Tags: bitcoin | cryptocurrency | mining

Bitcoin Mining Helps Explain Basics of Cryptocurrency

Bitcoin Mining Helps Explain Basics of Cryptocurrency
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By Tuesday, 09 January 2018 11:27 AM Current | Bio | Archive

Bitcoin is defined by Wikipedia as "a crypto currency and worldwide payment system. It is the first decentralized digital currency as the system works without a central bank or a single administrator. The network is per-to-peer and transactions take place between users directly through the use of cryptography, without an intermediary."

Since this is not the whole story, let me try to explain the subject in very simplistic terms, an amateur attempt if you want.

First one starts with the producer of the bitcoins or cyber currency. He is called a “miner” and possesses a very powerful computer.

In this example, the miner starts a program to calculate the circumference of a diameter “d.” We all know the equation for this which is C = d x 3.14; except, the constant 3.14 is indefinite in as much as it has millions of more numbers after the period.

In order to complicate the process, the minter tells his computer to calculate the circumference of say d = 5 up to the one million numbers after the comma.

After moaning and groaning, the computer finally finishes the task.

The miner now creates a smaller program designed to reverse the process, that is, to take this huge number and try to calculate the value of “d” embedded in the coin. This final program then is the actual bitcoin. There are of course many other mathematical equations involved by different minters. However, each system has to involve one encrypter (the miner) and one decrypted (the coin).

The transfer of a bitcoin takes time since each transaction has to be authenticated by six other miners. Bitcoin has to be reviewed by six other miners. As a result, the time to confirm a bitcoin transaction has increased from 4.5 hours in May of 2016 to an average of seven days.

Each of such bitcoins is unique since each is based on a different number for "d," or any other value. The bitcoin (program) will self-destruct if it is ever tampered with or there's an attempt to copy it.

The completed bitcoin now is sent via internet to a prospective buyer who either can store it on his hard drive (a hard wallet) or resell it to another party. Nobody should attempt to solve this “puzzle” and find an actual value for “d.” First, it would be pointless and secondly it would make the bitcoin valueless. Besides, it would take a super computer to accomplish this task or find an answer among millions of bids. Incidentally, all transactions are recorded.

Creating bitcoins requires a lot of electric power. It is estimated that in one year the worldwide processing required 3.4 million KWhrs, enough to supply the 3 day power requirements of the city of Washington D.C. Presently, there are 16 million bitcoins around, which makes 212,000 KW per bitcoin — a cost which still is rising.

Bitcoins have no intrinsic value even though some consider bitcoins an asset. This is similar to paper money, say a $50 bill. In itself it has no value, since it only is a piece of paper with printed numbers. Only the fact that somebody else is willing to accept this bill in trade for goods or services gives the money some value. The same applies to bitcoins. It only has value if somebody else wants to have one. When this demand will decrease and there is say one single coin left unsold, then the price will drop from the recent height of $16,000 to zero. The current speculative craze is akin to the so-called "Tulip Mania" during the 17th century in Amsterdam, where a single tulip bulb could catch as much as $300,000 in today’s money.

This may be one reason why the Chinese government outlawed trading with bitcoins. There is another reason why the Federal Reserve and the IRS are getting concerned; it is the possibility that bitcoins can become a “shadow” currency bypassing government-controlled paper money. Be assured, the governments will never allow this to happen.

Keep in mind, bitcoins are not metal coins, just a bunch of digits on somebody’s computer. What you see on televisions are make-believe coins made for advertising purposes only.

Hans Baumann is a licensed engineer in four states and a member of Sigma Xi, the Scientific Research Society. He is an adviser to the dean of the University of New Hampshire Business School. Dr. Baumann has published manuals on valves and was a contributor to many works including the "Instrument Engineers' Handbook" and the "Control Valves Handbook." He has also published several books on business management and German history, including "Hitler's Escape," which suggests that Adolf Hitler did not commit suicide and survived World War II. In his latest book, "Atomic Irony" he proves that the Hirshoma Atom Bomb contained captured German Uranium. For more of his reports, Go Here Now.

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Keep in mind, bitcoins are not metal coins, just a bunch of digits on somebody’s computer. What you see on televisions are make-believe coins made for advertising purposes only.
bitcoin, cryptocurrency, mining
Tuesday, 09 January 2018 11:27 AM
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