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Glossary

How does Bitcoin work?

Bitcoin miners perform a function that is analogous to gold mining but very different. While gold miners mine rocks to produce gold which has integrity and scarcity based on internal characteristics based on atoms and chemical law Bitcoin miners mine numbers which have integrity and scarcity based on internal characteristics based on cryptographic protocols and mathematical law. Bitcoin mining is how the numbers and information of the Bitcoin network is secured, validated and verified. The Bitcoin mining community must solve a complex cryptographic math problem to create a block. Once solved the answer can be easily verified by other Bitcoin miners. Blocks are solved approximately every ten minutes and the difficulty of the complex cryptographic problem varies based on the total computational power of the Bitcoin network. Additionally, miners listen for transactions, which are ledger transfer announcements, broadcasted through the peer-to-peer network as transactions. These transactions are then processed and confirmed by being included in a block and adding the block to the blockchain. Each transaction is included in a block and all blocks constitute the Bitcoin blockchain. Therefore, the Bitcoin blockchain contains a record of every Bitcoin transaction that has ever happened. Most Bitcoin miners perform this labor because miners that solve a block earn (1) any transaction fees paid by customers for faster transaction processing and (2) the block reward which is a predetermined amount of bitcoins as specified by the protocol. Bitcoin mining is a very competitive market. Bitcoin miners are unable to either increase their own block reward beyond the rules in the protocol or process invalid or fraudulent transactions that could corrupt the Bitcoin network. Because anyone can become a Bitcoin miner and the Bitcoin network is the largest distributed computer network in the world therefore it is extremely improbable that any particular Bitcoin miner that may be acting maliciously could compromise the blockchain. Thus, Bitcoin mining is used to protect the neutrality and the consensus of the network even if not all Bitcoin miners can be trusted.


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