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Remember in the previous chapter I said I was doing research? Well, that is the worst part of getting started in this world of cryptocurrencies. And please be patient, I will explain it as best as I can so that anyone can understand.
When reading and researching you try to bring such abstract concepts to ideas that are more common and closer to the real world. If you hear "mining" the first thing you think about is a pickaxe and physical work; the truth is that programmers play with words in clever ways to create certain metaphors between a physical and well-known process, to a computer process.
Here are some examples of what I am talking about in the previous paragraph:
- And I could go on for a long time
Why do programmers do that? As I said, they are metaphors, and the process is simply reminiscent of something like what happens in real life. But what does this have to do with "mining"? A lot, because when you try to explain this to someone who is not tech oriented, they simply do not understand how those BITCOIN currencies come out. Then those people think that this is a lie, and because there is no physical and palpable process, that word "mining" loses relevance, and it looks like someone is creating those BITCOINs and must be a hacker:
as entertaining as the movies are, they do a lot of damage to us,
old gem Swordfish
Be a bit more open-minded and try to simply imagine the process of "mining" BITCOIN:
- I want to make a transaction and send an amount of BITCOIN to someone.
- That someone gives me an identifier of their "wallet" (another metaphor, seriously?), but it's like a bank account number.
- I use that identifier to send then an amount of BITCOINs.
- Someone who has a PC connected to the BITCOIN system, known as a "miner", who will cooperate in good "faith", validates that the transaction is correct and that the amount of BITCOINs can actually be transferred from my account to the other person's account, so the amount in the "wallets" are updated.
- The "miner" by verifying and monitoring the status of the transactions takes care of the system so that nobody cheats, and as the "miner" spent his time (and we all know that time is money) and electricity in verifying the transaction, then he is rewarded with some BITCOINs that are injected into the system. This process, which is cumbersome for a PC, although it may not seem like it, is known as "mining".
WARNING: before I continue, I apologise that this part is even more tedious.
Wait a minute, "wallet"? BITCOIN comes out of thin air? Validate that BITCOIN is transferred, but it is not physical money? And this is what happens when someone non-technical listens to this process and becomes more suspicious. Let us clarify a bit and exemplify:
- "Wallet" is the term used to store BITCOIN. How is this different from a Bank account? Nothing, it is a number that you use to deposit, associate a card to perform operations and even make purchases ONLINE.
- ONLINE, that is the key, in most of the purchases that you make today, you use cards and not physical money; and if the point of sale (POS, the little machine that you put the card and charge) is not connected to the internet you cannot pay with your card; does not sound like the "wallets" and concept of BITCOIN?
- But BITCOIN is not physical, someone just changed a number in a couple of accounts! Well, but when you make a bank transfer are you giving money in someone's hand? or are you just seeing that an amount was reduced in your account and will eventually increase in the other one?
- Black magic, money is injected into the system, we are being "hacked"! So how is that different from printing money? Well, the state does that a lot too, right? Don't panic, in the case of the BITCOIN it is simply a program or, more precisely, the same program that is in many, many "miners" machines that agree among themselves to accept and inject the new amount of BITCOINs into the system and attribute it to the "miner" who validated the transaction.
- So, the BITCOIN is infinite? No, the programme has established that when it reaches a certain amount it will stop injecting BITCOIN into the system, and from then on it is fees that will incentivise the "miner" to continue validating transactions.
- Well, why should I trust the "miner" and this programme? Well, because your "wallet" besides being like a Bank account is also like a public " ledger", and as it is public all the "miners" can verify all the BITCOIN and all the transactions that exist in the world.
- What do you mean, my "wallet" is public? Do not panic, they can simply see the money that is in each transaction and can add it up to know how much each "wallet" has, in fact, your finances and IRS is public, and anyone has the right to ask for your bank statement (depends on the laws of each country and the situation in which that request is made) to make an audit of your transactions.
- But if the "wallet" is public, does that mean they can take my money out of it? The fact that it is called a "wallet" does not mean that they open it and that's it, it simply stores information in which it associates an amount of BITCOINs, of course, as a "physical wallet" if you keep it with you, you and only you have access to it, but if you lose it or it is stolen, someone could have access to its content.
We could be digging deeper into the matter, but that would be getting more and more technical and that is not what I want to do in this set of posts. Just understand that every problem has its solution proposed by BITCOIN, and that, if there is a new case to consider, it is integrated into the system, like what Banks do when, for example, they create a new product or have a security problem.
Even as a software developer, reading about all this and talking to my colleagues at work I felt a huge mistrust against BITCOIN, and it did not seem like an investment. That did not stop my colleagues at work who decided to take a risk and "invest" some spare money to see what would happen, and the truth is that in one month they tripled what they had "invested" (they only bought BITCOIN and sold after a rise). God, I was so jealous of them at the time, I really regretted not believing more and having "invested" with them. That's me, I prefer to invest in something I understand or with a future, and I still didn't see the potential of BITCOIN, but there was something in every information I gathered about BITCOIN that made me want to know more and believe me this is just the tip of the iceberg, as I said from the beginning of this saga the economy is not simple, although it is what they want us to see.
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