From the image thread:
OK. Here's a non-technical summary, and I'll answer some objections below.
Imagine you want to keep a single ledger, distributed between 1,000 people who live in different countries all around the world and none of whom trust each other. Imagine there is some black-box device that acts like a lottery machine, except that, every time you pull the handle, you either win a jackpot or nothing. The odds are set so that you have to pull the handle hundreds of thousands of times before you win a jackpot. Whenever one of these black-boxes hits a jackpot, all the other machines notify their owner that the jackpot was hit, and who hit it. Whoever hit the jackpot is given the right to write something into the ledger. Whatever he has written into the ledger is also broadcast through the black-box to all other other black-box owners, so they can update their copy of the ledger, too. The black-box itself is unhackable, meaning, it's impossible to "reverse-engineer it" and devise some strategy to trick/hack the system.
The more black-boxes you own, the more lottery tickets you can win, through sheer volume of lever-pulls. If you can make 10,000 lever-pulls per day with one black-box then, with two black-boxes, you can do 20,000 lever-pulls per day, and so on.
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Objection: I was asking about miners and you started talking about black-box lottery machines? How are these related?
Answer: What we call "mining" is not like ordinary mining except in the sense that you have to expend a lot of real resources in order to find a very valuable resource. Rather, it is more like a lottery. Everybody around the world who is mining is just pulling the lever on their lottery-machine (their miner), zillions of times per second. Out of all the miners in the world, the first one to get a winning combination is the one who will get to add the next block to the blockchain (make the next entry in the ledger). The network has a sliding-scale of difficulty to keep the rate at which miners are mining to about one block every 10 minutes, on average.
Objection: Can't I just build an insane number of black-boxes and earn all the new money in the Bitcoin network?
Answer: Yes, you could earn most of it if you bought/built enough miners, but the real-world price of a miner is never zero. In addition, competition ensures that the market price of the miners will tend to go to their breakeven value. So, you can buy as many as you want, but the more you buy, the higher the market price will go, and the more unprofitable it will be for you. Remember, the first miner you buy will only just breakeven... everything else is just downhill from there.
Objection: When I get a winning lottery ticket, what prevents me from making an entry in the ledger that just transfers all Bitcoins to myself?
Answer: Every transaction in a blockchain block is independently checked by all miners and all full nodes (who are observers on the network that help with maintaining unprocessed transactions). Each transaction must be "signed" with a cryptographic key that acts just like a signature on a bank check -- if you try to fake a signature, the fraud will be detected, and the block will be rejected by the network, so all of those lever-pulls you did in order to get a winning lottery ticket will have been wasted for nothing. The miners have maximum interest in ensuring that the blocks they mine are fully compliant.
Objection: Isn't there an easier way to do all of this? Do we really have to burn a third-world country's worth of electricity just to maintain a simple ledger?
Answer: It is conceivable that there are other, better solutions to the problem that the blockchain solves (distributed trust without a central enforcer), but we don't know of any, as of 2022. The value of the blocks in the blockchain are being arbitrated against their true market value through the costs of mining (including both equipment overhead and operational costs).
Objection: Is mining really that hard? Couldn't Tesla just build some kind of mega-mining computer that is 1,000x more efficient than any other alternative and just soak up all the mining in a single monopoly?
Answer: It is mathematically possible that mining is easier than cryptographers believe. If it were to turn out that Bitcoin's proof-of-work function is flawed, there are other fallbacks such as Litecoin and Ethereum, which use different functions. These functions have computational properties that today's academic cryptographers do not believe to be cracked. What this means is that they believe there is no faster way to compute these functions than to simply perform the function "naively", which is what forces miners to make countless "guesses" at the correct answer to the cryptographic puzzle, thus performing "work". Quantum computers capable of operating with large numbers of ideal qubits (100+ ideal qubits) could endanger some aspects of these networks and would force an upgrade to "post-quantum" cryptography. Another threat is that a brilliant mathematician could just prove that P=NP which would be a nuclear strike not only all crypto-currencies, but all secure communications, including banking, finance and government. In short, no, Tesla cannot gain any significant advantage that the existing miner manufacturers are not already leveraging, because the nature of the proof-of-work function simply requires a certain number of bit-flips to be performed (many quadrillions of them, on average) in order to mine a block.
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Try the following as a visualization of the mathematical mining function in Bitcoin. Below is a Galton Board. Just play the video and you will understand what it does (easier than explaining).
Notice how most of the balls fall in the center of the board. You can think of a single miner on the network as doing exactly this. Every second, it is pouring zillions of little balls down a completely randomized transfer-function (similar to the quincunx at the center of the Galton Board). In order to "win" the lottery, however, it has to get a ball into the furthest-left (or furthest-right, just pick a side) slot. We can imagine the board as being much, much wider than this board, so that the probability of getting a ball to bounce waaaay over to the furthest end is extremely tiny -- not zero, but extremely close to zero. And no, as far as we know, there is no way to "tilt" the board or otherwise rig the system. You just have to pour lots of little balls and hope to get one that bounces into the furthest edge slot.
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