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myarbrough@oreilly.com 2014-11-17 12:47:08 -08:00
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@ -9,7 +9,7 @@ Users can transfer bitcoins over the network to do just about anything that can
Unlike traditional currencies, bitcoins are entirely virtual. There are no physical coins or even digital coins per se. The coins are implied in transactions that transfer value from sender to recipient. Users of bitcoin own keys that allow them to prove ownership of transactions in the bitcoin network, unlocking the value to spend it and transfer it to a new recipient. Those keys are often stored in a digital wallet on each user’s computer. Possession of the key that unlocks a transaction is the only prerequisite to spending bitcoins, putting the control entirely in the hands of each user.
Bitcoin is a distributed, peer-to-peer system. As such there is no "central" server or point of control. Bitcoins are created through a process called "mining," which involves looking for a solution to a difficult problem. Any participant in the bitcoin network (i.e., anyone using a device running the full bitcoin protocol stack) may operate as a miner, using their computer's processing power to attempt to find solutions to this problem. Every 10 minutes on average, someone is able to validate the transactions of the past 10 minutes and is rewarded with brand new bitcoins. Essentially, bitcoin mining de-centralizes the currency-issuance and clearing functions of a central bank and replaces the need for any central bank with this global competition.
Bitcoin is a distributed, peer-to-peer system. As such there is no "central" server or point of control. Bitcoins are created through a process called "mining," which involves looking for a solution to a difficult problem. Any participant in the bitcoin network (i.e., anyone using a device running the full bitcoin protocol stack) may operate as a miner, using their computer's processing power to attempt to find solutions to this problem. Every 10 minutes on average, someone is able to validate the transactions of the past 10 minutes and is rewarded with brand new bitcoins. Essentially, bitcoin mining decentralizes the currency-issuance and clearing functions of a central bank and replaces the need for any central bank with this global competition.
((("mining","algorithms regulating")))The bitcoin protocol includes built-in algorithms that regulate the mining function across the network. The difficulty of the problem that miners must solve is adjusted dynamically so that, on average, someone finds a correct answer every 10 minutes regardless of how many miners (and CPUs) are working on the problem at any moment. ((("bitcoin","rate of issuance")))The protocol also halves the rate at which new bitcoins are created every 4 years, and limits the total number of bitcoins that will be created to a fixed total of 21 million coins. The result is that the number of bitcoins in circulation closely follows an easily predictable curve that reaches 21 million by the year 2140. Due to bitcoin's diminishing rate of issuance, over the long term, the bitcoin currency is deflationary. Furthermore, bitcoin cannot be inflated by "printing" new money above and beyond the expected issuance rate.