It indeed is always good to know the basics before learning the big lesson.
What is a Block and Blockchain?
The Bitcoin network witnesses a great deal of transaction activity. Maintaining a record of these transactions helps users track what was paid to and by whom. The transactions executed during a given period of time are recorded into a file called a block.
Blocks are like record books which have the record of some or all of the most recent Bitcoin transactions that have not yet made it to any prior blocks. Blocks essentially are files where data pertaining to the Bitcoin network is permanently recorded. A block, thus, is immutable, meaning, once written, cannot be altered or removed.
Blockchain is nothing but the chain of these Blocks.
Blockchain can be attributed to be a global ledger comprising of all the individual blocks of transaction data. It contains only the valid transactions and thus double spending and other mischievous transactions are kept at bay. The transaction validation is done through encryption using algorithmic hashing. The resulting value is a weird series of numbers and letters, which are completely different from the original data, and is called a hash.
What is Bitcoin Mining?
Bitcoin mining involves solving a difficult puzzle to discover a new block, which is added to the blockchain. The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards, which are the motivation behind mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.
Essentailly, decoding and encoding the blockchain is referred to as mining. Mining involves the use of computers to run hashing algorithms to process the most recent block, with the information needed in mining found in the block’s header. The cryptocurrency network sets a target value for this hash – the target hash – and miners try to determine what this value is by testing out all possible values (hit and trial).
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The amount of new bitcoin released with each mined block is called the block reward.
The block reward is halved every 210,000 blocks, or roughly every 4 years. Since blocks are mined on average every 10 minutes, 144 blocks are mined per day on average. At 144 blocks per day, 210,000 blocks take on average four years of time.
Block Reward History
Source: Bitcoin Block Reward History
Total circulation will be 21,000,000 coins (21 million). This is expected to be reached in 2140.
How difficult is this mining thing?
The mining difficulty began at 1.0 with Bitcoin’s debut back in 2009; at the end of the year, it was only 1.18. As of April 2017, the mining difficulty is over 4.24 billion.
Once, an ordinary desktop computer sufficed for the mining process; now, to combat the difficulty level, miners must use faster hardware like Application-Specific Integrated Circuits (ASIC), more advanced processing units like Graphic Processing Units (GPUs), etc.
Well, that depends on how much effort is being put into mining across the network. The difficulty of the mining can be adjusted, and is adjusted by the protocol every 2016 blocks, or roughly every 2 weeks. The difficulty adjusts itself with the aim of keeping the rate of block discovery constant. Thus if more computational power is employed in mining, then the difficulty will adjust upwards to make mining harder. And if computational power is taken off of the network, the opposite happens. The difficulty adjusts downward to make mining easier.
In the earliest days of Bitcoin, mining was done with CPUs from normal desktop computers. Graphics cards, or graphics processing units (GPUs), are more effective at mining than CPUs and as Bitcoin gained popularity, GPUs became dominant. Eventually, hardware known as an ASIC, which stands for Application-Specific Integrated Circuit, was designed specifically for mining bitcoin. The first ones were released in 2013 and have been improved upon since, with more efficient designs coming to market. Mining is competitive and today can only be done profitably with the latest ASICs. When using CPUs, GPUs, or even the older ASICs, the cost of energy consumption is greater than the revenue generated.
Security of the Bitcoin Network
Bitcoin mining is decentralized. Anyone with an internet connection and the proper hardware can participate. The security of the Bitcoin network depends on this decentralization since the Bitcoin network makes decisions based on consensus. If there is disagreement about whether a block should be included in the block chain, the decision is effectively made by a simple majority consensus, that is, if greater than half of the mining power agrees.
If an individual person or organization has control of greater than half of the Bitcoin network’s mining power, then they have the power to corrupt the block chain. The concept of someone controlling more than half of the mining power and using it to corrupt the block chain is known as a “51% attack”. How costly such an attack would be to carry out depends largely on how much mining power is involved in the Bitcoin network. Thus the security of the Bitcoin network depends in part on how much mining power is employed.
The amount of mining power that gets used in the network depends directly on the incentives miners have, that is, the block reward and transaction fees.
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