Friday, 5 January 2018

History of Bitcoins and How it is Working?

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The earlier idea of digital money, simply took the form of a public ledger. You know,... you start off with money; you have a list of who owns how many coins – And then, people can call in and say, ‘I hereby transfer so many coins to such and such’,... And you then update the ledger.
Now of course in real life, proper money actually works like that – It’s just that the banks em, don’t keep an infinite public figures of all history of the transactions. But, bitcoin keeps everything publicly visible forever!

 The basic idea behind bitcoin, is that, you’ve got thousands of people (called bitcoin miners), who compete to find the next Hash in something called the blockchain – And a new Hash is found every 10 minutes!... So what happens is, hundreds of people who want to do a transaction (say, I want to pay you a tenth of a bitcoin – which is about $276 in August 2017), what I’ll do, is that I’ll sign a transaction saying that I pay you $274. And that is collected, together with hundreds of other transactions that people want to do around the world – And bitcoin miners work on it.
How they work on it, is... They look for a random number, which together with the last Hash of the blockchain, and the batch of pending transactions, will have a certain property. And this property, is found only about one time in every 60,000,000,000,000,000,000 attempts!

So,... We’ve got millions of computers round the world, working to try and find the next Hash with the special property, by trying the existing blockchain, plus all the transactions in the queue that are waiting to be processed! And eventually, every 10 minutes or so, some lucky bastard puts up his hands and says, ‘Found it!’ ... And when that happens,... he gets 25 bitcoins (BTC) as a reward! – And 25 BTC in August 2017, was equivalent to $68,575! (so, yeah... What are you doing with your life right)?

The blockchain, is a list of all the transactions that have been done with bitcoin, back since the first ever transaction in 2008/2009! And, it’s punctuated with hashes... And each hash, binds together the transactions that happen up to that point in time. This allows anybody can look back over the blockchain, and can trace the origin of any particular bitcoin, when it was mined, right when it was rewarded as a price to a miner who found the appropriate hash... And, everybody who spends it, or, sub-divided it, or did something else with it since then.
So,... it’s an open ledger of the history,... and every single coin is visible to all!

What you basically do, is you add to the blockchain, 1 hash at a time. So, you start off with the last hash, plus all the transactions you’ve swept together into a pool, to add to the chain – And then, there’s that hash that you found at the end.

There are presently, 3 large working pools in the world. And, they distribute the work to tens of thousands of people; who then beaver away happily, trying to find the next hash. And when the reward comes through,... Each of these mining pools will win a reward about once every half an hour. They then, share them out to the miners who worked for them.

So,... What you’ve ended up with, is a system whereby people can buy bitcoin mining equipment, plug it in, Sign Up to a mining pool, and start getting some Return on their investment – Just as if they’ve put money into the bank (only that the return is slightly or way better)!
Most of the profit you’ll make from mining bitcoin, will however, be use to pay for your electricity bill (bitcoin mining does sap a lot of those electrons don’t they)?!

There’s a significant problem coming down the line because, in about a years time, the reward for finding a bitcoin, is due to fall from 25 BTC per successful hash, to 12.5 BTC!... Now, when bitcoin was set-up, the inventor decided, that in order to prevent inflation, the number of bitcoins that you would get, would fall over time as the amount of work you would have to do per bitcoin, would increase – until finally, the amount of bitcoin in circulation would be stable!

Now,... This means that from about October next year, if you’re doing bitcoin mining on a fully commercial basis, then every dollar that you spend on electricity, would return only 1 dollar in expectation of bitcoin (instead of around 2 dollars of the present time)!
So, Were all these Rules Set Up for Bitcoin – That, Over a Certain Amount of Time, these Things Should Happen?

Well,... Bitcoin rules, were setup by the anonymous guy who set the system up in 2008. And they’re maintained by the people who maintain the bitcoin software... So, as long as they agree on what the software should do, you have consensus! But, if they were to disagree, and split the system into two separate universes, then that would have huge consequences – Just like, for example, if Greece were to have left the Euro, there would’ve been all sorts of troubles and mop-up.
Nobody knows for sure, who wrote bitcoin.... The person, who claims authorship, Satoshi Nakomoto, appears to be a Pseudonym – And various people have been found, who might have been him!

What we do know is, that the first bitcoin transaction was made with Hal Phini, who was a Cyber-punk cryptographer and encoder; who could have definitely invented this thing, and come up with it. And, he unfortunately died of a neuron disease a while ago – So, we can’t now ask him if it’s his handy work – although, he did deny it at the time.


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