69

Here's a mathematical explanation: Calculate the number of blocks per 4 year cycle: 6 blocks per hour * 24 hours per day * 365 days per year * 4 years per cycle = 210,240 ~= 210,000 Sum all the block reward sizes: 50 + 25 + 12.5 + 6.25 + 3.125 + ... = 100 Multiply the two: 210,000 * 100 = 21 million. Economically, because the currency is effectively ...


22

I don't know if this was thought up ahead of time, but it sure makes sense in hindsight. The reason 21 million is the right number is because people don't know how to value currencies. For instance, right now a Euro is worth $1.30 USD and a Japanese yen is worth about a U.S. penny. Ask someone which currency they would rather hold right now and most will ...


22

Wikipedia (Gold): A total of 174,100 tonnes of gold have been mined in human history, according to GFMS as of 2012.2 This is roughly equivalent to 5.6 billion troy ounces or, in terms of volume, about 9261 m3, or a cube 21.0 m on a side. Since Bitcoin is often compared to gold, the total number of bitcoins matches the total amount of gold mined in human ...


12

Some possible reasons I read: Merchant adoption through payment processors While merchant adoption is growing, it is currently mostly through payment processors, hardly any merchants keep a significant portion of their bitcoin earnings. With the broader selection of things to spend bitcoins on, more people are shopping with bitcoins, yet, not necessarily ...


10

With my only knowledge of the concept of "antifragile" being the slideshow I just read, my initial assessment is yes, Bitcoin is antifragile. Antifragile benefits from randomness and gains from disorder. Randomness in Bitcoin appears in the random generation of keys and in the whims of its users' spending habits. No one person controls the system, and a ...


10

the protocol allows a miner when he creates a block to send himself 25 BTC which do not have a proper source (input). that's how those 25 BTC are created, they're bitcoins that come from nowhere.


9

The exact number of Bitcoins is not important. Whether the end result is 1 million or 100 billion makes little real difference. The important aspect here is the process, not the quantity. New Bitcoins enter the system in an orderly, predicable way. Outside forces cannot arbitrarily flood the currency with new money. An incentive is provided for people ...


8

Are Bitcoin Days Destroyed a measure of hoarding? Sometimes. But just because bitcoins changed addresses doesn't mean they changed hands. Is it also possible to derive velocity of bitcoin (money) from bitcoin days destroyed? Not directly. Although velocity of money and BDD are related, they are not entirely the same. velocity of money is based on a legal ...


8

I've read some of the linked discussions, and it seems some of the participants fail to understand the basic economic theory of the marginal cost. In any high fixed-capital business, the net present value (NPV) determines the ROI (IRR) and determines the opportunity cost where investors apply their capital. Thus, in normal functioning markets, the lowest ...


7

There are many causes for inflation, but the two most often agreed upon, according to Investopedia, are these: Demand-Pull Inflation - This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in growing economies. Cost-Push ...


7

Idealists might argue that Bitcoin was developed to forever change the financial landscape, and would be affronted at the suggestion that Satoshi was out for profit. Skeptics might call the whole thing the most elaborate Ponzi scheme ever envisioned. Realists might suggest that Satoshi, emotionally traumatized by the recent unceremonious departure of his ...


7

Here's the page on the wiki where weaknesses are addressed.


7

The upper boundary for energy usage can be described with a function of the profit and energy costs. Miners won't ever pay more for energy than they get from profits. The actual energy usage formula will also have to count for the hardware costs. The formula will look something like this : max energy usage = (profit - hardware costs) / energy cost per unit ...


6

Each entity's weight in the economic majority is closely related to its ability to devalue the coins in the protocol version they are against. People (and their proxies) who are willing to offer goods or services (including traditional currencies) for Bitcoin can refuse to accept coins of the "wrong" protocol, while people who hold bitcoins can sell coins ...


6

There were only about 2 million Bitcoins mined when the system was fully announced and opened to the public. They are owned by Satoshi and other early adopters. While they have a huge present value, that's because their value increased. Long after the Bitcoin system was public, Bitcoins dropped down to $2. At that time, the value of the early adopters ...


5

Graphing Bitcoin Days Destroyed weights the past dormancy of coins that have been transferred over any chosen period. The histogram of the percentage of Days Destroyed graphs distribution of dormancy over the measured period. The graph is a histogram showing the percentage of total Days Destroyed from the measured period for each block. Thus it is a ...


5

It is the result of a 50 bitcoin reward half life of 210,000 blocks. Reward starts out at 50 bitcoins and halves ever 210,000 blocks. This works out to be 2.1 quadrillion monetary units of currency (satoshi). This is probably the largest number estimated to be needed for a global currency and some padding for attrition.


5

The puzzle is to find ordering and choice of pending transactions with certain restriction of hash and put the into a block. Therefore the puzzle is part of system. The verification is done by everyone - every time you connect to bitcoin you verify that block chain you have received is valid. If it is not you just reject it. No one awards them. Simply the ...


5

I'm going to answer your questions directly although I know you've selected another answer. It's for all those who come across this question. How do we know that the algorithm cannot be modified to gain control over the expansion of the monetary base? These are part of the config settings of the Bitcoin protocol. It can be changed but all you would be ...


5

The mining difficulty directly reflects the amount of computing power that the Bitcoin network has. This is adjusted on a periodic basis so that the average block solution time is 10 minutes (Bitcoin clients recalculate the difficulty every 2016 blocks). The difficulty can go up or down depending on how much effort people are putting into mining. More ...


5

No one entity overseas the issuance of block rewards. This is one of several revolutionary concepts behind Bitcoin. (There is absolutely no Federal Reserve.) The Bitcoin Protocol and its distributed blockchain consensus mechanism is what effectively awards miners solving a very difficult hashing puzzle. The solution block groups a number of transactions ...


5

nlocktime transactions are probably the closest thing you have at a protocol level. Essentially, you can make a signed transaction that pays a bunch of your relatives on January 1st 2016. If you should die before then, the transaction goes through and they get their inheritance. If you are alive on December 31 2015, you would publish another transaction ...


5

Yes, cryptocurrencies that have finite supply are bound to create deflation. This is because the same finite supply of coins will represent an increased economic output that results from technological innovations. Thus the value of a coin is worth more tomorrow than today thereby increasing its purchasing power. However, if this deflation is bad is highly ...


4

The alternative blockchain Freicoin is a solution to the "deflation-causes-hoarding-problem" (assuming that you think this is a genuine problem) using demurrage rather than inflation. As for your proposal of making the rate of money growth linear and higher than the expected rate of InflationCoin economy growth, that would accomplish the same goal: punish ...


4

The "unit of account" is "what all your numbers are denominated in". For instance you might work day-to-day in dollars/ pounds and yen but your unit of account may be dollars. Everything would get totalled up in terms of "dollar equivalents" and you would typically report in dollars. You can choose whatever unit of account is convenient to you. The obvious ...


4

I now see a much more urgent and catastrophic threat vector potentially circa 2016. Difficulty will tend to rise and fall such that the system-wide cost of mining is nearly the value of the coins mined (not perfectly but on a smoothed basis roughly true). Thus the lowest-cost marginal miners will earn the highest profits and rates-of-return. Thus, as ...


4

Build in a reliable entropy function to take account of natural decrement in value over time. All value degrades in nature, and this is the fundamental problem with money in that it can be hoarded without cost. Not sure how this would be implemented, it does dig at the root of the basic theory of money and value but that is what we are attempting to achieve ...


4

Key points in bold. Hoarding doesn't need to be prevented. At least, not yet. See this answer for a solid argument: How does hoarding hurt Bitcoin? Bitcoin attracts hoarding by design. To change that would turn it into something else. As Bitcoin matures, I expect that it will remain a problem that speculative trading brings instability to the market, ...


4

You could easily create a bitcoin2, bitcoin3, ... you could create an infinite number of bitcoin currencies having different parametric spaces. These would live in separate mathematical spaces however, so you wouldn't for example be able to create bitcoins in bitcoin2 that affect bitcoins in the original bitcoin: it would be a completely separate system. ...


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