I’m tryiing to visualize something like this.
Is it that there are “threads” made up of a list of transactions, and that your transaction may be bundled with others and be, say the 12th from the bottom? How many threads would there be to handle the traffic? Is this the work?
I’m not sure what you’re driving at with the “threads” metaphor.
The Bitcoin ledger is a list of transactions, in chronological order. A transaction is just a record that says “Alice paid Bob 0.034 Bitcoins” or somesuch. Transactions are grouped together in chunks of data called blocks. Each block is about 1MB and contains around 2000 transactions.
As I understand it, it’s possible for anyone paying anyone in bitcoin to set aside a “tip”, paid from that person to whatever miner validates the transaction. Tips are not usually included in transactions nowadays, but eventually, as the mining reward diminishes, they’re expected to become commonplace, as an incentive for miners to validate.
And a thought on those first handful of bitcoin-blocks all owned by the originator: He’s even more locked out of the market than is usual for large shareholders. If just any random guy decides to sell (say) 200 bitcoin, then the market might react to that and depress somewhat… but in this case, it would be transparent that the guy who’s selling is the creator of the system, which would create the impression that even he doesn’t trust it any more. And that would mean, not a depression, but a full-on panic.
Sorry if I’m being dense here, but I am still trying to wrap my head around the question of value.
As I understand it (and please correct me if I am wrong), the anonymous creator (apparently using the name of Satoshi?) created the idea, the first block and the software required to verify (mine) transactions. Satoshi then initiated transactions by some process. My guess would be that he either moved bitcoins between two wallets he owned, or possibly gave some as gifts to friends. These first transactions must have been verified by himself. This process generated more blocks of bitcoins, which Satoshi pocketed.
At some point, the verification process was opened up to others, who then began accumulating their own bitcoins.
Now here is where, in my mind, the big leap occurs. One of the new holders of bitcoin wants to use it to purchase something in real life from a vendor who is willing to accept bitcoin as payment. Doesn’t matter if the purchase is exotic drugs off the dark web or a bunch of roses from Joe’s “I don’t want to report this transaction to the IRS” Flower Shop. In order for this transaction to occur, there must be some agreement between the purchaser and seller as to what X amount of bitcoin is worth. That amount must also be equitable for both partners in the transaction. Further, the vendor needs to be reasonably certain that he can turn around and use that bitcoin to buy something he wants, whether that is good old greenbacks or an ounce of gold.
So, what determined that initial value for that first transaction?
Novelty.
Where do the miners get their pieces of work? Who conceives and posts the problem?
How are the blocks related or distinguished from the ones adjacent in the logical chain?
What happens to transactions that are close to each other in time in the process?
That’s right. E.g, one guy paid for a large pizza (in dollars) and had it delivered to another guy, who paid the first guy 20000 bitcoins. Why did they bother? For kicks.
The users generate transactions (you want to send so many coins from such an address to such an address), and these are broadcast through the online network to be “mined”.
Blocks are numbered.
The network converges to the longest chain, so some blocks may not make it (if two are found at the same time only one will win), but the state eventually stabilizes since it would take too much concentrated computational power to rewrite history.
As for individual transactions, you are supposed to offer to pay a transaction fee if you want your transaction to be “mined” rather than sit around in limbo forever. So use of the network is in fact not free.
Seriously???
That’s a great site! Thanks for posting.
If I wanted to earn bitcoins how would I do it?
Can I buy a bitcoin?
Can I sell a bitcoin?
You can earn bitcoins by mining them. Nowadays this is a process that requires very large amounts of computers running at high speeds for a long time. If you don’t have custom hardware setup to do this, forget it.
You can buy Bitcoins by finding someone who has Bitcoins and offering them goods and services in exchange for their Bitcoins. One common way is to offer to exchange Bitcoins for dollars. If a person who has Bitcoins agrees to your offer, they transfer the Bitcoins to your wallet, you send them the money. Same thing in reverse.
The problem is that you can’t just go to a bank and ask to buy or sell Bitcoins.
Buying Bitcoins at today’s prices is ludicrous. Selling Bitcoins is smart, except you don’t have any, so don’t worry about that.
For understanding the “proof of work”, which is what the miners do to earn their 12 bitcoins, this video did it for me.
Enjoy.Bitcoin’s creator may be worth $6 billion — but people still don’t know who it is
That “today” was late October 2017 when BTC was around $6k. Today with BTC north of $16k that stash is over $16 billion. A few days ago it was nearly $20 billion.
He would have the same problem cashing out for the same reason I’d have a problem cashing out $16 billion in Cisco or Microsoft stock. It would flat out tank the price for everyone back to the $10 or so range giving everyone the crash they’ve been pontificating about.
If on the other hand he just wanted to break out $10 or $20 million for a nice home and a new car he could do that without creating much of a ripple in the price.
I know it’s already been alluded to above but Im interested in exploring this 21m limit to the numbers of possible Bitcoins. As the Bitcoin approaches and then finally hits this limit what will happen? If Bitcoin mining helps to verify the ledger will Bitcoin crash? I presume there’s an attempt to head this problem off (if it is a problem) - what are the proposed solutions?
To the OP, are you ready to pay, say, $6000 for the option to sell 1 bitcoin for $10000 a month from now?
ETA n/m, that was in response to the IMHO question of how to bet on a Bitcoin crash
The designer(s) didn’t see it as a problem.
ETA: @Fiendish Astronaut:
No need for a crash. Mining doesn’t come to an abrupt halt. it just gets slower and harder and slower and harder. So it’ll taper off gradually.
At some point the job of mining will become unprofitable. It’s already darn close to that and we’re well short of the 21M limit. At that point the “miners” change jobs and become “transaction verifiers”. Funded by a “tax” or a tip on each transaction.
Of course there are already moves afoot to change how Bitcoin works to go beyond the 21M limit. Because if it ever was to be used as a medium of exchange having a fixed quantity would be disastrously deflationary. As long as people are just treating it like collectible tulips or Beanie Babies the limit is immaterial.
Even if the 21M limit never changes, that doesn’t mean that “Last Bitcoin” is some magical watershed event that would tip the system into runaway hyper-deflation or into crash. Last Bitcoin might have psychological impact on the public. But that’s all about the mania of crowds, not about computer science, nor economics, nor finance.
Isn’t economics exactly about the mania of crowds?