Blockchain or just a sausage machine?


By Frank Karsten

“Laws are like sausages. It is better not to see how they are made,” German statesman Bismarck once said. The opposite is true for Bitcoin.

Bitcoin is a combination of a protocol, network, database and software. The system has miners, nodes and software developers.

Both miners and nodes are computers connected to the Internet and running Bitcoin software. Together they form the Bitcoin network. Anyone with a computer can connect to the network and run the software. The Bitcoin miners ensure that transactions are collected, verified, encrypted and processed. The nodes control the miners.

If you initiate a transaction with your Bitcoin wallet, it will be shared with the network, where the miners can pick it up. The transaction cost depends on how busy the network is. The great thing is that people can prioritize their transaction by adding some Bitcoin as a transaction fee. The miners are also rewarded by being allowed to mine a number of new Bitcoin, the so-called blockchain fee.

The blockchain is the database in which all Bitcoin transactions are stored. Every ten minutes, miners merge several thousand new transactions into a block.

They compete with each other to “unlock” the next block and win the blockchain fee. For that, they have to solve a difficult mathematical puzzle that requires a lot of computing power. Whoever finds the solution adds it to the new block and shares it with the network – a newly mined Bitcoin.

Next, the thousands of nodes in the world, who by the way receive no compensation, check the correctness of both the solution and that of all transactions in the block.

When a node has approved a new block (Bitcoin), it is added to its own copy of the blockchain. Other nodes may have found that another block is correct and this may cause a difference of opinion. Therefore, they communicate with each other and then synchronize the blockchain according to fixed rules. Because all blocks are cryptographically connected (in a chain) no one can change an existing transaction – then all blocks will no longer be correct.

The winning miner, who is the first to solve the puzzle and submit a correct block, receives all transaction fees plus the blockchain fee, which is currently 6.25 Bitcoin (currently around R3.08 million). This compensation is automatically halved every four years, so that inflation (the expansion of money) continues to decline and will eventually disappear.

The system is designed like a Swiss watch. For example. The math puzzle should always take about ten minutes to solve so that the mining of new coins remains predictable. But if computers get faster and faster, the puzzle will be solved faster and new coins will be mined faster. Therefore, the software adjusts the difficulty level every two weeks.

The Bitcoin software can be freely modified by anyone. No individual, company, foundation or group is in control of this. Since no one can be forced to accept the changes, consensus must be reached. It may take years to achieve this, but it makes the system stable and less sensitive to corruption or strange directional changes.

The Bitcoin network appears to be so ingenious that the system has been running like a charm for thirteen years and has not been hacked. This is partly because it is so transparent and anyone can spot any mistakes.

What is also special is that the whole system remains intact without central control or human decisions. So with Bitcoin you don’t have to rely on an organization or person, but you rely on computer code. Partly because many owners of the computers also own Bitcoin, everyone has an interest in ensuring that the network does not become corrupted.

So unlike sausage, it’s a good thing that people know how Bitcoin is made. Because the more you understand it, the more you will appreciate it.

  • Frank Karsten is the author of The Discrimination Myth ( and co-author of The Democracy Beyond (
  • Frank Karsten is the author of The Discrimination Myth ( and co-author of The Democracy Beyond (