Let us start this article by considering the process of inflation. Inflation is defined on Investopedia as “the rate at which the general level of prices for goods and services is rising…and the purchasing power of currency is falling.” In layman terms, consumer items cost more and money is worth less. Historical examples of this are numerous, and unpleasant.
How about a joke. What’s the difference between the government and a computer system?
One of them can manage money! Very funny! Except, the government isn’t the one that can manage money. And this joke is less of a joke than an honest truth.
If history offers any economic insight, it should be that governments cannot manage money. If each piece of currency is not weighted down by x amount of gold in the treasury, then the worth of that currency is determined by politicians and the like. Thus we see the benefit of a currency like bitcoin. Look at the extreme example of the German nightmare of hyperinflation that happened pre-World War 2. The government printed new money whenever they needed it, and so the money was worth nothing. A family’s entire life savings might not be worth enough for one cup of coffee.
Why all this talk of inflation, when the question is about Bitcoin transactions taking an inconvenient amount of time to process?
Unlike the government of Germany, and plenty of other governments, computers do not simply print money. You see, bitcoin transactions take place over 10 minutes to allow mining to occur. Mining is the process used to verify transactions and prevent tampering with transaction history. In addition to providing security, each block detailing transactions also generates new bitcoins. Those coins are claimed by the minors as incentive to continue mining. If mining was quick and easy and still produced the same amount of coins, it could be expected that bitcoins in general would depreciate or decrease in value.
Now let’s take a step back. The internet is a pretty fast-paced place for people who know how to use it, and who can afford more than dial-up connection. There are a lot of things that can go right at that fast pace, but there are also a lot of ways that things can go wrong. It has already been proven that bitcoins are often stolen, so that won’t be brought too much into focus. The internet is a wide domain for people who are interested in perpetrating or committing fraud. There is no pleasant way to say that. With anonymity comes an increased crime rate. People will scam for anything, from sites that promise you can make money at home to car insurance, plastic surgery, unsavory sites visited at 2 am for nefarious purposes, or anything else. There is a whole television show dedicated to people lying to get into relationships. People will commit identity theft, fake their deaths for life insurance, and lie on tax forms. Crime units have seen it all, some of the worst examples of human want to make money with subterfuge. So why should bitcoins be above this kind of hustling for cash?
The short, simple, and not-so-sweet answer is, bitcoins are not above this kind of hustling. Not at all. In addition to stealing the coins, people will also try to reuse them. There are methods in place to keep this from actually happening, and the ten minutes a person has to wait for their transaction to be processed has a lot to do with that. In those ten minutes, computers are going through a complex process to find a proof of work for the transaction-block being added to the block chain. The proof of work is a certificate of legitimacy for the transaction.
Since each block contains the latest predecessor block, each block contains a chain of work that is proven. This acts as authentication throughout all computers involved in the Bitcoin network, whether it is the computer of the miner or not. Blocks in a chain may only be changed by making a new block with the same predecessor block. However, after that is done, all of the successors must be worked through and obtain a proof of work, like any other block. This ten minutes is the average time it takes for a block to be mined. The average time of block mining is effected by the number of miners, and effects the difficulty of obtaining a proof of work. As the speed increases, difficulty increases. Since ten minutes is more or less the optimal amount of time for the transaction and the optimal rate of bitcoin minting, the mining speed is revisited every 2,016 blocks mined (around every two weeks) and variables are shifted in order to maintain the ideal mining rate. It may be a touch inconvenient, but this ten minute processing time makes bitcoin possible.