As mentioned earlier, the way a cryptocurrency like bitcoin works is by maintaining a ledger of all transactions. But it’s not a piece of paper or a database, like a bank, all this data is encrypted, and then everyone gets a copy.
Cryptocurrency mining is a process in which data is processed, encrypted and added to the ledger. This task is not easy and cannot be done on Zack’s smartphone. This requires a very powerful computer, and the miner is paid for all this hard work. The first miner to stumble upon the correct answer receives both a reward of new bitcoin (such as newly mined gold) and a very small transaction fee.
The registry is getting longer and longer and harder to check, which means we need more powerful computers. In addition, every four years the salary of the miner is halved.
So, in 2010, a laptop could mine bitcoins. However, now you basically need a small data center to mine even one bitcoin. If we do not scale the computing power of the miners and, conversely, the amount of electricity consumed, the transaction time will continue to grow. Now the transaction takes about 12 minutes.
When bitcoin first exploded in 2018, the average transaction time jumped to an entire day. During the worst of the Klondike Gold Rush, it sometimes took up to a week to confirm a transaction. Much has now been done to prevent this from happening again if the bitcoin network doubles in size, but this is not enough.
There are other solutions, such as the Lightning Network, which is not part of the bitcoin blockchain and is seen more as a second layer where 2 or more parties agree to trust each other in an exchange and upon completion inform the blockchain – this is often known as an out-of-bounds transaction. networks. Some major providers such as Coinbase also provide such functionality to their users. Although such transactions solve the problem of latency, are less energy intensive and minimize transaction costs, they have security vulnerabilities and in some ways violate some of the goals of the blockchain.