The virtual currency craze is on a tear, with new virtual currencies emerging every day. The New York Times just ran a series of articles about them last week. Charles Ponzi would be so proud! A payment system, supposedly secured kedrosky bitcoin news anonymous.
Bitcoin, starting with its payment system. The ledger is crucial to the system because it allows users to verify that a transaction request between two parties is not fraudulent. Joe’s Pizza wants to make sure that this is a valid transaction. One may wonder why it is so difficult to add a page to the ledger. The main goal is to make the payment system more secure by preventing double spending of bitcoins. Another reason is to maintain the value of bitcoins by making sure that they are not put in circulation too quickly.
We will come back to this second reason later and focus on the first. Given that all transaction requests are known, all other accountants could easily verify that this transaction is invalid by checking prior transactions of Mr. To be able to cheat the system, Mr. You will notice that so far we have not described bitcoins themselves. We merely presented the architecture of a payment system with some security features. Bitcoins and BTC come into the picture when one wonders how to reward the crucial work done by the miners.
But miners are crucial to the trustworthiness of the bitcoin payment system, so they should be rewarded. These physical coins are representation of virtual coins and are funded via the income earned by the issuer of physical bitcoins. The creator of this system does not seem to see that this hard limit on bitcoin supply implies that, given transaction fees, the larger the number of transactions, the more bitcoins will go to the transaction payments and the less will be available for other purposes. One could avoid this by lowering the fee inversely with the amount of transactions, but that would reduce the incentive to be an accountant at the time when more are needed. We are told that bitcoins are to be considered an alternative monetary instrument.
Let’s take this proposition seriously and analyze it. Frankly, looking at the previous bitcoin creation mechanism, I see Easter egg hunting rather than mining. Gold only exists in a relevant quantity only in specific geological soil so you are not going to mine randomly. Mining also requires digging and here you are merely looking around for the coveted item. It’s important to realize that block generation is like a lottery. If your hash is below the target, then you win.