How Are Bitcoins Created?
See also:
¿Cómo se crean los Bitcoins?
Как появляются биткоины?
Previously in the blog we learned a little bit about monetary history, what is backing Bitcoin, and where Bitcoin gets its value. In this post we dive a bit deeper into how Bitcoins are created.
Mining explained
New Bitcoins are created through a process called “mining”. In this process, the miners are rewarded for their work of processing Bitcoin transactions and securing its network.
Mining Bitcoin is a highly competitive and decentralized process done by specialized hardware. Miners collect transactions to their own blocks and use computing power to solve a cryptographic puzzle. In essence, they are trying to guess a correct number in order to receive the mining reward (currently 6.25 Bitcoin). The fees from the transactions collected by the winning miner are also added to the block reward.
The difficulty of this guessing game adjusts itself depending on the number of miners in the network. When more miners join the network, it becomes increasingly difficult for miners to solve the puzzle. In contrast, when there are less miners participating in the network, the mining reward is more easily attainable.
When Bitcoin started out around 10 years ago, mining was done with personal computers. As the network expanded and mining started to require more computing power, special hardware designed only for Bitcoin mining emerged.
Today Bitcoin mining is an industry of its own: large warehouses store racks of Bitcoin mining hardware in thermally-regulated environments in countries with cheap electricity.
No central authority is able to control or manipulate the mining process. Every Bitcoin node will reject anything that doesn’t comply with the rules programmed into the Bitcoin protocol. To reverse Bitcoin transactions, an attacker would need to control 51% of the network. This is theoretically possible, but highly unlikely since the Bitcoin protocol in itself incentivizes nodes to benefit from the benevolent use of the network.
Decreasing supply
In contrast to central banks issuing new units of money whenever they think it would benefit the economy, new Bitcoins are mined at a predictable and decreasing rate. Miners are receiving the Bitcoin block reward approximately every 10 minutes, which means that fresh 6.25 Bitcoin is entered into the supply every 10 minutes.
Approximately every four years the mining reward will be halved so that less Bitcoin is entering the system. The last halving occurred in May 2020 and the next one is scheduled for the spring of 2024.
The production of new Bitcoins will be stopped automatically around the year 2140 when all 21 million Bitcoin have been mined. At this point the miners supporting the network will be rewarded only by the network’s transaction fees.
Investing in Bitcoin on LocalBitcoins.com
Because of its deflationary qualities, Bitcoin is often seen among its investors as a hedge asset that will not lose its value in the long-term. However, in the short-term Bitcoin is vulnerable to radical price fluctuations since its market capitalization (the current price of one Bitcoin times the circulating supply of Bitcoin) is still much smaller than that of traditional assets, such as stocks or gold.
For people living in countries where the local currency is at high risk of depreciating in value due to rising inflation, storing some of your personal wealth in an asset that’s deflationary by nature, backed by mathematics and running like a clockwork in a decentralized manner without human intervention, might be an idea definitely worth considering.
On LocalBitcoins.com peer-to-peer marketplace platform you can invest in your own financial freedom, and by following the markets closely, you can also profit from Bitcoin’s price fluctuations by trading on our platform.
People choose LocalBitcoins to turn their local currency into Bitcoin because on LocalBitcoins buying Bitcoin is made easy and secure. On LocalBitcoins you can choose your preferred payment method and price, and be protected by our platform’s reliable escrow service.
