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Author Topic: Inflation due to Bitcoin Mining?  (Read 632 times)
steveroch_rs
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November 05, 2015, 02:12:52 PM
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Hi Guys,

first of all I'm a complete newbie when it comes to Bitcoins. I heard about it a couple of times and watched some videos of people showing off their Mining machines but that's pretty much it. I read an article by Fortune Magazine today dealing with the rise of bitcoins and that attracted my curiosity.
What I've learned so far is that when a transaction is made, a certain fee is calculated with it (e.g. 5ct real currency fee for a $5 transaction). The transaction is being added into a block and secured with some puzzle. Then to make the Bitcoins spendable the miners need to solve that puzzle and get rewarded that transaction fee from the transaction. Meaning I want to send you $5 in Bitcoins, my wallet value decreases by $5 5ct because of the fee. Then the miner solving the puzzle coming along with the block of transactions gets rewarded that 5ct because he made his computing power available to the network. But my lynda.com introduction said that would be how new Bitcoins are generated. But when my 5ct fee get rewarded to the miner there's no new money, is there?
I'm very confused right now. Because if these 5cts are really new money then how is it possible that there's no inflation. Is it because more and more store's accept Bitcoin increasing the value of goods represented by the Bitcoins? I'm no economics specialist but what I learned is that inflation only occurs when money is printed without the value representing it rising.

Thanks for helping in advance

Steve
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mexxer-2
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November 05, 2015, 02:24:42 PM
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What I've learned so far is that when a transaction is made, a certain fee is calculated with it (e.g. 5ct real currency fee for a $5 transaction).
You can specify the fee, or let the core application decide the fee according to the transaction size. Smaller fee only means longer transaction confirmation time.
The transaction is being added into a block and secured with some puzzle. Then to make the Bitcoins spendable the miners need to solve that puzzle and get rewarded that transaction fee from the transaction. Meaning I want to send you $5 in Bitcoins, my wallet value decreases by $5 5ct because of the fee. Then the miner solving the puzzle coming along with the block of transactions gets rewarded that 5ct because he made his computing power available to the network. But my lynda.com introduction said that would be how new Bitcoins are generated. But when my 5ct fee get rewarded to the miner there's no new money, is there?
Miners get 25 BTC(currently) for "creating the puzzle"(securing it with hash). It halves every 4 years, with next halving being at 2017.
As mining solo is not feasible currently due to the increasing difficulty and huge number of miners(which decreases the probablity of you getting to mine a certain block) , miners mine in group, and if anyone of them gets the reward for a block they "share" it according to their hashing power.

P.S: Takes quite some time to actually understand even the simplest of bitcoin concepts, took me a month to understand block reward  Wink
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November 05, 2015, 02:28:17 PM
 #3

you can add that some use switch mining mining most profitable coin at the moment
also there is some that mine only certain coin



              ▄▄▄██████▄▄▄
          ▄██████████████████▄
       ▄████████████████████████▄
 ▄▄  ▄████████████████████████████▄
███████████████████████████████████▄
 ▀▀█████████████████████████████████▄
   ██████████████████████████████████
   ██████████████████████████████████
   ██████████████████████████████████
   ██████████████████████████████████
   ▀████████████████████████████████▀
    ▀██████████████████████████████▀
     ▀▀██████████████████████████▀
        ▀██████████████████████▀
           ▀▀▀████████████▀▀▀
.
.....
.....
.....
.....
.....
.....





mexxer-2
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November 05, 2015, 02:30:03 PM
 #4

you can add that some use switch mining mining most profitable coin at the moment
also there is some that mine only certain coin
Say what? You're going either going off-topic or you don't understand mining(even after being a Hero member), you're talking about altcoins which in no way relates to bitcoin, and the question he is asking.
steveroch_rs
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November 05, 2015, 02:38:04 PM
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What I've learned so far is that when a transaction is made, a certain fee is calculated with it (e.g. 5ct real currency fee for a $5 transaction).
You can specify the fee, or let the core application decide the fee according to the transaction size. Smaller fee only means longer transaction confirmation time.
The transaction is being added into a block and secured with some puzzle. Then to make the Bitcoins spendable the miners need to solve that puzzle and get rewarded that transaction fee from the transaction. Meaning I want to send you $5 in Bitcoins, my wallet value decreases by $5 5ct because of the fee. Then the miner solving the puzzle coming along with the block of transactions gets rewarded that 5ct because he made his computing power available to the network. But my lynda.com introduction said that would be how new Bitcoins are generated. But when my 5ct fee get rewarded to the miner there's no new money, is there?
Miners get 25 BTC(currently) for "creating the puzzle"(securing it with hash). It halves every 4 years, with next halving being at 2017.
As mining solo is not feasible currently due to the increasing difficulty and huge number of miners(which decreases the probablity of you getting to mine a certain block) , miners mine in group, and if anyone of them gets the reward for a block they "share" it according to their hashing power.

P.S: Takes quite some time to actually understand even the simplest of bitcoin concepts, took me a month to understand block reward  Wink

Ah thank you that was very helpful  Smiley
Then what have I as a payer got from manually increasing the fee I "want" to pay? This makes it only faster for the miners to get it?

The reward comes from nowhere? There's just 25BTC extra after solving a puzzle?
mexxer-2
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November 05, 2015, 02:43:58 PM
 #6


Ah thank you that was very helpful  Smiley
Then what have I as a payer got from manually increasing the fee I "want" to pay? This makes it only faster for the miners to get it?

The reward comes from nowhere? There's just 25BTC extra after solving a puzzle?
Well most of the times you can specify the fee as 0.0001-0.0002 and if bitcoin is not hit by blockchain spam attacks you should be fine, and receive the amount when the next block gets confirmed or at most an hour. Bigger fees are "noticed" by miners faster and hence are included in the current/next block. The reward is "minted" and its not after "solving the puzzle" , its after the miners "create the puzzle" to secure the block.
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November 05, 2015, 02:44:22 PM
 #7

Hi Guys,

first of all I'm a complete newbie when it comes to Bitcoins. I heard about it a couple of times and watched some videos of people showing off their Mining machines but that's pretty much it. I read an article by Fortune Magazine today dealing with the rise of bitcoins and that attracted my curiosity.
What I've learned so far is that when a transaction is made, a certain fee is calculated with it (e.g. 5ct real currency fee for a $5 transaction). The transaction is being added into a block and secured with some puzzle. Then to make the Bitcoins spendable the miners need to solve that puzzle and get rewarded that transaction fee from the transaction. Meaning I want to send you $5 in Bitcoins, my wallet value decreases by $5 5ct because of the fee. Then the miner solving the puzzle coming along with the block of transactions gets rewarded that 5ct because he made his computing power available to the network. But my lynda.com introduction said that would be how new Bitcoins are generated. But when my 5ct fee get rewarded to the miner there's no new money, is there?
I'm very confused right now. Because if these 5cts are really new money then how is it possible that there's no inflation. Is it because more and more store's accept Bitcoin increasing the value of goods represented by the Bitcoins? I'm no economics specialist but what I learned is that inflation only occurs when money is printed without the value representing it rising.

Thanks for helping in advance

Steve
Bitcoin does have a max coin cap of close to 21 million. Mining hashrates are used to secure the network and prevent against network attacks. The more miners, the higher the difficulty and the higher the cost of attacking it. Bitcoin transactions are broadcasted throughout the network and a miner would pick it up and use it in their block. Each block acts as a prevention against double spend attacks (spending the same coin more than once). After 5 blocks, not counting the block that the transaction is included in, it is nearly impossible to reverse without 51% of the hashrate. They can choose not to mine with any transaction and it would have a lesser chance of getting it orphaned but would sacrifice the transaction fees. Currently, Bitcoin miners are rewarded with 25Bitcoins per block mined, halving every 4 years. The next halving is estimated to be in the 3rd quarter of 2016.

When you send a transaction, a small portion would be used as fee and the rest would go to the recipient. You can choose to not pay any fee and hope that your priority is large enough for miners to include it into their block. After 2140+, miners would be relying almost fully on the transaction fee to make their mining profitable.

ranochigo
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November 05, 2015, 02:46:05 PM
 #8


Ah thank you that was very helpful  Smiley
Then what have I as a payer got from manually increasing the fee I "want" to pay? This makes it only faster for the miners to get it?

The reward comes from nowhere? There's just 25BTC extra after solving a puzzle?
Well most of the times you can specify the fee as 0.0001-0.0002 and if bitcoin is not hit by blockchain spam attacks you should be fine, and receive the amount when the next block gets confirmed or at most an hour. Bigger fees are "noticed" by miners faster and hence are included in the current/next block. The reward is "minted" and its not after "solving the puzzle" , its after the miners "create the puzzle" to secure the block.
Typically, a transaction would be around >1kb in size. If you use 0.0001BTC, you would be most probably fine. Bigger fees do not have high priority if they have a huge size. Only bigger BTC/KB fee is noticed by the miner. They can choose to ignore that transaction though.

mexxer-2
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November 05, 2015, 02:49:46 PM
 #9

Hi Guys,

first of all I'm a complete newbie when it comes to Bitcoins. I heard about it a couple of times and watched some videos of people showing off their Mining machines but that's pretty much it. I read an article by Fortune Magazine today dealing with the rise of bitcoins and that attracted my curiosity.
What I've learned so far is that when a transaction is made, a certain fee is calculated with it (e.g. 5ct real currency fee for a $5 transaction). The transaction is being added into a block and secured with some puzzle. Then to make the Bitcoins spendable the miners need to solve that puzzle and get rewarded that transaction fee from the transaction. Meaning I want to send you $5 in Bitcoins, my wallet value decreases by $5 5ct because of the fee. Then the miner solving the puzzle coming along with the block of transactions gets rewarded that 5ct because he made his computing power available to the network. But my lynda.com introduction said that would be how new Bitcoins are generated. But when my 5ct fee get rewarded to the miner there's no new money, is there?
I'm very confused right now. Because if these 5cts are really new money then how is it possible that there's no inflation. Is it because more and more store's accept Bitcoin increasing the value of goods represented by the Bitcoins? I'm no economics specialist but what I learned is that inflation only occurs when money is printed without the value representing it rising.

Thanks for helping in advance

Steve
Bitcoin does have a max coin cap of close to 21 million. Mining hashrates are used to secure the network and prevent against network attacks. The more miners, the higher the difficulty and the higher the cost of attacking it. Bitcoin transactions are broadcasted throughout the network and a miner would pick it up and use it in their block. Each block acts as a prevention against double spend attacks (spending the same coin more than once). After 5 blocks, not counting the block that the transaction is included in, it is nearly impossible to reverse without 51% of the hashrate. They can choose not to mine with any transaction and it would have a lesser chance of getting it orphaned but would sacrifice the transaction fees. Currently, Bitcoin miners are rewarded with 25Bitcoins per block mined, halving every 4 years. The next halving is estimated to be in the 3rd quarter of 2016.

When you send a transaction, a small portion would be used as fee and the rest would go to the recipient. You can choose to not pay any fee and hope that your priority is large enough for miners to include it into their block. After 2140+, miners would be relying almost fully on the transaction fee to make their mining profitable.

Ah thank you that was very helpful  Smiley
Then what have I as a payer got from manually increasing the fee I "want" to pay? This makes it only faster for the miners to get it?

The reward comes from nowhere? There's just 25BTC extra after solving a puzzle?
Well most of the times you can specify the fee as 0.0001-0.0002 and if bitcoin is not hit by blockchain spam attacks you should be fine, and receive the amount when the next block gets confirmed or at most an hour. Bigger fees are "noticed" by miners faster and hence are included in the current/next block. The reward is "minted" and its not after "solving the puzzle" , its after the miners "create the puzzle" to secure the block.
Typically, a transaction would be around >1kb in size. If you use 0.0001BTC, you would be most probably fine. Bigger fees do not have high priority if they have a huge size. Only bigger BTC/KB fee is noticed by the miner. They can choose to ignore that transaction though.
You probably explained it better, but I guess mine was more newbie friendly. And ah well there is always more to know in Bitcoin, me for one still don't know if BTC amount transacted increases the size of the transaction
steveroch_rs
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November 05, 2015, 03:36:45 PM
 #10


Ah thank you that was very helpful  Smiley
Then what have I as a payer got from manually increasing the fee I "want" to pay? This makes it only faster for the miners to get it?

The reward comes from nowhere? There's just 25BTC extra after solving a puzzle?
Well most of the times you can specify the fee as 0.0001-0.0002 and if bitcoin is not hit by blockchain spam attacks you should be fine, and receive the amount when the next block gets confirmed or at most an hour. Bigger fees are "noticed" by miners faster and hence are included in the current/next block. The reward is "minted" and its not after "solving the puzzle" , its after the miners "create the puzzle" to secure the block.
Typically, a transaction would be around >1kb in size. If you use 0.0001BTC, you would be most probably fine. Bigger fees do not have high priority if they have a huge size. Only bigger BTC/KB fee is noticed by the miner. They can choose to ignore that transaction though.

Meaning only the absolute amount of the fee is interesting for the miner? Makes sense Cheesy
Refering to mexxer-2 miners generate security keys to secure a transaction. Can I imagine it like the Encryption of a Teamspeak Server? It sais to generate/solve a key of security level e.g. 44 would take thousands of years? Is that what the miners do? Generate keys for the transactions?
ranochigo
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November 05, 2015, 03:43:02 PM
 #11


Ah thank you that was very helpful  Smiley
Then what have I as a payer got from manually increasing the fee I "want" to pay? This makes it only faster for the miners to get it?

The reward comes from nowhere? There's just 25BTC extra after solving a puzzle?
Well most of the times you can specify the fee as 0.0001-0.0002 and if bitcoin is not hit by blockchain spam attacks you should be fine, and receive the amount when the next block gets confirmed or at most an hour. Bigger fees are "noticed" by miners faster and hence are included in the current/next block. The reward is "minted" and its not after "solving the puzzle" , its after the miners "create the puzzle" to secure the block.
Typically, a transaction would be around >1kb in size. If you use 0.0001BTC, you would be most probably fine. Bigger fees do not have high priority if they have a huge size. Only bigger BTC/KB fee is noticed by the miner. They can choose to ignore that transaction though.

Meaning only the absolute amount of the fee is interesting for the miner? Makes sense Cheesy
Refering to mexxer-2 miners generate security keys to secure a transaction. Can I imagine it like the Encryption of a Teamspeak Server? It sais to generate/solve a key of security level e.g. 44 would take thousands of years? Is that what the miners do? Generate keys for the transactions?
Miners have the last say, they can choose the minimum fees (0) or include only specific transactions. For the sake of simplicity, most miners just include transactions that has the highest fee per KB.

Miners generate a merkle root which contains all the transaction, the rest of the block headers are populated with other information and the miner hashes it till the hash meets or is lower in value than the target. This process adds unconfirmed transactions into the ledger, also known as blockchain. It is then finalised and is very hard to reverse after several blocks.

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