| json_metadata | "{"app":"musing/1.1","appTags":["bitcoin"],"appCategory":"bitcoin","appTitle":" How does bitcoin work? Who actually pays for the 'mining' done?","appBody":"<p>Bitcoin is a blockchain. A blockchain is a database containing transactions in a linear sequence ordered into a chain of blocks with each block containing a hash function value (a complex formula that produces a long number that is hard to fake) calculated from the previous block. (That makes putting the blocks in an incorrect order afterwards without anybody noticing impossible because the hash values won't add up.) Copies of the database are held on a number of different computers on the Internet. Such computers are called the nodes of the Bitcoin network. There are thousands of such nodes and none of them have any special status. That's why the Bitcoin network is called a peer-to-peer network. Anybody can start a Bitcoin node without asking anybody's permission which is why the network is called permissionless.</p>\n<p>To keep the nodes from trying to forge transactions, they must participate in a lottery where the winner gets to make a new block and gets rewarded with new bitcoins every ten minutes or so. Before they are allowed to participate in the lottery, they are given the output of a hash function and their job is to guess the input and verify the input by calculating the output. There is a vast number of possibilities, only a extremely few of which are correct. The only method is trial and error. That's why it takes a lot of computing power to have a chance of getting the right answer often enough for the whole business to be financially rewarding. The business of guessing the inputs of the hash function is called mining. The entire purpose of the mining is to make it so expensive to get to make new blocks that you as a miner do not want to screw up your chances of getting a reward by including false transactions in the blocks. The network would know because the blocks are verified by all the other miners who receive the same transactions posted to the network by the users.</p>\n<p>So, the miners are paid in newly created bitcoins that in turn have a market value which allows the miners to exchange them for enough fiat money (dollars, euros, yen, etc.) to be able to cover their costs and make some profit. If the price is too low for miners to cover their costs, those who lose money the fastest will quit. When there's less mining power in the network, the network will detect that and adjust the difficulty of guessing the hash function inputs downwards so that it will be less expensive in terms of electricity to run the computers to do the mining. If more miners join, the difficulty is adjusted upwards. That's how the system balances itself.</p>","appDepth":2,"appParentPermlink":"p3klt52g5","appParentAuthor":"fandiy","musingAppId":"aU2p3C3a8N","musingAppVersion":"1.1","musingPostType":"answer"}" |
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