Blocks and coins

[acolombo]

Some fundamentals about all this:

Why 21 million coins? I mean how is this number calculated or where is it taken from?
Blocks just keep getting added to the end of the chain at an average rate of one every 10 minutes, even when all 21 million coins have been generated (from bitcoin wiki). While the reward for a generated block gets lower through time, then I believe difficulty will have to be lowered.
Am I more or less on the right road?

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[johnj]

50btc is the 'reward' for miners find a block/keeping up the system.

As it goes down to 50-> 25->12.5 (or whatever), in theory there should be more bitcoin activity so the transaction fees in blocks (should) make up the difference in the reward.

Difficulty is -soley- based on how many H/s is on the network.

[koin]

the cons

Why 21 million coins?

the reason it is 21 and not 20, or 25 or 15 even could be because using round numbers to get close to a 20 million target lands at 21 million:  
a block every 10 minutes, 50 btc per block, "halving" every 4 years.

the reason it is 21 million and not 200 million, or 20 billion even might be because a goal was to get bitcoin valued near a dollar within a few years.  reaching parity with the dollar was a huge boost for bitcoin, even though, mathematically, it should not have mattered one iota.  this is because if you have 10 bitcoins worth $0.10 or one bitcoin worth $1 you hold an identical amount -- they are mathematically equivalent.  However we are brainwashed consumers who think something valued at $2 is worth more than something valued at $1.  

thus having bitcoin issue a higher number like 500 btc per 10 minutes, for instance, might have made it take a lot longer for the valuation to reach parity with the dollar.

of course, if bitcoin's value reaches hundreds of dollars per bitcoin it might, at that time, be preferable to have more than 50 issued per ten minutes so that each unit of the currency would be more manageable.  

but without having had the benefit of the low issuance to begin with, bitcoin might never have caught on in the first place.  unless satoshi talks, we'll likely never know.

[kjj]

The reward for generating a block is subsidy + fees.  The fees depend on the transactions included in the block, but the subsidy declines using a known function.  The subsidy is also the source of all new bitcoins.  The idea was for the subsidy to provide a distributed means of getting things started, but in the long run, the main reward for securing the block chain (mining) will be the fees.

The subsidy started as 50 BTC for the first 210,000 blocks, which will take about 4 years to happen.  After that, it will halve to 25 BTC for the next 210,000 blocks.  And the process repeats.

The subsidy function has a precision limit of 0.000 000 01 which matches the current network protocol, so the 11th group of blocks will be rounded down to 0.048 828 12 BTC.  This also means that the total number of coins generated will have a discrete total, rather than having to take the limit of 50/(2^N) as N approaches infinity.  That total will be 20,999,999.976 900 00 BTC.

All of these numbers are totally arbitrary.  50 is a nice round number.  210,000 blocks at 6 blocks per hour works out to about 4 years, which is short enough for people to grasp easily, but long enough to jumpstart the system.

The value of a bitcoin comes from exchange, so the total number of coins in the system is pretty much meaningless.  It is really just a question of scale.

[acolombo]

Good answers.
If bitcoin is going to be as widespread as USD is now, then the 21 million coins limit would mean that 1 coin will have to be valued at way too many dollars 100, 10000, a million or who knows what.
For the time being (maybe until there appears a system better than bitcoin), the coin value will probably increase with its generalized use. What do you think?

[nmat]

Good answers.
If bitcoin is going to be as widespread as USD is now, then the 21 million coins limit would mean that 1 coin will have to be valued at way too many dollars 100, 10000, a million or who knows what.
For the time being (maybe until there appears a system better than bitcoin), the coin value will probably increase with its generalized use. What do you think?

That's why Bitcoin has 8 decimal places. But anyway, it is highly unlikely that Bitcoin will become as widespread as USD. I think Bitcoin will take its small niche market though.

As for the value of coin increasing or not, no one nows. I bet that it will come down until production is halved.

[FYGM]

Why is it only divisible to eight places, and not sixteen, or infinite?

[nmat]

Why is it only divisible to eight places, and not sixteen, or infinite?

You can't store an infinite number...  The value could be changed if needed, but it is hard coded to 8.

[kjj]

Why is it only divisible to eight places, and not sixteen, or infinite?

The protocol uses integer math exclusively.  Amounts are stored as 64 bit values scaled by 1*10⁸, so 1 BTC is stored as 0x0000000005F5E100.  One Satoshi is stored as 0x0000000000000001.  21 million BTC (slightly more than there ever will be) is stored as 0x000775F05A074000.

Since 21,000,000 requires ceiling(log₂(21,000,000)) = 25 bits to store, if we upgrade the protocol to 128 bits some day, we will have about 100 bits of resolution, so we'll probably change the scale factor to 1*10²⁷.

The other option would be to switch to arbitrary precision math, but integer representation will always be more efficient to store and process.

[Alex Fenner]

It would seem so.