What is Bitcoin Mining and How does it Work

What is Bitcoin Mining and How does it Work

Bitcoin mining is the process of verifying transactions on the Bitcoin network and releasing new Bitcoin into the system

These two activities are key to Bitcoin and help differentiate it from other forms of currency. This video explains how mining works and how transactions are verified, if you should consider Bitcoin mining and also explains a bit about the overall Bitcoin ledger as compared to banks and other third parties as a money transfer system.

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Tariq Abdel-Rahim says:

So who regulates how much is rewarded to miners?

Jacob varley says:

Buy some microphones, it's extremely hard to tell what you're saying most of the time.

JoshSA123 says:

"There isn't actually enough money in the banks. It's called fractional reserve"…when you realize this one little fact, you learn to enjoy everyday for what it is because the whole banking system is a lot more vulnerable than people like to believe.

Mine_Zone says:

So bit coin works like communism and capitalism at the same time?

Kerrigan Burns says:

What the fu*k was that out-tro

susulemons says:

if you bought a bunch of bitcoin when this video came out , you will have 2x the value right now

amira bel says:

Best site for Bitcoin Mining http://cut-urls.com/UVFimHHx

Bayu Elwiyandi says:

ok I'll just apply loan to a bank to make a bitcoin mining company, so I fucked up the bank and fucked bitcoin at the same time.

WeeJoe 46 says:

Thank you for this video. I definitely won't be signing up now.

Daniel Alexandre says:

To explain bitcoin mining, here it goes:

The latest transactions are put in a list/group called a block.
All previous transactions were also put in blocks and this makes a chain of blocks. But each new block needs information from the previous blocks because its ID is actually the cryptographic hash of a previous one.

The cryptographic hash used is called SHA256 and hashing is a bit like a compressed tweet unique to a text of characters of any length. When you hash a text of any length with SHA256 you get a number of 256 bits, that is, 256 zeros and ones.
So the ID of each block, that is, the sha256 of previous one, will be a number with 256 bits.
One important propriety of a cryptographic hash is that a small change to the input text of characters makes a complete change to the output in a way that you cannot relate these results to guess the origin of them and so this result uniquely identifies that text length of characters without giving you any hints of what made it actually give that output.
So, a cryptographic hash is like a fingerprint of a text of any length that identifies it uniquely.

Anyway, all these blocks make a linked list because each block has as its id the hash of the previous one that as also as ID the hash of its previous one, and so on, till the genesis block.
So new blocks get stacked on previous ones and because the ID of a block has to be the same as the cryptographic hash of the one before it, you cannot make a new block that can be added to the chain without it having in it all the history of the chain.
Pretty much like with our DNA. It has a trace of all the history of life on Earth in it. In the same way, the ID of a block has also all the history of blocks in it.

Mining is to find a block of the latest validated transactions with an arbitrary imaginary transaction called the "nonce" added at the end.
This imaginary transaction added at the end is a complete fiction and is not a real transaction. It is just a random gibberish added so that it will make the hash of the block different every time you change it.

This is just to put it simple, because actually only the header of the block is hashed. I call the nonce an "imaginary transaction" that will change the result of the hashing just to make it simpler to explain.

So in mining computers are always changing this imaginary transaction to see if the cryptographic hash of the block with it added to the list of real transactions that comprises the block will give a hash result starting with the number of zeros actually required by the puzzle challenge at present level of difficulty.
The difficulty level is how many zeros are at the start of this 256 bits hashing result. The more zeros that are required at the left the harder the puzzle gets because the computers need to find by trial and error a match that is much more unlikely and so will probably need to try much more hashing the block with a different imaginary transaction – called the nonce, as was said – to see if it will give a result with the required number of leading zeros.
An added zero required makes it twice as much harder and so the difficulty rises exponentially with the number of zeros required following: two to the power of n, where n is the number of zeros.
This makes sure all transactions in the chain are valid and mutually consistent and makes it possible to achieve consensus and agree on the current block as for the new block to be agreed on it must have a comparable value regarding how much valuable it is in terms of being computationally expensive. As the latest block has in it a kind of DNA that accounts for the whole history of the chain of blocks it is astronomically computationally expensive and all extra spurious work of the puzzle/difficulty/nonce will be making the following blocks with even more expensiveness added to it.

ย It is as if the balances associated with each address are all written on a public ledger distributed and accessible to all. And as if the more computer power is devoted to the network the more the font size and boldness of these registers increase making it more easy to achieve a consensus agreement because the letters become much more visible.
The resources are only for the units of currency to enter circulation in the balance sheets, given as rewards for the computer power devoted, and help make the letters and registers of the distributed database and software more bold and visible. And impossible to refute.

The more computer power the network has the more difficult it will be the cryptographic puzzle demanded to create a block, so that you solve the problem on average on 10 minutes time. Having more computer power would make the network solve the puzzle faster so the network increases or decreases the difficulty to adjust that average time to create a block to be roughly 10 minutes.

The puzzle is not any complex mathematical equations as is usually said. it is just to have enough zeros on the cryptographic "tweet" (comprised of a numeric string) that summarises, so to speak, the block.

Imagine the block could be summarized by the tweet: "00000234355345353". If the difficulty/puzzle is asking for a tweet with at least five zeros leading on the left the block would be accepted. ย 
ย The difficulty is just the number of leading zeros on the left that is being demanded for the "tweet" that summarizes the block to have.

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