Bitcoin mining: a human introduction to the theory

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For anybody not familiar with bitcoin, it is basically a peer to peer system to handle transactions of virtual money.

Here is a bit of a summary of how it works:
block – A block contains a set of transactions. But not only. It contains a mathematical puzzle to be solved and a reference to the previous block and more (see link to the bitcoin wiki)
block chain – A series of blocks together will compose the big “bitcoin db”, and a set of blocks is called a block chain. Every transaction can therefore be tracked to its source on bitcoin (well, at least to its crypto alias)
mining – And this brings us to our topic. Adding transactions to the block of chains will be done by miners. Given all the stuff included in a block, this is not an easy task… But will cover this in a bit.
Mining is rewarded through bitcoins.

An element, difficulty, is changed on a block level every 2016 blocks. Difficulty is created for the sole purpose of making a miner’s life hard. If the network was flooded with miners, blocks would be added to the chain one after the other and maintaining (costwise) the network would become increasingly difficult. Basically, the more processing power there is, the lower the shared income of miners.

Now, two weeks are used as a metric for the difficulty. If the 2016 blocks are found before the two weeks, it means there is a lot of processing power, and therefore difficulty can increase.
On the other hand, if the 2016 blocks were found after the two weeks, difficulty decreases.

Comes automatic that the number of miners since the bitcoin came to exist increased, and with it the difficulty… But more about my experiences there on the next post.

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