Part #6 – What Is Bitcoin Mining, Miners, & Mining Pools?

In this 6th episode of our Bitcoin For Non-Technical People Series, I will discuss the process of Bitcoin mining and how the process mints new bitcoins.

I will also explain how it’s extremely difficult to mine bitcoins by yourself and why it’s more favorable to unite with other bitcoin miners to form a mining pool so that you can share in the rewards.

Why Do People Volunteer To
Process Bitcoin Transactions
& Secure The Network?

There are thousands of transactions in the bitcoin network that happen during a 10 minute span, so one person can not possibly have enough computing power to process all these transactions that quick.

So what happens is that individual volunteers will unite with other bitcoin volunteers and “combine” their computing power into what we call a “pool” of processors.

This pool of processors will go out there and put all their computers together and make like a super duper giant computer to process the next block of information.

So their computers are running 24 hours a day processing all bitcoin payments and they’re hoping that they get that next block of information before the other group of volunteer processors.

It’s rare, it’s extremely rare that you will find one person trying to process all the bitcoin transactions.

It’s usually done by groups of volunteers who have united their computers to be more powerful.

Obviously some volunteer processing groups are bigger.  Some groups are smaller and there’s no rhyme or reason to who is going to be the first person to find the next block of information so don’t think that the bigger the group of volunteers will automatically find the next block of information.

The bigger the group of volunteers pooling their computer resources the higher the “probability” that they will find the next block of information but it doesn’t always mean it’s a guarantee.

However, as soon as one group of people process and get the next block to go into the public ledger (blockchain), that person gets a 25 bitcoin reward.

At this moment, on November 23rd as I’m writing this article, this 25 Bitcoins is worth $837 a piece.

So if we take 25 Bitcoins times $837 right now that is worth $20,925!

That is a very sizable reward for processing 10 minutes worth of bitcoin transactions in my opinion!

That’s a huge incentive for someone to go out there and try to process these transactions for everybody.

This is the genius of Satoshi Nakamoto!

Satoshi created an innovative incentive system that would motivate people to come and volunteer their computers to process and secure the bitcoin network to bootstrap a completely new currency system.

Right now, there are thousands of volunteers running around fighting to process your bitcoin transactions in hopes that they’ll find the next block of transactions in and receive the reward.

How Does The Bitcoin
Network Verify Transactions?

Now, keep in mind that every 10 minutes, thousands of these people are processing these bitcoin transactions from around the world, however, only one group is going to win that reward.

It’s the first one that gets it correct.

So how do we (and others in the bitcoin network) know the transactions are correct?

In other words, how does the bitcoin system know that the transactions in the new block are correct?

The method is extremely difficult and with my arithmetic level, I am not qualified to explain to you the mathematics of how they go about going through the history of the public ledger (blockchain), figuring out who has the funds, who doesn’t, if it’s a legit transaction, etc, but let me just do an example real quick for you right.

If you guys remember back in school when we did math find the square root of something like 4, it’s very simple, it’s 2 x 2 right?

Now, if we try to find the square root of 5, it’s more difficult.

It’s not something that you could do at the top of your head… at least I can’t.

You have to use a calculator (or do long hand math) to get it right.

We know it’s going to be 2 point something.

When I tried to find the square root of 4, I can just go:

  • 2 x 1 is 2
  • 2 x 2 is 4

… and BOOM!  I got it correct right?

Now to find the square root of 5, I can’t do that.

I can’t just go:

  • 2 x 2 is 4
  • 2 x 3 is 6

… so it has to be somewhere between 2 and 3.

So I’m going to go:

  • 2 x 2.1 = ?
  • 2 x 2.2 = ?
  • 2 x 2.3 = ?

… and ultimately I get the answer to where I know that the square root of 5 right equals 2 point something.

Now, it would take me a long time to do that, however, when you go to double check to make sure I did it correctly, it only takes you a blink of an eye because all you have to do is multiply the two numbers together and you’ll get the answer that comes out to be “5” and if it’s correct then you know that I did it correct.

Think about that for a moment…

I could take a day trying to figure out what the square root of 5 is but it would only take you a brief moment to check it to make sure it was correct.

Likewise, the bitcoin network works in a similar way.

When a group of volunteers who have united their computers figures out what the next block of information is they will submit it to the rest of the network and everyone will jump on it to verify it before the block of transactions gets added to the public ledger (blockchain).

It may take the volunteer group a long time and lots and lots of computing power.

I mean hundreds of “computers” to figure it out but as soon as they submit that and say hey, man I got the next block of information here, it only takes a brief moment for all the other guys on the bitcoin network to double check it to make sure it’s correct.

If network checks the submitted block and disagree on the accuracy of the “new” block, then that person/group who submitted the block does not get the reward.

Keep in mind that I’m just explaining the verification process in a simple and nontechnical way.

The reality is slightly more complicated.

If you are reading this and you’re a technical person and you don’t think I’m explaining it correctly…

Don’t jump on me okay?

I just told you at the beginning of the video that all I know is arithmetic so give me a break.

What Is Bitcoin Mining?

Now, one thing that you have not heard me mention okay is the word “mining” or the word “miners”.

Mining” is one of the first things that you hear about when you get into bitcoin and it confuses the hell out of people and I wish that if I could go back to when Satoshi first came out with this system, I would ask him and beg him not to use the word mining because it confuses everybody that tries to learn about bitcoin.

That’s the reason why you never hear me say “mining” until now.  I previously used the word “processing”.

When you hear people in the news, in the media and online and you hear the word “mining”, replace it with the word “processing”.

So whenever you hear me say that these people are “processing” all the bitcoin transactions for everybody it is the same as saying they are “mining”.

You’ll hear a lot of die hard bitcoin enthusiasts call it “mining”.

Mining is the process where your computer goes out there and double checks and processes all the bitcoin transactions for everybody.  That process in the bitcoin world is called “bitcoin mining”.

So these people that I call “bitcoin processors” are really “bitcoin miners”.

Bitcoin miners is the technical term for the people who volunteer their computers to process bitcoin transactions but remember, I don’t want to get too technical because I don’t want to confuse people.

When a group of these people unite their computers in order to have more computing power and increase their chances of finding the next transaction block they are called “mining pools”.

So basically, a mining pool is just a group of people processing transactions but they prefer to use a very fancy technical term called “mining pools” to confuse us public folks.

Sending A Digitally
Authenticated
Message Is Not New

I hope that this article answers some of the common questions people have of how the bitcoin blockchain is used to authenticate the funds you send me are legit and that I am the correct person that you are sending it to, so it doesn’t accidentally go to someone else’s account.

The ability to send someone a piece of digital information is not new.

The emails that we send back and forth, utilizes the same technology so the ability to send digital information is not really new and that’s not something we have to worry about when it comes to security because that’s pretty secure and that’s pretty tight right now.

Right now, all the banks in the world, software companies, American Tomahawk missiles all use some form of digitally authenticated message to secure their communications.

Bitcoin borrows the same technology to send and receive digitally authenticated information across the internet and electronic communication networks.

In order to use a digital piece of information as a currency, it’s important that the piece of digital information can only be used “once” and not “re-used” over and over.

What Is The Double
Spending Problem?

Double spending” is when you send a digital currency to me and turn around and send the exact same “copy” of that currency to someone else.

If you think about double spending for one moment…

What is to prevent you from sending me a “digital” dollar and then turn around and send it to someone else as well?

That would not be fair because if you could resend the same (digital) dollar to everyone and anyone as many times as you like.

If you could do this, you would be the same as the 1% banksters on Wall Street who can print money at will without ever having to work for it or provide value to anyone.

Satoshi Nakamoto’s
Brilliant Solution To The
Double Spending Problem

Satoshi’s innovative solution to the “double spending” is not so much a “new” technology but more of a “new approach” to using multiple current technologies that characterizes the genius of Satoshi.

When Satoshi invented the bitcoin public ledger (blockchain), he eliminated the double spending issue which was the biggest issue that kept everyone from being able to create a digital currency.

People prior to Satoshi struggled to invent a new digital currency (or digital cash system) because no one could figure out how to eliminate the “double spending” issue.

Satoshi invented the public ledger (blockchain) which provided a means for everyone in the bitcoin network to agree when and where a bitcoin (funds) were sent and receive.

Before a transaction gets recorded into the public ledger (blockchain) it has to be agreed upon by the majority of the users on the network.  Once there is a “consensus” or agreement that the transactions are correct then it gets added to the public ledger (blockchain).

This public ledger is openly available for everyone to view so there are no “closed door” dealings or hidden transactions.

The ability to reach a majority consensus is provided by the computing power that is supplied by the bitcoin processors (miners) in the network.

This is why having volunteers to donate their computers process bitcoin transactions is so important because the process of “mining” bitcoins provides a mechanism for consensus in the bitcoin network.

Bitcoin Allows For Privacy
When Using Your Money

In the legacy banking system, if you want to send me some money, you have to tell your bank, I want to send money to Tai Zen from PrisonOrFreedom.com and here’s is Tai’s bank account number, ID, driver’s license, etc. and a bunch of other nonsense.

Bitcoin on the other hand does not require all this personal and private information to send or receive funds…

In the bitcoin world, all you need is to have in order to send or receive funds is an account number (also called a bitcoin address).

All you do is just send funds to another person’s bitcoin and boom it’s done.

All you need to receive funds is have to create a bitcoin address and anyone can send you funds directly to your address.

You don’t need to provide your name or any personal or confidential information about yourself.

This is very important for commercial reasons.

A business can sell a service or product without the need to ever have the customer’s personal and private information.

Basically, I don’t have to give a business my personal information and none of that nonsense especially when I’m buying personal items such as:

  • weight loss pills
  • drugs
  • medications
  • sexual products
  • firearms
  • banned books
  • etc.

If you are a business, I just send the bitcoins to your business bitcoin address, you send me whatever it is I ordered and that’s it, deal is done.

There is absolutely NO REASON or NEED for you to know who I am if I’m ordering some balding cream or erectile dysfunction pills or heart medication.

Bitcoin Processing
(Mining) Is Decentralized

The people (the processors) who run out there and process all the Bitcoin transactions do not operate from a central location.

The volunteers (and their computers) who are busy processing the bitcoin transactions are located all around the world.   There is no bitcoin “headquarters” or data center.

Why?

This decentralized network prevents governments, law enforcement, hackers, banksters, and others from shutting down the bitcoin network.

As long as one computer is up and running the bitcoin software, the bitcoin network will continue to exist and process transactions for everyone.

Since there are thousands of people processing bitcoin transactions, it is nearly impossible for any individual hacker or government to shut down the bitcoin network.

It’s just like the BitTorrent peer-to-peer network.

They’ve been trying to shut it down for years now and they still haven’t been able to do it because there are too many people participating in the bit torrent network.

Therefore, it is safe to say that bitcoin borrowed heavily from the success of the peer-to-peer BitTorrent network.

Satoshi knew that when bitcoin succeeds, everybody in the 1% that’s in power on Wall Street, won’t like to lose their power.

The 1% in power will obviously try to destroy the bitcoin network because it threatens their only source of power which is the ability to randomly print money at will without ever having to work or provide value for it.

Decentralizing the bitcoin network and making it distributed so that there’s no one central location that processes all the payments eliminates any attempts to destroy the bitcoin network from any individual or government.

Thanks for watching this video and reading this article about bitcoin for non-technical people.

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Thanks for watching this video and reading this article and I’ll see you in the next one.

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