This is where the \u2018crypto\u2019, incidentally, in cryptocurrency comes from. Cryptographic hash functions <\/span>are fundamentally necessary for the functioning of bitcoin and other cryptocurrencies, as they are one-way functions. One-way functions work such that it is easy to calculate an output given an input, but near impossible to calculate the original input given the output. Hence, cryptographic one-way hash functions enable bitcoin\u2019s proof of work system, as it ensures that it is nigh-impossible for someone to just see the output required to unlock new bitcoins, and calculate in reverse the input that created that output. Instead, one must essentially brute-force the solution, by trying\u00a0<\/span>every single possible input <\/span> in order to find one that creates an output that satisfies the specified requirements.<\/p>\n photo: xb100<\/p><\/div>\n Bitcoin is further ingeniously devised to guarantee that on average, new bitcoins are only found every 10 minutes or so. It guarantees this by ensuring that the code that dictates the new creation of bitcoin automatically increases the difficulty of the proof-of-work system in proportion to the number of computers trying to solve the problem at hand.<\/p>\n For instance, in the very beginning of time, it was only the creator of bitcoin who was mining for bitcoins. He used one computer to do so. For simplicity\u2019s sake, let\u2019s assume this one computer could try 1000 different values to hash a second. In a minute, it would hash 60,000 values, and in 10 minutes, 600,000 values.<\/p>\n The algorithm that dictates the mining of bitcoins, therefore, would ensure that on average, it would take 600,000 random tries of hashing values to find one that would fulfill the requirements of the specified output required to unlock the next block of bitcoins.<\/p>\n It can do this by making the problem more or less difficult, by requiring more or less zeros at the beginning of the output that solves the problem. The more zeros that are required at the beginning of the output, the more exponentially difficult the problem becomes to solve. In this case, it would require just the right amount of leading zeros and other characters to ensure that a solution is found on average every 600,000 or so tries.<\/p>\n However, imagine now that a new computer joins the network, and this one too can compute 1000 hashes a second. This effectively doubles the rate at which the problem can be solved, because now on average 600,000 hashes are tried every 5 minutes, not 10.<\/p>\n Bitcoin\u2019s code elegantly solves this problem by ensuring that every 2,016 times new bitcoin is mined (roughly every 14 days at 10 minutes per block), the difficulty adjusts to become proportional to how much more or less hashing power is mining for bitcoin, such that on average new bitcoin continues to be found roughly every ten minutes or so.<\/p>\n You can see the present difficulty of mining bitcoin here<\/strong>. It should be evident from a half-second glance that the amount of computing power working to mine bitcoin right now is immense, and the difficulty is proportionally similarly immense. As of the time of this writing right now, there are close to 5 billion billion hashes per second being run to try to find the next block of bitcoin.<\/p>\n This system holds a lot of advantages even over gold\u2019s natural system of being mined out of the ground. Gold\u2019s mining is effectively random and not dictated by any perfect computer algorithm, and is consequently much more unpredictable in its output at any given moment. If a huge supply of gold is serendipitously found somewhere, it could theoretically dramatically inflate the rate at which gold enters the existing supply, and consequently cause an unanticipated decrease in the unit price of gold.<\/p>\n In fact, more than half of all the gold that has ever been mined in the history of humankind has been mined in just the past 50 years. The difficulty of mining gold doesn\u2019t proportional ly\u00a0<\/span>increase with the number of people mining it, or with technological\u00a0<\/span>innovations that make it significantly easier to locate and mine gold over time.<\/p>\n Bitcoin, on the other hand, will always be mined on a carefully regulated schedule, because it can perfectly adapt no matter how many people begin to mine it or how technologically<\/strong>\u00a0<\/span>advanced bitcoin mining hardware<\/strong> becomes.<\/span><\/p>\n In fact, it\u2019s already known for certain that there will only ever be a total of 21 million bitcoins in the world.<\/p>\n This is because the amount of bitcoin that is mined every\u00a0time a hash problem is solved and a new block is created halves every 210,000 blocks, or roughly every 4 years.<\/p>\n The initial reward per block used to be 50 bitcoins back in 2009. After about four years, this dropped to 25 bitcoins in late 2012. The last halving occurred in July 2016, and dropped the reward per block mined to 12.5. In 2020, this should go down to 6.25, in 2024, 3.125, and so forth, all the way until the reward drops to essentially zero.<\/p>\n When all is said and done, there will hence be 21 million\u00a0<\/span>bitcoins<\/span> . Exactly that, no more, no less. Elegant, no? This eliminates yet another risk with extant currencies, gold included: there are absolutely no surprises when it comes to knowing the present and future supply of bitcoin. A million bitcoin will never\u00a0be found randomly in California one day and incite a digital gold rush.<\/p>\n On top of this, bitcoin is trivially divisible to any arbitrary\u00a0<\/span>degree. Presently, the smallest unit of bitcoin is known as a satoshi, and is one hundred millionth of a single bitcoin (0.00000001 bitcoins = 1 satoshi).<\/p>\n This means that unlike gold, bitcoin is perfectly suited to not only being an inflation-proof store of value, but also a day-to day\u00a0<\/span>transactable currency as well, it is easily divisible to any arbitrary amount. You can buy a cup of coffee with it just as easily as you can buy a car.<\/p>\n Moreover, bitcoin can be sent incredibly quickly and remotely\u00a0<\/span>over the internet to anyone anywhere in the world. This is because when bitcoin is mined, the miners are actually providing a service in powering the bitcoin network.<\/p>\n What happens when a miner mines bitcoin is actually that they add a \u2018block\u2019 to what is known as the \u2018blockchain<\/strong>\u2019. The\u00a0<\/span>blockchain is a ledger that contains a record of every transaction ever made with bitcoins since its inception. When someone decides to mine bitcoin, they must download the entire blockchain as it presently stands.<\/p>\n Then, when they successfully find a solution to the next hash problem and mine a block of bitcoins, something magical happens.\u00a0<\/span>They get to add the block they just mined to the end of the existing blockchain \u2014 and with it, they include every transaction that was initiated on the bitcoin network since the last block was mined. They then propagate this block they just created to the rest of the network of bitcoin miners, who all then update their own blockchains with this new block, and begin working on solving the next hash problem.<\/p>\n As a reward for providing this valuable service, miners are allowed to add a single transaction to the beginning of the block\u00a0they mined, called the \u2018<\/span>coinbase transaction<\/strong>\u2019. This transaction\u00a0<\/span>contains the brand new bitcoin that was created when they mined the block, and allows the miner to claim this bitcoin for themselves.<\/p>\n At this point, a particularly shrewd reader might become concerned with the fact that the reward for mining a new block of bitcoin gradually shrinks to zero. Won\u2019t this cause miners to stop mining bitcoin, and consequently to stop providing the invaluable service that allows the bitcoin network to function and for transactions to be sent?<\/p>\n The answer is no, because miners are not solely rewarded by the new bitcoin that is generated each time they mine a block. Users may also send a transaction fee <\/span> along with their transactions, which is paid out to any miner who decides to include their transaction in a block they mine. Over time, as the bitcoin network becomes used for more and more transactions, it is expected that transaction fees will be more than sufficient for incentivizing enough miners to continue mining blocks to keep the bitcoin network safe, secure, and robust.<\/p>\n It\u2019s important that enough miners keep trying to mine blocks because this is another valuable service miners provide the network. Bitcoin, like gold, is powerful as a store of value because it is decentralized and trustless. There is no one central authority who holds all the power over bitcoin, just like no central authority holds power over gold.<\/p>\n No one person or government can decide to conjure up more bitcoin on demand, or to take it away. The only way the rules\u00a0 that govern bitcoin can be changed is if the software bitcoin miners run to mine bitcoin is changed.<\/p>\n Technically, any bitcoin miner could decide to change the software they run to mine bitcoin at any time. However, this still doesn\u2019t have any impact on changing bitcoin itself. What it would <\/span> do is cause a \u2018hard fork \u2019, or a divergence in the block chain.<\/p>\n This occurs because any block that the rogue miner who changed their software mines won\u2019t be accepted by all the other miners who are still running the original software. Consequently, all the other miners will begin mining different blocks, and adding those to their blockchain. This leads to a fork in the road, essentially, where two completely different blockchains are formed \u2014 one by the rogue miner, and one by all the other miners.<\/p>\n Everything up to the point of the software change remains the same in both blockchains, but after that change, the blockchains diverge. Once diverged, they can never be reconciled and remerged.<\/p>\n This isn\u2019t a concern, however, because the bitcoin network runs on consensus, and accepts whichever blockchain is the longest. In practice, this means that whichever blockchain has the most computing power behind it is effectively guaranteed to win, as they\u2019ll be able to calculate the solutions to the hash problems and find new blocks faster than their less powerful competitors.<\/p>\n This does mean that in theory, bitcoin is vulnerable to what\u2019s known as a 51% attack <\/span>\u2014 an attack in which if a single entity was able to gain control of at least 51% of the total hashing power being directed at bitcoin mining, it could outpace a legitimate blockchain and temporarily take control of the network.<\/p>\n This is an extraordinarily difficult feat to accomplish, however, as the more people there are mining bitcoin, the harder it is to take over the network. At the current worldwide mining rate of almost 5 billion gigahashes a second, it would be extraordi narily difficult for even the most powerful organizations in the world (e.g., large-scale governments) to mount a successful 51% attack. It would be enormously costly, and quite possibly more financially detrimental to the attacker than to the network.<\/p>\n Indeed, the only thing a 51% attacker could really accom plish is destroying collective faith in bitcoin. They couldn\u2019t somehow steal and gain all the value of bitcoins for itself. The attacker wouldn\u2019t be able to generate new bitcoins on demand arbitrarily, and would still have to mine for them. They also would have no control over taking bitcoins created in the past that didn\u2019t belong to them. The only thing they could do, really, is repeatedly spend bitcoin they already owned again and again, but even this is limited in its value, because \u2018honest\u2019 miner nodes would never accept these fraudulent payments.<\/p>\n Hence, no rationally self-interested bitcoin miner would ever try to mount a 51% attack, as in all likelihood, they would lose massive amounts of money doing so and gain almost nothing from the effort. The only reason someone would want to conduct a 51% attack is to attempt to destroy faith in bitcoin \u2014 large governments, for instance, who might one day feel that their fiat currencies that presently provide them great value to them are becoming threatened by bitcoin. However, the likelihood even of these enormous entities to successfully conduct a 51% attack is already becoming vanishingly small, as mining power increases.<\/p>\n Thus, bitcoin has perfectly utilized recent technological advances to create something heretofore impossible: an extremely safe, reliable, decentralized, and globally transactable digital and better version of gold, and possibly of all types of extant currency at large.<\/p>\n The advantages don\u2019t stop there, however. Bitcoin is also \u2018pseudonymous<\/span>\u2019, meaning that while all transactions ever conducted on the network are public and known by all as everything is recorded in the blockchain, unless someone knows who owns the bitcoins that are being used in these transactions, there is no way to trace those bitcoins and transactions back to a given person or entity.<\/p>\n This serves a dual purpose of both allowing extreme transparency when desired in making transactions, and also allowing a lot of anonymity when desired. If one wants to ensure that they have perfect undeniable proof of their transactions, all they have to do is prove they own certain bitcoins, and then any and all transactions conducted with those bitcoins are undeniably theirs and most certainly occurred.<\/p>\n If one wants, rather, to keep the movement of their money less overt, one simply needs to ensure that the bitcoins they own are never tied to their identities, and that their transactions on the network are obfuscated. This can be accomplished with a variety of methods, such as using a tumbler<\/span>, which allows one to send bitcoins to an intermediary service that will mix these bitcoins with bitcoins from numerous other sources, and then send bitcoins forward to the intended destination from sources entirely unrelated to the sender\u2019s original bitcoins.<\/p>\n To clarify this a bit more, bitcoins are stored at what are known as \u2018addresses<\/span> \u2019. Think of this as an email address or a mailing address. These addresses allow for the storage, sending, and receiving of bitcoin. The blockchain ledger contains a complete record of the movement of bitcoins from one address to another.<\/p>\n A tumbler allows someone who say, wants to move bitcoins from address 10 to address 100, to instead move their bitcoins from address 10 to a totally random address, say 57. In some other transaction, the tumbler has accepted bitcoins from someone entirely unrelated at say, address 20, who wanted to send the coins ultimately to 200 and sent these instead to another completely random address 42. It then sends the coins stored at address 42 from sender 2 to the address sender 1 originally desired, 100, and sends the coins stored at address 57 from sender 1 to the address sender 2 desired, 200.<\/p>\n This is highly simplified, but effectively how a tumbler works, albeit at much larger scale, and with many more senders and receivers of all sorts of varying amounts.<\/p>\n This ability to transact more anonymously in a digital, global fashion than ever before has indeed opened the gateway to some of bitcoin\u2019s more infamous use cases. Much illicit activity has been enabled by this pseudonymity of bitcoin, including the sale\u00a0<\/span>of drugs and other illegal goods online. A more recent development\u00a0<\/span>has also been ransomware<\/span>, whereby malware can now cut straight to the chase and lock up your computer and demand straight up money in the form of bitcoin in exchange for the release of your computer\u2019s data.<\/p>\n These developments have been enabled not only by bitcoin\u2019s pseudonymity, but also the irrevocability of transactions. Unlike current forms of digital payment, such as credit cards and bank transfers, bitcoin transactions are irreversible and do not involve any middleman who can mediate between disputes.<\/p>\n Hong Kong\u2019s Business Leaders share market and interest intelligence in the pages of HKMVC 2018<\/p>\n","protected":false},"excerpt":{"rendered":" Bitcoin was designed, essentially, as a better \u2018digital gold\u2019. It incorporates all of the best elements of gold \u2014 its inherent scarcity and decentralized nature \u2014 and then solves all the shortcomings of gold, in allowing it to be globally transactable in precise denominations extremely quickly. How does it do this? In short, by emulating […]<\/p>\n","protected":false},"author":1,"featured_media":7331,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[353],"tags":[408],"class_list":["post-7330","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-special-feature","tag-bitcoin","dropcap-y","no-lazy-placeholder"],"yoast_head":"\n![\"\"](\"http:\/\/www.mediazone.com.hk\/hkmvc\/wp-content\/uploads\/2018\/08\/bitcoin_4.jpg\")
Grand Design<\/h3>\n
Not So Easy, Eh?<\/h3>\n
Facts First<\/h3>\n
What You Need to Know<\/h3>\n
Why Miners Thrive<\/h3>\n
No Worries?<\/h3>\n
Why Govts., Banks Hate it<\/h3>\n
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