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Notes and Reflections on Books and Media

by Hannah Leitheiser

Bitcoin Mining

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order

Paul Vigna, Michael Casey




So, bitcoin mining? You may have heard of it, but what is it?

The basic problem is to create a distributed virtual computer for doing the clerical work of banking. And that takes people running the bitcoin core software on their private real computers, something that comes with real costs (eg. you'd want to allocate 145 GB of disk space to it now -- but expect that to increase).

Mining is a lottery that rewards one of these nodes with newly "minted" bitcoins. Specifically, blocks are to be produced about every 10 minutes, and winning a block lets you add a line to credit your account with 12.5 bitcoins (around $100k), which you get to use after your block is accepted by most of the other nodes as an accurate link in the blockchain.

Now, how to design a lottery when there's no central authority to pick a winning ticket? Satoshi Nakamoto, the creator of the bitcoin software, decided the first winner of a guess-and-check math problem would get the coins. The problem involves adding some random data to the block to try to get it to hash to a result with some number of leading zeros. If people get the answer too quickly or too slowly, the difficulty is adjusted so each block takes about ten minutes.

Now, it didn't take people long to realize that their odds of being the chosen node increased if they could take more guesses than others. And so began a race of going from CPU's to GPU's to hobbyist specially designed application-specific integrated circuits (ASIC's) to industrial water-cooled farms built near power plants (to shim a bit off their power bill).

To my mind, this games the system a bit, but I suppose it's an effect of the power of incentives. Creating fairness without a centralize authority to say anyone's taking more or less than they deserve is going to take new ways of thinking.