Anyone know how this ish works? Trying to maybe start some investing, now that I'm not bleeding so much funds.
Jumped on a Bitcoin mining network a friend hooked me up with too, but outside of that I'm ****ing clueless.
To explain coin mining to a complete stranger I must first mention how encryption works, then symmetric secret key encryption, then key pair encryption. Then signing. Then at last we can get to how coin mining works, and send you to the Investopedia article which explains how the actual mining happens in more detail.
1. Encryption
All computer encryption is based upon scrambling numbers. Your file or information is stored as numbers, and the encryption scrambles them. It takes your file of any kind of information and takes large chunks of it, scrambling each chunk into cypher text. It does this by applying a Math function (called a 'Hash' function) to each chunk of information. Remember that in a computer all files and all data are technically stored as numbers, so this works very well. In this way any amount of information can be converted to cypher text.
There are numerous standard encryption algorithms, some new and some older. The newer ones are stronger but require more computing power. They have names like 'AES256'. Knowing the algorithm is not enough to break encryption, and it is often more secure to use a publicly accepted algorithm than to use one whose workings have not been published. Bit coin mining uses public algorithms. The algorithms take data and apply a hash function (which is a function difficult to reverse without a secret number) changing the data into cypher text. The secret number acts as a key to help reverse the encryption operation; so it is called a 'Key'. When you use this secret key along with an appropriate algorithm you can decrypt or encrypt information. The simplest form of encryption is called symmetric key encryption which means you both encrypt and decrypt data using 1 key, the secret key. If you have ever password protected a zip file or document then you have used symmetric key encryption.
To recap the above the file is encrypted in large chunks with the same algorithm over and over, and to decrypt it requires the secret number which is called a 'Secret key'.
2. Key pair encryption
There is another level of complexity you will need to know about. In addition to the above you will find that there are private and public key pairs. It is possible to create a pair of numbers which act to encrypt and decrypt. These are called key pairs. Like symmetric encryption these work using a math function to convert data into cypher text. Each can decrypt what the other encrypts. For example if I have keys A and B. A can encrypt some data (but not decrypt it), which B can decrypt. Similarly B and encrypt something for A to decrypt. This is what makes most modern communications work.
For communication: two keys are generated. One is named the 'Public' key and is transmitted publicly. The other is kept hidden and is called the 'Private' key. Individuals will use the public key to encrypt messages to send to the owner of the private key (who alone can decrypt them). This is used to securely communicate and perform financial transactions.
The following is not related to mining coins but may help: Computer communications use the above paired key method as part of a larger protocol. At the beginning of a conversation computers will send one or more public keys to one another in stages, one key encrypting another, until the computers have a completely secret communication channel. The initial public/private key is only the first layer of a secure communication. Several public/private keys are made in the process of beginning a connection between computers. Often communication begins with the sending of a public key, then the other entity sends another new public key that it has generated, encrypted, such that only the original sender can find out what the new public key is. In this way the communication protocol is negotiated in stages.
3. Signing
Signing also uses 2 key pair encryption. You use it to verify that you have written something. First you generate key pairs. Then you send out your public key and notarize it with a notary or other authority, such as by posting it on an official server. This is what people will use to check the legitimacy of your document. You can also pay a signing service to guarantee your documents are yours, and they will use something like this method. Finally once your public key is known and trusted you use your secret key to sign your document and then post both the document and the resulting signature file. Persons are able to use the public key to verify that the document was signed with your private key. It guarantees that the document is exactly as you made it. This leads us to coin mining which uses a ledger.
4.
Coin mining uses a digitally signed ledger to record financial transactions and other data. The ultimate guarantor of authenticity is the number of people mining. Mining runs in cycles, with all the computers in the network competing to guess at a secret number. This is likely a private key of some kind. When the number is guessed the cycle starts over. When a computer guesses the number it is awarded an amount of loot, then the ledger is updated, and a new secret number is generated. The ledger cannot be updated in mid cycle. It can only be updated when the number is guessed. The difficulty of guessing the number is important. It must be difficult to force the computers to work to guarantee they aren't spoofing. Investopedia writes:
Recording a string of transactions is trivial for a modern computer, but mining is difficult because Bitcoin's software makes the process artificially time-consuming. Without the added difficulty, people could spoof transactions to enrich themselves or bankrupt other people. They could log a fraudulent transaction in the blockchain and pile so many trivial transactions on top of it that untangling the fraud would become impossible. --
How Bitcoin Works
