For All Newbies - Some general info

[Inedible]

Hi everyone,

I'm a complete newb to BitCoin but I'd like to share some information with any other newbies so that peoples expectations are more realistic. I won't write a tutorial on how to use BitCoin as there are plenty of great ones around already.

1) You are NOT guaranteed to generate any BitCoins

I found the FAQ slightly misleading in that it implied work done is proportional to BitCoins 'minted'.

The process of 'minting' a bitcoin is random. It's like finding a coin in the forest. There are 21 million to find but for most users, they only have one person searching the BitCoin forest whereas some people have many, many people hunting. Once all the forest has been searched, there will be no more coins to be found/minted.

2) It's going to take time

If you are going to generate any BitCoins, expect it to take between 1-4 weeks if your PC can generate 1000khps. For a more accurate calculation check out this really useful calculator: http://www.alloscomp.com/bitcoin/calculator.php

3) BitCoin shouldn't be about making money

If you're here to just 'make money' by generating BitCoins, I personally feel that you've probably missed the bigger picture. To me, that's a bonus to establishing a new currency that might free us from the current banking establishment. I do have reservations about micropayments and deflation but I'll do some more research and read some other threads I've bookmarked.




With all that in mind, I hope you have as much fun as I am finding out about BitCoin!


Some great info

Xunie has some great info here: http://www.bitcoin.org/wiki/doku.php?id=getting_started

The FAQ definitely worth a read if you've not already done so: http://www.bitcoin.org/faq

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[FreeMoney]

I'm pretty new too, but I want to clear something up.

When you generate you are looking for valid blocks. Right now a block gives you 50 coins. Every 4 years (exactly or approximately?) this will decrease by half. This means there can be an unlimited number of blocks, but only 21 million coins.

[Inedible]

I'm pretty new too, but I want to clear something up.

When you generate you are looking for valid blocks. Right now a block gives you 50 coins. Every 4 years (exactly or approximately?) this will decrease by half. This means there can be an unlimited number of blocks, but only 21 million coins.

Does this mean there are also an unlimited number of BTCs to be found but once 21M are found, no more will be accepted?

[RHorning]

The process of 'minting' a bitcoin is random. It's like finding a coin in the forest. There are 21 million to find but for most users, they only have one person searching the BitCoin forest whereas some people have many, many people hunting. Once all the forest has been searched, there will be no more coins to be found/minted.

This isn't really a good analogy and it isn't the situation with bitcoins.  The chance to "find" a new coin is nearly the same for one person to the next.  Certainly the chance of you finding the next bitcoin is irrelevant to whatever "search" has happened previously.

For myself, I like the powerball lottery analogy better, where you can suggest that as more people are trying to win the big money (newly minted bitcoins) there will be more balls added to the game making it harder for any one person to win.  The odds of one person to "win" a new bitcoin block is the same as the next person, with more processors and CPUs simply submitting more and more lottery tickets.  Essentially, each computer is generating a couple hundred or thousand lottery tickets per second to see if they have the winner.  The current system tries to award a winner about once every ten minutes or so, on average, and the number of "balls" (the difficulty to reach the target hash) is adjusted on a semi-regular basis.

Even this isn't a perfect analogy, but it works a whole lot better and is something that ordinary people can relate to.

Does this mean there are also an unlimited number of BTCs to be found but once 21M are found, no more will be accepted?

No, that isn't the case.  Every year the value of the bitcoins awarded is halved, and the design of the network is such that over time nobody will ever be able to generate more than 21 million bitcoins, ever.  Again, think of the lottery example I'm giving here, but that the value of the powerball prize is being reduced instead.  New bitcoin blocks are being awarded more or less at the same rate to everybody in the network (aka winning the "prize") but that the winnings are going to drop over time.  If the bitcoins network lasts for over 100 years, there still will be some new Bitcoins being awarded, but those new bitcoin blocks won't be worth the current 50 bitcoins currently awarded.  Instead they will be worth a very small fraction of that amount.

[Inedible]

This isn't really a good analogy and it isn't the situation with bitcoins.  The chance to "find" a new coin is nearly the same for one person to the next.  Certainly the chance of you finding the next bitcoin is irrelevant to whatever "search" has happened previously.

My understanding of BitCoin is perhaps wrong then. I accept that 'finding' the next BitCoin is unrelated to what has happened previously but what I don't understand is why my chance of finding the next BitCoin is the same as anyone elses.

For myself, I like the powerball lottery analogy better, where you can suggest that as more people are trying to win the big money (newly minted bitcoins) there will be more balls added to the game making it harder for any one person to win.  The odds of one person to "win" a new bitcoin block is the same as the next person, with more processors and CPUs simply submitting more and more lottery tickets.  Essentially, each computer is generating a couple hundred or thousand lottery tickets per second to see if they have the winner.  The current system tries to award a winner about once every ten minutes or so, on average, and the number of "balls" (the difficulty to reach the target hash) is adjusted on a semi-regular basis.

With your lottery analogy, is it possible for more than one person to find the next block? I.e. the 50 BitCoins are split amongst the lottery winners? If so, I hadn't realised it was like that at all and so I can accept that having more computing power doesn't affect your chances.

Thanks for the clarification.

[RHorning]

With your lottery analogy, is it possible for more than one person to find the next block? I.e. the 50 BitCoins are split amongst the lottery winners? If so, I hadn't realised it was like that at all and so I can accept that having more computing power doesn't affect your chances.

Thanks for the clarification.

This is where the lottery analogy breaks down.... well sort of.  The "proof of work" is done through a system that is something difficult to calculate and uses a random number generator.  For something that explains the system used for generating bitcoins, this article in Wikipedia does a pretty good job:

http://en.wikipedia.org/wiki/HashCash

A difference is that Bitcoins uses the SHA-2 algorithm for the hash, but essentially the same idea.

Bitcoins uses an adaptation of this same algorithm, and instead of taking a mere second or two to generate as is the case with Hashcash, it may take weeks or even months to generate a new bitcoin block.   The expected difficulty is something that can vary but is predictable and something that is set up in the networking protocol.

No, the bitcoins are not split between the lottery winners, as the winner is merely the first person to get a valid key for the expected next block.  There is a problem if two people get the "winning" block simultaneously, and it is possible for one person to "win" and somebody else with an equally valid block to "lose".  I need to go through the source code to find what the tie-breaking rules are, but it is essentially the first person to get the most recognition for the new block "wins".

More computing power does improve your chances at "winning" a new coin block, but that is only because you are throwing more "lottery tickets" at the "game".  The likelihood that any one particular attempt to come up with a successful new bitcoin block is equal at every attempt.  Does that make any sense?

[Inedible]

This is where the lottery analogy breaks down.... well sort of.  The "proof of work" is done through a system that is something difficult to calculate and uses a random number generator.  For something that explains the system used for generating bitcoins, this article in Wikipedia does a pretty good job:

http://en.wikipedia.org/wiki/HashCash

A difference is that Bitcoins uses the SHA-2 algorithm for the hash, but essentially the same idea.

Bitcoins uses an adaptation of this same algorithm, and instead of taking a mere second or two to generate as is the case with Hashcash, it may take weeks or even months to generate a new bitcoin block.   The expected difficulty is something that can vary but is predictable and something that is set up in the networking protocol.

No, the bitcoins are not split between the lottery winners, as the winner is merely the first person to get a valid key for the expected next block.  There is a problem if two people get the "winning" block simultaneously, and it is possible for one person to "win" and somebody else with an equally valid block to "lose".  I need to go through the source code to find what the tie-breaking rules are, but it is essentially the first person to get the most recognition for the new block "wins".

More computing power does improve your chances at "winning" a new coin block, but that is only because you are throwing more "lottery tickets" at the "game".  The likelihood that any one particular attempt to come up with a successful new bitcoin block is equal at every attempt.  Does that make any sense?

This does make sense but it also reinforces for me the fact that more resources = greater chance of finding a coin because more power = more hashes/s.

Every 'lottery ticket' has an equal chance of 'winning' a coin but each persons chance to find a new coin is not the same for one person to the next - is that a fair conclusion?

[RHorning]

This does make sense but it also reinforces for me the fact that more resources = greater chance of finding a coin because more power = more hashes/s.

Every 'lottery ticket' has an equal chance of 'winning' a coin but each persons chance to find a new coin is not the same for one person to the next - is that a fair conclusion?

That is in fact a reasonable conclusion. 

The whole purpose of the coin generation system is really to figure out a way to distribute the coins in the first place.  In theory, a cryptographically security trading system would be sufficient to meet the needs of Bitcoins without having to worry about the coin generation problem, but then the problem would arise in terms of who gets to allocate the coins?  That implies a central authority of some kind which is also political power when you have that authority.

There could have been other systems for handing out the initial set of coins... for example each new node would "automatically" be allocated 0.1% of whatever coins were left in a "bank" or some other scheme.  Each method of handing out new coins has its own advantages and disadvantages, but in this case somebody receiving the "new" coins must do something very difficult before they get those coins.

For myself, I think this is about as "fair" of a distribution system as could be reasonably set up all other things considered.  It isn't perfect and certainly there is some "gaming" that can happen, but it does keep those who are gaming the system under control and makes sure they don't have a monopoly on all new coin output as well.  All of those nodes in a huge network are also participating with the other aspects of the network and verifying transactions too, so there is some additional merit to the idea that server farms ought to get paid for the extra work they are doing.  Most other digitial coin allocation methods usually favor even more those who have massive server farms or cheap 3rd world labor.  In this case those kind of individuals are explicitly planned for and their advantage is muted to something not nearly as harmful to the entire network.

I've mentioned this previously in another thread, but the issue of allocation of the initial currency is something that has precedence in other currency systems too.  When the Deutschemark was established as the currency of the Federal Republic of Germany (West Germany.... following World War II), each German citizen was given a certain amount of money (about 100 Marks plus some conversion from previous currency systems).  The exact allocation was a little more complicated, but the point is that most Germans were given roughly the same amount of money to start with and differences in wealth since then have been due to industry, thrift, and good fortune.  A similar system happened with the merger of East & West Germany, where the West German Mark absorbed the East German Mark.  Prior to the Deutschemark in 1948, many Germans were even using cigarettes from American GI's as the existing currency was pretty worthless.  The issue of how to re-start a failing economy is certainly an interesting intellectual exercise, and it is even more interesting to see how it worked in practice.

In the case of Bitcoins, it is a question of how to start the economy in the first place.  Once it is going, the generation of coins is more academic and relatively trivial.... pretty much how the Bitcoin economy can remain stable.

[caveden]

Hello,

I'm also a newbie to bitcoin. I got to know it only two days ago.

As a libertarian software engineer, I loved the idea!

Concerning the minting of new coins, can anyone confirm if I got it right?

• Everyone generating coins is trying to guess which is the next hash for the next block, basically, a p2p brute force effort.
• The lucky one that finds the next block, gets the coin prize for it.
• The block prize is currently 50 coins, and it will decrease by half at each 210.000 block interval
• The more blocks there are, the safer the system is against fraud in what concerns double spending
• There is an arbitrary limit of 21 million coins (it looks small for a monetary base... most currencies' M1 are around hundreds of billions, aren't them? If bitcoin succeeds, most mundane prices would be just fractions of a bitcoin )
• There is no limit to the number of blocks

Is everything right?

If that's so, I wonder what would be the incentive for someone to keep producing blocks once the limit of 21 million code is reached. Wouldn't the number of block risk to stagnate? Wouldn't that represent a threat?

Thank you.

My sincere congratulations for those who started this system. Really nice work! (just to say I helped a tiny bit, I translated the getting_started wiki page to Brazilian Portuguese... if you have an internationalization file for the FAQ, send it to me, when I have some time I might translate it)

[Insti]

Is everything right?

Yes.

If that's so, I wonder what would be the incentive for someone to keep producing blocks once the limit of 21 million code is reached.

Transaction fees.

I translated the getting_started wiki page to Brazilian Portuguese.

Thanks!

[FreeMoney]

More blocks in the chain help against a certain type of attack, but I think the current CPU power of the swarm is much more important. An attacker can work off of the whole current chain, so if he can catch up from just 1 block behind he can "rewrite history". 

[caveden]

Interesting, I hadn't yet read about this transaction fee.
Thank you for the quick reply!

So, according to the wiki page, this transaction fee is already in practice! I should not transfer money to myself in order to merge wallets then...

I'll open a topic on that matter.

[Insti]

So, according to the wiki page, this transaction fee is already in practice! I should not transfer money to myself in order to merge wallets then...

http://www.bitcoin.org/wiki/doku.php?id=transaction_fee

You should be able to transfer money to yourself if you like.
The client will warn you if you're attempting a transaction that will incur a fee.
(and it is in fact currently pretty hard to make a transaction that will require a fee!)