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Wednesday, September 13, 2017

Cryptocurrency

Our world is getting ever more complex.
Bitcoin came across my plate recently and I got to thinking that maybe I should set up a computer to do some Bitcoin mining and so make a little money. I mean, I've got old computers sitting around and I know something about computer software, I should be able to do this without too much effort, and then presto, free money.

But before I expend any effort on this project, I want to understand what I am getting into, which means finding out just how this Bitcoin business works. After much noodling around I think I have it.

First of all the worth of Bitcoin comes from being a ledger. It's kind of like paying an accountant to keep your books. Admittedly, it's of a special ledger, immune to the forces that normally bear on an ordinary, preson-type, accountant, which may make it more valuable to some people, but it's basically just a ledger.

Second of all, running a computer to mine bitcoins is not a stand-alone operation. You can't just fire up your computer have it make these magical numbers and when it finally produces one you take it and send it off to the great Bitcoin collective in the sky.

Bitcoin is a ledger, and one of things that makes it valuable is once a page has been recorded, it is stamped with a very fancy checksum which means any alterations to the page will render the checksum invalid. And since that checksum is included on the following page, fixing the checksum, will necessitate updating the following page, and the page after that until you reach the end. And since there are a zillion copies of this ledger floating around, someone is going to notice the difference and you will get found out and your evil plot to rule the world will come crashing down around your toes.

The way Bitcoin works is transactions are recorded on a page in the ledger. Once the page is full*, all the active Bitcoin miners jump in and try to compute the checksum. Now it's not an ordinary checksum, it's a very fancy checksum. You could probably compute it by hand in some number of days, but we have computers now, so we let the computers do it. A computer can compute this fancy checksum (called a SHA-256 hash, or some similar nonsense), in milliseconds. It's trivial. Bitcoin has an added requirement though, because not only do you have to compute the checksum, but it has to be 'pretty' (Bitcoin's version of pretty** is that the checksum must start with some number of zeroes).


Blockchain 101 - A Visual Demo
A block is like a page in a ledger. A block chain is like the whole ledger book.

In order for the checksum to be 'pretty', you need to add a magic number to the page. The only way anyone knows to find the magic number is to take a wild guess and then compute the checksum. If it comes out 'pretty', great, if not, try another one and run the computation again. Since it seems to be completely random whether any number will produce the desired result, you may have to try a few zillion numbers to find the one you need.

If that were all there was to it, it would be a mint, running diligently, popping out a bitcoin every ten minutes, which how often a page is filled. But there are also a zillion other computer geeks out there, all hooked to the net, trying to do the same thing, so whoever comes up with the answer first is the one who gets paid.

Antminer S9 ~13.5TH/s @ .098W/GH 16nm ASIC Bitcoin Miner
Since it seems to be completely random which number will provide the solution, it's possible that your little old Pentium processor, sucking up kilowatt-hours of electricity will find it, but it's more likely that it won't. So people have banded together to combine their efforts in order to improve their chances. And computer geeks have gone off the deep end building custom machines solely for the purpose of running these computations. Some people have even gone to the extreme of building custom ASIC chips to do this. The whole thing sounds a little insane, unless you really like doing that kind of thing, i.e. building fancy, special purpose computing machines. And given what we know about people, there is certain percentage of the population who really like doing that.


Genesis Mining #EvolveWithUs - The Series / Official Trailer

Some people have gotten so serious about it that they are building a computer farm in Iceland for the specific purpose of mining Bitcoins. I gave them $100 to see if they can make any money for me. Some people might want to call it an investment, but to me it's more like gambling. It's just enough money that I should remember to check on it occasionally to see if it is producing any results. It's entirely possible they have faked the video and have taken my money and spent it lattes for all their friends. We shall see.

* 'full' seems to be when the checksum for the previous page has appeared.
** The amount of 'prettiness' is adjusted so that the average time it takes for the checksum to appear is ten minutes. I have no idea how many transactions are on a page. It could be one, or it could be a zillion.


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