So what exactly does mining do for bitcoin???

[triforcelink]

why is it that we have to mine for bitcoins? would it not be easier to just hand them out at regular intervals? when the difficulty goes up, what makes mining for bitcoins harder? I keep hearing people talking about 'processing transactions' but what does that actually mean? what is being processed? how can they make the same transaction more difficult to process?

[russelljohnson]

https://en.bitcoin.it/wiki/Category:Mining

[Rob P.]

Mining is required to:

1)  Expand the Bitcoin economy by producing additional Bitcoins
2)  Confirm prior transactions by adding to the block chain

Without mining there would be no new Bitcoins coming into the market and you would not be able to confirm past transactions, therefore preventing those transactions from actually "taking".

[blackgold]

Mining for Bitcoin is the same as mining for Gold or Oil, The coins are hard to get therefore they are worth something to people who don't want to outlay the effort to get them. Also they are wanted because they provide the advantage of being less traceable and also being not centrally controlled. So there is a need and a value for the coins, so how the coins are mined is really not important as long as it's hard to get them and they are mined at a controlled rate.

[triforcelink]

Mining is required to:

1)  Expand the Bitcoin economy by producing additional Bitcoins
2)  Confirm prior transactions by adding to the block chain

Without mining there would be no new Bitcoins coming into the market and you would not be able to confirm past transactions, therefore preventing those transactions from actually "taking".

How much cpu/gpu power is required to just confirm transactions? I don't think the difficulty of computation is going up proportionally to the increasing number of transactions that are needed to confirm.

[rezin777]

Mining is required to:

1)  Expand the Bitcoin economy by producing additional Bitcoins
2)  Confirm prior transactions by adding to the block chain

Without mining there would be no new Bitcoins coming into the market and you would not be able to confirm past transactions, therefore preventing those transactions from actually "taking".

How much cpu/gpu power is required to just confirm transactions? I don't think the difficulty of computation is going up proportionally to the increasing number of transactions that are needed to confirm.

Honest computational power is required to combat an attack from dishonest computational power. The more honest computational power the network has, the hard it becomes to cheat the network.

[befuddled]

How much cpu/gpu power is required to just confirm transactions?

There's subtlety here you are missing. It's not merely producing a ledger of transactions. If it were, the system would have no way of discriminating between phony ledgers produced by cheaters that would allow the cheater to double spend their money. The blocks of the chain have a difficulty associated with them; they are computationally difficult to produce. To produce a phony block, and pass it off, a cheater has to produce it faster than the network of honest nodes can. The higher the difficulty, the more powerful the cheater has to be to pull it off. So to make cheating as unlikely as possible, it is desirable to have block difficulty to be as high as possible, so long as the network can keep up with the transactions. Achieving this requires as much computational effort behind it as possible. Where would all this work come from if there was no reward?  No one would bother. If no one bothered, then the difficulty would be very low, and cheating would be easy. Mining rewards are the feedback mechanism built into the system to make it robust against cheaters and thereby protect the value of bitcoin.

[Rob P.]

How much cpu/gpu power is required to just confirm transactions? I don't think the difficulty of computation is going up proportionally to the increasing number of transactions that are needed to confirm.

The same amount.  Transactions are confirmed BY ADDING BLOCKS TO THE BLOCKCHAIN.  That's the same process that mines bitcoins.  So, if you want transactions confirmed, you have to "mine" blocks by adding them to the blockchain. 

That process can also never stop, or transactions will stop being confirmed.

However, there are built-in "rewards" for continuing to mine, even when you no longer get paid any BTC for mining them.  The miner that finds a block and adds it to the blockchain gets the transaction fees for the transactions initially confirmed with that block.  In theory as Bitcoin becomes more popular, there should be more transactions, and therefore more transaction fees for the miners.

If the transaction fees are insufficient to attract miners, then miners will drop out.  As miners drop out, the difficulty of finding new blocks will decrease, making it easier to find blocks, allowing miners who ARE mining to find blocks faster and therefore earn a larger number of transaction fees.

It's actually quite elegant.

[Dunbar]

So wait, every block contains 50 BTC's + the transaction fees of all transactions described in that block?

And the difficulty of mining depends on the amount of mining taking place? I always thought it was dependent on the amount of BTC's in circulation.

[bcpokey]

So wait, every block contains 50 BTC's + the transaction fees of all transactions described in that block?

And the difficulty of mining depends on the amount of mining taking place? I always thought it was dependent on the amount of BTC's in circulation.

You got it right the first time, and wrong the second time.

Bitcoin adjusts to the power of the network, if it were only based on BTCs in circulation, then it would be impossible to do transactions later in bitcoins life cycle unless there were enough people mining.

[Rob P.]

So wait, every block contains 50 BTC's + the transaction fees of all transactions described in that block?

No.  The block doesn't contain the 50 BTCs.  The block "allows" the miner to pay him/herself 50 BTCs if the block is below 210,000, at 210,000 that payment goes to 25, and every 210,000 blocks it halves again, until it is below the maximum resolution of the software in which case it is effectively zero.  Yes.  It contains the transaction fees for the transactions described in that block, which the miner who "mined" it gets to pay themselves.

And the difficulty of mining depends on the amount of mining taking place? I always thought it was dependent on the amount of BTC's in circulation.

Yes, the difficulty of mining CAN decrease (though I doubt it's happened) if the hashing power of the network decreases.  This is to keep the predictable amount of bitcoins coming into the market.  If all the miners left but one, the network still needs to create bitcoins at a predictable rate, so the difficulty would go WAY down.  

By the same token, when the hashing rate explodes (as has been happening) the difficulty ratings will soar, so the same bitcoin production rates are maintained.