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Author Topic: Newbie seeking knowledgeable BTC user  (Read 594 times)
playaplay
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July 14, 2012, 03:10:57 AM
 #1

Hey everyone!
I brainstormed a few newbie-type questions about bitcoin that I'd like some input or direction on as to where to look for answers (so far there's the bitcointalk forum and the bitcoin wiki).

1) How exactly are bitcoins generated? I understand that computers "do work" and eventually come out with a bitcoin at the end, but by what mechanisms are bitcoins supposed to become more and more difficult to 'mine'? What can we expect of the interaction between the rate of growth of the 'difficulty' or 'size'(?) of a bitcoin's mining compare to the growth of computing power over time?

What of technology 'breakthroughs' which might drastically increase computing power?

2) What value do BTC have? I understand that the 'cost' to mine a bitcoin is basically measured in the electricity required to run the computer(s) which generate it. Thing is, they possess no redeemable value (ie. you can't extract the electricity back out of them). In this regard, are they any better than the maintstream fiat currencies which at least have the issuing country's force of law requiring them to be accepted in the payments of debt?

b)  Can BTC be broken into smaller units of currency? How will people in a world with only bitcoins purchase a pack of gum? What about when the unit of smallest value that you can exchange a BTC for is a 52" plasma TV?

3) This is related to (1), but I understand that bitcoins' rate of growth in supply is supposed to slow to a virtual crawl over time. Such a thing might be expected to result in enormous deflation as the growth in supply nears zero. Deflation can cause big problems for the continued activity of an economy. There will of course be some counter balancing forces, such as when no one is trading their BTC (because they are 'too valuable') they may experience a downward pressure on their value since the only real value of such a currency in the first place is that you can buy things with it.

Are there any good discussions on the deflationary scenario, which seems built into the design of BTC?

4) I'd like to know if there are any estimates of:
-How many bitcoins are in the bitcoin economy
-What the current rate of mining production is and how it has changed over time
Or how such data might be inferred.


~~~~~~~~~~~~~~~~~~~~~~~~~

I know that's a lot of stuff but I'm just dropping it here with the hope that someone knowledgeable will get me started in the right direction.

Thanks~
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John (John K.)
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July 14, 2012, 03:31:56 AM
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Read through this:

http://bitcoin.org/bitcoin.pdf
https://en.bitcoin.it/wiki/Myths
https://en.bitcoin.it/wiki/FAQ
https://en.bitcoin.it/wiki/FAQ#Where_does_the_value_of_Bitcoin_stem_from.3F_What_backs_up_Bitcoin.3F

2b) Yes, each BTC can be broken down to 0.00000001 at its current scaling. If the market cap of bitcoins increase so much that even 0.00000001 is significant, a simple protocol change can further diversify it.

3) There is existing discussions on this:
https://en.bitcoin.it/wiki/Deflationary_spiral
http://falkvinge.net/2011/08/21/bitcoins-deflationary-economy-not-a-problem-in-itself/
http://www.libertariannews.org/2011/06/11/the-economics-of-bitcoin-why-mainstream-economist-lie-about-deflation/
https://bitcointalk.org/index.php?topic=11627.0

4)
http://blockchain.info/stats
http://bitcoincharts.com/
http://blockexplorer.com/q
http://bitcoinstats.org/

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July 14, 2012, 04:42:01 AM
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1) Bitcoins are generated by computing a hash of a predetermined difficulty.  By putting forth the "work" to find the necessary hash and adding it along with the list of associated transactions to the blockchain, the "miner" maintains the security of the global bitcoin register (blockchain).  In exchange for completing this work, according the the constraints of the protocol as implemented, all the miners and client programs agree that the miner can add a transaction for a predetermined amount of bitcoin (currently 50) to the blockchain assigned to themselves.  Per the protocol, the difficulty of the hash is modified regularly such that the estimated average time for the total hashing power of the entire bitcoin network to find a satisfactory hash is approximately 10 minutes.  As computing power increases, and the number of miners on the network increases, the hash difficulty is adjusted accordingly.  A successful hash will only be accepted into the network if the majority of the nodes agree that it meets the protocol requirements.  There may be 'breakthroughs' which might drastically increase computing power, but this will only cause an increase to the difficulty of the target hash.  New blocks will still average about 1 every 10 minutes.

2) They have the force of the free market requiring them to be accepted at the current market rate for anyone who has an interest in using them.

2b) Yes, they can currently be broken down to 8 decimal places (0.00000001 BTC is often referred to as a "Satoshi").  With enough agreement in the bitcoin community, the software implementing the protocol could be modified to break them up even more.  Due to a computer's ease of working with numbers, bitcoin can essentially be broken into however small a piece the economy requires.  If 52" plasma TV ($600 USD?) is 1 BTC, then a pack of gum may be 0.002 BTC ($1.20 USD) or 200,000 Satoshi.

3) Deflation will cause big problems for the continued activity of an economy that is built around an expectation of inflation.  Bitcoin is built around an expectation of deflation.  I'm not sure if an intentionally deflationary economy has been built from the ground up with participants aware that the currency is intended to be deflationary.  I suppose given the rarity of gold, and the ever increasing population, the gold standard economy may have been a bit deflationary.  It will certainly be interesting to see how it all plays out.  I expect that within 8 years the growth rate of new currency in the bitcoin system will have slowed enough for us to get a pretty good idea how exactly the economy will react to this.  Between now and then, anyone making predictions in either direction is likely to be doing more guessing than actual predicting.

4) Rate of mining production is approximately 50 BTC every 10 minutes.  This will be cut in half to 25 BTC every 10 minutes in a few more months (maybe sometime in December).  Then approximately every 4 years the rate will be cut in half again.  The equation is such that the total bitcoin ever produced will be approximately 21 million.

As for the number of bit coins currently in the economy, see the stats here:
http://blockchain.info/stats

The quality of posts has dropped to such a low level that all users who are participating in a paid signature campaign are added to my ignore list. If you'd like a copy of the list to improve your browsing experience, you can find it here: https://bitcointalk.org/index.php?topic=973843.0 (Updated 2016-1-4)
playaplay
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July 14, 2012, 07:40:23 PM
 #4

thanks for the replies, i'm reading the material provided
exotime
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July 17, 2012, 05:54:18 PM
 #5

thanks for the replies, i'm reading the material provided

The more you read, the more you learn. Everyone has to start at the beginning. These forums are a gold mine (if you'll excuse the pun) of information.

The search bar is now your best friend.

1ExotimeUMZ4xvGXQdT2zVNACtzGZt
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