Doug henwood bitcoin wiki
Tyler Zimmer explains how the strange story of a "crypto-currency" reveals the underlying irrationality of a system that's designed to work for the rich only. Today, each one is valued in the tens of thousands of dollars. In the last year alone, prices have risen more than 1, percent--which has made Bitcoin front-page news. Defenders of capitalism are fond of saying--often in a smug, patronizing way--that critics of the system simply don't "understand how markets work.
The obvious example to point to would be the global economic meltdown, but we might just as well reference the fact of stagnant real wages for workers, soaring income and wealth inequality, and steadily worsening ecological destruction, to name only a few examples of capitalism's ills.
To these examples, the right wing responds with a mixture of dismissiveness on the one hand--"climate change is a myth and inequality isn't that bad"--and stubborn insistence that the solution to every problem is even more privatization, corporate tax breaks, spending cuts and deregulation on the other.
Neither side of this response is an answer, of course--because capitalism inherently, not accidentally, produces recurrent economic crises, material deprivation, ecological destruction and inequality. Irrationality is a constituent feature of capitalism , not an aberration caused by meddling state interference.
Far from being evidence of a rational, efficient core at the heart of the system, the current Bitcoin craze is a classic example of an asset bubble that will, sooner or later, burst. It's worth dissecting the dynamics that produce such waves of speculation, because they cast serious doubt on the rose-colored-glasses view that markets always produce optimal results for all.
Capitalism is, of course, a system based on private ownership and control of capital, in which those owners make decisions in the marketplace based on what they think or hope will maximize their wealth. Even the system's defenders concede that these actors aren't fundamentally making decisions based on what other people need or want--their immediate goal is maximum return on investment.
Sloan, a long-time CEO of General Motors, once said that "it is the business of the auto industry to make money, not cars. For the capitalist investor, it's immaterial "where" whether funds are invested in the actual production of goods and services or in any manner of arcane financial instruments. All that matters is that the investment generates the desired returns. Right now, Bitcoin prices, though volatile, are still on the upswing, which incentivizes investors to hop on the bandwagon in the hope of reaping profits from speculation--from buying low and selling high.
Indeed, this desire to buy low and sell high is driving the bubble, not any widespread allegiance to the ideological underpinnings of Bitcoin, which, as Doug Henwood points out , are spurious. This, in turn, creates a positive feedback loop: Let's step back for a moment and take stock: Right now, millions of dollars are flowing into Bitcoin and other "crypto-currencies," even though they are accepted by almost no one, and few, if any, large businesses use them to keep their books.
But investors, motivated by the opportunity to reap short-run speculative gains, don't care that the thing--can we even call it that? Because so many people are already betting on prices continuing to climb, prices are pushed up even more--thereby incentivizing even more investment. Under any plausible definition of rationality, this speculative frenzy is irrational. To judge from past examples of asset bubbles, at some point, the surge will stall out, and panic will set in. Those seeking speculative gains will try to cash out and reap their reward.
But not everyone will cash out as a winner. Once the rush to sell begins, prices plummet, producing the opposite effect that drove the bubble in the first place. This process is more or less exactly what happened to the stock market bubble of the late s, the credit market and housing bubbles of the early s, and many other cases.
And today, it's not just crypto-currencies where we see these dynamics at work. Without knowledge of the private key the transaction cannot be signed and bitcoins cannot be spent. The network verifies the signature using the public key. A transaction must have one or more inputs. For the transaction to be valid, every input must be an unspent output of a previous transaction.
Every input must be digitally signed. The use of multiple inputs corresponds to the use of multiple coins in a cash transaction. A transaction can also have multiple outputs, allowing one to make multiple payments in one go. A transaction output can be specified as an arbitrary multiple of satoshi. Similarly as in a cash transaction, the sum of inputs coins used to pay can exceed the intended sum of payments.
In such case, an additional output is used, returning the change back to the payer. To send money to a bitcoin address, users can click links on webpages; this is accomplished with a provisional Bitcoin URI scheme using a template registered with IANA. Mobile clients recognize Bitcoin URIs in QR codes , so that the user does not have to type the bitcoin address and amount in manually.
The QR code is generated from the user input based on the payment amount. The QR code is displayed on the mobile device screen and can be scanned by a second mobile device. Mining is a record-keeping service. A new block contains information that "chains" it to the previous block thus giving the block chain its name. It is a cryptographic hash of the previous block, using the SHA hashing algorithm.
A new block must also contain a so-called proof-of-work. The proof-of-work consists of a number called a difficulty target and a number called a nonce , which is jargon for "a number used only once".
Miners have to find a nonce that yields a hash of the new block numerically smaller than the number provided in the difficulty target. When the new block is created and distributed to the network, every network node can easily verify the proof.
The fact that the hash of the new block is smaller than the difficulty target serves as a proof that this tedious work has been done, hence the name "proof-of-work". By changing the difficulty target number, the average time required to find a nonce can be shortened or extended A smaller number reduces the range of accepted nonces and increases the time required.
The bitcoin system adjusts the difficulty target number every blocks so that the average time the entire network needs to find a nonce always remains about ten minutes. In this way the bitcoin protocol ensures that it will always take about ten minutes to add a new block regardless of the size of the network or the sophistication of the mining hardware it employs.
The proof-of-work system alongside the chaining of blocks makes modifications of the block chain extremely hard as an attacker must modify all subsequent blocks in order for modifications of one block to be accepted. As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks increases. The environmental cost of mining includes the generation of electricity. Even if all miners used energy efficient processes, the combined electricity consumption would be 1.
As of [update] , it has become common for miners to join organized mining pools , [ 44 ] which are used primarily to reduce variance. The reward is then split among the members creating a more steady stream of income without necessarily lowering the total expected amount of rewards for each miner when averaged over time, although a fee may be charged for the service.
The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees. To claim the reward, a special transaction called a coinbase is included with the processed payments. The bitcoin protocol specifies that the reward for adding a block will be halved approximately every four years. Eventually, the reward will be removed entirely when an arbitrary limit of 21 million bitcoins is reached c.
Paying a transaction fee is optional, but may speed up confirmation of the transaction. Fees are based on the storage size of the transaction generated, which in turn is dependent on the number of inputs used to create the transaction. Furthermore, priority is given to older unspent inputs. A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold [ 54 ] or store bitcoins, [ 55 ] due to the nature of the system, bitcoins are inseparable from the block chain transaction ledger.
Perhaps a better way to describe a wallet is something that "stores the digital credentials for your bitcoin holdings" [ 55 ] and "allows you to access and spend them".
Bitcoin uses public-key cryptography , in which two cryptographic keys, one public and one private, are generated. There are several types of wallet. Software wallets connect to the network and allow spending bitcoins in addition to holding the credentials that prove ownership. Others are simply paper printouts.
Another type of wallet called a hardware wallet keeps credentials offline while facilitating transactions. The first wallet program, called Bitcoin-Qt, was released in by Satoshi Nakamoto as open-source code. Bitcoin-Qt, also called Satoshi client, is sometimes referred to as the reference client because it serves to define the bitcoin protocol and acts as a standard for other implementations.
Privacy is achieved by not identifying owners of bitcoin addresses while making other transaction data public. Bitcoin users are not identified by name, but transactions can be linked to individuals and companies.
Users concerned about privacy can use so-called mixing services that swap coins they own for coins with different transaction histories. Wallets and similar software technically handle bitcoins as equivalent, establishing the basic level of fungibility. Researchers have pointed out that the history of every single bitcoin is registered and publicly available in the block chain ledger, and that some users may refuse to accept bitcoins coming from controversial transactions, which would harm bitcoin's fungibility.
Bitcoin was invented by Satoshi Nakamoto, [ note 6 ] who published his invention on 31 October in a research paper called "Bitcoin: A Peer-to-Peer Electronic Cash system". Bitcoin is often called the first cryptocurrency [ 19 ] although prior proposals existed. One of the first supporters, adopters, contributor to bitcoin and receiver of the first bitcoin transaction was programmer Hal Finney.
Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world's first bitcoin transaction. Other early supporters were Wei Dai, creator of bitcoin predecessor b-money , and Nick Szabo, creator of bitcoin predecessor bit gold. In , an exploit in an early bitcoin client was found that allowed large numbers of bitcoins to be created. Based on bitcoin's open source code, other cryptocurrencies started to emerge in In March , a technical glitch caused a fork in the block chain, with one half of the network adding blocks to one version of the chain and the other half adding to another.
For six hours two bitcoin networks operated at the same time, each with its own version of the transaction history. The core developers called for a temporary halt to transactions, sparking a sharp sell-off. Normal operation was restored when the majority of the network downgraded to version 0. In some mainstream websites began accepting bitcoins.
In October , Chinese internet giant Baidu had allowed clients of website security services to pay with bitcoins. Gox and the Europe-based Bitstamp to become the largest bitcoin trading exchange by trade volume. As of [update] mining had become quite competitive and was compared to an arms race as ever-more-specialized technology was being utilized.
The most efficient mining hardware makes use of custom designed application-specific integrated circuits , which outperform general purpose CPUs and also use less power. In the US two men were arrested in January on charges of money-laundering using bitcoins; one was Charlie Shrem , the head of now defunct bitcoin exchange BitInstant and a vice chairman of the Bitcoin Foundation.
Shrem allegedly allowed the other arrested party to purchase large quantities of bitcoins for use on black-market websites. In early February , one of the largest bitcoin exchanges, Mt. Gox , [ ] suspended withdrawals citing technical issues. Gox had filed for bankruptcy protection in Japan amid reports that , bitcoins had been stolen. The Gathering cards, [ ] Mt. Gox had once been the dominant bitcoin exchange but its popularity had waned as users experienced difficulties withdrawing funds.
On June 18, , it was announced that bitcoin payment service provider BitPay would become the new sponsor of St. Petersburg Bowl under a two-year deal, renamed the Bitcoin St. Bitcoin was to be accepted for ticket and concession sales at the game as part of the sponsorship, and the sponsorship itself was also paid for using bitcoin.
Less than one year after the collapse of Mt. Bitstamp resumed trading on January 9 after increasing security measures and ensuring customers that their account balances would not be impacted. The bitcoin exchange service Coinbase launched the first regulated bitcoin exchange in 25 US states on January 26, At the time of the announcement, CEO Brian Armstrong stated that Coinbase intends to expand to thirty countries by the end of Lawsky is responsible for the development of the so-called 'BitLicense', which companies need to acquire in order to legally operate in New York.
According to the director of the Institute for Money, Technology and Financial Inclusion at the University of California-Irvine there is "an unsettled debate about whether bitcoin is a currency". Economists define money as a store of value , a medium of exchange , and a unit of account and agree that bitcoin has some way to go to meet all these criteria.
Journalists and academics also dispute what to call bitcoin. Some media outlets do make a distinction between "real" money and bitcoins, [ ] while other call bitcoin real money. The People's Bank of China has stated that bitcoin "is fundamentally not a currency but an investment target". Bitcoins can be bought and sold both on- and offline.
Participants in online exchanges offer bitcoin buy and sell bids. To improve access to price information and increase transparency, on 30 April Bloomberg LP announced plans to list prices from bitcoin companies Kraken and Coinbase on its , subscription financial data terminals. According to Mark T. Attempting to explain the high volatility, a group of Japanese scholars stated that there is no stabilization mechanism.
There are uses where volatility does not matter, such as online gambling, tipping, and international remittances. The price of bitcoins has gone through various cycles of appreciation and depreciation referred to by some as bubbles and busts. Bitcoin has been labelled a speculative bubble by many including former Fed Chairman Alan Greenspan [ ] and economist John Quiggin. Louis , stated, "Is bitcoin a bubble? Yes, if bubble is defined as a liquidity premium.
Various journalists, [ ] U. A report by the European Central Bank had stated, "it [is not] easy to assess whether or not the bitcoin system actually works like a pyramid or Ponzi scheme.
Treasury and the International Monetary Fund, has stated that bitcoin is "a Ponzi game". Others have expressed the opinion that bitcoin is not a Ponzi scheme.
The Huffington Post asked, "is bitcoin a Ponzi scheme, yes or no? Financial journalists and analysts, economists, and investors have attempted to predict the possible future value of bitcoin. In April , economist John Quiggin stated, "bitcoins will attain their true value of zero sooner or later, but it is impossible to say when".
Williams forecast a bitcoin would be worth less than ten U. The "death" of bitcoin has been proclaimed numerous times. Some economists have responded positively to bitcoin, but many have not. Velde, Senior Economist at the Chicago Fed described it as "an elegant solution to the problem of creating a digital currency".
Louis , stated that bitcoin is a threat to the establishment, which he argues is a good thing for the Federal Reserve System and other central banks because it prompts these institutions to operate sound policies.
Free software movement activist Richard Stallman has criticized the lack of anonymity and called for reformed development.
Marcus calls bitcoin a "great place to put assets" but claims it will not be a currency until price volatility is reduced. Similarly, Peter Schiff , a bitcoin sceptic understands "the value of the technology as a payment platform" and his Euro Pacific Precious Metals fund partnered with BitPay in May , because "a wire transfer of fiat funds can be slow and expensive for the customer".
Kevin Dowd , Professor of Finance and economics at Durham University has a bearish outlook on bitcoin as a currency. In , the number of merchants accepting bitcoin exceeded , As of September PayPal allows North American merchants using its system the ability to receive payment in bitcoins. Organizations accepting donations in bitcoin include: After a fourfold growth in , retail volume in has seen only a little, if any, increase.
Bitcoin companies have had difficulty opening traditional bank accounts because lenders have been leery of bitcoin's links to illicit activity. One financial institution has been bullish on bitcoin. In a report, Bank of America Merrill Lynch stated that "we believe bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers. Some Argentinians have bought bitcoins to protect their savings against high inflation or the possibility that governments could confiscate savings accounts.
The first regulated bitcoin fund was established in Jersey in July and approved by the Jersey Financial Services Commission. Such risks were highlighted in when Bloomberg named bitcoin as one of its worst investments of the year, [ ] although Forbes named bitcoin the best investment of Bitcoin appeals to tech-savvy libertarians , because it so far exists outside the institutional banking system and the control of governments.
Bitcoin's appeal reaches from left wing critics , "who perceive the state and banking sector as representing the same elite interests, [ Various government agencies, departments, and courts have treated bitcoin differently.
A few governments have moved to regulate bitcoin and similar payment systems. According to the European Central Bank , traditional financial sector regulation is not applicable because bitcoin does not involve traditional financial actors.
In April , Steven Strauss, a Harvard public policy professor, suggested that governments could outlaw bitcoin, [ ] and this possibility was mentioned again by a prospective bitcoin investment vehicle in a July, , report to a regulator.
It is illegal in: Bangladesh, [ ] Bolivia, [ ] Ecuador, [ ] Iceland, [ ] [ not in citation given ] Indonesia, [ ] [ not in citation given ] Kyrgyzstan, [ ] [ not in citation given ] Russia, [ ] Thailand, [ ] [ not in citation given ] and Vietnam. While private parties can hold and trade bitcoins in China, regulation prohibits financial firms like banks from doing the same.
A December statement from BTC China suggested payment processors had voluntarily withdrawn their services. The European Central Bank classifies bitcoin as a convertible decentralized virtual currency. As of , foreign exchange activities with bitcoin are illegal in Iceland. As of , bitcoin is illegal in this country. While bitcoin itself is not illegal here, approvals for bitcoin ATMs have been refused. Treasury classifies bitcoin as a convertible decentralized virtual currency.
Mazzant of a Texas District Court classified bitcoin as a currency. Marshals Service seized in October from Silk Road, was said to increase legitimacy of the currency. Their decision was split across party lines three members Democrat voting nay, three Republicans voting yea. Glenn [ ] independently from each other accepted bitcoin in their campaigns, and paved the way for others to follow suit.
On 8 May , the U. Federal Election Commission issued draft guidance to U. In May , Brett Stapper, co-founder of Falcon Global Capital, registered to lobby members of Congress and federal agencies on issues related to bitcoin. In January , the U. Securities and Exchange Commission SEC was focused on whether bitcoin-denominated stock exchanges were illegal, per its enforcement administrator, and inquired into unregistered securities offerings of the gambling site SatoshiDICE and FeedZeBirds.
Commodity Futures Trading Commission stated in March it considered regulation of digital currencies [ ] after TeraExchange announced to launch a swap. TeraExchange constructed an index for the value of bitcoin from six different exchanges. The dollar value of a given bitcoin amount is locked in the swap. The CFTC approved the financial product in September , satisfied it "could not easily be manipulated". In June California Assemblyman Roger Dickinson D—Sacramento submitted draft legislation Assembly Bill to legalize bitcoin and all other forms of alternative and digital currency.
As of November [update] , there are no final rules at the U. In March , the New York State Department of Financial Services led by superintendent Benjamin Lawsky had officially invited bitcoin exchanges to apply with them, [ ] and on 17 July it published draft regulations for virtual currency businesses. The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media. Senate held a hearing on virtual currencies in November , CNN has referred to bitcoin as a "shady online currency [that is] starting to gain legitimacy in certain parts of the world", [ ] and The Washington Post called it "the currency of choice for seedy online activities".
Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods. There have been many cases of bitcoin theft. In that case, the network does not have any provisions to identify the thief, block further transactions of those stolen bitcoins, or return them to the legitimate owner. Theft also occurs at sites bitcoins are used to purchase illicit goods.
Sites where users exchange bitcoins for cash are another target for theft. In late February Mt. Gox , one of the largest virtual currency exchanges, filed for bankruptcy in Tokyo amid reports that , bitcoins had been stolen. Because of its presumed capacity to obfuscate the source of payments in online transactions, bitcoin has come to be used in the deep web black markets.
Several deep web black markets have been shut by authorities. In October Silk Road was shut down by U. Some black market sites may seek to steal bitcoins from customers. The bitcoin community branded one site, Sheep Marketplace, as a scam when it prevented withdrawals and shut down after an alleged bitcoins theft. According to the Internet Watch Foundation , a U. Bitcoin isn't the sole way to purchase child pornography online, as Troels Oertling, head of the cybercrime unit at Europol , states, "Ukash and Paysafecard Bitcoins may not be ideal for money laundering because all transactions are public.
In early , an operator of a U. In a Ponzi scheme that utilized bitcoins, The Bitcoin Savings and Trust promised investors up to 7 percent weekly interest, and raised at least , bitcoins from to Securities and Exchange Commission charged the company and its founder in "with defrauding investors in a Ponzi scheme involving bitcoin".
Bitcoin-related malware includes software that steals bitcoins from users using a variety of techniques, software that uses infected computers to mine bitcoins, and different types of ransomware , which disable computers or prevent files from being accessed until some payment is made.
Security company Dell SecureWorks said in February that it had identified almost types of bitcoin malware. In June , Symantec warned about the possibility that botnets could mine covertly for bitcoins. In mid-August , bitcoin mining botnets were detected, [ ] and less than three months later, bitcoin mining trojans had infected Mac OS X.
In April , electronic sports organization E-Sports Entertainment was accused of hijacking 14, computers to mine bitcoins; the company later settled the case with the State of New Jersey. For four days in December and January , Yahoo! Europe hosted an ad containing bitcoin mining malware that infected an estimated two million computers. Microsoft has been removing the malware through its Microsoft Security Essentials and other security software.
Several reports of employees or students using university or research computers to mine bitcoins have been published. Some malware can steal private keys for bitcoin wallets allowing the bitcoins themselves to be stolen. The most common type searches computers for cryptocurrency wallets to upload to a remote server where they can be cracked and their coins stolen.
A type of Mac malware active in August , Bitvanity posed as a vanity wallet address generator and stole addresses and private keys from other bitcoin client software. Another type of bitcoin-related malware is ransomware. One program called CryptoLocker , typically spread through legitimate-looking email attachments, encrypts the hard drive of an infected computer, then displays a countdown timer and demands a ransom, usually two bitcoins, to decrypt it. Various potential attacks on the bitcoin network and its use as a payment system, real or theoretical, have been considered.
The bitcoin protocol includes several features that protect it against some of those attacks, such as unauthorized spending, double spending, forging bitcoins, and tampering with the block chain.
Unauthorized spending is mitigated by bitcoin's implementation of public-private key cryptography. When Alice sends a bitcoin to Bob, Bob becomes the new owner of the bitcoin.
Eve observing the transaction might want to spend the bitcoin Bob just received, but she cannot sign the transaction without the knowledge of Bob's private key. A specific problem that an internet payment system must solve is double-spending , whereby a user pays the same coin to two or more different recipients. An example of such a problem would be if Eve sent a bitcoin to Alice and later sent the same bitcoin to Bob.
The bitcoin network guards against double-spending by recording all bitcoin transfers in a ledger the block chain that is visible to all users, and ensuring for all transferred bitcoins that they haven't been previously spent. If Eve offers to pay Alice a bitcoin in exchange for goods and signs a corresponding transaction, it is still possible that she also creates a different transaction at the same time sending the same bitcoin to Bob.
By the rules, the network accepts only one of the transactions. This is called race attack, since there is a race which transaction will be accepted first. Alice can reduce the risk of race attack stipulating that she will not deliver the goods until Eve's payment to Alice appears in the block chain.
A variant race attack which has been called a Finney attack by reference to Hal Finney requires the participation of a miner. Instead of sending both payment requests to pay Bob and Alice with the same coins to the network, Eve issues only Alice's payment request to the network, while the accomplice tries to mine a block that includes the payment to Bob instead of Alice.
There is a positive probability that the rogue miner will succeed before the network, in which case the payment to Alice will be rejected. As with the plain double-spending attack, Alice can reduce the risk of a Finney attack by waiting for the payment to be included in the block chain. For example, Eve could buy something from Alice, like a sofa, by adding a signed entry to the block chain ledger equivalent to Eve pays Alice bitcoins.
Later, after receiving the sofa, Eve could modify that block chain ledger entry to read instead: Eve pays Alice 1 bitcoin , or replace Alice's address by another of Eve's addresses. Digital signatures cannot prevent this attack: Eve can simply sign her entry again after modifying it.
To prevent modification attacks, each block of transactions that is added to the block chain includes a cryptographic hash code that is computed from the hash of the previous block as well as all the information in the block itself.
When the bitcoin software notices two competing block chains, it will automatically assume that the chain with the greatest amount of work to produce it is the valid one. Therefore, in order to modify an already recorded transaction as in the above example , the attacker would have to recalculate not just the modified block, but all the blocks after the modified one, until the modified chain contains more work than the legitimate chain that the rest of the network has been building in the meantime.
Consequently, for this attack to succeed, the attacker must outperform the honest part of the network. Each block that is added to the block chain, starting with the block containing a given transaction, is called a confirmation of that transaction. Ideally, merchants and services that receive payment in bitcoin should wait for at least one confirmation to be distributed over the network, before assuming that the payment was done. He mines his private chain and eventually when somebody finds his own block publishes several blocks at row.
This makes the "honest" network abandon their last work and switch to the attacker's branch. As a result, honest miners lose a significant part of their revenue, while the attacker increases profits due to changes in relative hashpowers. However, other researchers disagree with the conclusion and point out the flaws in the article.
Along with transaction graph analysis, which may reveal connections between bitcoin addresses pseudonyms , [ 2 ] [ ] there is a possible attack [ ] which links a user pseudonym to its IP address , even if the peer is using Tor.
The attack makes use of bitcoin mechanisms of relaying peer addresses and anti- DoS protection. IBM has been looking for applications of the distributed ledger. This would be controlled by central banks. A bitcoin documentary film called The Rise and Rise of Bitcoin made its debut at the Tribeca Film Festival in New York on 23 April , chronicling its origins to its explosive growth in Several lighthearted songs celebrating bitcoin have been released.
One student had the idea of a Bitcoin Club and raised more than half a million dollars from an MIT alumnus working in high-frequency trading. The episode titled 'Bitcoin for Dummies' was telecasted on January 15, Filmed in July , the episode featured him living off bitcoin for a week to figure out whether the world is ready for a new kind of money.
From Wikipedia, the free encyclopedia. Bitcoin Logo of the bitcoin reference client. Cryptographic nonce and Proof of work. Digital wallet and Armory software. Legality of bitcoin by country. Cryptography portal Economics portal Free software portal Internet portal Numismatics portal. Some sources use Bitcoin , capitalized, to refer to the technology and network and bitcoin , lowercase, to refer to the unit of account.
This article follows the latter convention. The relative mining difficulty at a given time is defined as the ratio between the difficulty target at 9 January and the difficulty target at the given time. This yields relative mining difficulty at 9 January equal to 1. Higher number means higher relative difficulty. As the total network power increases, the network adjusts the mining difficulty to make mining always last about ten minutes.
Therefore, the relative mining difficulty can also be interpreted as the relative power of the network. The fact is that gold miners are rewarded for producing gold, while bitcoin miners are not rewarded for producing bitcoins; they are rewarded for their record-keeping services. Financial Crimes Enforcement Network.
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Retrieved 31 October A Primer for Policymakers".