How do does solving mathematical problems create bitcoins?
In: Technology
Bitcoin is based on a consensus algorithm. That means that whether or not something happens with bitcoin depends on a bunch of bitcoin users agreeing that bitcoin transactions are legit. Why does solving mathematical problems create bitcoins? Because that’s the agreed upon method between bitcoin users.
One of the key concepts behind bitcoin, and a lot of cryptography in general, is the idea that some things are hard to compute, but easy to verify. Take this question as an example.
> What two whole numbers, multiplied together, equal 62,299,253?
You can solve that problem, but it’s going to take a bit of time. On the other hand, if I tell you the answer is 7879 * 7907, it is relatively easy to confirm that answer is correct.
Bitcoin is based on these types of problems. If Alice wants to pay Bob one bitcoin for some brownies, Alice publishes this transaction to a pool of pending transactions. A bitcoin miner, Carol, comes along, grabs a bunch of pending transactions out of the pool, and gets to work finalizing these transactions. To finalize these transactions, Carol has to do that number crunching that we hear so much about. Carol is going to repeatedly do a bunch of math with those transactions, and she is looking for a specific result. *This math is one of those problems that is hard to solve, but easy to verify.* As soon as Carol has solved the math problem, she publishes her solution. Her solution is a *block* of transactions. Her block must be connected to the most recent block that exists, forming a chain of blocks. A blockchain (how about that).
OK, so why does Carol do this, and how does Carol “create” bitcoin out of this? Well, in Carol’s block, there are a bunch of transactions, like “Alice pays Bob 1 bitcoin.” Because Carol is going to the trouble of processing transactions, Carol gets to put her own transaction in the block that says, “Carol gets 1 bitcoin for free.” That’s how bitcoin is “created”.
Now, once Carol does the math and correctly calculates a block, she publishes it to the blockchain. Now everyone else can see Carol’s block. It took Carol a long time to calculate the block, but anyone looking at the finished block can easily verify it’s correct. Did Carol do all the math correctly? Is Carol’s block connected to the most recent valid block? Is Carol trying to do something shady and grant herself 2 bitcoin instead of the 1 she’s allowed to have? All the other bitcoin users can check her block, and if her block looks correct, they will build on top of her block. If her block does not look correct, they will pretend her block doesn’t exist and build on the last valid block they can find.
So, how does bitcoin get created? One person just says, “I give myself a bitcoin,” and if everyone else approves, then it’s truth.
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