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But how can you create a system that has a decentralized ledger How can you give someone the ability to update the ledger without giving them too much powerin case they become corrupt or negligent in their job

Well, Bitcoins rulesalso known as the Bitcoin protocolsolves that in a very creative way I like to phone Who Wants to Be a Banker

In a nutshell, anyone who wants to take part in updating the ledger of Bitcoin transactions, known as the blockchain, can do this. Whatever you need is to guess a random number that solves an equation generated by the system. Sounds simple, right

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Obviously, this guessing is all done by your computer. The stronger your computer is, the more supposes you can make in one second, increasing your chances of winning this game. If you manage to figure right, you earn bitcoins and get to write the next page of Bitcoin transactions on the blockchain. .

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1. Once your mining computer comes up with the right guess, your mining program determines which of the current pending transactions will be grouped together into the next block of transactions. Compiling this cube represents the moment of glory, as youve now develop into a temporary banker of Bitcoin who has to update the Bitcoin transaction ledger known as the blockchain. .

2. The block youve generated, along with the solution, is sent to the whole network so other computers can affirm it. Its somewhat similar to some Rubiks cube: The solution is quite tough to achieve but quite easy to validate.

3. Every computer which validates your solution upgrades its copy of the Bitcoin transaction ledger with the transactions you opted to include in the block.

4. The system generates a fixed amount of bitcoins (currently 12.5) and benefits them to you as compensation for the time and energy you spent solving the math issue.

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5. Additionally, you get paid any transaction fees that were attached to the transactions you inserted into the next block.

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6. All the transactions in the block youve only entered are now confirmed by the Bitcoin network and are virtually irreversible.

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So thats Bitcoin mining in a nutshell. Its called mining due to the simple fact that this process helps mine new Bitcoins from the computer system. But if you think about it, the mining component is merely a by-product of this transaction confirmation procedure. Therefore that the name is somewhat misleading, since the main objective of mining would be to maintain the ledger in a decentralized manner. .

As you can imagine, since mining is based on a type of guessing, for each block, a different miner will guess the number and be granted the right to update the blockchain. Of course, the miners with more computing power will succeed more often, but on account of the regulation of statistical probability, its highly unlikely that the same miner will succeed each time. .

Now you know what Bitcoin mining is, you might be thinking, Cool! Free money! Where do I sign up Well, not so fast

Satoshi Nakamoto, who invented Bitcoin, crafted the principles for mining in a manner that the further mining power the network gets, the harder it is to imagine the answer to the mining math issue. So the difficulty of the mining process is really self-adjusting into the accumulated mining power the network owns. .

If more miners join, it will get more difficult to address the problem; if many of them drop off, it is going to get easier. This can be known as mining issue.

Well, he wanted to make a steady stream of new bitcoins into the computer system. In a sense, this has been done to keep inflation in check. Mining difficulty is set so that, on average, a new block will be added each ten minutes (i.e., the number is going to be guessed every ten minutes on average). .

Now, remember, this is on average. We can have two blocks being inserted minute after minute and then wait an hour to the next block. In the long run, this may even out to ten minutes on average.

As you can imagine, this kind of self-adjusting mechanism has made a type of arms race to acquire the most efficient and strong miners as soon as possible.

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When Bitcoin first started out, there werent a great deal of miners out there. In reality, Satoshi, the inventor of Bitcoin, and his friend Hal Finney were a few the only people mining Bitcoin back at the time using their own personal computers.

Using your CPU (central processing unityour computers brain and an integrated component in any computer) was enough for mining Bitcoin back in 2009, my latest blog post since mining issue was reduced. As Bitcoin started to catch on, people looked for more powerful mining solutions.