Each new transaction enters a list of pending transactions, from where they will then be sorted into a huge chain of transactions that have a precise order. How is the order determined? Through a mathematical lottery process where users select a pending transaction they prefer and try to solve a special issue that puts it at the end of the chain. This is how consumer loans work.
Bitcoin prevents this from finding a way for the whole world to decide what the order of transactions is. The first person who finds the answer to the problem “wins” and the transaction they choose and will be the next selected in the chain. This special issue is based on a special function called cryptographic hash, which in extremely simple terms requires users to repeat random numbers by repeated attempts until the number that meets the ideal criteria is found. Everyone who has successfully solved a problem can therefore vote. And the vote is not given for a single transaction, but for the whole ledger.
That is, each individual user confirms that he agrees with the order of the entire transaction file. And even if there are multiple versions of the file, depending on the way each vote went, as in any democracy, most win.
“Mining” or complex mathematical problems
Do not imagine that only highly intelligent or mature users are rewarded. In fact, solving the so-called problems is basically a summary of the processing and computing capability of a computer. And since each “task” or “problem” occupies a rather large amount of processing time and power, it is unlikely that a user or group of users can ever overcome the majority so that their vote is more relevant. This whole process is called “mining” and it is designed to reward users’ participation in developing the system by generating bitcoins and transferring that amount to the account of the user who has solved the problem. Check this out.
However, the amount of bitcoin generated by the system depends, of course, on a number of complex economic factors. Thus, in order not to artificially create inflation and not to devalue the currency, there is a maximum amount of bitcoin that can be lost, resulting in a complex mathematical calculation.
The more Bitcoin on the market and the higher the currency trading rate, the more complex the problems become and, by default, the harder and the more expensive it is to solve them. Some recent studies on some of Bitcoin’s most efficient mining systems in the world estimate that in 2018, the average monthly Bitcoin mintage is 0.11 coins. That means $ 1,300 a month at a conversion rate of $ 12,000. However, it must be deducted from the cost of hardware and, of course, amenities such as electricity.
In addition, Bitcoin is the most unstable currency in the world and has huge fluctuations, sometimes for good, sometimes in the worst, because it is controlled exclusively by natural economic principles and by users without a central unit to oversee it. This means that if people simply are not interested in trading Bitcoin or become uncertain about the stability of the coin and are selling it or if there are many risks to users coming from hackers, the currency will devalue dramatically from one day on the other.
This system may seem unnecessarily complicated, but Bitcoin aims to be an absolutely democratic currency. Which means that programmers who came up with the initial solution as well as users involved in developing and improving the system have ensured over time that no user or group of users could have a disproportionate control over the coin, we talk about its value, the way it is traded or the degree of priority of its transactions.
The Bitcoin world is extremely interesting and complex and hides innovative economic theories, an absolute loyalty to the principles of democracy and a libertarian or even anarchist philosophy on the world. This is why if you decide to enter the world of cryptocurrency you should do a lot of research before to be sure that you are able to keep up. If not, you risk loosing a lot of money and that’s not what you want.