In the past few years, bitcoin has evolved from a niche interest to a major world phenomenon. Millions of people are now invested in the fate of bitcoin. The virtual currency operates according to new and innovative rules. The creation of new bitcoins is a fairly fascinating process in and of itself. In the parlance of the currency, bitcoins are “mined” by using powerful computers to perform complex computations.
Bitcoin mining not only increases the overall supply of bitcoins; this process also verifies the many thousands of bitcoin transactions that take place every day. All transactions that take place within a given period are combined into a list called a block. Bitcoin miners collectively confirm each transaction, ensuring that the bitcoin system is reliable and fair. All bitcoin blocks combine to form the currency’s blockchain or general ledger. As each block of transaction is verified, it is added to the blockchain, which has become fairly lengthy. Like any type of currency, bitcoins only hold value if the bitcoin system is deemed trustworthy by the public. This is why bitcoin miners play such a crucial role. Besides achieving personal gains, all bitcoin miners ensure that no one tampers with the blockchain.
After a bitcoin transaction block is created, miners immediately convert this information into a “hash” by processing the information with a unique mathematical formula. The hash is an abbreviated collection of letters and numbers. Each hash is stored alongside its corresponding block at the end of the blockchain. Hashes are critical for ensuring that the bitcoin network is secure and trustworthy. It is almost impossible to discern what data is contained in the hash through simple observation. Furthermore, each hash is completely unique. Just altering one character in a block completely changes its corresponding hash. To generate a new hash, a miner does not only use transaction data from the current block. This process also uses data found in the blockchain’s previous block. If any block is tampered with, miners around the world immediately recognize the error.
The more people engage in bitcoin mining, the more secure and safe this currency becomes. Over time, it is possible that bitcoin could change the way people use and think about currencies. In the view of many commentators and millions of bitcoin users, the decentralized nature of bitcoin mining ensures the integrity of the overall system. Bitcoin miners compete with each other to create hashes. Each miner receives 25 bitcoins upon completing a hash. To slow down bitcoin creation, the foundational software of bitcoin introduces complication by insisting that each hash must look a particular way. Every hash must begin with a predetermined number of zeroes. Adding further complication, the miner must create the hash using a “nonce,” or a random data piece provided by the bitcoin system. If the nonce provided does not create an appropriate-looking hash, the miner must begin again using another nonce. In this way, the system ensures that bitcoins are created in a steady, controlled fashion.
In the years to come, it is possible that virtual currencies could cause tremendous social, economic and even political change. A wide variety of observers are viewing the progression of the bitcoin revolution with varying degrees of interest and suspicion. Some commentators have noted the highly unusual nature of a currency that also doubles as a type of investment. Despite its innovative nature, bitcoin has existed long enough to achieve serious consideration by major world powers. For example, the Chinese government seems deeply interested in bitcoin.
Whatever the future holds, it seems certain that no government can simply outlaw or ban bitcoins outright. Whatever limitations the bitcoin system may have, bitcoin’s decentralization defies central control. Instead of seeing this as a problem, bitcoin enthusiasts are truly excited about this evolution in monetary control. Citing the vaunted “wisdom of the crowds,” supporters of bitcoin claim that decentralized money systems are very promising. Many claim that decentralized systems of verification like the blockchain could lead to the suppression of petty national or partisan interests.
Of course, it remains to be seen if bitcoin will become the currency of choice for the global masses. Even if bitcoins do not transform currency, it is possible that another virtual currency using the blockchain could serve this purpose. Utopian visions of change aside, there is no denying the inherent power of the blockchain. Slowly and painstakingly, many aspects of human life have become more democratic over the decades. At the same time, central national banks have exerted firm control over currencies. It is highly possible and even likely that bitcoin and virtual currencies will challenge the iron grasp powerful institutions have heretofore used to control money. Each and every time a bitcoin miner creates a hash and updates the blockchain, this miner participates in a currency experiment that could profoundly change the human experience.