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Old 15-05-2020, 08:14   #31
jameswrx
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Quote:
Originally Posted by plip1953 View Post
Sounds to me that you understand more about it than most!

To me, the "mining" aspect is pretty much analogous to conventional mining of stuff you might find in the ground (that you regard as having value eg gold), although in the context of bitcoin the "digging" effort that's involved is in the form of computing power. This computing power (that miners supply) is what it takes to run the transactional aspects of bitcoin (which is where the clever blockchain stuff comes in), and in return for making that computing power availability the miners get rewarded with newly created bitcoin.

Where can I buy some of your Mythical Bullion?
So itís not just a case of problem solving like a game then, but having the hardware in place for others to use?
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Old 15-05-2020, 08:54   #32
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Originally Posted by jameswrx View Post
So itís not just a case of problem solving like a game then, but having the hardware in place for others to use?
Yes, at least that's my understanding.
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Old 15-05-2020, 09:32   #33
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The difference between Bitcoin and gold is amply demonstrated by alt-coins. Gold also has mostly fantasy/fear value, but you can't just whip up hundreds of types of alt-AU with basically the same function and characteristics.
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Old 15-05-2020, 18:09   #34
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Quote:
Originally Posted by jameswrx View Post
So itís not just a case of problem solving like a game then, but having the hardware in place for others to use?
I'll post a quick explanation of how blockchains work and how crypto currencies work for those that are interested, hopefully people can follow it. Obviously this is massively simplified (so don't @ me), but it should get across the basics of both blockchains and "mining".

Apologies for length.

To look at blockchains first, it is just a way of validating chunks of data. So let's say I am creating a blockchain of a book where each block in the chain contains a single sentence. The first sentence is

Quote:
When he was nearly thirteen, my brother Jem got his arm badly broken at the elbow.
That sentence will be the contents of my block, so now I need something I can use to validate that the contents of the block haven't changed. We use a "hash" for this, which is just a way of turning data into a big number. The same data always results in the same hash so if the data and the hash ever mismatch we know something has changed. I'm using an on-line tool to hash our sentence, which you can try for yourself;

https://emn178.github.io/online-tools/md5.html

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Referring to the picture above, the data in the upper box is the sentence we are hashing and the number in the lower box is the hash of that data. Note that this number is hexadecimal. So now we have our first block in the chain

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Our second sentence will be in a second block. The second sentence is

Quote:
When it healed, and Jem's fears of never being able to play football were assuaged, he was seldom self-conscious about his injury.
The hash for this sentence is 4c854d3851886cd643232ad9dadff46d

Our second block starts with the hash of the first block, so the chain now looks like

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To summarise, the first block has our first sentence ("When he was...") and the hash of that is "f066...". The second block starts with the hash of the first block ("f066...") and contains the second sentence ("When it healed...") and the hash of that block is "4c85...". Continuing the theme we will add the third sentence

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You can probably now see where the term blockchain comes from. The data is in blocks which are chained together via the matching hash value of the previous block; the number at the start of the arrows is the same as the number at the end.

Let's say I want to change the first block to put myself into the story. In the first block I change "Jem" to "Aidy" and as the data has changed, the hash of that block has also changed so the hash of the first block is now "45175832fe8200ebcb0a36be49708244". The updated chain looks like

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Uh-oh, SpaghettiOs, we have a mismatch (the number at the start of the first arrow no longer matches the one at the end of it) so we know the data has changed so the blockchain is now invalid.

On its own this isn't much use; after all I could simply update the second block to change the hash of the first block and so on down the chain until the whole chain is valid again. Blockchains become useful when they are "distributed", so a network of computers all have a copy of the blockchain and any changes to the chain have to be agreed by the majority of the network. In the above example if I pushed my amended chain as an official update, the other nodes in the network would reject it as invalid.
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Old 15-05-2020, 18:10   #35
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That's blockchains in a nutshell. Now we'll talk about bitcoin specifically. One of the things that makes bitcoin bitcoin is the way the hashes are generated. A block in bitcoin will contain transaction data;

John +100
Dave +100
John to Dave 5
John to Dave 2
Dave to John 1
John to Dave 5

Breaking this data down, line 1 ("John +100") means John has bought 100 bitcoins. Line 2 ("Dave +100") means Dave has also bought 100 coins. Line 3 ("John to Dave 5") means John has transferred 5 coins to Dave and so on. We'll put three transactions per block so the first block is going to be

John +100
Dave +100
John to Dave 5

Let's hash it

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And make our block

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Now we have a problem - this is not a valid bitcoin block. Bitcoin places rules on what the hash can be and to be a valid bitcoin block the hash has to begin with "0" and ours begins with "c". The hash is still the proper hash of our data, it just doesn't confirm to bitcoin's rules. To make this block valid we have to add something to it such that its hash does begin with "0". So let's just add some random text ("aaaaa");

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Mmmm, still no good as now the hash begins with "6". I'm going to cycle through all the letters like "aaaaa", "aaaab", "aaaac" and so on until I find a valid hash. Turns out "aaaaj" satisfies the bill.

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So now we have a valid block as the hash begins with "0".

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The extra data we had to add to make the hash valid is called a nonce (who comes up with these terms?) and the process of trying to find a valid nonce is called mining. When a new block is ready to be verified, all the mining nodes in the network start trying random nonces until they find one that makes the hash valid. The word "random" is important here....in my example I just cycled through a sequence of letters but in reality the miners are all trying different random numbers to use as nonces. The first one to find a valid nonce is awarded an amount of bitcoin as an award for finding it.

Now as a human being it only took me a few seconds to find a valid nonce, a computer can do this in the blink of an eye (as can Chris Hansen). If that is how hard the nonce is to find then the blocks would validate in milliseconds, and as each validation creates bitcoin as an award the number of bitcoins generated would skyrocket, leading to inflation and making them worthless (if you think they have any worth in the first place).

If blocks are being verified too quickly then the number of zeroes the hash has to begin with increases, so two zeros, then three etc. This is called the "difficulty"; the higher the difficulty the more zeros the hash needs to start with, as with each additional zero the nonce becomes exponentially harder to find (you can try this yourself using the sample link at the top...put in random text until you get a hash that starts with two zeros). So as more mining nodes and faster devices are added to the network, the difficulty increases to compensate.

The other way that inflation is controlled is that the reward for successfully "mining" a block reduces over time. This reduction in reward coupled with a higher difficulty keeps the rate of bitcoin generation in check. Eventually the reward will drop to zero meaning no more bitcoins will ever be created.

One thing we haven't mentioned is that transactions can have a fee. If the fee is 10% then transferring 1 bitcoin will cost you 1.1 bitcoin, and rather than getting bitcoins as an award for mining, the successful miner will get the transaction fees in that block instead (the 10% that was added to each transaction). So if the reward drops to zero the incentive to continue mining will still be there, but with bitcoin transfer rather than creation.

That's roughly how bitcoin works, and as you can see it means that transactions are inherently slow to be validated.

Some competing crypto use a different system entirely. Let's say there are 1,000,000 Aidycoins and I personally own 1,000 of them. Like normal I can buy things with my coins (sadly the only thing you can actually buy is heroin or a hit on your wife), or I could use them to pay off ransomware....you know, typical stuff crypto is used for. If I wanted to mine a new block I could elect to "freeze" my coins so I can no longer buy that sweet, sweet heroin, but as I own 0.1% of all Aidycoins I have a 0.1% chance of being selected to be the person who mines the new block. If someone else has 20,000 Aidycoin then they have a 2% chance of being selected and so on.

Each interested party nominates themselves as a possible miner and based on the percentages of their "stake", a miner is randomly selected. The winning miner just needs to hash the new block, there is no "difficulty" involved. As there is no difficulty the block is verified instantly.

The advantage of this method is that the transactions per second is way higher, unlike bitcoin where it can take ten minutes for a block to be verified. As the blocks are being verified much quicker there is no creation of Aidycoin to reward the miner, instead the miner gets the transaction fees only. The disadvantage of this method is that Trump owns 500,000 Aidycoin so has a 50% chance of being chosen as the selected miner. So basically the rich get richer.

With bitcoin's system (called "proof of work") the better your hardware (ie how much money you have actually spent **) defines how likely you are to be the first to mine a new block, but with the other system (called "proof of stake") how much of the currency you own dictates how likely you are to be the first to mine a new block.

These two methods are generally used when your blockchain is public and any Tom, Dick or Harry can be a miner on your network, however your chain doesn't have to be public, you can run miners on a pool of servers that you control and select which node does the verification any which way you want...randomly, round-robin, always the same node and so on. Again this method needs no costly verification so transactions are again fast. I believe this is what JP Morgan are doing with their system.

Edit: ** - the quicker your device can generate random numbers, the more numbers it can test as nonces, so the greater the chance to find one quickly. Generating random numbers is mathematically complex so the better your PC the quicker you can do this, similarly generating hashes is also mathematically complex. People even skew this process by using graphics cards to mine as they have hardware that does maths way quicker than the CPU in your computer can.

Last edited by Aidy; 15-05-2020 at 18:42..
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Old 15-05-2020, 20:28   #36
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Nicely explained.

It's probably worth pointing out that most bitcoins are mined with ASIC (application-specific integrated circuit) miners which is hardware that is dedicated for the job. When you hear the term "mining farm" they will be using ASICs and are setup where energy rates are most favourable.

Heres a popular example of an ASIC manufacturer www.bitmain.com

Last edited by kins; 15-05-2020 at 20:31..
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