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Author Topic: Why are bitcoins generated when one mines a block?  (Read 1186 times)
pinjas
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June 10, 2011, 04:04:32 AM
 #1

Hello,

I've done a fair amount of research (around 2 days worth) into the concept of bitcoins and mining them.  I don't think I understand the reason why mining gives bitcoins, what value are 'valid blocks' to anyone?  I am sure the detail or information is very simple and supremely obvious, asked dozens of times and so on.  I am simply not intelligent enough to find (I've used search and search engines with countless variations of words and phrases) or deduce an answer for myself.  I appreciate any time spent educating myself on this subject.

Thank you
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twmz
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June 10, 2011, 05:03:18 AM
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Blocks record pending transactions and confirm them.  Subsequent blocks add confirmations.

Without someone mining, there will be no new valid blocks.  Without new valid blocks, there can be no transactions and no one can ever send any bitcoins anywhere.

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Ian Maxwell
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June 10, 2011, 05:08:58 AM
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The block chain is what keeps Bitcoin secure against forgery without the need for a central server. Miners compete to put verified-valid transactions into blocks. Because clients assume the longest block chain is the correct one, double-spends and other forgeries are doomed in the long run unless someone can produce a block chain faster than the rest of the mining network put together. The block reward is a way to get lots of people to contribute to this.

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pinjas
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June 10, 2011, 01:41:50 PM
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Excellent answers, that was my third guess.  My first guess was it was merely some sort of game, see who can make these hashes the fastest and win a prize.  My second guess was the processing power was being used by and for other organizations that might relate to a research application.  Processing others secure transactions is rewarded with bitcoins.

Thank you for clarifying.

I wonder what will happen when quantum machines come to be available.  I guess a stronger encryption or a dramatically higher difficulty(?) will be needed.

I suppose this leads me to my next question.  I've read several places that mining and bitcoins in general don't really require massive amounts of bandwidth, I kept on seeing something like 1kb-50kb a transaction.  Is this accurate?  I keep on imagining that mining must use some bandwidth, more than what I just suggested.  Also, do you folks connect your mining operation through some sort of proxy ssl?  Or is that redundant or unnecessary?  Thank you.
Rob P.
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June 10, 2011, 02:32:15 PM
 #5

One piece missing I didn't see...

For the first 210,000 blocks "discovered", the protocol allows the finder to pay themselves 50 BTC.  That transaction is then confirmed by subsequent block finds.

The reward for finding blocks is halved for every 210,000 blocks after.

The miner doesn't "find" those 50 BTC, they are allowed to be paid to the miner as a reward (plus the transaction fees of the transactions confirmed by that block).

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Ian Maxwell
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June 10, 2011, 04:50:09 PM
 #6

Solo mining doesn't require any additional bandwidth, because the transactions you are trying to process into a block are the ones you are being sent notice of anyway. You don't have to receive anything you wouldn't receive otherwise, and you don't have to send anything unless you actually succeed in creating a valid block. The network doesn't even have to "send" your block reward---you put that transaction directly into the block you generate.

Pooled mining does require some additional bandwidth, because (1) the difficulty is artificially low, so the client submits "valid" hashes far more often, and (2) the server has to send updates to the clients as new transactions come in or new blocks are mined. Even then, there's no need for clients to send or receive more than a few tens of bytes per second on average---it's the servers that have to worry.

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bitcoinminer
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June 11, 2011, 01:50:48 AM
 #7

awesomely simple explanation.  Very helpful.

Be fearful when others are greedy, and greedy when others are fearful.

-Warren Buffett
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