David Schwartz's answer is entirely accurate, but all that "bitspeak" might be a little intimidating to the average user. Let me try and put it into more plain language:
The way Bitcoin works is that instead of having one central authority who secures and controls the money supply (like most governments do for their national currencies), this work is ...
Here is an extremely simplified sketch of the problem, but it should give a pretty good idea of what the problem is.
This is the hash of the lastest block (shortened to 30 characters):
These are the hashes of a few valid transactions waiting for inclusion (shortened).
And this the hash ...
mining is doing the work of finding nonce so that sha256(sha256(data+nonce)) < difficulty
nonce is an integer number the miner chooses freely (this choosing of the nonce and checking if the condition (< difficulty) is met comprises the work
data is a hash over the contents of the block (transactions) and the previous block's hash
sha256() is ...
I read that the market will find the equilibrium how much these transaction fees will be.
It will not. This is perhaps the biggest flaw in Bitcoin at the moment: once mining rewards end there is no direct linkage between the amount of hashpower needed to secure the network and the incentive to mine.
True, there is a limit on the blocksize, so if the ...
You can use an online exchange such as BitStamp for US dollars, as well as many others for dollars, and other currencies.
See the wiki for a full list of ways to buy bitcoins.
Brokerage services allow you to buy or sell directly from them instead of relying on a third party to offer the trade with the exchange just taking a ...
The following is a description of the global, statistical gamble which is played every 10 or so minutes. The interval of the game is controlled by the difficulty which says how many "hashes" are needed per interval.
In other words, the difficulty and target define the "odds of the house" against your chance of getting a winning SHA hash. The nonce is the ...
Mining is the process of securing transactions and committing them into the bitcoin public chain. It requires winning a kind of computational lottery where each hash you perform is like buying one ticket. The Bitcoin protocol currently permits the miner who generates a block to claim 50 bitcoins as well as any transaction fees for the transactions that miner ...
Although individual bitcoins enter the Bitcoin economy as miners are rewarded for processing transactions, it's much more helpful to think of all 21 million bitcoins as having been created when Satoshi Nakamoto defined the Bitcoin protocol and launched the Bitcoin network in 2009.
The reason for this is that the Bitcoin protocol specifically defines and ...
They try to find a random nonce (a little random data) that goes into a block and makes the block have a (SHA256) hash that (in binary) starts with a certain amount of 0's. The more zeroes the more rare hash is. A good hash' outcome is not predictable, and so you have to try a lot of times to find a good nonce.
The amount of zeroes are based on how ...
It's impossible to say for sure right now, because according to Gavin, Bitcoin's transaction fee structure will be redesigned at some point:
bitcoin's fee structure isn't right either, and fixing it to create a market between miners and clients is high on the TODO list
Basically there are five main ways of getting bitcoins:
Offering goods and services for Bitcoin
Obtaining for free through micro payment
Asking a friend who already has them to give a tiny fraction for free
Let's start with mining:
first of all I have to warn that currently there is almost impossible to mine by your own. You need to have a ...
The term "coinbase" is used to mean many different things. But the two you're probably asking about are:
The "coinbase transaction" is the transaction inside a block that pays the miner his block reward.
Inside the coinbase transaction is a field that is called the "coinbase". It's the generation transaction's equivalent of a scriptsig. Since it doesn't ...
The estimate is 2140 based on the block reward halving frequency of four years. According to math and knowledge that there are 32 halving events, in 2136, the block reward will yield 0.00000168 BTC per day, which is 0.00000042 BTC per block. That's 42 satoshis.
It's arguable that there could be one additional halving, to a block reward of 0.00000021 BTC, ...
There will definitely be a tragedy of the commons problem if things stand as they are now. This was discussed at some length here and elsewhere.
There are some proposed ways to address this and make transaction fees nonzero (block size limit, hardcoded fees, insurance entities, mining cartel, gentleman's agreements which are maintained for fear defection ...
The block is accepted, and the coins are lost. Poor miner.
Here is a link to the part of the 0.6.3 source which checks this: https://github.com/bitcoin/bitcoin/blob/v0.6.3/src/main.cpp#L1362
Also, this has effectively happened before; block #124724 claimed one satoshi less it than could have.
Assuming Bitcoin is still active at that point in time, mining will continue, because transaction fees will make it worthwhile to do so.
This topic has been discussed heavily in other answers, including:
What happens once the mining reward gets cut in half?
How many bitcoins will there eventually be?
How much will transaction fees eventually be?
The last ...
There are a lot of unknowns because the network is so young and transaction volume is so low.
Currently the block reward is worth about $13.1 million annually. If fees stabilized at 0.1% of transaction volume (compare that to 3%+ for cc/debit/paypal) it would require a transaction volume of ~ $13 billion for fees to someday generate the same global ...
Mike Hearn just posted about how Network Assured Contracts handle this problem. I don't find an immediate flaw with this.
This is how I understand the proposed solution:
Anyone with an interest in a high hash rate (basically, anyone holding
a large amount of coins), can initiate or cooperate on
SIGHASH_ANYONECANPAY transactions. Those are an ...
The mining reward must be collected with a transaction, so technically there is at least one transaction in each block.
The mining reward was designed to enable the initial distribution of bitcoins and to encourage the creation of a powerful bitcoin network with a lot of computers to support it, therefore it makes perfect sense that a miner gets the block ...
Mining is not essential for coin creation. New coin introduction can be tied to new block creation, or be time based. Even if you don't use proof of work, you will still have blocks (even if you don't call them that way anymore; they may be called "database updates"). More interesting however, if you don't use proof of work, you don't even need your own ...
It's not just about the miners, it is also about people using bitcoin. If miners decide to fork the chain and keep block bounty at 50btc, they cannot use those bitcoins in any place where people have not also modified their non-mining bitcoin client. Protocol changes are not just about >50% of miners, but about >50% of user clients.
In this case, since ...
The answer to your question is yes. The transaction fees reward miners from processing transactions. The block reward is for securing the hash chain. They're not "processing a zero", they're securing every transaction made in every previous block, increasing the number of confirmations it has and increasing the difficulty of undoing it.
That is basically it. They have value because they are scarce, fungible (one Bitcoin is as good as another), easily transferred, and easily verified.
The only other component they need to have value is a general agreement that they will be used as a medium of exchange or a prevailing belief that they will be in the future. It is the variation in these two ...
It's a complete irrelevancy. It is still early, and Bitcoins are worth on the order of $3 each. If you want to be an early adopter, buy Bitcoins now.
If Bitcoins never become really valuable, what difference does it make whether it's fair or not? The sums involved will be modest.
If Bitcoins ever do become really valuable, what difference does it make ...
Every block has exactly one "coinbase transaction", the one transaction which doesn't have actual inputs, but gets all the fees and mining subsidy.
Every 210000 blocks, this subsidy halves. Right now, each block is allowed (not required!) to bring 50.00000000 BTC into circulation. Very soon, this will become 25.00000000. Four years later, 12.50000000. And ...
Mining provides a way to reach consensus on what the transaction ledger should look like and know that nobody is cheating.
That's the non-technical definition of mining.
What exactly is Mining?
The "authority" for double spending is the blockchain. The blockchain consists of the history of all blocks in the blockchain plus the next block of transactions. ...
A surge in transactions would mean a surge in transaction fees. So it does not follow that there would be a massive decline in mining.
In any event, we have about a decade to work out what changes, if any, are needed. Nobody has a crystal ball.
One interesting issue though -- right after a block is mined, all the 'juicy' transactions will be taken, and the ...
The value comes from their scarcity. To use something as a medium of exchange, it only has to have a certain set of properties. Bitcoins have these properties, so they can be used as a medium of exchange.
They are fungible. That is, 10 bitcoins is 10 bitcoins. This makes Bitcoins more useful as a medium of exchange than, say, apples, which vary widely in ...