Quick Lessons about Cryptocurrencies and Bitcoin
Mining and Nodes
“Mining” Bitcoin … you are probably imagining coins being exctracted from the ground. Because it is similar to gold mining, meaning there are Bitcoins in the protocol’s design, this like finding gold inside the earth, but which have not yet been carried out to the light. The bitcoin protocol stipulates that there will be 21 million Bitcoins at some point. What “miners” do is pulling them out, a few at a time. They get to do this as a reward for creating validated transactions blocks and their inclusion in the Blockchain.
A “node” is a powerful computer running the Bitcoin software and it helps keep the currency running by participating in the transmission of information. The nodes extend around the Bitcoin transactions in the network, it will send information to a few related nodes that will transmit the information once again, so you end up getting around the entire network rather quickly. Some are mining nodes, or “miners,” and those solve a complex mathematical problem that is part of the Bitcoin program, which includes the answer in the block.
When the Bitcoin miners add a new block of transactions to Blockchain, part of their job is to ensure that these transactions are accurate. The miners guess the mystery number and apply the hash function to the combination of the number found and the data in the block. The resulting hash has to start with a preset number of zeros. There is no way to know which number will work because two consecutive integers give wildly varying results. What’s more, there could be several unique values that produce the desired result, or there may be none. The first miner to get a hash within the desired range announces his victory to the rest of the network. All other miners immediately stop working on that block and start trying to figure out the mysterious number for the next.
The costs of having a node for “mine” are considerable, not only by the powerful hardware required, with a processor that is way faster than your competitors you will have a better chance on finding the correct number before the others do, but also by the large amounts of electricity required to run these processors.
Speaking at an economic level, the number of mined bitcoins could decrease. The value of a Bitcoin relative to the cost of electricity and hardware could increase in the coming years to partially offset this decrease, but this is unlikely. The difficulty of the calculation, that is, the required number of zeros at the beginning of the string hash, is frequently adjusted so that it takes on average, around 10 minutes to process a block, which is the time the developers believe Bitcoin needs to provide a constant flow and decreasing the number of new coins until the maximum number of 21 million is reached.