Some Of The Beginner Bitcoin Questions Answered – Part 1
What they wanted to know about bitcoin, as asked some friends who were Bitcoin newbies, here are the answers. The following is what we came up with. Read on for all the info
How Does Mining Work?
A key component of the Bitcoin system is mining. In a sense tying everything together, it helps secure the network is integral to the issuance of new coins. Whereas now how does it work?
I will try to explain it in a condensed way that is simple but not too simple as hopefully you get the gist of it, as it is slightly complicated.
Transactions on the Bitcoin network are bundled together into a block on average every ten minutes. The creator of the block i.e. the miner needs to prove they did the proper work in order for the block to be accepted by the network. Known as proof of work is this.
You can now think of it like this: you have to solve a math puzzle in order to create a block. Sort of like a Sudoko puzzle, the puzzles are hard to solve yet easy to verify. The other miners can quickly check if it's correct and then everyone starts working on the next block when a miner sends a solved block to the network.
Rather than people using a pencil and paper, obviously unlike Sudoko puzzles, these proof-of-work math puzzles are solved by computers running the Bitcoin software.
Using brute force trial and error, the puzzles are solved. From miners all around the world, there are scads of combinations tried every second from miners. A single miner will be computing trillions of hashes per second in fact. In bitcoin conversations, you may hear the word hash or hashing being thrown around quite a bit. Essentially it is the math puzzle I am referring to as you don’t really need to know what a mathematical hash function is.
Mining could be done on any computer simply with the computer’s CPU in the early days of Bitcoin. Mining moved away from CPU to GPU then to FGPAs and finally to ASICs that are Application Specific Integrated Circuits over the years. To mine today you need a specialised ASIC piece of hardware as far too slow are ordinary computers. They have to bundle all the transactions that will be included and also refer back to the previous block when a miner produces a block. Getting put into the hash function is all this. Together they make a chain of blocks hence the term blockchain as each block refers to the previous.
This is what creates security for bitcoin since the blocks are chained together. The attacker will be too slow compared with the rest of the network that is continuing to extend the blockchain as no one can build an alternate history of transactions without thereafter doing it all over again the work for those blocks and in case this is attempted.
Miners are also allowed to include a special transaction on each block called a coinbase transaction which awards the miner with freshly minted coins in addition to the normal transactions being bundled into blocks. While it at the same executes the issuance schedule, thus the mining process provides an economic incentive to participate in proving security.
This tends to follow the price of the coin as the network hash rate refers to the total aggregate amount of mining being done by all miners on the chain. The more the system attracts miners to compete for those rewards as the greater the financial rewards.
Periodically the network will make it either easier or harder to solve blocks based on how fast blocks have been coming in, finally, there is a difficult adjustment. The system will continually keep adjusting so that the average time between blocks is ten minutes as the hashrate goes up the difficulty will also adjust upwards.
Besides Bitcoin (BTC) What Are The Other Major Coins?
Today, Ethereum (ETH), is the #2 coin by market cap. It is more focused on smart contracts which are computer programs that automatically execute agreements without the need for trusted intermediaries as Ethereum is similar to bitcoin in that it uses an open-source blockchain system. Currently a backbone of decentralised finance, Ethereum also hosts other coins known as tokens Ethereum is often touted as being a kind of world computer. Known as tokens, Ethereum also hosts other coins.
A creation of Ripple Labs company, XRP is a currency that runs on Ripplenet. Like Swift, it aims to be an alternative to legacy financial systems. XRP doesn’t use proof-of-work and instead is based on trusted validator nodes that include universities and banks, unlike Bitcoin and Ethereum. Issued by Ripplelabs are XRP coins.
Also called a stablecoin, Tether (USDT), is a coin that is pegged to the US dollar. Issued on the other blockchains including BTC, ETH, and BCH, it doesn’t have its own blockchain.
Equivalent in value to the number of circulating tethers, the peg is
achieved by the Tether company maintaining dollars in a bank account, and other assets. Some doubt this and Tether’s reserves have never been fully audited by a third party as Tether has claimed that the coin is fully backed by USD reserves and similar assets.
Introducing some small changes including faster block times and a different hashing algorithm, Litecoin is similar to Bitcoin and is based on the Bitcoin protocol. Even if they do not have access to ASICs although today ASIC mining has taken over LTC as well, this algorithm was originally intended to allow more users to mine the coin. Making it one of the oldest coins, Litecoin was created in 2011.