Computing Bitcoin
COMPUTING BITCOIN — With Bitcoin’s recent retrace in price, due mainly to market manipulators, I thought I’d dive into the basics of how Bitcoin is produced. There’s more detail in my book ‘Bitcoin and Blockchain without the Bullsh*t’ (eBay, Amazon, Apple, Play).
As you might have heard, China has been not-so-quietly banning mining operations in their country. Some see this as a reason for Bitcoin’s drop in value, but the reason is lack of knowlege and thus confidence in the network. The market is not well informed — even some of the bigger ‘mouths’ out there (especially the mainstream media, who understand nothing usually).
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Bitcoin mining is the process whereby transactions on the network are essentially verified. Over 2 million miners compete through large ‘mining pools’ to effectively guess (by millions of re-tries) a very difficult key, and thus be eligible for the mining reward. This 6.5 Bitcoin reward is given by the network every time a block of data is written to the blockchain (approx every 10 minutes in the case of Bitcoin). The reward is automatically cut in half every four years. Miners in the winning pool share the reward. The strength of the network, and its massive distributed nature, make Bitcoin the safest and most immutable of all digital currencies — by far. Yes, it takes work and resource, but so does everything else that holds value. Gold for example — you need to dig and process 2 to 91 tons of earth to find a single ounce of it. Instead of diggers, conveyor belts and dumper trucks, Bitcoin uses computers. More on this subject at a later date.
Regardless of the environmental concerns, which are being addressed, and for which there is a good counter-argument, there’s a part to this that most people don’t understand. Bitcoin is clever. I repeat, clever. The code adjusts on the fly without any interference from anyone. If the total number of miners drops (this is called Hashrate..essentially the total amount of computing power) the code simply adjusts the difficulty of mining to find that key. It’s quite simple and elegant. The only slight drawback is that difficulty changes approximately every two weeks, so it can take some time for this to take effect. But that just means slightly less transactions can be processed for a very short period, and fees will possibly be slightly higher for that time. Slightly higher…not Ethereum levels! It’s certainly nothing to be scared of. Nobody controls this. Like everything Bitcoin does, it does it autonomously.
With the Chinese miners going offline, we only have another 6 days to wait for things to return to normal again. In the meantime, it is expected that this equipment will make its way over to North America and other Asian countries instead of China anyway.
So, while some see it as a reason to sell their Bitcoin (resulting in another price drop), strong hands realise that it’s a red herring. Bitcoin is here to stay and, to this day, nothing comes close to challenging it.
I’m always happy to help with your questions — DM any time
