With the economic basics of the operation of Bitcoin explained in Chapter 8, and the main potential use cases of Bitcoin discussed in Chapter 9, a few of the most salient questions surrounding Bitcoin's operation are examined here.
Is Bitcoin Mining a Waste?
Anyone who joins the Bitcoin network generates a public address and a private key. These are analogous to an email address and its password: people can send you bitcoins to your public address while you use your private key to send bitcoins from your balance. These addresses can also be presented in Quick Response (QR) code format.
When a transaction is made, the sender broadcasts it to all other network members (nodes), who can verify the sender has enough bitcoins to fulfill it, and that he has not spent these coins on another transaction. Once the transaction is validated by a majority of the CPU behind the network, it is inscribed onto the common ledger shared by all network members, allowing all members to update the balance of the two transacting members. While it is easy for any network member to verify the validity of a transaction, a system of voting based on giving each member one vote could be gamed by a hacker creating a lot of nodes to vote to validate their fraudulent transactions. Only by making accuracy based on CPU cycles expended by members, in other words, employing a proof‐of‐work system, can Bitcoin solve the double‐spending problem without a trusted third party.
In its ...