Bitcoin Mining

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency, Web 3.0, and metaverse ecosystems.

Chinese Bitcoin Mining Farm (source: aljazeera.com)

What is Bitcoin Mining?

Bitcoin uses a consensus mechanism known as Proof-of-Work (“PoW”) to add new blocks onto the blockchain. The application of the PoW consensus mechanism will verify all Bitcoin transactions before they are added to the blockchain. Bitcoin “miners” compete with one another to verify each transaction and then add the next verified block onto the blockchain.

Generally, cryptocurrency mining refers to the process of earning cryptocurrencies by solving cryptographic equations by employing highly efficient and ultra-fast computer systems. For Bitcoin, this process involves verifying data blocks wherein each 250MB data block may include from about 1,500 to about 4,000 Bitcoin transactions.

Aside from this block verification process, cryptocurrency mining involves the process of adding transaction records (in the form of a block) to a public record or public ledger. This public ledger is known as the blockchain. Complex encryption techniques are then used to secure this transaction data. This is where the term “cryptocurrency” came from.

On January 3, 2009, the first Bitcoin was mined by its alleged founder Satoshi Nakamoto. At the time of its launch, Bitcoin could be mined by way of central processing units (CPUs) using ordinary laptops or desktop computers. Essentially, CPUs control how computer code is processed and executed.

In these early Bitcoin days, there was not a lot of miner competition. Therefore, the processing power required to create new blocks and earn mining rewards could be processed on ordinary CPU devices, like desktop and laptop computers.

However, as the price of Bitcoin began to escalate and Bitcoin’s popularity grew, global mining activities and mining competition increased. This increased competition brought more hashing computer power online to compete for solving these equations. Hash power is the power that a computer must expend to run and solve different hashing algorithms.

As Bitcoin mining continued to attract competition, mining difficulty increased, requiring more and more hash power. To gain a competitive advantage, Bitcoin miners began implementing graphic processing units (GPUs) to harness more hashing computer power.

Unlike the predecessor CPU devices, GPUs perform a very specific range of computational tasks. GPUs were originally designed for gaming applications since they excel at computing mathematical operations in parallel. These devices can also be programmed to compute other mathematical operations such as the ones required to mine Bitcoin.

Miners used GPU devices for many years before the launch of more superior mining hardware in the form of ASICs (Application Specific Integrated Circuits). As block difficulty continued to increase, hardcore Bitcoin miners started mining with ASIC-based machines. These ASIC-based machines are often installed in thermally-regulated data centers or mining farms. This technology was developed solely for mining with hash rates significantly higher than GPUs.

The successful miner must first verify a block of transactions and then solve complex mathematical problems. The first miner to solve the mathematical problem earned financial rewards in the form of newly minted or “mined” Bitcoin. Miner competition is intense as there can only be one successful miner for each verified block.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment; therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

 

How Does Bitcoin Work?

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency, Web 3.0, and metaverse ecosystems.

Bitcoin (source: newscientist.com)

How Does Bitcoin Work?

All Bitcoin transactions are recorded in a block of data and all these data blocks are chained or linked together in a blockchain. This blockchain is created by a large interconnected number of decentralized computers and each of these decentralized computers maintains an up-to-date copy of this blockchain in its memory.

These decentralized computers are not located in just one geographical area but rather are distributed all over the world. All these interconnected computers maintain a common record of each Bitcoin transaction. So, if one person sends Bitcoin to someone else located halfway around the world, this transaction will become part of the blockchain.

And, it will be recorded by every single interconnected computer that is working to place the next block into the blockchain. Working together, these interconnected computers act as a decentralized network. This decentralized network is not controlled by any central bank, government, or organization.

Blocks must first be verified and then they are entered into the blockchain. This blockchain functions like an electronic ledger where ledger entries cannot be changed or modified. In principle, this Bitcoin ledger functions similar to a ledger that a financial institution may use to log the flow of funds into and out of the accounts held by the institution.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment; therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as a general market commentary of Thomas Wettermann and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.

 

Bitcoin’s Historical Background

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency, Web 3.0, and metaverse ecosystems.

Bitcoin (source: newscientist.com)

What is Bitcoin’s Historical Background?

The name Satoshi Nakamoto is closely associated with being the grandfather of cryptocurrency. To date, it is unclear if the name Satoshi Nakamoto refers to one person or perhaps a group of people. Indeed, there are many theories behind whether Satoshi was a single computer programmer, a group of development engineers, or a fictitious group of corporate entities.

As such, the actual identity of Satoshi Nakamoto has not been confirmed. What is known, however, is that Satoshi Nakamoto published a Whitepaper that provided the genesis for cryptocurrencies as they exist today.

It all started in 2008 when Satoshi Nakamoto published his Whitepaper entitled: Bitcoin: A Peer-to-Peer Electronic Cash System. This Whitepaper gave birth to the cryptocurrency industry of today and its importance to cryptocurrency ecosystems cannot be overstated.

In a mere eleven pages, this Whitepaper describes the use of a peer-to-peer (P2P) network as a solution to the double-spending problem. Generally speaking, a P2P network is a decentralized model whereby two individuals interact to buy and sell, goods and/or services directly with each other.

Importantly, these two individuals can interact with one another without an intermediary third-party or the use of a separate entity or transaction facilitator. Think consumer purchasers without having to pay a Visa, Mastercard, or American Express service fee.

Basically, this double-spending problem - that a digital currency or token could be reused in multiple transactions - is not present with physical currencies since a physical bill or coin can, by its nature, only exist in one place at one time.

For example, if Bob gives Jane a ten-dollar US bill, Bob no longer has the ten-dollar bill since Jane has physical possession of this bill. Assume that Bob was to offer this very same ten-dollar bill to Mike (after having already given this bill to Jane). Mike would immediately know that Bob no longer has physical possession of this ten-dollar bill.

In contrast, since a digital currency does not physically exist, using a digital currency in a transaction does not necessarily remove the currency from someone’s possession. So, if Bob gave Jane the ten dollars in digital currency, how would Mike know that Bob no longer has possession of this digital currency and was trying to double-spend this currency? Satoshi’s Whitepaper describes a mechanism that prevents this double-spending situation.

Solutions to combating the double-spending problem had historically involved the use of trusted, third-party intermediaries that would verify whether a digital currency had already been spent by its holder. In our hypothetical, this holder is Bob.

In most cases, third parties, such as banks or other financial institutions, can effectively handle transactions without adding significant risk. But, such financial institutions are not very efficient, they tack on a service fee, and they are prone to making errors.

In addition, this trust-based model still results in a potential fraud risk if the trusted third party cannot be trusted. Satoshi recognized that removing the third party could be accomplished by building cryptography into digital currency transactions. Creating, in essence, a trustless model where there is no longer a need to trust a third party.

Satoshi’s Whitepaper proposed a decentralized approach to transactions, ultimately culminating in the creation of a blockchain. Timestamps for every single network transaction are recorded and then added to the end of previous timestamps.

Transactions occurring during a given time period are collected to form blocks that are then linked together as a chain of transactions: a blockchain. This system creates an immutable historical record that cannot be changed or altered. This historical record of transactions is distributed across hundreds and thousands of computer nodes all acting in concert on the networked system.

It is therefore difficult – indeed some say impossible - for a bad actor to gain enough control of the system to rewrite the ledger to their own advantage. The blockchain records are kept secure because the amount of computational power required to reverse these records discourages potential network sabotage.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment; therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as a general market commentary of Thomas Wettermann and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.

What is Bitcoin?

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency, Web 3.0, and metaverse ecosystems.

Bitcoin (source: newscientist.com)

Is Bitcoin an Actual Coin?

The image above constitutes a physical representation of Bitcoin. But these coins do not physically exist. You cannot carry around a Bitcoin in your pocket or your wallet since it is not a physical “coin.” Rather, Bitcoin is a virtual coin oftentimes referred to as digital currency. It exists virtually in the form of computer code that resides on a publicly available computerized ledger called a blockchain.

How Popular is Bitcoin?

Bitcoin (BTC) is the most recognized cryptocurrency while it is also the number one cryptocurrency based on market capitalization. For example, the live Bitcoin price today is $43,557 USD while Bitcoin has experienced a 24-hour trading volume of $36.2B USD. The current CoinMarketCap ranking of Bitcoin is #1, with an active market capitalization of $826B USD.

Currently, Bitcoin has a circulating supply of 19M BTC coins. Unlike certain other cryptocurrencies, Bitcoin’s circulating supply is capped as it has a maximum supply of only 21M BTC coins. Based on present-day calculations, Bitcoin will cease issuing new coins in 2140.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment; therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as a general market commentary of Thomas Wettermann and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.