This is Part 5 of a 7-part review of the book, The Blockchain Code, by Dave Kinsey. To read the previous installation, CLICK THIS LINK. For the next installation, CLICK THIS LINK. To start at the beginning, CLICK THIS LINK. Thanks for reading!
The Bitcoin program is designed to produce a new block in the blockchain approximately every 10 minutes. A new block reflects all the bitcoin transactions that have occurred throughout the world, by anyone doing business with Bitcoin, over the prior 10 minutes. And in an ideal world, the transactions in every new block, on every node throughout the vast network, will exactly match each other.
However, we don’t live in an ideal world. Transactions arrive at nodes at different times. Communications get interrupted. Computers have glitches. And so forth. So the end result, every 10 minutes, is thousands of unmatching new blocks that have been recorded on thousands of different nodes, throughout the world.
With all of these unmatching blocks, how does the Bitcoin program decide which block is the best block to accept as the next block to add to its super-long blockchain?
Bitcoin resolves this dilemma through a method called proof of work. It generates an extremely long, random number, called a nonce, and challenges all the miners at all the thousands of different nodes, to try to guess (or “hash”) the nonce. The miner that guesses correctly receives the honor of its block being the next added to the blockchain. And along with this, the miner is rewarded with bitcoin.
It has been determined that 10 minutes is the ideal time interval for creating new blocks. So the Bitcoin program periodically adjusts the difficulty level of the nonce, so that that the average time it takes to guess it remains about 10 minutes. This adjustment is necessary as miners become more and more numerous, and more advanced in the technology they use, for quickly guessing the nonce.
The more powerful the mining equipment that a miner owns, the more likely that miner is to be the first who correctly guesses the nonce. Mining equipment consists of specialized computers with very powerful central processing units, that draw a very large amount of electricity.
These computers can guess numbers at an extremely rapid pace. Today, a bitcoin mining rig costing about $3,000 will generate over 100 trillion guesses per second. And these days, all of the miners in the world combined, on the estimated 50,000 node Bitcoin network, make about 190 quintillion guesses per second. Spread out over 10 minutes, that’s an average of 6.8 septillion total guesses, in an attempt to be the chosen node with the next blockchain block, and to be the one that wins the bitcoin.
By the way, Kinsey didn’t come up with the above figures. I had to look them up and also do some calculations. This is one criticism I have of his book, The Blockchain Code. Sometimes he didn’t get as specific as I would have liked, when diving into the nuts and bolts of the blockchain.
There’s much more to mining and creating new blocks than this, such as soft forks, hard forks (which create new types of cryptocurrencies), and the formidable Chinese mining company, Bitmain. But I’d have to write a book myself, if I wanted to get into all of that.
When Bitcoin first came out, miners won 50 bitcoin (BTC), per lucky guess. That number cuts in half every four years. So in 2013, it was reduced to 25 BTC. In 2017, it went down to 12.5 BTC. And since 2021, it’s been down to 6.25 BTC. Which in today’s market is worth about $131,250. The number will reduce to zero around the year 2140, at which time 21 million BTC will have been distributed.
This assumes Bitcoin will still be around in 2140. Kinsey characterizes cryptocurrency as the most sophisticated Ponzi scheme in the history of the world. Ponzi schemes have a tendency to suddenly, and unpredictably collapse.
Of course, some crypto-enthusiasts will argue that government-issued currencies are Ponzi schemes. Good point, and maybe so. But remember history. Sometimes they collapse, too.
This series plans to be around for a few more installments, before it collapses. So come on back tomorrow, and I’ll teach you how to do business using Bitcoin. Assuming that is, that Bitcoin is still worth anything, and hasn’t suddenly dropped to zero.