How Bitcoins are Created ?

Discussion in 'Cryptocurrency' started by tony_t, Jun 23, 2017.




  1. tony_t

    tony_t New Member

    Bitcoins come into existence through a process called mining. Mining is the competitive use of computational power to calculate a number that falls within a certain range. The valid number range is periodically adjusted by the Bitcoin network to make it more or less difficult to find the solution; the target rate is 1 solution every 10 minutes. The solution number itself must be cryptographically computed and verifiable based on the latest set of transactions and the last block of the blockchain. This makes the potential solutions to each competition different and unpredictable.

    The first miner to discover a number that meets the criteria is rewarded with a set amount of brand new bitcoins (currently 25 bitcoins), plus any recent transaction fees that have been paid by other people sending bitcoin on the network. The competition then repeats for the discovery of a new number.

    The rules of the Bitcoin software periodically adjust the difficulty of the competitions so that on average, 6 competitions are solved every hour. This has the effect of limiting how often and how easily bitcoins can be created: the more computers that mine bitcoins, the harder it becomes to win the competition and be rewarded with new bitcoins.

    Additionally, the amounts of bitcoins created per competition is cut in half every 210,000 competitions. It’s estimated that this amount will be halved to 12.5 bitcoins by the year 2016, and by 2140, the amount will go to zero, and no new bitcoins will ever be created again. This is how the creation of bitcoins is limited over time, with the maximum amount of bitcoins that can ever exist limited to 21 million.

    While mining is how new bitcoins are created, its primary purpose is the processing of new transactions by adding them to the blockchain. Mining is fundamental to securing and synchronizing the blockchain throughout the network, and the newly created bitcoins are essentially rewards for those people performing the mining process.

    tl;dr;


    • Bitcoin mining is a competition to find a random number that meets a strict set of conditions.

    • You get rewarded new bitcoins if you win the competition. This is how all bitcoins are created.

    • The reward amount gets cut in half every few years and there can only ever be 21 million total bitcoins minted.
     
  2. Naruto6pathsbro

    Naruto6pathsbro New Member

    You have literally explained the whole proces of bitcoins formation. Although mining is not only used for its formation but for blockhains security as well. as you have mentioned it above. I would like to add how mining secures and synchorizes blockchain.

    How the blockchain is secured and synchronized by mining

    Digital Signatures ( https://en.wikipedia.org/wiki/Digital_signature ) can verify the amounts and senders of transactions, but they do not prevent conflicts of new transactions that try to spend the same bitcoins. For example, a user could broadcast two different valid transactions, that spend the same bitcoins, to different nodes on the network. These two transactions create a conflict on the network: which transaction should be accepted into the blockchain, and which should be rejected?

    This is known as a double spend, and Bitcoin solves this issue using a method called proof-of-work.

    When a miner solves a competition (known as solving a block), they publish the result, which includes all the most recent valid transactions they’ve collected from the network in a new block for the blockchain. This block is broadcast throughout the network, and other nodes receive it and verify:

    • The solution to the mining competition is valid (proof-of-work).
    • That all the transactions within the block are valid based on the existing blockchain.
    While the number that solves a block is difficult to originally calculate, once it is known, it’s very easy for others to verify that it’s indeed a correct solution. This is the core concept behind proof-of-work: the solving of a problem whose difficulty is known, and the solution itself can be easily proved by anyone to be correct.

    Mining is how Bitcoin protects its transaction history (the blockchain) from conflicting versions. Work must be performed for new blocks, and the transactions they contain, to be accepted into the blockchain by other nodes on the network. By requiring that work has been provably done, transactions are considered to be suitable for inclusion in the blockchain. This mechanism is what keeps nodes on the network in agreement about which transactions have actually occurred.

    When a block is solved, all transactions included in that block are shown on the network to have 1 confirmation. Every time a new block is solved, the number of confirmations for transactions already existing in the blockchain are incremented by 1.

    Occasionally, two different miners will solve a block at the same time. This can cause a fork in the blockchain: both miners broadcast their own block, and some nodes will accept one block, while other nodes accept the other block. In this scenario, the nodes on the network keep track of both versions of the blockchain. Miners continue to mine for a new block using the blockchain of their choice. Eventually, a new block is solved and added to one of these blockchains, making it longer than the other blockchain. The network and miners then abandon the shorter blockchain for the longer blockchain, and the latest transactions that were in it the shorter blockchain remain unconfirmed until added to a new block.

    In this case of multiple blockchains, nodes on the Bitcoin network consider the longest blockchain to be the true and valid one. It is generally agreed upon that once a transaction is six blocks deep in the blockchain (know as reaching 6 confirmations), it is irreversibly confirmed and will permanently exist on the blockchain. It is computationally improbable that a longer blockchain could exist without including those transactions.

    Points:

    • Winning a mining competition requires lots of work, but it can be verified easily by anyone else on the network (proof-of-work concept).
    • Every time a miner wins a competition, a new set of transactions (called a block) is added to the blockchain.
    • Everyone on the network can come to a consensus about which blocks should be added to the blockchain because provable hard work is required to add new blocks.
    • 6 new blocks (or confirmations) is understood to make a transaction irreversible.
     
  3. wob4j539689l2

    wob4j539689l2 New Member

    Well, I am a newbie to bitcoin service. I am in need of it to buy some products. I was confused about bitcoin and how they are designed. Your this topic has helped me alot. Thanks for such a usefull article. Thanks to you also Mrs: @San ......


    But, I am having a question that all the transcations that are made through bitcoin are stored in blockchain right, have there ever happened such thing like blockchain network went down and the transaction was not stored in the blockchain ? Or or there any possibilites of it in the near future?
     
  4. tony_t

    tony_t New Member

    yea @San , you are right. I didn't explain that because i had to leave. I thought to post and update regarding it later. But you have already cleared the whole situation. Thanks for your help mate. ;)
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    Good Question. Thats good that you are making yourself aware with questions and inquiries before starting. Answer is: There is very very less possibility of this sort of error. However, This error doesn't occur for usual but in very rare cases. As such issue was reported on bitcointalk forum - https://bitcointalk.org/index.php?topic=80117.0 -. This thing should not happen if you are doing everything in a proper way.. I am using bitcoin for a long time. I haven't faced any error except some random erros.

    If you have any other question, feel free to ask!
     
    Last edited: Jun 23, 2017
  5. Naruto6pathsbro

    Naruto6pathsbro New Member

    Pleasure


    And @erik , in addition to @Asadullah 's answer, i would like to tell you that sometimes transcations takes time in loading ( apeearing in blockchain ). And such error occurs when you double-spend your bitcoins - mostly - . If you follow what @Asadullah said as well as mine, then such error should never occur. That's not a big deal even if it occurs. Can be sort out.
     
  6. Zaroon

    Zaroon New Member

    thats the fact that mining is the only process to create bitcoins. However there should be more. Because Bitcoin mining is not a way to earn coins fas and free now a days. It takes a lot of time, research and money that you’ll need to invest into mining equipment. If you’re a newbie, then you probably shouldn’t be pursuing this. If you’re a veteran, then you probably already know this.

    Sure, you’ll be able to generate Bitcoins even if you use your own PC at home, but if you use a mining calculator, you’ll see that you’ll be making 0.00000968BTC a day ($0.0043) and spending perhaps 100x that on electricity bills or cooling down your computer (in hopes it doesn’t get ruined in the process).

    I am waiting for another possible way for making bitcoins to be launched.
     
  7. tony_t

    tony_t New Member

    yup. that's the truth. earning bitcoin is likly very very hard n tuff. But there is solution for it. Working in a team would make it easier. Which means, having several members in a group and working together to mine bitcoins will generate them more then the above value you posted.

    Bitcoin started in 2009. Till now there hasn't any way started/formed by bitcoin provides to form bitcoins. Expecting a new way to come up would be just useless i think.
     
  8. Naruto6pathsbro

    Naruto6pathsbro New Member

    It is actually biggest issue i had ever faced. Now i have given up minning. It wastes my most of time. I just prefer to earn by some other ways.

    although its a good idea but earning bitcoins is still better than that.

    I don't think this is going to happen. But lets hope for the best.
     
  9. Zaroon

    Zaroon New Member

    good idea.

    now a days in several forums the topic has been started about slow mining process to make the bitcoins. In near future they'll either launch a new way to generate bitcoins or increase bitcoin generations in mining process.

    Earning is way better than wasting your timing in mining. good choice.

    hope for the best!
     
  10. SheraTheBobm

    SheraTheBobm New Member

    I have been doing mining for like 3 months. But i am working in a department that mines the bitcoins and later on sells them for cash. Actually, its a group of 40-50 people. And we distribute per month earnings among us. In this way, we are earning good amount.
     
  11. wob4j539689l2

    wob4j539689l2 New Member

    oh i see. It means that my doubt wasn't useless. thanks for your good answer! :)

    thanks to you too. And i recently read about double spending posted by @Zaroon n in possible questions topic by @Asadullah . Now i understood the whole scenario.
     
  12. tony_t

    tony_t New Member

    Thats something really interesting. Good service. Keep it continue. ;)
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    No problem @erik , do ask another question if you have any.
     

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