Hello guys,
As i'm trying to promote bitcoins to some of my friends, one of them, who's quite computer savy asked me this question and i wasn't able to answer it properly.
The question was basically "What is all that computing power used for?" to which i answered : it's used to solve the algorythm designed by Satoshi in order to award bitcoins when a block has been solved. (more or less i can't remember my exact phrasing but that would be along those lines, as this is my basic understanding of the process)
Now i'm not the best to explain this to that guy, for he asked me again the very same question just after and i could see the loop we were in.
Ok, you told your friend what it was used for and he asked the same question. He probably needs to figure out how to better phrase his question.
Here are some possibilities, but in the end I'm only guessing what he wants to know:
- It is "used" to secure the transaction ledger so that nobody can modify a transaction after it has been recognized by the bitcoin network as "confirmed". In exchange for doing this work of securing the transaction history, the person who successfully solves and broadcasts a valid block receives a reward that consists of the sum of a subsidy of newly created bitcoins (currently 25 BTC) and all the transaction fees of all the transactions that are included in the block.
- It is "used" to compute two rounds of SHA256 hashing of the block header. Each miner repeatedly calculates two rounds of SHA256 hashing on the header of the block they are working while incrementing a nonce in the header after each attempt. The first miner to find a resulting hash that is lower than the current network difficulty can broadcast that block to all nodes they are connected to where it will then be relayed throughout the bitcoin network and added to the blockchain.
- It is "used" to provide a proof-of-work such that anyone that might want to try to modify the historical record of transactions would need to provide more work of an identical kind than the entire network of bitcoin miners have provided since the transaction was confirmed. This creates a financial burden on the attacker that makes it undesirable to even try.
that algortyhm could be all designed to crack some encryption or something along those lines for all we know? Couldn't it?
No, it couldn't.
We know this because it is open source. Any programmer can read the programming and see exactly what it does. They can see that it just calculates a SHA256 hash, and doesn't attempt to "crack some encryption".
