How Does Bitcoin Mining Work?
In these articles, we generally talk about jackpot slots and all of the other great games we have on offer here at Jackpot Capital online casino. By popular request, we have been talking about bitcoin for the last couple of weeks.
Bitcoin is erroneously called a crypto-currency which makes it seem that it is a fake currency. To call bitcoin a fake currency is like calling Jackpot Capital casino a fake casino just because our online casino is not run like a land based casino!
As we have seen, any currency that people are willing to use to buy and sell goods and services is fully a currency.
So, it is more appropriate to call bitcoin, and the other similar currencies, an alternative currency.
Bitcoin Supporters Use Terminology that Most People Don’t Recognize
We have seen that the term block chain is very misleading to most people since it is an entirely made-up term that bitcoin supporters use to describe how bitcoin solves the double spend problem.
Terms like digital money, double spend problem, and block chain actually create more confusion than help people understand alternative currencies.
Alternative Currencies: Why?
It is a lot easier for most people to understand why we might need or be willing to use an alternative currency than to fully understand the nuances of producing and distributing an alternative currency.
In short, for thousands of years gold and silver were universally recognized as money. The problem has arisen that almost all countries have by now left the gold standard. They back their currencies with promises to keep the currency viable. This is hard to do in a financial market where every currency floats freely in competition with all other currencies.
Bitcoin and all of the other currencies came into existence because of a felt need for a currency that didn’t rely on government promises to stay viable.
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The Double Spend Problem
Bitcoin purports to solve the double spend problem which affects all digital currencies these days. The double spend problem says that digital currencies can be manipulated and used many times while a single gold coin cannot be reproduced.
Bitcoin claims to solve this problem by being completely open to everyone who has the ability to access the block chain. The term block chain was meant to make the viability of all bitcoin transactions more easily understood but it has had the opposite effect.
Let’s think of the block chain simply as a record of each transaction in which the transaction is open to the public but the parties involved is kept secret. Whether or not this will guarantee a cure for the double spend problem if millions upon millions if transactions are made in alternative currencies every day remains to be seen.
Ownership of Bitcoin Gives Access to the Ledger
When you own bitcoin, you can access the address in the ledger for the bitcoins you own. You can, in theory, track the bitcoins you own or have owned through this access. In reality, you don’t know what is happening elsewhere in the “public” bitcoin ledger until you gain access to that information through owning the bitcoin that are tracked in that part of the ledger. In the end we might find that bitcoin cannot solve the double spend problem.
Bitcoins are “Mined”
What exactly does that mean? Everyone understands the concept of mining. We mine all manner of metal. We farm plants and raise livestock. Bitcoin, as a digital currency fits none of these easily understood concepts. How, then, can a digital currency be mined? The term is another one that bitcoin people have used in an attempt to make alternative currencies more accessible to the general public but in the end made them more difficult to get our heads around.
Understanding Mining
If the price of any metal fluctuates, it makes sense that the price will change based on the law of supply and demand. If the supply increases because it is still being mined but the demand does not increase in kind, the price per ton, pound, or any measure at all will fall as companies try to sell a larger quantity of the metal to the same number of buyers.
The same holds true for any grown or raised commodity. That’s one of the reasons why the prices of apples, frozen orange juice, or cheese fluctuate. The single thing that all mining, growing, or raising have in common is that they are aspects of physical entities that we can touch.
When a corn flakes company wants corn, they buy corn, literally. They take delivery of tons of corn and a short time later deliver thousands of boxes of corn flakes to supermarket chains.
How are bitcoin, something we can’t see, touch, or smell mined and how are they delivered?
Bitcoin Mining is Far from Simple
First, let’s do away with the term mining altogether. It is simply too misleading. We will change it to the term “creating a new block in the block chain”. This concept is easy to visualize since all of us as kids added blocks to a building we were building.
The way a block is added is by coming up with the answer to a math problem. The person who solves the next math problem wins the right to create the next block in the chain and to put her or his transactions into that block.
This process decentralizes the creation of bitcoin and thus takes a lot of the inherent difficulty out of the central government banking system. However, decentralization is not enough. Centralization puts too much economic power in just a few hands but being able to solve the complex math problem puts too much power in a few peoples’ hands as well.
How Does That Happen?
The math problem becomes more complex every time a new block is added to the chain and a new block is added every 10 minutes or so. In this sense, bitcoin creation is a little like winning a progressive jackpot! The random number generator may cause the jackpot to be won twice in just a few spins or once in several days or weeks.
Solving the math problem is a task for high-powered computers which means that the strongest computers will have a much better chance to solve the problem than weaker computers. This would, in both the short and the long run, create more centralization not less.
The Answer: There are Many More Blocks than Central Government Banks
The answer to the decentralization problem is that even though people with high-powered computers will likely be able to add more blocks to the chain than owners of weaker computers will, and therefore “mine” and own more bitcoins, they are still far more numerous than central banks.
Going forward we might find that block chains are not sufficient to create the kind of decentralization that would be needed to have an alternative currency that is indeed out of the hands of central banks or a few powerful entities.
Many Alternative Currencies
It might be, in the end, that we need a very large number of alternative currencies in order to achieve the degree of decentralization we need if we want to decrease the power of central banks and powerful individuals.
How Does this Affect Online Casino Gaming?
It doesn’t! in fact, in terms of online casino gaming, or for that matter in terms of any purchase you might make online, it doesn’t make any difference whichever currency you use as long as the other person in the transaction agrees to do it in that currency.
You can buy airplane tickets in dollars, bitcoin, or many other currencies. The same holds for ordering chocolate flowers, shoes, dishwashers or anything else online.
Bitcoin is a Never-ending Story
We have just begun to touch the surface about bitcoin and other alternative currencies. As this series of articles continues, we will get deeper into the bitcoin story.
For now, we at Jackpot Capital wish everyone a healthy Easter, Passover, and Ramadan season. We hope that we can get the coronavirus crisis behind us quickly so that people can leave their homes once again, get together with family and friends once again, and that life can revert to normal once again.
Online gaming has become part of the new normal and bitcoin is fast becoming part of the new normal as well!
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