What is a good analogy (which a layperson would understand) for the process of Bitcoin mining?

Question

I will be explaining Bitcoin to a non-technical group and I am hoping somebody can provide me with a very basic visual analogy of the crypto-currency mining process.

My half-baked idea, was to somehow describe the mining process as partaking in a complex word search. Hopefully getting my group to visualize a large pool table sized word search (block) and have them imagining searching for a 30 alphanumeric character identifier (wallet). Describing the blockchain as a city sized word-search on top of 21 million pool tables?

• Is this a good analogy to use, or is there a better/more applicable one?
• Using (and adding to) the best analogy, how can I explain the difference in mining with CPU/GPU/ASIC and why the ASIC hardware is the quickest?

Answer 1

I wrote a blog post called Bitcoin by Analogy that captures the best analogy I've seen for explaining Bitcoin:

The nation of Yap in the South Pacific uses a unique form of money called Rai stones, which are circular disks carved out of limestone, with a hole in the middle, that can be up to 12 feet in diameter and weigh up to 8,800 lbs!

Trading stones of this size is difficult: no one wants to cart around a 4 ton stone every time they make a purchase. As a result, the Yapese came up with a clever solution: they decided to determine ownership by verbal agreement. Whenever there was a trade, the parties involved would communicate to the rest of the tribe the amount of stone that had been exchanged. The stones wouldn't actually move from one house to another, but the knowledge of who owned what was memorized and handed down through oral history.

It turns out that this model of money is an excellent analogy for Bitcoin: the ownership of money is determined through collective memory (similar to Bitcoin's global ledger, known as the block chain), money is exchanged by telling everyone in the village about transactions (much like sending out messages in Bitcoin for each transfer), and new money enters the system through the time consuming and randomized process of mining (Bitcoins are created through digital mining).

It's a fairly long blog post, so I'm not sure it makes sense to copy it here; see Bitcoin by Analogy for the rest of the explanation.

Answer 2

Imagine News City, where everyone is a newspaper editor competing to create the next day's newspaper. Only one newspaper editor's draft will make it into print, and its editor wins a fat check.

Over the course of the day there is a lot of events happening. Each newspaper editor will eventually gain knowledge of each event through word of mouth, but they hear about them in different orders and with different delays. Upon receiving news about an event, each newspaper editor will verify the event's validity, then discard bogus events and any events that were already previously published. If there is exceptionally many events, he might also need to select which ones are the most newsworthy and rewarding, as there are only so many pages available per issue, leaving the remaining events to be published the next day.

Because the news editors as a group would never be able to decide without envy whose news selection should be printed (since every one put at least one draft in), News City has hired a notary in Monte Carlo that randomly picks some words from a dictionary for each upcoming issue, of which one must be used somewhere in the draft in order for it to qualify. Every editor may turn in one draft at a time, but when it doesn't qualify, follow-up with another as often as he wants. They might be scrambling the selection of the articles or adding quotes from famous people to vary the used words, in order to win the prize.

The incorruptible notary will forward a winning draft to the printer immediately, and also publish the list of words that would have won. He is contracted to aim to have one issue per day. So, when he gets a lot of submissions, the issue might be a bit early, and he will pick fewer qualifying words for the next issue trying to keep the editors busy for a whole day before coming up with a new qualifying draft.

The events here are Bitcoin transactions, the newspaper editors the miners, the incorruptible notary is the Bitcoin protocol, "a day" the 10 minute block interval, and the word-picking scheme portraits the difficulty.

Answer 3

First, tell them that mining is a very bad analogy and they should forget it.

I like to think of it like people buying Wonka bars in an attempt to find the Golden Ticket. Everybody who works on securing the blockchain is trying to find some unknown number that, when combined with a number from the blockchain, achieves a desired result. The first person to find it, wins the rewards (transaction fees + new coins).

The more numbers you try, the better your chances of finding the special number before anyone else. The protocol adjusts automatically: as more people work on finding the magic number, the harder it becomes to find.

Few people "mine" by themselves these days. People band together in pools to split up the work, and then share the rewards. Instead of having a small chance to find a huge reward, you get a steady stream of bitcoins.

Answer 4

So I'm not entirely sure that this is what you're looking for, but your question specifically asked about the mining process, not exactly how to explain transactions or the blockchain...

So, mining is kind of like blending food. If you blend some food, you get a unique output, which is some sort of mush. It is very easy to make this mush, however it is very hard to take the mush and recreate the food you started with.

If you take a pound of carrots and a pound of celery, and blend them you will get a certain type of mush. If you again take a pound of carrots and a pound of celery, you will get the same type of mush.

Mining is like trying to find a certain type of mush (or output). You need to blend a lot of different things and get different types of mush, and once your mush matches what you're looking for, you have been successful.

At this point you know the ingredients needed to make the mush and can reproduce it easily. This means that others can reproduce what you did and prove that you did, in fact, find the solution.

With bitcoin there are a lot of outputs which we are trying to find, and therefore we need to try an impressive amount of "ingredients" (input) to find all of the different solutions. Once you find the ingredients for a solution, you have solved the problem and are rewarded with a certain amount of bitcoins.

Answer 5

I like the analogy of solving a Rubik's Cube or a Sudoku puzzle. The clearest part (in my opinion) of that analogy is "hard to solve, trivial to verify".

For the second part of your question, using an ASIC could be like being able to work on hundreds or thousands of Rubik's Cubes (or Sudoku puzzles) all at the same time.

Answer 6

What is Bitcoin mining? (Short Version in Layman Terms)

Within the Bitcoin network, there is lottery held every 10 minutes. And in this lottery you have to submit guesses to the network, just like how you would buy a lottery ticket with a set of numbers. In a real lottery you might have 6 digits to guess, but in Bitcoin mining you can think of it as 1 million digits you have to guess. A human would not be able to guess this, so this is where a computer comes in and submits billions and trillions of guesses within these 10 minutes. Which every computer guesses correctly wins the Bitcoins. Currently the reward is 25 Bitcoins every 10 minutes. I left out 99% of the technical jargon that most Bitcoiners try to throw in when explaining this process.

What is Bitcoin mining? (Long Technical Version)

The fundamental basis to know before getting into mining is the fact that there will only ever be 21 million bitcoins that can be mined. They come into existence every 10 minutes at 25 Bitcoins at a time. Once all the Bitcoins are mined, the year will be 2140 (126 years from today). In addition, every 4 years the 25 Bitcoin reward is halved. So when we hit the year 2016, we will only be rewarded 12.5 Bitcoins every 10 minutes. And in the year 2020, it will be 6.25 and so forth. When we hit the year 2060, we will only be able to mine maybe only a fraction of a Bitcoin every 10 minutes. So you can imagine the ratio of the supply to the demand when that time comes.

Bitcoin Mining is modeled after physical gold mining. In the beginning it was easy to mine as all the gold (bitcoins) was readily seen above ground and anyone could pick it up off the ground. But as more people came to try to mine, all the low hanging fruit was taken. Now additional hardware was needed (ASIC Mining) as you had to dig deeper to find the gold (Bitcoins) and you needed more people to come help to dig deeper (called mining pools).

Bitcoin Mining isn't just about wasting electricity and getting a reward for it. It actually serves a real purpose, which is to secure the entire Bitcoin network from fraud and hackers. When miners mine for Bitcoins every 10 minutes, they are actually processing transactions for the entire network. When user A sends user B an amount of Bitcoins, it gets processed by these miners. It's just that the 25 Bitcoin reward is the incentive to secure the network. Ingenious isn't it?

I still left a bunch of jargon out, but it still isn't needed it to get the point across.

Answer 7

The value of Bitcoin is that of it being a trusted payment system network (analogous to Western Union, Visa, Master Card...) with adequate availability. Without pools and miners it would be difficult for Bitcoin to have scaled as much as it has.

Miners are fundamentally doing the brute force work of processing the Bitcoin transactions, by solving a mathematical hashing riddle required to make transactions officially part of the Bitcoin public ledger called the Blockchain. The pools coordinate the miners in to ensure they are not re-doing work other miners have already accomplished. Pools collect the transaction processing fees and the "Finds" of miners (that have solved the mathematical riddle for a block), and distributes the profits to is miners according to the effort they expended.

What is really unique is the Bitcoin transaction processing architecture is that the centralized transaction processing paradigm is no longer required. Pools and miners don't have to be co-located nor in the same "cybersecurity domain" requiring consistent security control postures to be applied to all system components. Transaction processing is effectively outsourced by the pools to miners in a very competitive and fluid market. Miners hop if they don't like their bottom line mining with a particular pool.

STM (Stratum) and GBT (Get Block Template) are the workhorse protocols miners and pools use to communicate to effectively complete the Bitcoin transactions. If STM is used, pools essentially push candidate transaction processing blocks down to thir miners. Miners use GBT if they want to be selective about what transactions they want incorporated into the Blockchain, provided they solve the riddle.

Read the Dec. 2013 three page Federal Reserve paper titled Bitcoin: A primer. The intended audience is most definitely non-technical.

If your audience is technical, but not knowledgeable, point them to http://www.youtube.com/watch?v=Lx9zgZCMqXE&feature=c4-overview&list=UUOGrxFj_j7PZRQM63OFCwmA.

Answer 8

There are two aspects to mining. The first is functional aspect (what is it supposed to achieve) and the second is the technical aspect (what is going on under the hood).

For the sake of clarity I'll deal with both.

In the (very) long term the process of mining is about approving transactions and making them unchangeable once a block of transactions has been included into the blockchain. The Blockchain is a ledger of all transactions that has ever occured. A block is just a group of the latest transactions that when grouped together meet certain technical requirements.

As a reward for doing this (again in the long term) a miner can receive the transaction fees. In the short term, and as an incentive for early adopters, the miners are given an additional bonus: they receive a reward of 25 bitcoins for "discovering" a block.

OK this is where it gets technical.

The process of block "discovery" is where a mining rig is required to run through a repeating process called "hashing". In laymans terms - hashing is jumbling and mixing up some text in a such a way as to arrive at a repeatable outcome.

In other words if somebody else was to perform the task with the same starting point, they would also arrive at the same end point: the same sequence of jumbled letters and numbers.

So what are the miners looking to discover? They are looking to discover (or more specifically be the first to discover a hash result that starts with a series of zeros. It is a lottery and in order to do that the miner must use a combination of things: the transactions it is receiving, the previous block are just two, and put that information into it's hashing machine and check each result to see if it matches a hash with the right number of zeros.

Once they have done that - they publish the result to the network, and every other node checks the results for correctness. The result is easy to reproduce once someone knows what is required to go into it.

There is a third thing that I didn't mention - equally important but easy to grasp: the miner must check each transaction against its own copy of the ledger to validate that each transaction is genuine.

Obviously if you want to win this lottery computing power is required, therefore more and more specialised equipment is needed. An ASIC is a chip that only does one task: hashing. Therefore it can be designed in such a way as to perform the task as fast as physically possible, and for this reason it has a much better chance of winning the reward of the 25BTCs and the transaction fees for all the transactions in the block.

Answer 9

I like the concept of Transaction Processing. "Miners" process the transactions on the bitcoin network. "Miners" move the funds on the bitcoin network.

Transaction Processing involves making random guesses to solving a mathematical problem. Why? The time delay created by the difficult mathematical problem eliminates double spends. This is the brilliance of bitcoin.