Yes, I know. The term Bitcoin mining is always a deal breaker for the uninitiated. How do you mine using a computer? Where are the mattock and the protective gear? How do you strike gold aka bitcoin?
So let’s use what we all know…
A public transport train
When they wake up in the morning, a public transport train driver and his conductors must make good money for the owner of the train. They will make sure that anyone who uses their train pays for transportation, is well mannered, and is dropped off at the right place to avoid complaints. If all these conditions are met, in the evening, everyone will have reached their destinations and will be happy.
The bitcoin blockchain is some sort of a train. It ensures that money aka passenger or transaction is picked from the right place (read a wallet that has enough bitcoin to do the transaction), charged the right fare, or what geeks call transaction fees/gas, and is dropped off in the right place, which is the intended destination wallet.
As customers, we are a choosy lot! All customers are. We firstly have chosen this particular train in which our passengers have to board to take our ‘messages.’ to wherever we want. In Bitcoin, the message is primarily money. the message is a letter written to all the other customers to agree that we want to reduce one wallet’s balance and increase another wallet’s balance with a certain amount of Bitcoin. Since our passengers are not physical, bitcoin cannot also be physical. It is a virtual or digital currency. As customers, we will simply call ourselves the blockchain members
If our train has defective cabins, passengers will not agree to board it, right? so what do the conductors do? the most logical thing would be to replace bad cabins. If the owner of the train could find a way of ensuring that no good cabin is capable of connecting to a bad one, wouldn’t that be nice?
Methinks so, as this would mean that you are either looking at a wholly bad train, which is easy to spot or a wholly good one. If one cabin is good, then all are good! Satoshi must have had good cabins in his mind when he developed the blockchain.
He built the blockchain in a way that only allows good cabins, or blocks, to connect to previous good ones. This way, a current block will only connect to, or confirm, a previous block that is ‘true.’
If I am a conductor, I will only connect my good cabin to a previous good one in which customers have paid fare, everyone is smiling, and the conductor in that cabin is humming “Oh Happy Day.”
Now we all know how varied passenger behaviour can be on public transport. From petty thieves to preachers, our wild world is best reflected in a passenger train cabin. Transactions in a block must be well mannered otherwise the whole block will be rejected by the blockchain. For our analogy, keep in mind that all passengers are messages for transfer of money, meaning that customers of the train have sent them to the train to effect changes to wallets.
Here is how Bitcoin Mining works
If you send a transaction to board the blockchain, It joins a queue of other transactions, armed with the fare (or transaction fees), waiting to board. The slight difference here is that the conductor gets to choose the transaction that he wants to fit in his cabin. It could be because he knows which customer has more ‘fare’ than the other. All he needs to do is ensure that the last cabin in the oncoming train will agree to connect with his cabin and that the subsequent cabin will agree that all his passengers are ‘cool’ before connecting.
Proof of Work
Fortunately for us, proof of work is understandable to everyone and their mums. You cannot claim to have been looking for a good cabin if you show up looking like Cinderella. No oily hands and no coveralls. Nah. We need to know that if a conductor is bringing to us a cabin for our messengers on which to board, he must have worked hard to fish it out of a lot of defective ones. We will respect him for this, and we will reward him by allowing his cabin to have a title known as the ‘current block,’ the next one that connects to our blockchain.
Having worked that hard, our conductor will expect to be paid well. The conductor will choose the messages with the best fares around. This is like bribing to have our money transfer transactions confirmed faster on the block’train.’ We also assure the conductor that no other cabin is taking passengers for the next ten minutes or so, and he must, therefore, pick the best passengers before the next conductor discovers a nice cabin. The more the popularity of our train, the more passengers show up to queue, and our conductors do not run out of ‘good’ passengers.
Cabin-of-the moment reward
To make sure that conductors stay happy when working to get our messengers a good cabin on which to board, we reward them for the hard work we have witnessed them do rummaging through the heap. Bitcoin does that by awarding a previously agreed upon figure. So picture the customers minting some coins and sending them to the cabin conductor as a result of ensuring that their messengers get to travel safely. This is the only way Bitcoin is created, as a Bitcoin mining reward.
The bitcoin mining reward began at 50 bitcoin per block. The blockchain was configured to halve the reward after every 210,000 blocks, which takes roughly four years. If a valid block is found every 20 minutes, and only 21 million bitcoins will ever exist, then it follows that the reward will be very close to zero bitcoin by the year 2120 or thereabouts. And to claim the reward, future conductors have to put a lot of faith in your cabin by confirming, or attaching their blocks, more than 100 times for the reward to reflect on the wallet!
It is hoped that, by then, conductors will have so many passengers that they will not feel the pinch. Satoshi mined close to 1 million of the original bitcoins, and, bless his soul, his wallet remains largely inactive. That wallet is by 2017 November worth close to $73 billion!
Now, by searching for good cabins in a huge heap of many bad ones, our conductors are essentially ‘working hard’ as we watch. Their proof of work is obvious, and the quickest among them will find the good cabins faster. Isn’t this akin to Bitcoin mining? This is why we call the computers that find blocks for our transactions miners. The conductors in our train. They keep the train healthy by finding good cabins and good passengers to join the train. We call this securing the network. The faster they work, the more cabins they are allowed to fill, and the more money they make.
In blockchain technology, conductors can join efforts to mine and share the reward. They are known as Bitcoin mining pools.
The trip log
Now, as customers, we are a fussy lot. We might want always to be assured that our messages will always be permanently recorded somewhere. Especially if we don’t want to appoint a chairman who we can trust to say which messages were good and which ones did not get to the intended destinations. We do this by keeping a log, and in blockchain technology, it is called a digital ledger.
For everyone to know which messages have boarded the train from the time the first cabin was connected to the engine, this ledger has to be sent to every customer each time a cabin successfully connects to the train.
In other words, the digital ledger must be in a current state that ensures that all confirmed transactions are in it and that it is shared by all members of the blockchain who can store it.
This way, you know how much everyone has, and if someone is trying to effect a balance transfer that is erroneous, we can all shout in a chorus, “But alas! You cannot do that! Live within your means, bozo!”
So who owns the train?
That is where beauty meets money. The blockchain is owned by everyone who participates in it. Including the driver (bitcoin foundation), conductors (miners) and customers (businesses and its customers). Customers can be people who have computers that can confirm transactions or simply people who hold bitcoin in offline wallets and use the blockchain to trade.
Believe me, if you are just a nice guy trying to make a coin in bitcoin mining, you can do that by joining a mining pool, or simply buy and hold bitcoin if you are convinced its value will go up.
Be advised though. Don’t invest in cryptocurrencies, that which you are not prepared to lose. Blockchain technology is largely unregulated and distributed, so there is usually no legal recourse when things go south. Especially with the volatility.
And don’t even get me started on pyramid and Ponzi schemes. That is a story for another day.
Bitcoin Mining in the Jungle – A great story!