Bitcoin's current bull run

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Many people new to Bitcoin in are just buying and holding it, but quite a few are getting involved with Bitcoin mining. There are two aspects of mining where you get money, the block reward and transaction fees. The block reward part is often called ' coinbase ', so you may see these terms used interchangably - not to be confused with the Coinbase exchange.

Both of these rewards are given in Bitcoin. A Bitcoin block is 1MB in size, and Bitcoin transactions are stored inside these blocks each time someone sends Bitcoin, a new transaction is added.

If a miner mines a new block, they're given a reward in the form of the block reward coinbase. This is the main incentive for Bitcoin miners, as the block reward is The block reward is halved everyblockswhich is approximately every 4 years as Bitcoin's block time is 10 minutes per block. You can see Bitcoin's code for this here. When Bitcoin was created the Block reward used to be 50 Bitcoin, and is now This decrease in block reward means that over time less and less new Bitcoin are created, which combined with increased demand is theorised to keep pushing Bitcoin's price up - so in principle the USD value of the block reward should be similar in 10 years time.

When the block reward has halfed 64 times, the block reward becomes 0. This block reward has to be claimed by miners, where they add it as the first transaction on a block. It has no inputs, but has an output to the miner's wallet address. Here is an example on a block explorer it should be the first transaction in the list.

When sending Bitcoin, a fee needs to be paid by users called a transaction fee. This exists to incentivise miners to include transactions in mined blocks. It's effectively a bidding war to get your transaction into a block, where whoever pays the highest fee is processed first. This transaction fee is given to miners, so essentially the more congested the Bitcoin network, the more money miners earn. This fee is essentially an extra payment sent with any Bitcoin transaction, and can be worked out by subtracting the outputs from the inputs of a transaction.

As the block reward coinbase reduces over time, if Bitcoin price doesn't increase at the same rate - these fees can provide an incentive for miners to continue mining. So when you start mining, you might have a dream of getting say BTC in a week.

You need to be aware that there is a huge number of people competing to create new blocks. By creating a new mining pool by yourself, the chance of getting this block reward is extremely low - although if you did get it by chance, you'd get a significant reward.

Instead, most miners join an existing mining pool, where they'd get a more steady income rather than having to wait years for a single block reward. Mining pools are large groups of miners, where if any one of them creates a new block the reward is shared based on how much work each miner contributed. Work is defined in hash power or hashrate, which in general means how many guesses can be made per second for the required hash. The split between miners differs between mining pools, we're going to use Slushpool as an example in this guide, but you can see how other pools work here.

Slushpool, which has For example if the goal is a hash that consists of 18 zeros, a miner can submit any time after they've found the first 8 - which would prove that they've done work to get this far.

They'd need to get all 18 zeros to win the block, but it would at least prove the miner is putting the effort in and so should be rewarded for it. The split is counted by the amount of work they have proved vs the total work proven by all the miners in the pool. When you mine in a pool like Slushpool you often need to pay a fee on any rewards you get.

Keep in mind though that Slushpool shares both block rewards and transaction fees with miners. Some pools that don't charge any fees only share block rewards, so although you're not paying a fee, you might actually earn more coins in Slushpool. The most profitable pool at any point in time varies. Lets step back a moment though, now that we know how much work everyone's done - how is the reward distributed?

The block reward for the miner who was lucky enough to find it would be very large, a lot more than the miner will see as a return from the pool in the short term. What stops the miner taking that reward and leaving as if they were in their own pool? Well the blocks are pre-built by the pool. Everything except the nonce the value in the block that miners change to get a hash with a certain amount of preceding zeros must stay the same. One would assume that the pool can then just verify the nonce, and rewards wouldn't be awarded if the user changes the address as the hash won't pass when being verified by the pool - incentivising miners to follow the pool's rules although we are yet to find documentation on this.

This part is nice and simple. Whichever pool guesses a Block's hash first wins the Block reward. The more hashing power a pool has, the higher the probability that the pool will succeed.

Extend this over a long period of time, then the reward split between pools should be similar to the share each pool has of total hashpower. Slushpool for example, which currently has This site cannot substitute for professional investment or financial advice, or independent factual verification. This guide is provided for general informational purposes only.

The group of individuals writing these guides are cryptocurrency enthusiasts and investors, not financial advisors. Trading or mining any form of cryptocurrency is very high risk, so never invest money you can't afford to lose - you should be prepared to sustain a total loss of all invested money. This website is monetised through affiliate links. Where used, we will disclose this and make no attempt to hide it.

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Jan 25th, Updated Jul 5th, Bitcoin Mining Many people new to Bitcoin in are just buying and holding it, but quite a few are getting involved with Bitcoin mining. What are block rewards?

What are transaction fee rewards? How do pools distribute rewards? How does Slushpool distribute rewards? How are Rewards Split Between Pools? July 4th, What is the Antminer Z9 Mini?

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In a centralized economy, currency is issued by a central bank at a rate that is supposed to match the growth of the amount of goods that are exchanged so that these goods can be traded with stable prices. The monetary base is controlled by a central bank. In the United States, the Fed increases the monetary base by issuing currency, increasing the amount banks have on reserve or by a process called Quantitative Easing.

In a fully decentralized monetary system, there is no central authority that regulates the monetary base. Instead, currency is created by the nodes of a peer-to-peer network. The Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate.

Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless. Bitcoins are created each time a user discovers a new block. The rate of block creation is adjusted every blocks to aim for a constant two week adjustment period equivalent to 6 per hour. The result is that the number of bitcoins in existence will not exceed slightly less than 21 million.

Satoshi has never really justified or explained many of these constants. This decreasing-supply algorithm was chosen because it approximates the rate at which commodities like gold are mined.

Users who use their computers to perform calculations to try and discover a block are thus called Miners. This chart shows the number of bitcoins that will exist in the near future. The Year is a forecast and may be slightly off. This is one of two only known reductions in the total mined supply of Bitcoin.

Therefore, from block onwards, all total supply estimates must technically be reduced by 1 Satoshi. Because the number of bitcoins created each time a user discovers a new block - the block reward - is halved based on a fixed interval of blocks, and the time it takes on average to discover a block can vary based on mining power and the network difficulty , the exact time when the block reward is halved can vary as well.

Consequently, the time the last Bitcoin will be created will also vary, and is subject to speculation based on assumptions. If the mining power had remained constant since the first Bitcoin was mined, the last Bitcoin would have been mined somewhere near October 8th, Due to the mining power having increased overall over time, as of block , - assuming mining power remained constant from that block forward - the last Bitcoin will be mined on May 7th, As it is very difficult to predict how mining power will evolve into the future - i.

The total number of bitcoins, as mentioned earlier, has an asymptote at 21 million, due to a side-effect of the data structure of the blockchain - specifically the integer storage type of the transaction output , this exact value would have been 20,, Should this technical limitation be adjusted by increasing the size of the field, the total number will still only approach a maximum of 21 million. The number of bitcoins are presented in a floating point format.

However, these values are based on the number of satoshi per block originally in integer format to prevent compounding error. Therefore, all calculations from this block onwards must now, to be accurate, include this underpay in total Bitcoins in existence.

Then, in an act of sheer stupidity, a more recent miner who failed to implement RSK properly destroyed an entire block reward of The bitcoin inflation rate steadily trends downwards. The block reward given to miners is made up of newly-created bitcoins plus transaction fees. As inflation goes to zero miners will obtain an income only from transaction fees which will provide an incentive to keep mining to make transactions irreversible. Due to deep technical reasons, block space is a scarce commodity , getting a transaction mined can be seen as purchasing a portion of it.

By analogy, on average every 10 minutes a fixed amount of land is created and no more, people wanting to make transactions bid for parcels of this land. The sale of this land is what supports the miners even in a zero-inflation regime. The price of this land is set by demand for transactions because the supply is fixed and known and the mining difficulty readjusts around this to keep the average interval at 10 minutes.

The theoretical total number of bitcoins, slightly less than 21 million, should not be confused with the total spendable supply. The total spendable supply is always lower than the theoretical total supply, and is subject to accidental loss, willful destruction, and technical peculiarities.

One way to see a part of the destruction of coin is by collecting a sum of all unspent transaction outputs, using a Bitcoin RPC command gettxoutsetinfo. Note however that this does not take into account outputs that are exceedingly unlikely to be spent as is the case in loss and destruction via constructed addresses, for example.

The algorithm which decides whether a block is valid only checks to verify whether the total amount of the reward exceeds the reward plus available fees. Therefore it is possible for a miner to deliberately choose to underpay himself by any value: This is a form of underpay which the reference implementation recognises as impossible to spend.

Some of the other types below are not recognised as officially destroying Bitcoins; it is possible for example to spend the 1BitcoinEaterAddressDontSendf59kuE if a corresponding private key is used although this would imply that Bitcoin has been broken. Bitcoins may be lost if the conditions required to spend them are no longer known. For example, if you made a transaction to an address that requires a private key in order to spend those bitcoins further, had written that private key down on a piece of paper, but that piece of paper was lost.

In this case, that bitcoin may also be considered lost, as the odds of randomly finding a matching private key are such that it is generally considered impossible. Bitcoins may also be willfully 'destroyed' - for example by attaching conditions that make it impossible to spend them. A common method is to send bitcoin to an address that was constructed and only made to pass validity checks, but for which no private key is actually known.

An example of such an address is "1BitcoinEaterAddressDontSendf59kuE", where the last "f59kuE" is text to make the preceding constructed text pass validation. Finding a matching private key is, again, generally considered impossible.

For an example of how difficult this would be, see Vanitygen. Another common method is to send bitcoin in a transaction where the conditions for spending are not just unfathomably unlikely, but literally impossible to meet. A lesser known method is to send bitcoin to an address based on private key that is outside the range of valid ECDSA private keys.

The first BTC 50, included in the genesis block , cannot be spent as its transaction is not in the global database.

In older versions of the bitcoin reference code, a miner could make their coinbase transaction block reward have the exact same ID as used in a previous block [3]. This effectively caused the previous block reward to become unspendable. Two known such cases [4] [5] are left as special cases in the code [6] as part of BIP changes that fixed this issue.

These transactions were BTC 50 each. While the number of bitcoins in existence will never exceed slightly less than 21 million, the money supply of bitcoins can exceed 21 million due to Fractional-reserve banking.

Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs.

The Austrian school of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits.

Price deflation encourages an increase in hoarding — hence savings — which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term. A fixed money supply, or a supply altered only in accord with objective and calculable criteria, is a necessary condition to a meaningful just price of money.

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