Understanding the following information is not necessary to mine HNT, but until it’s exchanged for fiat, the crypto in your wallet represents stock in the affiliated software. Developing a more well rounded perspective of what makes Helium work may give you a better idea of why exactly it is you’re in the space, and just what makes it so exciting! Decentralized financial structures exist under many of the same conditions existing fiat banking institutions employ.
Below are some really fundamental principles behind blockchain, cryptocurrency, and what exactly makes digital money work.
What is Money?
Money can be defined as anything that is both scarce and has an agreed upon assigned value. Before currency, people traded goods in exchange for services, known as bartering. There was a shortcoming in bartering; people without the goods a service provider needed were unable to receive that service. This gave way to currency, which hasn’t changed much since that time. Currency had scarcity, typically a coin or precious metal, and everyone agreed that it had value.
What is Digital Currency? Why do we agree to assign it wealth? How is it scarce? A digital currency designed to work as a medium of exchange through a computer network which lacks a centralized authority. Valuable due to digital scarcity. Becoming acquainted with the concepts below will provide a clearer understanding of mining a cryptocurrency.
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Centralized vs. Decentralized
Centralized networks host a single server, and in the event this server is taken down, the network goes down with it. Bitcoin, for example, is a decentralized peer to peer network, where miners are awarded Bitcoin for mining new blocks, which in Bitcoin's instance is a ledger of transactions made on the Bitcoin blockchain. Decentralized networks like these are difficult for competitors or governments to take down because even if one or many nodes are taken off-line, the network will continue to share data over the remaining nodes, leaving the software service provided uninterrupted.
What is Blockchain?
A blockchain is a highly secure software that functions as a publicly distributed ledger to record transactions and house the software protocols a network uses to function. Consists of individual “blocks” linked together using cryptography, which each contain an immutable encrypted record of all the blocks that precede it, known as a “hash”.
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What is a Hash Function?
A fundamental tool in cryptography, a cryptographic hash function is an algorithm that takes an arbitrary amount of data input and outputs a fixed-size output, from which it is computationally infeasible to determine the input.
Fun fact: 2^80 computational steps is the computational bound for infeasibility.
The inability to be altered after its creation, another key component of blockchain technology. This makes it impossible for any entity, for example, a government or corporation, to manipulate, replace, or falsify data stored on the network, and reduces the time and cost of audits by simplifying the verification of information. Immutability increases overall efficiency of organizations by providing them with the opportunity to maintain historical record of their business processes, providing clarity to many business disputes by enabling a verifiable, shared source of truth.
Image Source OpenLedger
What is a Consensus Mechanism?
Helium hotspots share data with validators, who then report that data to the Helium network. In Helium’s instance, the data recorded is transactions made on the Helium network and a hash of all the previous blocks. Validators are larger computers used to verify the accuracy of HNT transactions, Proof of Coverage information submitted by hotspots, and to submit challenges on our hotspot’s behalf. Each new block contains a hash function, an encrypted copy, of all the previous blocks that came before it.
In the event a transaction is manipulated, (for example, by attempting to “double spend” by changing a recipient’s wallet address etc.), this will dramatically change the hash function of that block. Each block that follows this manipulated block will contain the incorrect hash function, and will not match the copy of the blockchain provided by other nodes. This immutability ensures the data reported by the network to be current and accurate.
“A node ‘votes’ for a block by adding it to its local copy of the blockchain, and propagating that block to its immediate peers, who then add it to their copy of the blockchain and propagate it, and so on, until all nodes have the block in their local copy of the blockchain.”
This information and more available at BlockGeeks
What is DeFi?
Decentralized companies providing software services incentivize individuals to all behave the same way by rewarding them with a native token for playing by the rules. These native tokens can be exchanged for other cryptocurrencies or sold for fiat currencies. Under this model, folks who play by the rules are rewarded, but even given the instance everyone were to behave as selfishly as possible, and do what is best for their own interest, the system will still thrive. By making it more expensive to cheat the system than to play by the rules, miners are encouraged to behave the same way and work on the same block. They’re playing against each other in a game that winning will provide a larger reward than cheating. This is what gives digital currency scarcity, and therefore value.
Coming full circle, back to the very concept that gives money itself its value, digital scarcity is what gives value to cryptocurrency. The "Double-Spend" problem, which devalued early digital currencies, was solved by an anonymous developer, or group of developers using the moniker Satoshi Nakamoto by using cryptography and a publicly distributed digital ledger to create the Bitcoin blockchain. Satoshi used game theory, which incentivizes decisions that are best for the network, and imposes disincentives that make cheating the network unaffordable, which encourages individuals with free will to perform a target action. This technology is the fundamental starting point of all modern cryptocurrencies and creates digital scarcity by making replicating the currency or falsifying data unfeasible.