This is Bitcoin and mining, you will understand after reading this!

In layman's terms, Bitcoin is a digital currency with a fixed total of 21 million. Like the Internet, it has the characteristics of decentralization, globalization, and anonymity. Transferring Bitcoin to the other side of the world is as simple as sending an email, with low cost and no restrictions. Therefore, Bitcoin is used in cross-border trade, payment, remittance and other fields.

Strictly speaking, Bitcoin is a decentralized, globally applicable electronic cryptocurrency based on blockchain as a payment technology that does not require a third-party organization or individual. Bitcoin was invented by Satoshi Nakamoto on January 3, 2009, based on a borderless peer-to-peer network and consensus-driven open source software. It is the ancestor of cryptocurrency and blockchain, and is currently the most well-known and most valuable cryptocurrency. Anyone can participate in Bitcoin activities, and Bitcoin can be issued through computer calculations called mining. The Bitcoin protocol has an upper limit of 21 million to avoid inflation. The use of Bitcoin is through private keys as digital signatures, allowing individuals to pay directly to others without going through third-party institutions such as banks, clearing centers, and securities dealers, thus avoiding high fees, cumbersome processes, and regulatory issues.

In the eight years since its birth, Bitcoin, as an unprecedented new type of currency, has withstood countless market tests and technical attacks and has always stood firm. Now Bitcoin has grown into a currency system with millions of users around the world, tens of thousands of merchants accepting payments, and a market value of hundreds of billions of dollars.

What is Bitcoin Mining?

1. I have a 100-yuan Renminbi in my hand. (Bitcoin)

2. I will give it to whoever follows the official account.

3. But you need to guess the serial number of this money in the comments. (Mining, random filling in the value to solve)

Try your best to guess, and get the full amount of 100 yuan if you guess correctly - personal mining

Pay some money to gather some people to guess together - Mine

Gather people who know or don’t know each other to guess together, and distribute the 100 yuan in proportion to the number of guesses - Mining Pool

How does Bitcoin work?

From an operational perspective, Bitcoin is actually a decentralized ledger on the Internet.

Centralized ledgers are commonly used in financial services in our daily lives. For example, banks are a typical centralized ledger, and the ledgers are stored in the bank's central database.

How to understand decentralized ledger?

Suppose there is a small village where everyone uses their own account books to record how much money each person has instead of relying on a bank. On each person’s account book, it says: Zhang San’s account A has a balance of 3,000 yuan, Li Si’s account B has a balance of 2,000 yuan…

When Zhang San wants to transfer 1,000 yuan from account A to Li Si's account B:

① Zhang San shouted: Attention everyone, I am using account A to transfer 1,000 yuan to Li Si’s account B.

② The villagers near Zhang San heard that it was indeed Zhang San's voice, and checked whether there was enough balance in Zhang San's account A.

③ After the check is passed, the villagers write in their own account books: Account A transfers 1,000 yuan to Account B, and modifies the balance: Account A balance = 3,000-1,000 = 2,000 yuan, Account B balance = 2,000+1,000 = 3,000 yuan.

④ The villagers near Zhang San tell the villagers farther away about the transfer, and the word spreads from one to ten, and from ten to a hundred, until everyone knows about the transfer, thereby ensuring the consistency of everyone's account books.

Of course, this is a very simplified and popular description of how Bitcoin works; its actual operation is far more complicated than this.

In step ②, if Zhang San yells and the nearby villagers pretend not to hear and do not verify the accounts, then won’t the system stop working?

To solve this problem, the villagers discussed and decided that whoever first confirmed that it was Zhang San's voice would receive 500 yuan. So everyone pricked up their ears and monitored every move in the village at all times. It was really like seeing enemies everywhere.

In the world of Bitcoin, a block is generated approximately every 10 minutes on average. All mining computers are trying to package this block and submit it, and the first person who successfully generates this data block can get a Bitcoin reward. Initially, a Bitcoin reward of 50 Bitcoins was generated approximately every 10 minutes. However, this reward is halved every 4 years, and now the Bitcoin network can generate 25 Bitcoins every 10 minutes.

Well, let's continue with the story above. Zhang San's shouting startled the whole village, and everyone claimed that they were the first to hear Zhang San's voice. Who should the 500 yuan be given to? So the village discussed a new rule, which required evidence to prove that it was Zhang San's voice. Zhang San's shouting contained specific sound wave data, and whoever cracked it first would get the money.

In the Bitcoin world, this is a new concept, the consensus mechanism. Bitcoin uses the consensus mechanism of proof of work to determine the right to keep accounts. In layman's terms, whoever proves that he has done the most work is responsible for keeping accounts.

The workload is reflected by calculating the hash value of the Bitcoin block header that meets a certain standard. The block header usually contains the hash value of the previous block, the Merkle root, the timestamp, the difficulty target, and a random value for filling. The node that attempts to compete for the right to record is called a mining node. The mining process is to find a random value that can fill the block header so that the hash value of the block header meets a certain standard.

Let's continue the story. Wang Ermazi, a returned villager, successfully matched Zhang San's sound wave data with his superb computing ability, and then he smiled and broadcasted his success to the whole village. After the villagers verified it, Wang Ermazi got the 500 yuan reward as he wished, and Li Si also successfully received the transfer from Zhang San.

Each mining machine on the network receives and verifies a batch of transactions, and then starts mining. The mining machine needs to repeatedly test random filling values ​​to solve the problem. Generally, it generates random numbers, tries to fill the generated random numbers into the block header, and then calculates the hash. If the calculation is successful, the mining is successful, and the mining results are broadcast to the entire network. After verification by all network nodes, this block is connected to the top of the block, and a consensus is reached on the entire network.

The story continues. After Wang Ermaizi received the 500 yuan, he thought: A person’s computing ability is limited, and I will most likely not be the first to figure it out next time. If I improve the algorithm, make a machine that specifically matches this kind of sound wave data, and then sell the machine, wouldn’t I be able to make a lot of money? So he worked hard on it, and it was launched soon. (Professional mining machine)

Villager Crayon Xiaoming bought a professional machine and thought it was good. So he bought a large number of them, found a site with low electricity costs, and hired a dedicated person to maintain it. So Crayon Xiaoming saw 500 yuan in income every day. (Mine)

Villager Zhang Xiaofan also purchased some machines, but there were not many machines, and the chance of being able to crack and get the 500 reward was not high. So he created a platform where anyone with computing power could participate. If a reward is obtained, the bonus will be distributed according to each person's computing power. (Mining pool)

The total amount of Bitcoin is 21 million. How are they distributed?

Miners who participate in the competition for the right to record books have the opportunity to receive rewards. At the beginning, the system will reward 50 bitcoins to the fastest and best bookkeeper every 10 minutes, and then these 50 will be halved every four years. Around 2140, no new bitcoins will appear, and the upper limit of 21 million will be reached. After that, transaction fees will be used to reward miners.

Is Bitcoin a Ponzi Scheme or MLM?

The flow of funds in the Bitcoin trading market is similar to that in the stock market, where new investors buy investment assets (Bitcoin or stocks) from unspecified old investors, and neither new nor old investors can guarantee profits. The definition of a "Ponzi scheme" is: the act of absorbing funds by using the money of later "investors" to pay back to earlier "investors" as a return, and the definition of a "pyramid scheme" is: the act of attracting and distributing funds through specific up-and-down relationships.

In the Bitcoin/stock market, the old have no advantage over the newcomers, and they all have to rely on their own ability to judge the rise and fall to make a profit; while in the Ponzi scheme/MLM, the old have a forced advantage over the newcomers, and the old forcefully obtain funds from the newcomers. Therefore, although the Bitcoin/stock market is like the Ponzi scheme/MLM, both rely on the funds of latecomers to drive it, the Bitcoin market and the stock market belong to the same category, not a Ponzi scheme or MLM. Many people actually confuse the three completely different concepts of "bubble", "MLM" and "Ponzi scheme".

How to own Bitcoin?

In the world of Bitcoin, if you want to own Bitcoin, you need to apply for a Bitcoin wallet and obtain a Bitcoin address. Just like when you deposit money at a bank, you need to open an account, and then you own this account. With your own account, you can deposit money into your account, and others can also transfer money to your account. When you need to withdraw money or transfer money to others, you need to show a key that can open this address, that is, your private key, just like you need to provide a password when withdrawing money from an ATM.

With a wallet, you can obtain Bitcoin through buying and selling transactions, mining, gifts from friends, etc.

Looking back at the history of mining, Bitcoin mining has gone through the following five eras: CPU mining → GPU mining → FPGA mining → ASIC mining → large-scale cluster mining

As mining chips are upgraded, the mining speed changes are: CPU (20MHash/s) → GPU (400MHash/s) → FPGA (25GHash/s) → ASIC (3.5THash/s) → large-scale cluster mining (3.5THash/s*X)

Computing power is the ability of a computer to generate hash collisions per second. The higher the computing power, the greater the probability of mining Bitcoin, the more Bitcoins can be mined, and the higher the reward.

However, the benefits of mining are not stable and guaranteed, and electricity bills will become one of the biggest costs of continued mining. Therefore, places with cheap electricity have become the favorites of miners.