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Can you explain this in more detail for those of us who don't fully understand how bitcoins come in to existence, because it sounds like one of those things tha

Can you explain this in more detail for those of us who don't fully understand how bitcoins come in to existence, because it sounds like one of those things that violate some laws of thermodynamics, like the "hydrogen generator" that you strap to your car to increase fuel economy. I ask because I know I've heard about people building huge computers with lots of expensive video cards for the purpose of mining bitcoins. Why would so much computing power be required to perform a simple task like processing transactions? Isn't there additional work necessitated by the intentional complexity of the mechanics of bitcoin mining? I don't know very much about how bitcoins are mined, so I'm speaking from ignorance here, but I'm hoping you can see why the layman observer would need more of an explanation than "Because, of course!"

think33 14y ago
A bitcoin faq would give you more details, but the short answer is that bitcoin is built on cryptography. Every transaction in the system is stored in a chain of blocks. These blocks are created whenever someone discovers the answer to a very hard mathematical problem. When they do this, the new block is created, and that block contains all the transactions that were done since the last block was created. To make the next block, you have to have the previous block, so the entire chain of blocks can be authenticated, thus the entire history of transactions can be authenticated. As a reward for securing the system in this way, that is, providing a secure distributed transaction history, the miners are rewarded with some bitcoins whenever they discover a new answer and create a new block. Thus they are providing the security of the system and as a reward are given bitcoins. To keep the rate of new blocks contstant, the difficulty of the mathematical problem is adjusted up and down. Over time, the number of bitcoins you get for finding a new solution will diminish to zero. To keep miners finding new answers, even after the reward in BTC hits zero (in the year 2140) the system has transaction fees. These are an incentive to keep finding blocks, and the person who finds the next block gets the fees for the transactions that go into that block. Since blocks are discovered once every 10 minutes, you'd get 10 minutes worth of fees for the whole system-- which could be quite a bit in the future.
icebraining 14y ago
The section on Wikipedia on Bitcoin mining is fairly informative: https://en.wikipedia.org/wiki/Bitcoin_mining#Bitcoin_mining https://en.wikipedia.org/wiki/Bitcoin_mining#Bitcoin_mining In short: no, it doesn't really need so much computing power; miners upgrade to improve their relative chances of finding the solution first (which gives them the newly minted coins), and the software automatically increases the difficulty of the process in response. The result is an arms race among miners.
ahomescu1 14y ago
Every time a block is added to the block chain, whoever "solved" that block gets a fixed number of new bitcoins (25 is the current number, I think). A block contains several pieces of information: a list of transactions, a link to the previous block, some other stuff and a nonce. The nonce is a value used by the mining process. "Solving" a block means finding the value for the nonce that, together with the proper contents of the block, hashes to a hash value that starts with a given number of zeroes. You can't really find a correct nonce any other way than by trying new nonces until you find a correct one, hashing the block each time. This is what the mining process is, in short.
yk 14y ago
Rather abstractly Bitcoin is a scheme to solve the Byzantine General problem[1]. The problem is, how can we build a trusted history of accounting without knowing which nodes in the network are trustworthy. And the way Bitcoin does this is essentially by letting every miner vote with his CPU power and the history backed by the most computing power wins. Therefore as long as the majority of miners (weighted by their computing power) is honest, you can trust the accounting. As to the question how Bitcoins come into existence, the miners are in control of the accounting and by design whoever "finds a new block," is allowed to create some Bitcoins (currently 25) out of thin air. The advantage of this is, that even if some very large miner is considering that he could try a 50+1 % attack, he has a strong incentive to stay honest because that way he earns half of the newly mined Bitcoins. [1] https://en.wikipedia.org/wiki/Byzantine_fault_tolerance https://en.wikipedia.org/wiki/Byzantine_fault_tolerance
- dragonwriter 14y ago
  > Therefore as long as the majority of miners (weighted by their computing power) is honest, you can trust the accounting. As computing power is a function of the expenditure of wealth, this is equivalent to saying "as long as you trust the people who have thrown the most money at having power over the bitcoin system are honest."
  - pavanky 14y ago
    Sounds very familiar like trusting the entity with the largest arsenal of weapons.
  - yk 14y ago
    Never thought of it that way, but yes. However, those who have thrown the most money at Bitcoin are also those with the highest interest to seeing it succeed.
- Andrew_Quentin 14y ago
  What do you mean by "the history backed by the most computing power wins"? Doesn't each transaction need to be verified by at least 6 miners? Are you saying that each transaction that is verified has many miners competing to verify it and the one with the most gpu power wins the race? And if so, does that mean that the gpu that won the race an then say it is verified even if to say it is an incorrect transaction would be the truth? If instead you are merely referring to the 50%> effect, the solution to that is way easier than the potential for abuse intrinsic if the statement quoted above is correct, i.e. simply have more miners.

think33 14y ago

A bitcoin faq would give you more details, but the short answer is that bitcoin is built on cryptography. Every transaction in the system is stored in a chain of blocks. These blocks are created whenever someone discovers the answer to a very hard mathematical problem. When they do this, the new block is created, and that block contains all the transactions that were done since the last block was created. To make the next block, you have to have the previous block, so the entire chain of blocks can be authenticated, thus the entire history of transactions can be authenticated. As a reward for securing the system in this way, that is, providing a secure distributed transaction history, the miners are rewarded with some bitcoins whenever they discover a new answer and create a new block. Thus they are providing the security of the system and as a reward are given bitcoins. To keep the rate of new blocks contstant, the difficulty of the mathematical problem is adjusted up and down. Over time, the number of bitcoins you get for finding a new solution will diminish to zero. To keep miners finding new answers, even after the reward in BTC hits zero (in the year 2140) the system has transaction fees. These are an incentive to keep finding blocks, and the person who finds the next block gets the fees for the transactions that go into that block. Since blocks are discovered once every 10 minutes, you'd get 10 minutes worth of fees for the whole system-- which could be quite a bit in the future.

icebraining 14y ago

The section on Wikipedia on Bitcoin mining is fairly informative: https://en.wikipedia.org/wiki/Bitcoin_mining#Bitcoin_mining https://en.wikipedia.org/wiki/Bitcoin_mining#Bitcoin_mining In short: no, it doesn't really need so much computing power; miners upgrade to improve their relative chances of finding the solution first (which gives them the newly minted coins), and the software automatically increases the difficulty of the process in response. The result is an arms race among miners.

ahomescu1 14y ago

Every time a block is added to the block chain, whoever "solved" that block gets a fixed number of new bitcoins (25 is the current number, I think). A block contains several pieces of information: a list of transactions, a link to the previous block, some other stuff and a nonce. The nonce is a value used by the mining process. "Solving" a block means finding the value for the nonce that, together with the proper contents of the block, hashes to a hash value that starts with a given number of zeroes. You can't really find a correct nonce any other way than by trying new nonces until you find a correct one, hashing the block each time. This is what the mining process is, in short.

yk 14y ago

Rather abstractly Bitcoin is a scheme to solve the Byzantine General problem[1]. The problem is, how can we build a trusted history of accounting without knowing which nodes in the network are trustworthy. And the way Bitcoin does this is essentially by letting every miner vote with his CPU power and the history backed by the most computing power wins. Therefore as long as the majority of miners (weighted by their computing power) is honest, you can trust the accounting. As to the question how Bitcoins come into existence, the miners are in control of the accounting and by design whoever "finds a new block," is allowed to create some Bitcoins (currently 25) out of thin air. The advantage of this is, that even if some very large miner is considering that he could try a 50+1 % attack, he has a strong incentive to stay honest because that way he earns half of the newly mined Bitcoins. [1] https://en.wikipedia.org/wiki/Byzantine_fault_tolerance https://en.wikipedia.org/wiki/Byzantine_fault_tolerance

dragonwriter 14y ago
> Therefore as long as the majority of miners (weighted by their computing power) is honest, you can trust the accounting. As computing power is a function of the expenditure of wealth, this is equivalent to saying "as long as you trust the people who have thrown the most money at having power over the bitcoin system are honest."
- pavanky 14y ago
  Sounds very familiar like trusting the entity with the largest arsenal of weapons.
- yk 14y ago
  Never thought of it that way, but yes. However, those who have thrown the most money at Bitcoin are also those with the highest interest to seeing it succeed.
Andrew_Quentin 14y ago
What do you mean by "the history backed by the most computing power wins"? Doesn't each transaction need to be verified by at least 6 miners? Are you saying that each transaction that is verified has many miners competing to verify it and the one with the most gpu power wins the race? And if so, does that mean that the gpu that won the race an then say it is verified even if to say it is an incorrect transaction would be the truth? If instead you are merely referring to the 50%> effect, the solution to that is way easier than the potential for abuse intrinsic if the statement quoted above is correct, i.e. simply have more miners.