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In the debt based fiat system of currency currently being monopolized, the amount of money added into circulation can cause it to deflate or inflate in value. How does the network calculate the proper rate at which to add more bitcoins?

  • I think there might be some ambiguity in the question. The direct question here is "how does Bitcoin regulate the amount of BTC that are added over time"? Which is a technical question answered already. But I think the implied question might be "how does a cryptocurrency designer decide what the proper rate is to introduce coins into the economy of that cryptocurrency"? Which is an economic question that many cryptocurrencies have answered differently. – David Ogren Feb 19 '14 at 14:34
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The answer for @jtorba is not strictly correct.

Difficulty is the main control mechanism used to determine the amount of Bitcoins released over time. The amount of bitcoins released is according to the bitcoin era as defined here

Currently the system tries to maintain a release of bitcoins every 10 minutes - which is part of the config settings that all miners adhere to. To do this the code takes into account the average block completion time every 2016 blocks.

It is important to note that this is NOT affected by the number of miners, but instead affected by the computing power.

A block is discovered by a process of hashing - which is a repetitive computing process - until a result is found that matches a rule. Obviously the FASTER you can repeat this process the better chance you have of finding the answer that fits the rule before anyone else. It is specifically designed not to matter how many computers you have doing this task.

The rule becomes increasingly difficult - hence the use of the word difficulty - and therefore more computing effort is required to cycle through the possibilities becomes harder.

This self adjusting process is the main mechanism that maintains the release of bitcoins to the schedule in the link above.

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The simple answer is that it tries to keep bitcoin creation as steady as possible, but halving the rate every 4 years in order to sustain inflation in value.

The network makes mining difficult or easier by increasing/decreasing difficulty in order to achieve a 10 minute block time. If the amount of miners increases, that means a block will be solved less than 10 minutes and that becomes the que for the network to make it harder to mine. And if it on average took longer than 10 mins to mine a block, that the que to ease up mining. To put it simply, if the amount of miners doubled over night, it becomes twice as hard to mine bitcoins.

The network adjusts to the amount of people using the currency.

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