Monday, June 8, 2015


A Few days ago, I started to learn about bitcoins. They say we can "mine" bitcoins and then convert them to real money. So I got interested because money was kind of an issue for me.

So the thing is, money can't just come out of nowhere, so how does mining work? I tried to learn from various sources but couldn't understand. So I had to use my financial accounting skills to figure things out. So here is a bit of info if you too are confused like I was.

Bitcoins do not come from nowhere. The source of bitcoins is the pockets of people who buy it. But they are a commodity none-the-less.

So, it starts like this. A person puts money into the system in return for bitcoins. Now usually it happens that we give money to someone and nobody knows that our transaction ever happened except us. But in the bitcoin industry, everyone knows where the money came from and where did it go. This is against our anonymity and security, but to keep this virtual money have it's value, this is a must do.

When a transaction happens, every miner and bitcoin software is informed about that particular transaction. The bitcoin software creates a hash and that hash is synchronized. If that hash matches with other hashers, fine, but if it doesn't then that means some transaction has missed so that software must re-synchronize to keep the data correct.

The bitcoin software that creates the correct hash before the other software (which depends on hardware and network speed etc) that software wins the hashing commission (bitcoins) (this race for commission in form of bitcoins is called bitcoin mining)

At the moment this race for bitcoins (bitcoin mining) is ON! and people have already bought custom built hardware that can do upto 10THs (10 Tera hashes per second) to win this race. So our normal computers are nowhere near to with the fight. I'm sure they can't use those hashing computers for most of other tasks, but they don't intend to either.