Chapter 19: Cryptocurrency: Further Issues

In the previous chapter, we have seen some of the basic concepts of cryptocurrency. The present chapter looks at a number of issues which arise when a cryptocurrency is adopted in the real world.

The nodes in the P2P network compete with each other to mine new blocks. This competition is inherently non-cooperative, i.e. the nodes do not cooperate among themselves for the task of block mining.

Mining of a block is a computation-intensive task. For Bitcoin, a substantial amount of computational power is required to ensure a significant probability of success in mining a block. An individual entity with limited computational power may not be able to successfully mine a block within a reasonable amount of time. This is the motivation for a group of entities to pool together their computational resources towards the goal of block mining. The pool as a whole acquires sufficient computational capability to ensure that a block is mined within a reasonable time. When a block is mined, the block reward is distributed among the members of the pool according to some formula based on the shares of the work done by each of the entities. The goal for an entity is that joining a pool ensures a steady flow of income rather than waiting for a few years before being able to successfully mine a block on its own.