How Bitcoin Mining Works

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An important paper was published this week:. Sidechains themselves are not new — the idea, and how to build them, has been discussed for some time and the key breakthrough was outlined earlier in the year. But this paper gives more detail on the concept and has attracted a lot of comment. The key to understanding most innovations in the Bitcoin space is to make sure you have the right mental model for how Bitcoin itself works.

First, clear your head of anything related to money, currency or payments. And clear your head of the word ledgertoo. The only data structures that matter are transactions and blocks of transactions. What more do you need? This three-part structure to a Bitcoin transaction works well and it turns out that you can do some really interesting things with it.

Some people would like to transmit richer forms of information across these sorts of systems. For example, a decentralized exchange needs a way for participants to place orders. Projects such as Mastercoin, Counterparty, NXT and others either build layers on top of Bitcoin or use entirely different codebases to achieve their goals.

I said above that you can build sophisticated rules into Bitcoin transactions to specify how ownership is proved. However, the Bitcoin scripting language is deliberately limited and many ideas in the Smart Contracts space are difficult or impossible to implement. Minage bitcoin explication enemy projects such as Ethereum are building an entirely new infrastructure to explore these ideas.

And you pay for this in fees and time. What if you were prepared to trade safety for speed? Today, your only real option is to send the coins to a centralized wallet provider, whom you must trust not to lose or steal your coins. You can then do all the transactions you like on their books, with their other customers and you never need touch the Bitcoin blockchain. But now you lose all the benefits of a decentralized value-transfer network.

Now, making experimental or rapid changes to Bitcoin is very risky and so change happens slowly. You either have to use an entirely different cryptocurrency or build one! Or you have to use or build a centralized service, which brings new risks. This is very inconvenient. It creates risk and fragmentation and slows the build-out of products, services and infrastructure. Think about what happens if you send Bitcoins to a centralized wallet minage bitcoin explication enemy as circle. From the perspective of the Bitcoin network, Circle is a black box.

And at some point later, you had minage bitcoin explication enemy of some coins again. What if you could send Bitcoins not only to individuals, minage bitcoin explication enemy and centralized services but to other blockchains? Maybe it has minage bitcoin explication enemy faster block confirmation interval and a richer scripting language. You have Bitcoins already. So developers get the opportunity to experiment with different types of cryptocurrency rules without needing to create their own currency.

We now have a way to move coins from Bitcoin onto another platform a sidechain and move them back again. That would be identical to a single-company wallet, but with full visibility of transactions. Going further, you could imagine a sidechain that is mined by different companies in a loose federation.

Not totally decentralized, but harder minage bitcoin explication enemy censor or subvert than if it were just one. And there are lots of other possibilities. The key is that you can build these experiments and products and services without also needing to create a new currency or fall back into the old centralised style. Now there are some serious issues with the scheme. Peter Todd has raised doubts about how secure it might be and it might require a one-off change to Bitcoin.

I thought it was a genius idea at the time and it will allow experimenting. THis concept opens up doors to Minage bitcoin explication enemy banks taking part in the blockchain under a defined set of rules!

That might be fun to see unfold. For now we wait and see. Hi Richard- How does this concept differ from http: Reblogged this on Global-hardware. Reblogged minage bitcoin explication enemy on Maverisk and minage bitcoin explication enemy In one sense, a dilution. In another, a move to widespread adoption and acceptance. From which, probably, some unforeseeable, minage bitcoin explication enemy even weird, whole new societal developments may spring.

Frankly, secure implementation of Bitcoin minage bitcoin explication enemy already a pain in the ass. Adding turing complete or not scripts with arbitrary outcomes, multiple versions of the official client cooperating, multiple clients, and now multiple blockchains is basically the nail in the coffin in terms of widespread implementation.

However, I am wondering about one thing. The expected time before the next block is always 10 minutes. Richard- Sidechains appear to be an awkward minage bitcoin explication enemy of Ripple gateways. My view is that counterparties e. Counterparty risk remains in both versions, and Ripple is designed to automatically mitigate the degree of risk.

That said — I think some camps would strongly disagree — counterparty risk seems like a reasonable price to pay for systemic scalability and stability, especially when the risk can be mitigated with rules and governance that institutions like SWIFT and the Bank of England provide today.

Despite best technical efforts, human problems remain within the realm of probability. The effects of a public herd mentality at the time of the [insert catastrophe here] are depicted, all too recognizably, as unstoppable. Reblogged this on Insufficiently Edited Ty Danco. However, minage bitcoin explication enemy technical breakthrough that is the blockchain really is a historical break. Sticking only to the historical, tried-and-true surface-crawling after the invention of heavier-than-air man-made flying in the early s would be missing the fundamentally new possibility uncovered: I need to read more about Ripple.

Some concerns with the article: There is something similar going on here with dollars. The fact that printed dollars have serial numbers tends to confuse this notion. I have not had a chance to read the original article on side chains, but I am sure they deal with my next problem quite adequately.

However it is not addressed in the above minage bitcoin explication enemy. The primary problem that must be addressed with the notion of side chains, as I see it, would be the issue of the mining required to authenticate transactions and enter them into the block chain.

But for any user, minage bitcoin explication enemy would need to be both considered and understood. The validation process requires mining in much the same sense as mining new coin. None of this is mentioned or discussed in the article. As a result, the verification of side chain transactions outside the block chain introduces whole new layers of risk into the Bitcoin model, and new layers of unknowns.

My chief concern is not with the concept of side chains per se yet. I have still much to learn about how they are being considered. I am only concerned with the way the minage bitcoin explication enemy is being presented here. However, I am sure that much of this was due to space restrictions as much as anything.

The concept of side chains is an intriguing one. It is also clearly attempting to address a major problem with the whole Bitcoin scheme- namely the verification latency it introduces for transactions. This minage bitcoin explication enemy only one of the hurdles minage bitcoin explication enemy Bitcoins acceptance into the world of commerce, but it is a considerable one. But how that happens is a matter for the sidechain.

Gendal, how do you suppose private chains will be secured? For example, the CEO may decide to adjust history and there is not much stopping him, since he controls all the mining. One approach is the periodic checkpoints sent to the blockchain. I think sidechains become a huge security hole that might corpse whole Bitcoin eco-system.

But the situation is no different than a firm today that offers bitcoin safekeeping services, right? Am I missing something?

I see the benefits for the organization in using the private chain as another form of internal database, with better security properties. It can also be used where a service bus product would be today, to facilitate integration, conformance, monitoring, audit.

Anything else on the benefits side that I missed? Buy what is lost with private chains is non-repudiation of transactions, as PoW can now be manipulated, by the company itself, hackers and the governments. Checkpointing with the main chains is a good start, but is not enough. I am interested in discussing possible solutions to the problem. It all comes down to the table I drew in this post: My take is that the Bitcoin architecture is a solution to the problem of how to maintain consensus about a ledger when the participants are unknown and many of them are adversarial I know this is loose language… computer scientists working in the consensus space are more precise but I think this captures the essence….

Security is so bad, employees are so untrustworthy, etc. But they are both problematic. Any thoughts on how one might do this?

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