What is Bitcoin and how does mining work?

What is Bitcoin and how does mining work?

FINGER LAKES--Until recently, the term "mining" in the Finger Lakes was ubiquitous with salt, but the evolution of digital Bitcoin mining operations have made many residents question what this new mining is and the currency itself.
Simply put, Bitcoin is a decentralized currency that uses peer-to-peer technology for transactions. This type of transfer prevents oversight from third parties such as governments, financial institutions or corporate entities. For a person to get started using Bitcoin, a digital wallet is required, which can be obtained online from a number of different developers. The various companies that offer wallets have numerous features and benefits for using their software over others. The term cryptocurrency is the generic term for digital currency, whereas Bitcoin refers to an individual "brand." As the values of Bitcoin have skyrocketed to tens of thousands of dollars per "coin," many users are not actually using a full coin but a small fraction of one when it is used for the exchange of goods.
"The really important thing is that Bitcoin is decentralized... there are regulations that affect Bitcoin but regulators can't get a centralized person or institution and say don't process this payment or transfer," said DJ Dates, assistant professor and chair of the computer and information science department at Corning Community College.
Because of how Bitcoin is inherently structured, it is literally impossible for a third party to interfere with financial transactions using the cryptocurrency.
"For example, if you or I wanted to buy something and we used PayPal for instance, at any point the government can go to PayPal and say we don't want you to process that kind of transaction," said Dates. "At any time they can receive pressure from the public from processing a transaction. So because those are centralized transactions they can be prevented from occurring between two people."
This means that companies can stop legal transactions on moralistic or public relation grounds. A recent example of this occurring is when Visa voluntarily stopped processing payments to an adult website under scrutiny, despite not being legally required to do so.
Digital currency freedom is a double-edged sword, however, because while it allows legal financial transfers to occur that might have been rejected on moralistic grounds, it also could allow illegal transfers between bad actors.
"Every person who uses Bitcoin has a wallet that is encrypted that only they have the key for," Dates explains. "They can purchase and store their Bitcoin, or with enough information, transfer Bitcoin to anyone else in the world who also has a Bitcoin wallet."
That inherent security also comes with a cost, in that if an encryption key, which is usually stored on a USB drive, is lost, there is absolutely no way to ever recover those funds.
"Some people have lost massive fortunes worth millions of dollars by accidentally throwing out or destroying their encryption keys, and that money can never be recovered," Dates stated.
Paramount to the decentralized nature of Bitcoin is the requirement that millions of dedicated computer systems throughout the world are competing with one another to conduct transfers. These transfers are done in bulk and as it stands, along with receiving fees from each transfer, the computers are eligible to be rewarded with a Bitcoin token, which was valued at roughly $38,000 last week. In the week our newspaper has been working on this story the value has now increased to nearly $47,000. The term mining is typically used to describe this process where the computers may be awarded the valuable coin in proportion to the amount of computer processing power used. The massive amount of computer work needed by the currency is purposely done to give the digital asset value, however, whereas traditional currency like the United States Dollar sees very slow value changes, Bitcoin has seen huge variations.
With so many systems competing against one another to conduct Bitcoin transfers, no one person or entity can control the transfer market. This guarantees the decentralized nature that is a tenet of Bitcoin. It also allows for the creation of additional Bitcoin tokens to be added to the system. This will not be permanent though, as there are currently roughly 18 million Bitcoin tokens in the market and the system calls for a cap of 21 million tokens.
"Once all the tokens are mined the same systems used for mining will still compete to be the ones to conduct transfers as they will recoup a fee from each individual transfer and they are conducting them in giant blocks at a time," Dates stated.
In March of 2020, the Greenidge Generation Power Plant on Seneca Lake announced it had successfully added a unique, "one of a kind" data center for digital currencies and other hosting applications to its power generation site. The upgrades representing an investment of $65 million and included a fully integrated, behind-the-meter cryptocurrency mining operation. Full capacity of the facility is 106 Megawatt (MW), and almost 7,000 units of the latest-generation mining hardware, utilizing more than 14 MW, were in operation at the time.
The facility has asked to expand, and if approved, would allow for the construction of four buildings to house additional Bitcoin mining computer systems.
Opposition to the expansion has cited concerns with lake water temperatures due to the use of Seneca Lake water to cool the power generation equipment and greenhouse gas emissions from the natural gas power plant.