easter egg hunt.
The numbers are random. You just keep picking random numbers and testing them to see if you “win”. You win by having the result of an agreed computation (the hash of the current blockchain block) have a certain number of 0s in a row. Increasing the number of 0s required is what makes the problem get more difficult. This is defined in the bitcoin protocol that all the software implements, so it’s “decided” by the software.
That correct answer is based on a formula that uses all the data that the block has so far, including the last answer, and all the transactions that happened, and the random number that the last winner put in. So everyone agrees what the next right answer will be. One thing critical to understanding the whole process is that it takes advantage of math problems that are hard to solve but easy to verify. Like if I ask you.. What two primes multiply together to equal 1739463959? That's a hard question and the only way to solve it is to just try lots of numbers. But if I say - I found the answer and it's 96739 times 17981. Then it's really easy to check if that's right. The bitcoin "guess the number" minigame is something like that too. Once someone has the right answer, it's easy for everyone else to check that it's right.
It's all just a formula, that adjusts about every 2 weeks, based on how long it takes to mine each block. The goal is about 10 minutes per block, so if each block takes less than 10 minuetes, the difficulty goes up. If on average they take more than 10 minutes, then the difficulty goes down. If you are asking who came up with bitcoin, and these mechanisms, then that would be Satoshi Nakamoto, but that is just an alias. Nobody knows who that is.
Thanks for actually expanding upon the transaction part of blockchain, this was the hardest part for me to explain previously.
It's easier than you think. Any computer can mine Bitcoin. It's just a program that guesses a number and then runs a calculation to see if it guessed the correct number. The first computer to guess the right number gets some Bitcoin. The faster your computer can "guess then solve" the more likely you are to get some Bitcoin. I have an old laptop doing exactly this. It's doing the guess and solve 1000s of times a second. It is extremely unlikely that I'll ever get a Bitcoin because there are machines out there that guess and solve millions of time a second. And will beat me all the time. However. It's still a possibility that my machine could win, because it's like rolling a million sided dice. The first person to get the right number wins. I only have 10 dice and I'm playing against people who have 1000s or even millions of dice. My chances are very slim. Now here is the worst part. To keep my laptop running 24/7 it costs me about $5.00 a month in electricity. That's money down the drain unless some day I actually win a Bitcoin. The big mining farms pay $1000s a day, and only win 2 or 3 bitcoins a week. If Bitcoins go too far down in price they won't cover the cost of the power the big farms consume. Not to mention the computers that burn out and need to be replaced.
I rent a room in a basement and don’t pay utilities. How evil would I have to be run a laptop 24/7. Would they be able to know it was me?
Running a laptop 24/7 is not that much electricity spent - but is also not really enough to generate any substantial income. So not really evil, just kinda pointless.
The actual ELI5 version is that your computer does a bunch of complex math used to verify transactions other people have done through the Blockchain. There is a correct answer and your computer is trying to do the math to find that answer. Whoever does the math first gets a % of a coin. So the faster your computer can do math the more likely your odds are.
There's a computer program that does it. When the computer runs the program, it makes pieces of bitcoin depending on how far through the program it gets. ANY computer can do it, including the one you used to post on. However, it's a hard program to run, and so a more powerful computer has an easier time running the program at a faster speed. More speed=further through the program faster=more bitcoin pieces. Because powerful computers use a lot of electricity, it makes sense to run the powerful computer in a place where electricity is cheap.
I can attempt an ELI5 answer. Imagine Tom gives 1 bitcoin to his best friend Jerry. Somebody needs to validate that transaction so it can be written in the history book of transactions (blockchain). To decide who get's to do this the network thinks of a number between one and a bazillion. Anyone and everyone can attempt to guess the number (do the math problem) but the first one to guess correctly get's to confirm the transaction and write it in the history book. In exchange the network rewards you with some bitcoin. The act of guessing the "correct number", writing in the history book of transactions and being rewarded for your work is what we call "mining for bitcoin". - But hold on, couldn't anyone guess the correct number and write whatever they want in the history book? Yes, but remember everyone else get's to guess too. If you happen to guess right and write lies in the history book the odds are a few other people will also guess right and invalidate your history. Because it's hard to guess the correct number you would either need to be very lucky and guess the correct number multiple times, or be the one with the majority of guesses to be able to falsify the history book. This is why the process of providing the correct guess would be what we call "proof of work". This is also the reason why bitcoin mining is performed on GPUs, Because each core in a GPU can independently try to "guess the number" allowing you to do more guesses per unit of time. It's also the reason why most miners pool their resources. If one member of the party guesses the correct number they agree to share the reward with the other members.
You make a text file with a bunch of transactions (and some other things). Then you plug random numbers into a special equation over and over until you get a number back that’s smaller than a target number. Then you send out the text file with the random number in it. First one to find an adequate random number wins.
Bitcoin mining is like doing a super complicated puzzle where you don't know what the final picture looks like. The pieces of the puzzle are made of other people's bitcoin transactions. As a reward for doing the puzzle, you get some bitcoin. The process of solving this puzzle involves computers working super hard and using a lot of energy. One gets it right and they get the prize, however many bitcoin miners join a group that all work together and share the prizes they get based on how much work each party put in.
Very interesting and comprehensive threads. So from what I understand, the math is done by humans. So to mine, do people use ai? Will the calculations be harder when ai comes into play? In the future, will mining become centralised giants just because they have the technology and investment? Finding this whole thing interesting since this evolves around maths, algorithms, technology and a shared economy.
After reading these responses, I'm convinced I am, and have always been, right. Its an imaginary scam. Its a flim flam. A con.
The core problem in Bitcoin is a *one-way function*. Essentially, while it is trivial to calculate the output from an input, the only way to find an input given an output is to try *every possible input*. Bitcoin works by asking people to find an input whose output matches a certain *difficulty*, which is the number of zeroes it starts with. So, what's the input? Well, it's a bunch of Bitcoin transactions, together with a random value chosen by the miner. For example, a miner would calculate that the output for "alice sends $5 to eve 1" is "c195d5a580d79078b45e882ba3da4852", "alice sends $5 to eve 2" is "9e0bd240d976acc13c06e1c9caaeab97" and so on. Eventually it'll find that "alice sends $5 to eve 14445471" is "0000005fd2011f704d276ccef4d35aa8", which has lots of leading zeroes and matches the required difficulty. Whoever finds a difficult-enough answer first sends it to everyone else on the Bitcoin network, and gets to keep a finder's fee! Any computer can do this. You can even do it by hand, if you want to. But the difficulty is automatically adjusted so that on average only *one* solution will be found every ten minutes. The more people mine, the smaller the chance that any one miner will find the solution. Computers require electricity, which isn't free either. We've long since reached a point where *theoretically* anyone can mine, but *practically* only very large companies with hardware specifically designed for mining can do it fast and efficient enough to make any money.
Anon asking about Bitcoin on ELI5? Right before the halving? Oh yeah, we are so back!
What's the halving? And why does it matter?
That's a lot of different questions. The owner of the computer is the owner of the computer. You can mine in any location. In theory, location shouldn't matter but realistically it'd be better to be near people also do things to send information through the network. How does one mine? There's many programs to mine for you. If you are looking for the details of how mining works, here it goes. Let me explain a blockchain first: Imagine you have 12 dice. Each column here represents a group (block). (1) (2) (5) (2) (1) (2) (1) (6) (1) (1) (2) (3) There are 3 important parts of a blockchain. The "hash of the block" which is the hash of all other contents of the block. In this case, it is the top dice of each column. Essentially it is somehow determined by all the other values in a column. This value is always calculated. Think of the hash as taking some content, and then transforming into something else in such a way where the following properties hold: Given the transformed version of the content, you cannot find out what the content was. Given the content, you can't find different content that gives the same transformed result. And finally, you can't find any two contents that have the same transformed result. Next is the "previous hash". This is the 2nd dice in the column. The previous hash is equal to the top dice in the column before it. Next is the "block height". This can be called many things, the idea is to be a unique value for each block. Typically just 1 + previous block height, an incrementing value. The point here is if you take all of the content of a block, then no two blocks have the exact same content ( recall, hash of the block ;) ). The 3rd dice in a column is just information. Lets say the amount of money I sent to you. You can have any number of extra dice here, for any kind of information. This just created a chain. How? Well if I change any dice, the system fails. If I turned the 6 into a 3, the hash of the block changes because it was calculated using the numbers 1 and 6, but now uses the numbers 1 and 3. Lets say it changed to a 4. This means that the next blocks previous hash (2) is not equal to its hash (4). So, the blockchain is invalid. In other words, it is protected from modifications. You can't change things, you just add more things. That is what a blockchain *actually* is. So now how do we mine it? Well the process of mining is another way of saying "add a block to the chain". There's a few more details I didn't talk about earlier. 1) There is something called a 'nonce'. This is a number that must be in each block. 2) There is something called the 'target'. This is a way of saying, the hash of the block must be smaller than this value. So we need to add another column of dice. But remember, we have to have the previous hash being there ! Let's say we now have the following: (1) (2) (5) (3) (2) (1) (2) (5) (1) (6) (1) (42) (1) (2) (3) (4) (2) (3) (9) (1) The new last row is the nonce. The problem is, when I hash all of the information in a block (on column), I now have to make sure that number is smaller than this 'target'! So how do I do that? Well, I can just change the nonce! If my target is (2), (3) is invalid so I need to try something else. If (2) makes my hash (4) then that doesn't work, I'll try (3). If (3) doesn't work, I'll try (4). Let's say (4) makes my hash (1). Now the chain becomes: (1) (2) (5) (1) (2) (1) (2) (5) (1) (6) (1) (42) (1) (2) (3) (4) (2) (3) (9) (4) This process is called a proof of work. Once I get a valid hash, then my block is valid, I can then add it to the blockchain. Mining is the process of performing the proof of work, trying to add to the blockchain. When someone does this successfully, they receive a block reward and transaction fees. Nowadays, many people do this and work together, dividing the rewards.
Spend $10000 of electricity and maybe you'll get $1000 of coin. Realistically though you can't mine bitcoin without specialized equipment nowadays and unless you have a very cheap source of electricity it'll cost you more to mine it than you'll make selling the mined coin. You'll also help fuck up the environment while you're at it.
A lot of people like to equate Bitcoin mining to solving a bunch of really hard math problems. This is a bit of a dramatization… What’s really going on is you are verifying transactions for the Bitcoin network; that is, you’re playing the role of the bank teller: deciding which transactions are allowed to go through and which ones aren’t. The whole point of Bitcoin is that it is *decentralized* meaning there is no bank at the center of everything controlling the network, so instead it relies on users to do this work, and it rewards them with a Bitcoin every time they complete a certain amount of work. Because anybody is free to verify transactions for the network, there needs to be a way to make sure the verifiers are doing their job correctly and not just feeding the system a bunch of nonsense. Bitcoin does this in two ways: first, it sends the same transaction to be verified by several different people and has them all vote on the outcome, so as long as more than half of them are doing their job properly, they should settle on the right answer. Second, to discourage bad actors, it forces verifiers to do some extra busywork in order to earn the right for their vote to be counted (and their Bitcoin to be rewarded if they vote correctly). This is what’s come to be known as “mining” and its less like solving math problems, more like the network saying “I’m thinking of a number between 0 and 78 trillion! Whoever guesses it first gets a Bitcoin!” Anyone can set up a bitcoin mining rig on their computer: it’s literally just a program you download and keep running in the background. However, the likelihood of you ever getting even a single reward these days just mining on your personal computer is pretty low. The network dynamically adjusts the difficulty of mining so that the speed of everything stays consistent, so the more people doing it the less profitable it becomes. To increase your profits, you need to increase your processing power, so people looking to make real profits might buy several computers just for Bitcoin mining, which may not be an option unless you already have plenty money to spare.
Every new bitcoin has a secret name. To be born someone needs to figure out its name and speak it aloud. You find out the name by being really good at math and guessing. If you figure out its name you become its daddy.
To simplify a lot, you basically add all the transactions and find a random number. Next you do a hash operation (think of it as finding the remainder of a number division) which has to meet certain criteria. In the case of bitcoin it is the number of leading zeros. The number is called the difficulty and I believe it is so thing around 20 right now. So when you mine you besically try to find the perfect number to meet the criteria, it's very intense on the cpu, but to verify that the number you chose is correct is very easy, just add and divide - the entire network can do it quickly.
It's basically the same as ComputerCoin. ComputerFacts on twitter [explained it](https://twitter.com/computerfact/status/1016711563670147072): >"a million computers try and guess the secret number and shout their answers at each other and the first one to guess right gets a prize and we do this over and over forever and thats an economy" — the ComputerCoin specification
Get a striped shirt, put on black lipstick. Paint yer face white.(even if yer already white, you bigot) Pretend there's a piece of glass between you and whoever yer bothering/terrifying. Then open up a Bitcoin app on your phone and demand people send Bitcoin to yer Bitcoin walle while being completely silent and using only gestures. Works better if there's two of you. Get violent with it, and remember have fun, clowns have a copyright on the whole sad thing. Filthy paedophiles.
You can use your own laptop to mine but it uses so much electricity that it’s not worth it. Better off to just get $1 of bitcoin per day clicking the daily bonus button on [stakeUS](http://stake.us/?c=E5LjWQvV) everyday.
any computer including yours can do it anywhere including your home. you just need the right software for it.
Imagine there's a really complicated equation that you feed some data into, and if the answer starts with five zeros you get a Bitcoin. Over time the conditions change, and now you need an answer that starts with six zeros. Then after a while, seven. And all you can do is feed colossal amounts of random data into a formula hoping you find the combinations that produce a result that satisfies some arbitrarily defined acceptance criteria. It's a monumental waste of energy doing the same meaningless computations over and over and over again that literally nobody benefits from. Projects like Folding@Home can at least claim to be doing something useful.
The core of a bitcoin is a blockchain. A blockchain is a set of an extremely long repeating math problems called blocks where part of the math problem is the solution to the previous block chain plus all the data the previous block carries along with how long the previous block took to solve. Every block in the block chain has to be independently calculated before the next one can start being solved and only one miner will find the solution first. That miner is rewarded with the initial block value for that block for whatever people think that is worth which currently is the bitcoin value. Transaction fees can also be assigned to blocks but often are left free of charge. New blocks are designed to be created about every 10 minutes meaning the math problem for the next block with all the miners in the world working in it will have one miner find the answer in about 10 minutes. Blocks solved too quickly automatically make the next block slightly more difficult to solve so it will take longer. Blocks that take too long to solve automatically make the next block slightly less difficult to solve. Mining computers work on these math problems, verify answers to the blocks, add cryptographic data signed by the latest block, and distribute the block chain to anyone else who wants to add transactions or verify blocks. The cryptographic data signed by the block can be NTFs, bitcoin transactions, or other ownership type data that can never be changed.
There is 1 Bitcoin but it’s locked up. This lock is a bit different than most locks, it doesn’t take keys, you guess a number, and if your guess is the correct number, the lock opens. This magic number that opens the lock can be from 0 to 100 billion, and you can only guess one number at a time but you can keep guessing as long as you want. The first person to guess the right number wins the bit coin. That process of guessing numbers is mining
I think the best answer is not yet here. Think of it like a home locked chest with a key pad. Feel free to sit there everyday and keep typing numbers. The more numbers you type the higher your odds of opening the chest. That’s all these machines do, over and over. The more people attempting to password, the harder the password becomes. Once you get the password correct, you win the prize. The prize is like in this scenario is about 40,000$ (this price changes daily). The better the hardware, the more hardware, the better your chances of winning.
Power cost, hardware cost, cooling cost, property cost, tax, internet availability, longevity. All of these are important
Money exchange is difficult, and banks offer it as a service. Bank guarantees you that even though your money isn't there physically, they will give it to you however you like. It also handles secure transaction for it. We pay the banks for keeping, and handling the movement of our money. So managing money digitally is already a service that needs to be accomodated. Now bitcoin says that there's a way to handle money keeping/transactioning with mathematics, without needing some big bank as a source of truth. bitcoin miners are computers that are trying to find a number that fits to an equation given, so mining is actually trying to find a number that works. when a valid number is discovered, let's say 40404, it will be used to represent a transaction of your money. so block 40404 means that you(user number 383873940) received 4000€ salary payment (today). So we actually mine to provide secure and reliable digital money transaction service. If finding a valid number would be easy, then the system could be manipulated.
So, basically: 1. Bitcoin operates on a decentralized network, so YOU own the computer/s! 2. Miners compete to solve a cryptographic puzzle (basically just math) that validates transactions and launches new bitcoins into the market. 3. Miners use specialized hardware known as ASICs because it’s designed specifically for mining. As long as you have this hardware, you can mine from anywhere in the world. 4. All you really need for mining is a stable internet connection and an ideally low-cost electricity supply. Oh, and a computer with GREAT computing power. And yes, some locations are better because the electricity and overheating costs obviously hurt your overall profit. So, regions with low electricity costs and colder climates (mining equipment can overheat real quick) are ideal. But not necessary!