The cryptocurrency that I chose to research is, Bitcoin. The primary
reason for deciding Bitcoin was due to its popularity and wide spread global
use and mainstream acceptance as a legitimate form of digital currency. Bitcoin
was introduced in 2008 from a published paper titled, “Bitcoin, A Peer-to-Peer
Electronic Cash System,” by an anonymous person or group known as Satoshi
Nakamoto. The website domain known as bitcoin.org was registered on August 18,
2009. Although the true identity and nationality of Satoshi Nakamoto is
unknown, in May of 2016, an Australian IT and security consultant, Craig
Wright, identified himself as, Satoshi Nakamoto, the creator of Bitcoin. There
is substantial proof that these claims are in fact true based on the evidence
presented and examined linking Wright to the creation of Bitcoin (Safi, 2016).
Bitcoin uses a peer-to-peer, decentralized form of a digital blockchain
that operates as a distributed public ledger responsible for recording every
cryptocurrency transaction in chronological order. As the ledger completes a
transaction, or a “block”, the ledger is immediately updated to reflect the
latest transaction. This process serves as the digital accounting method for
all account and money transactions in the Bitcoin network, known as the
distributed ledger technology, or DLT. A “block” is the component of the
blockchain responsible for recording transactions, and the “chain” acts as the
linear link that is connected and pushed to every node in the Bitcoin chain.
Each node connected to the Bitcoin network receives an automatic, real-time
copy of the updated blockchain, or transaction ledger. Once a transaction is
completed in the blockchain, it is absolute and cannot be deleted or reversed. (Investopedia).
One way to earn Bitcoin cryptocurrency is through a process called
mining. Unlike government-issued printed currency, digital mining is the
process through which new bitcoin currencies are tracked and released. Anyone
in the world with an adequate amount of computing power, and a client software platform
can participate in Bitcoin mining. The premise of Bitcoin mining takes that of
any other sought-out valuable resource in that it must be mined in order to
gain wealth. Bitcoin mining requires users to compute and solve complex
cryptographic schemes based on the SHA-256 protocol in order to produce a proof
of work, or POW (Beigel, 2017). Mining works much like a contest where
contestants’, or miners, are given mathematical puzzles to solve. These puzzles
cannot be solved logically, but rather through random guessing as in a brute
force attack. This can be compared to trying to crack a safe, or open a
combination lock in order to gain the content’s value.
SHA-256 uses a fixed number of bits which is 256 bits in length,
regardless of the input. The success of mining is accomplished with the
discovery of a nonce number through a number of guesses that results in a set
number of leading zeros in the form of hashing bits in the overall 256-bit hash
block. The number of leading zeros required in the hash block determines the
level of difficulty required to correctly calculate the hash function of the
block. Once a miner has calculated the nonce resulting in the correct amount of
leading zeroes, they have created a proof of work. If miners are able to solve
a verifiable proof of work, then a new block of the blockchain will generate
new bitcoins (Bitcoin Nonce, 2016).
An important aspect to the integrity of a blockchain is the use of hash
pointers to link the chains together. The hash pointer points to the previous
block, called the parent block, and contains both the address and the hash data
of the previous block. This sequence of hashes not only creates a chain with
the previous block, but is linked to the first block ever created in the chain,
called the genesis block (Antonopoulos, 2017). This is important in the security of
the blockchain because if an adversary attempts to alter any data in a block of
the chain, this will have a cascading effect on all other hash functions in the
For example, if there are 5 blocks in the blockchain, and if an adversary
attempts to alter the data in block 5, this will not only change the hash
function of block 5, but all other hashes from the previous blocks leading up
to block 5. This method is important as it provides tamper detection and
creates immutability within the entire blockchain. Another important aspect of
the block header is that it contains the information related to the mining
competition; the nonce, timestamp, and current difficulty target (Antonopoulos, 2017).
Every block in the Bitcoin blockchain contains the Merkle Tree Root that
is used to summarize all transactions related to that block. A Merkle tree is a
data structure used in the Bitcoin cryptocurrency scheme to provide an
efficient way to summarize the large collections of verified transactions
created in each block. The Merkle tree uses a double SHA-256 to hash node pairs
to create a single hash that becomes the root. The Merkle tree is designed to where
transactions are constructed from the bottom-up, called leaves (from a visual
standpoint, it resembles an upside down tree). One factor that makes the Merkle
tree highly efficient in the blockchain is that entire transactions themselves
are not stored in the Merkle tree, but rather just the hash function from each transaction.
The hashes are stored in the leaf modes as Ha, Hb, Hc,
etc. Another factor that makes the Merkle tree efficient is the quick searching
properties within the tree. Because the data, represented by N, are hashed and
summarized, a user can search elements of the data structure with a maximum
search calculation of 2 • log2(N) (Antonopoulos, 2017).
There are several aspects that individuals should factor when deciding
if cryptocurrency mining has a cost-benefit ratio that makes it worth pursuing.
In the earlier days of block mining, a general purpose home computer or
graphics processing unit provided an adequate amount of required power, memory
and speed to sufficiently carry out the calculations necessary to be effective
in the digital mining world. However, with Bitcoin’s use of the SHA-256
algorithm, the amount of computing power has significantly increased.
Some factors that should be considered prior to committing to Bitcoin
mining are: computing power, electricity consumption, and providing adequate cooling
to hardware. First and foremost, it is vital to ensure that purchasing hardware
with enough computing power to adequately generate effective hash rate per
second that will increase the odds of a miner to solve hash blocks. Due to the
amount of computational power needed for effective mining, the cost of electricity
should play a role in decision-making process. In an article that I read, it
estimated that a power supply unit that was 93% efficient, that provided 860
watts of power, would draw 925 watts (860watts/.93) (How to Calculate Mining Profitability). This power draw is
constant and it is recommended that individuals examine their electric bills to
make sure that the cost of electricity does not exceed the amount of their earnings.
Another factor that will drive up electricity costs is the amount of cooling
power required to reduce the excess heat caused by the increase in
computational speeds. A general formula to consider when calculating mining
efficiency of different computing systems is: hashing speed / power consumption
= mining efficiency (How to Calculate Mining Profitability).
In conclusion, cryptocurrency is The
concepts that Bitcoin introduced from their initial paper contributed to
solving the problem of the distributed computing protocol that requires nodes
that are exchanging information to agree on a system state over an unreliable
network and without a central trusted authority (Antonopoulos, 2017).