The world of cryptocurrency has witnessed some changes of late, because mixed feelings are emanating from many nations about regulations that will determine how they handle them, and notable among these countries are the United States, Japan, South Korea, Singapore and India among several others. It is important to mention this, because the uncertainty has resulted in a massive sell-off in nearly all the major cryptocurrencies, and with the bears dictating the market direction of bitcoin. Well, that is a topic for another day, but in the meantime, we shall be looking at a few critical aspects of cryptocurrency technology and they are ‘blockchain,’ and ‘mining.’
WHAT IS A BLOCKCHAIN? Blockchain can be regarded as a shared database that is filled with entries which must be encrypted and confirmed. Blockchain is a decentralized, public ledger of all cryptocurrency transactions of some sort that cannot be corrupted. Blockchain is like the internet because it allows digital information to be distributed, but not copied and its importance is becoming apparent to folks in the tech community. In other word, it is growing continually as more ‘completed’ blocks are added to it in a sequential order, while letting market participants to keep track of digital currency transactions with no need for storage in a single location.
In fact, blockchain data is available to anybody with an internet connection because the data is hosted by countless number of computers at the same time. Every computer that is connected to the network can download a copy of the blockchain along with all its record and transactions that has ever taken place on it, and it is hacker-proof because there is no centralized version that hackers can corrupt! At the moment, blockchain is being used to verify transactions within digital currencies and the record created cannot be altered, but its authenticity is verifiable by all the computers (node) on the network.
A 'block’ can be defined as a ‘current’ aspect of the blockchain which records some recent transactions which then goes into the blockchain as an integral permanent database. As soon as a block is completed and gets into the database, new ones are created and there are numerous ‘blocks’ in the database that are linked to one another in a chain-like manner, and which is done in a linear and chronological order too. Every block holds a ‘hash’ of the preceding block and some vital information that includes addresses of different users, their balances from the originating block and to the most freshly completed block.
BLOCKCHAINS AND BITCOINS As stated in the first lesson, bitcoin has no central authority controlling and relies on its users to dictate and validate transactions. So, when you pay for goods or an experience using bitcoin it means there is no need for a 3rd party to process or store payments. Details of the transaction is entered and recorded into blocks which ends up in the blockchain finally where other bitcoin users verify and relay it. It is estimated that a new block is added to the blockchain every 10 minutes through the process of mining and the website www.blockchain.info gives access to the whole bitcoin blockchain.
MINING These days, with the widespread use of cryptocurrencies, it is not unusual to hear the term ‘mining’ being bandied around by all and sundry, but what is mining? Mining can simply be defined as the process of verifying and adding blocks to the digital public ledger, which is known as the blockchain and is essentially the means through which new bitcoins are released. With the right hardware and internet connection, anybody can carry out the mining process. What miners do is to compile current transactions into blocks and then attempt to solve a difficult computational puzzle and whoever solves the problem can place the block on the block chain and get the reward. Therefore, miners are motivated by the transaction fees that is already compiled in the block and the new bitcoin that is released. It is important for you to bear in mind that the total amount of bitcoins that will be in circulation is 21 million and as new coins are released through the mining process, the ‘block reward’ that miners earn for their effort is halved nearly every four years. Again, the puzzles that they need to solve is adjusted by the protocol almost every two weeks in order to keep the rate of discovery steady. For instance, if miners decided to ramp up their computational power on the network, the difficulty will then adjust itself upwards to make discovery harder and it will act on the contrary if they do the opposite. From relatively simple machines like desktop computers in the early days, miners are now using more expensive and advanced computers like graphics processing units (GPUs) and Application specific integrated circuit (ASIC). Mining is becoming quite competitive nowadays and for it to be profitable; it requires the latest machines, while the cost of energy must be taken into account because the mining process requires a lot of electrical power.
To be continued…
REFERENCES What is ‘Bitoin mining,’ investopedia, www.investopedia.com/terms/b/bitcoin-mining-.asp What is a ‘Blockchain’ investopedia www.investopedia.com/terms/b/blockchain.asp Rosic Ameer, What is Blockchain Technology? A step-by-step guide for beginners, Blockgeeks, 2017, www.blockgeeks.com/guides/what-is-blockchain-technology/