Let’s continue our previous article and tell you more things about Bitcoin and bitcoins.
So among other most simplistic but hopefully useful explanations, we’ve also told you that bitcoin units cannot disappear.
But how do they appear anyway?
Well, the answer to that question is yet another proof of how interesting the Bitcoin concept is.
Just like the ‘real world’s’ fiat money, bitcoin units are created out of thin air too.
Except that the newly created bitcoins are issued by open-sourced mathematical algorithms. They are rewarded to those power users who choose to dedicate their time and computing power for basically validating bitcoin transactions and adding them to the Bitcoin ‘chain-of-blocks‘ ledger, thus providing the overall clean and legit record keeping service.
In other words, the “maintainers” of the service are also creators of new units with which they get payed for the transactions’ record-keeping service they perform.
Anyone can participate to this activity of course, but don’t make the mistake of assuming this would be some easy or trivial way to increase your incomes.
In fact, the more transactions are done in the system, the more exponentially complex the validation/cyphering calculations required by the system are getting.
Just to make an idea, back in 2009, adding one successful block of transactions to the block-chain required as little computing power as a decent computer working all night long and was rewarded with 50 bitcoin units.
Not anymore: calculations now require really high amounts of computing power to the extent that special machines (with specifically designed hardware for that purpose) are being manufactured and commercialized. Actually, it was estimated that the global computing power used in 2013 to maintain the Bitcoin service was 256 times faster than the combined computing power of world’s top 500 most powerful super-computers! And the reward is just half of what it used to be in 2009: it is currently 25 bitcoin units for a block (since November 2012) and will keep on getting reduced by 50% every 4 years, approximately. Until when? Well, until sometime between the years 2110-2140 when the maximum possible supply of 21 million bitcoins will be reached.
Because unlike classical currencies, the total amount of circulating bitcoin units is limited to a maximum of 21 million units. But don’t get worried that the maximum amount might not be enough for overall transactions; the Bitcoin system operates with subdivisions too. Lots of them actually, unlike the classical currencies subdivisions which are limited to 1/100 of the unit. In fact, there is a 10^ (-8) subdivision (0.000 000 01 bitcoin) which is called a “satoshi“, a way for the bitcoin-community to say “arigato” to the misterious Sensei-entity known as ‘Satoshi Nakamoto‘ which created this whole brilliant stuff.
OK, so now that you know that the total supply of bitcoin units is limited to a maximum and that system’s maintenance gets increasingly harder and harder, it is probably easier for you to understand why the records-keeping activity is called “mining“. Yes, you got it: it gets less and less rewarding as time goes by, just like say, mining for gold or diamonds.
The first bitcoin-miner was, of course, Satoshi himself (or Satoshi themselves) and the first block, known as “the genesis-block” included a time stamp evidence: the title of an article from The Times issued on January 03-rd 2009 : “Chancellor on brink of second bailout for banks“. Which probably wasn’t meant only for providing evidence on the date but also to make a point regarding the disadvantages of centrally-managed trust-systems.
Well folks, we’ve kind of finished explaining the basics of bitcoin so maybe now it’s a good time to move on to your more ardent and pragmatic hypothetical questions.
“Can we live on bitcoins?” Well, that largely depends on your location and your relationship with adrenaline. Probably yes, but it’s a bit like living on a prayer. A lady contributor for Forbes gave it a try back in 2013 and wrote an entertaining diary for the week she spent experiencing this. Our understanding is that she got thrilled by this journey but we were unable to track in her story any direct or even indirect statement regarding a future next try.
“What is the current exchange value of a bitcoin unit (1 BTC) ?”. Well, the one thing you surely have to keep in mind is that, at least for now, exchange values of bitcoins are as volatile as the moods of your mother-in-law. But you can check on the increasingly numerous exchange websites and see for yourself how it goes.
“Can the Bitcoin system be hacked ?” In a nutshell, it can. And it was. But bottom line is to never forget that the strength of any encryption system is equal to its weakest link.
“Can I buy ORPALIS software products using bitcoins?” As a matter of fact, you can. For our free software products, we happily accept other virtual currencies like hugs, good wishes or virtual beers.
“Are you done with this voodoo bitcoin article already?” Well, no, not yet. We have a 3-rd part for next time in which we will illustrate the saying of our (he was French, you know) Saint Bernard de Clairvaux: “the road to hell is paved with good intentions“. Just to make you a synopsis of a real-life neo-noir thriller, developing right under our eyes but in the darknet, starring mysterious bad guys and impotent good guys clashing in plots made possible by Bitcoin.
Until then, Sayonara !