Bitcoins is a digital currency that made its debut in 2009. We described in some detail how bitcoins work in our earlier article entitled “Mt. Gox, Largest Bitcoin Exchange, Goes Belly Up.”1
Bitcoin mining is the way in which new bitcoins are minted (digitally, that is).
Mining involves packaging bitcoin transactions into blocks and appending them to the bitcoin block chain that records every bitcoin transaction. For each block that a miner adds to the block chain, he is rewarded with 25 bitcoins. At today’s price of about $600 USD, this amounts to $15,000. Sounds like a fast way to make a lot of money.
The backup service iDrive decided to try its hand at bitcoin mining. iDrive backs up its customers’ files overnight, which leaves most of its 3,000 quad-core servers idle during the day. It put 600 of its servers to work during the day mining bitcoins. After a bit of experience, it calculated that it would earn around 0.4 of a bitcoin per year – about $240.
The Bitcoin Infrastructure
How can mining for bitcoins be so difficult? The answer is that the algorithm for creating a legitimate block of transactions is very difficult to calculate, and its difficulty is raised as time goes on. To understand this, we must first understand a bit about the structure of the bitcoin network.
The bitcoin infrastructure comprises a large number of peer-to-peer nodes worldwide that cooperate to manage bitcoins. Every bitcoin transaction is sent to each node in the network. Available to each node is the bitcoin block chain, a sequence of blocks that contains every bitcoin transaction that ever occurred since bitcoins were introduced in 2009.
Some of these nodes are mining nodes run by miners. Their job is to package a set of transactions into a block and append them to the block chain. For this effort, they receive as compensation some bitcoins as well as any transaction fees offered by the parties to the transaction.
A miner may be an individual, an organization, or a group of participants that form a mining pool and share the profits based on their relative contribution of processing power to the pool
Bitcoin mining is the way in which new bitcoins are minted (digitally, that is).
Mining involves packaging bitcoin transactions into blocks and appending them to the bitcoin block chain that records every bitcoin transaction. For each block that a miner adds to the block chain, he is rewarded with 25 bitcoins. At today’s price of about $600 USD, this amounts to $15,000. Sounds like a fast way to make a lot of money.
The backup service iDrive decided to try its hand at bitcoin mining. iDrive backs up its customers’ files overnight, which leaves most of its 3,000 quad-core servers idle during the day. It put 600 of its servers to work during the day mining bitcoins. After a bit of experience, it calculated that it would earn around 0.4 of a bitcoin per year – about $240.
The Bitcoin Infrastructure
How can mining for bitcoins be so difficult? The answer is that the algorithm for creating a legitimate block of transactions is very difficult to calculate, and its difficulty is raised as time goes on. To understand this, we must first understand a bit about the structure of the bitcoin network.
The Bitcoin Peer-to-Peer Network
The bitcoin infrastructure comprises a large number of peer-to-peer nodes worldwide that cooperate to manage bitcoins. Every bitcoin transaction is sent to each node in the network. Available to each node is the bitcoin block chain, a sequence of blocks that contains every bitcoin transaction that ever occurred since bitcoins were introduced in 2009.
Some of these nodes are mining nodes run by miners. Their job is to package a set of transactions into a block and append them to the block chain. For this effort, they receive as compensation some bitcoins as well as any transaction fees offered by the parties to the transaction.
A miner may be an individual, an organization, or a group of participants that form a mining pool and share the profits based on their relative contribution of processing power to the pool
1 comment:
good blog...
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