Bitcoin, who issues them? Because? How do they work? Let's find out together

Bitcoin, who issues them? Because? How do they work? Let's find out together

By Roberto D. | CryptoFarm | 11 Feb 2020


Who Issues Bitcoins? This is one of the questions that people ask me most frequently when they learn that I deal with cryptocurrencies.

Just the fact that people think that bitcoins are issued speaks volumes about how much confusion there is about virtual currencies.

Unlike what happens with FIAT currencies (ie legal tender ones), bitcoins are not issued by anyone, but are mined; saying this to a person who knows almost nothing about this market is equivalent to not saying anything to him, so let's do some clarity.

While with money as we have always known it, central banks issue banknotes (through the state mint), when we talk about bitcoin there is no state to manage the currency, consequently there is not even one mint and, therefore, no issue of money.

Where then are the bitcoins that are in circulation if no one has issued them? Simple, they come from the use of money itself; when people spend or move their bitcoins all these transactions are merged within a block (blockchain means "block chain") which must then be verified and validated by the network before being transcribed on the distributed register (the blockchain in fact ); well, the net does not do this job for free, as is obvious, but requires a reward.

This reward is inserted in the block itself every time a new one is generated (every ten minutes approximately), consequently the network to grab the reward participates in a kind of game that consists of a mathematical puzzle, the first one that manages to solve this puzzle wins the reward (contained in the block) and transmits the solution to the other nodes of the network so that they can ascertain the correctness of the operation performed; when the network checks that everything has been carried out regularly, the block is stored in the blockchain and the next block is generated.

Obviously everything happens automatically, people do not have to do anything except keep their computers on, they are the computers that perform all the work, which try to solve the puzzle and therefore allow those who participate in the validation of the blocks to grab the reward; consequently whoever has the fastest and most powerful computers is also the one who has the greatest opportunity to get his hands on the new bitcoins contained in each block.

Obviously I am simplifying a lot since I imagine that whoever reads this article is basically fast of any basic notion, otherwise the problem of understanding who issues the bitcoins would never have arisen.

 

In summary, therefore, an algorithm ensures that every time a new block is generated it contains a small amount of bitcoins, which therefore act as a reward for those who make available to the network the computers that have to process the transactions (which are all merged together in one block); since bitcoins are extractable in limited quantities (up to a maximum of 21mln of coins), the day will come when the miners (as they are called the nodes that are part of the network), will no longer extract any bitcoins following validation of a block.

But then, the most careful readers will ask themselves, when the bitcoins are exhausted and will no longer be placed in the blocks, the miners will no longer receive any reward? Nothing could be more wrong, each transaction in fact includes a small commission, and it is precisely the sum of all the commissions that will become, in the future, the reward of the miners when the bitcoins to be mined have run out.

The first bitcoin block (called the "genesis block") was generated on January 3, 2009 and the first 50 BTCs were mined with him, exactly at 18:15:05 (Greenwich time zone); since that time on the road it has gone a long way and the algorithm continues periodically to halve the reward through a process called "halving".

Today miners no longer receive a 50btc reward when they manage to draw a block, but only 12.5BTC; the next halving is expected in a little less than 3 months (about 86 days from now), from that moment, the reward will drop to 6.25BTC again and so on until all the 21mln of coins expected will be extracted, which will happen around 2140.

 

 



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Roberto D.
Roberto D.

Born in Italy, I live in Italy, passionate about cryptocurrencies since I discovered ethereum in 2015


CryptoFarm
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