On 19 December 2013 12:13, Telmo Menezes <te...@telmomenezes.com> wrote:

> All the transactions that occurred so far are registered in a file
> that is shared between the nodes in the network.  New transactions are
> broadcast to many nodes.
> One of these nodes is going to be lucky enough to find a way to
> incorporate the outstanding transactions into the file according to
> very strict requirements. These outstanding set of transactions will
> form a "block". A block contains the following things:
> - the hash of the previous block
> - the set of transactions
> - an arbitrary number (nounce)
> An hash is the output of a one-way functions. One-way functions are
> hard to invert, so getting the original block from the hash is
> computationally hard. The bitcoin protocol wants to make the hash hard
> to create, in part because every time a hash is discovered, the
> discoverer is rewarded with a predetermined number of bitcoins. The
> way to make the hash hard to create is that the network agrees that it
> must start with a certain number of zeros. The only way to meet this
> requirement is through brute force, by trying random values for the
> nounce until one works.
> Once the hash is found, a new block is created and work will begin on
> finding the nest one, ad infinitum. This is why the ledger file is
> called a blockchain. Each block hashes the hash of the previous block.
> This difficulty also serves as a proof-of-work (a receipt that shows
> that a certain amount of computational effort was spent, on average).
> This protects the network against attacks. If a node received two
> conflicting blockchains, it will chose the longest one. This way,
> unless the attacker controls the majority of the computing power of
> the network, it cannot create a fake blockchain longer than the rest
> of the network.
> So mining for bitcoins is the same process that allows for
> transactions. There is also the possibility of transaction fees. When
> you make a transaction, you can volunteer to pay a fee to the miners.
> The discoverer of the next block will receive this fee. Nodes that
> receive your transactions are not forced to accept them, so the fee is
> an incentive for them to accept it. As mining becomes less profitable,
> it becomes more likely that miners will expect fees. Once all coins
> are discovered, the network will work solely on fees, and I imagine
> fee prices will emerge naturally (miners will compete on price, users
> will pay more according to urgency). In a market with many
> transactions, mining can become profitable even with no new coins to
> discover and low fees.
> What "contains" your coins are wallets. Wallets are two random
> numbers. One is public, for incoming transactions and one private, for
> outgoing transactions. Only you know your private address but if you
> sign a transaction with it, the validity if the transaction can be
> confirmed through a one-way function against the blockchain. So
> ultimately, you keep possession of your coins by knowing the private
> address.
> So the blockchain is a gigantic number and the wallets are numbers.
> The actual coins are not numbers, they are a complete abstraction.
> Thank you very much for that description, which I think I have more or
less managed to understand. (I assume the 21 million limit is an outcome of
this system demanding that the hast start with a specified number of

It sounds as though these things will eventually mimic house prices, which
"decouple" from the cost of building after a while and go into a
market-driven upwards spiral. (Well, except that people actually *need *

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