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      Home Technology Crypto Currency

      How Is Bitcoin Created?

      Nathaniel Augustine by Nathaniel Augustine
      October 4, 2021
      in Crypto Currency, Technology
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      When miners discover and add new blocks to the blockchain, the Bitcoin network automatically distributes newly minted bitcoin to them. The total supply of bitcoin is limited to 21 million coins, which means that once that number is reached, the protocol will stop minting new coins. In some ways, Bitcoin mining serves as both transaction validation and the issuance of bitcoins (until all the coins are mined, then it will only function as the transaction validation process.)

      It is important to note that increasing the amount of computing power dedicated to bitcoin mining will not result in more bitcoins being mined. More computing power only increases miners’ chances of being rewarded with the next block, so the amount of bitcoin mined remains relatively stable over time.

      The Bitcoin network employs a coin distribution strategy known as “bitcoin halving,” which ensures that the amount of bitcoin distributed to miners gradually decreases over time. The idea is that by gradually reducing the supply of new bitcoin entering circulation, the asset’s price will be supported (based on the fundamental principles of supply and demand.)

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      A bitcoin halving (also known as a “halvenings”) occurs every 210,000 blocks, or roughly every four years. Each successful miner received 50 bitcoin (BTC) as a block reward when the bitcoin protocol first launched in 2009. Let’s fast forward to 2021: Block rewards are now 6.25 BTC, down from 12.5 BTC prior to the halving of bitcoin in May 2020.

      The next halving is scheduled for 2024, and block rewards will be reduced to 3.125 BTC once more. This process will be repeated until there are no more coins to be mined.

      Today, there are over 18.7 million BTC in circulation, which means there are only 2.25 million BTC available for purchase. However, taking the halving principle and other network factors such as mining difficulty into account, it is estimated that the last bitcoin will be mined around the year 2140.

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      Bitcoin wallet: What exactly is it?

      A bitcoin wallet is a software program that runs on a computer or a dedicated device to secure, send, and receive bitcoin. Contrary to popular belief, bitcoin is not stored in a wallet. Instead, the wallet protects the cryptographic keys — essentially, a highly specialized type of password — that prove ownership of a specific amount of bitcoin on the Bitcoin network.

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      When a bitcoin transaction is completed, ownership of the bitcoin transfers from the sender to the recipient, and the network assigns the recipient’s keys as the new “password” for accessing the bitcoin.

      To maintain the integrity of its blockchain, Bitcoin employs a system known as public-key cryptography (PKC). PKC was originally used to encrypt and decrypt messages, but it is now widely used to secure transactions on blockchains. This system restricts access to specific coins to individuals who have the appropriate set of keys.

      To own and execute bitcoin transactions, two types of keys are required: a private key and a public key. Both keys are strings of alphanumeric characters that are generated at random and are used to encrypt and decrypt transactions. PKC on the bitcoin network implements one-way mathematical functions that are simple to solve in one direction but nearly impossible to reverse.

      To generate a public key from a private key, the blockchain employs a one-way mathematical algorithm. With this, it is nearly impossible to regenerate the private key from the public key, implying that you should avoid losing your keys (or forget your password to access them). You will also be given a public address, which is simply the hashed or abbreviated form of your public key.

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      This address works similarly to a home address and is shared in order to receive bitcoin. The private key, on the other hand, must be kept hidden from prying eyes, just as your debit card’s PIN is only for your eyes.

      To execute transactions, you must encrypt and sign your Bitcoin transactions using your private and public keys. You must also include the recipient’s public address.

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