Bitcoin Market: How Is The Currency Created & Distributed?
Bitcoin is the virtual currency that all other virtual currencies aspire to be like. There are actually a lot of copycat versions of this original currency, but Bitcoin remains the most popular of all cryptocurrencies.
A lot of this is down to the clarity of how Bitcoins are both created and distributed, which helps regulate their value. However, some people are still a bit unclear on the basic functions of the currency, such as how Bitcoins are created in the first place.
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Mining: the Bitcoin Creation System
All new bitcoins are created in a process called mining. Every 10 minutes, on average, a certain number of Bitcoins are generated to the computer(s) that succeed in mining.
Mining is not just a trivial process used to generate new Bitcoins. It’s actually one of the most important things about the currency. A specific type of software is used to complete mining activities. When a computer is used to mine Bitcoins, what it is actually doing is confirming or rejecting transaction information, given to it from the Bitcoin blockchain.
The blockchain itself is essentially a public record of every transaction that has ever happened with Bitcoins. It records any new transfers and sends them out to multiple computers that are running mining software. These new transactions are put to the test with a verification process that matches the public and private keys to confirm that Bitcoins transfers are legitimate. If multiple mining computers (nodes) confirm it as valid, it will be confirmed added to the blockchain as a new block. If a transaction is rejected by multiple nodes it will not go through and will be invalidated.
Every node is competing to mine more quickly than other nodes. When transactions are confirmed or rejected, algorithms that need to be solved are given to the nodes. Once a node solves the right algorithm and presents the solution (called a “proof of work”) to the blockchain system, they are awarded a certain number of Bitcoins.
As of July 2016, 12.5 Bitcoins are given out to each mining node that successfully completes a new block for the block chain. This gives miners an incentive to keep mining, creating more and more Bitcoins over time.
Mining has become much more difficult and hardware-intensive since the start of Bitcoin. At the moment, you would need to purchase thousands of dollars of specialized hardware to have a fair chance of mining any Bitcoins. Alternatively, you could join a mining pool that combines computer hardware power to mine together and split the rewards among members. Either way, it requires a significant investment to mine Bitcoins.
While mining is the only way to create new Bitcoins, they can be distributed around and
acquired in a number of ways. It’s possible to purchase Bitcoins from exchanges, individuals, and other online sources, often in exchange for traditional currencies. You can also sell products and services for Bitcoins or work for Bitcoin paychecks.
The methods of spreading Bitcoins around and acquiring coins are as endless as doing these actions with a traditional fiat currency. If you can get paid for something, or earn money through other means, it is often possible to do this with Bitcoins as your currency of choice.
However, mining is the absolute only way to create new Bitcoins to add to the marketplace. This is where new bitcoins are created, with a set reward rate. That said, its hardware investment requirements may make other options more tempting.
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