In the world of bitcoins, there are mainly two categories of people: the ones that mine Bitcoins with their computers, which are more interested about the technical matters of the coin, such as mining and creating it, and the speculators, which are more interested about exchanging, buying and selling the Bitcoin.
While the rapid and unpredictable changes of the BTC/USD chart is fascinating even for experienced investors, the miners are interested about the way the bitcoins are produced, and it is better even for investors that are not so familiar with computer hardware to understand how the coins are created.
What is a Blockchain?
The principle of blockchains was not invented with bitcoins. There are other areas in which blockchains are used, but in the case of Bitcoins, the principle is interesting, as it gives some unique characteristics to the coin.
A blockchain is a series of nodes and blocks that are connected after the Bitcoin protocol. This way, any transaction made at any time with bitcoins is recorded. Moreover, as Bitcoins are created, each new block contains all the information about the previous blacks, as well as information about the ones that follow, the ones that are about to be created. This way, the possibility of a bitcoin to be falsified or used twice is practically impossible, limiting the possibilities of frauds with bitcoins.
Once a block is created, it is impossible to modify anything about it, and the block following it can’t be created unless all the details about the previous one exist in the system. A chain of coins is valid only if the last block created has all the information about the previous one in the chain, starting from the original one.
Any block of a chain is connected with a unique path with the previous ones, until the original block. However, there is a possibility for orphan blocks to be created. In some cases, there is also the possibility for fork blocks, which occurs when two blocks are created practically at the same time.
As one of the last operations that are made is to connect the block to the chain, whichever of the two blocks manages to connect to the network would be the valid one, while the other would fail to connect, resulting in an orphan block. The respective sequence is not lost, as it is reintroduced to the pool for later processing. Along the time, 100 blocks of Bitcoins where in this situation, and it is expected for a lot more blocks to be in this situation in the near future, especially because the number of miners has grown dramatically during the latest months.
The block chain algorithm has applications in other informational areas, but also in economy. From this point of view, the bitcoin can be considered as the most secure coin in the world, considering the fact that the number of coins is carefully counted, as well as all the transactions made with it.
Mining Bitcoins, creating chains
Creating a block is not an easy task, especially because graphical resources of hundreds of computers are needed for this. Because the amount of information needed for any block is huge, computers from all over the world contribute to the creation of each block. As working in a team is more lucrative, miners prefer to gather in pools, and to contribute as a team to the entire creation process. It is possible to mine as a standalone user, but simple calculation tells us that it is better to mine and to create blocks in a team.
The average speed of a computer for creating blocks is 0.02 Bitcoins per day, so , in rough theory, it might be possible to create one bitcoin every 50 days. You will only be rewarded when you reach 25 Bitcoins, so this means that you need to wait about three years to be rewarded. (The value of a bitcoin on 9 April 2013 was 250 $, so this means about 6000$, but do you really want to wait so long?). Not to mention the fact that you might be so unlucky to create an orphan block, in which case, you will not be rewarded.
In a mining pool, all the computers contribute to the creation of the same block in the chain, which means an increased creation speed. Some pools are so big that they can create a unit within hours. As soon as the block is validated in the blockchain, the miners will be rewarded according to their contribution to the respective block, so even if you will get less money, at least it is safer, faster and it is also fun to mine in a team, especially because you can talk on chat with other miners, so you could get great ideas about improving your mining performance.