In the latest podcast, Mrugashee and Keegan talked about bitcoin's programmable money supply. The supply of many cryptocurrencies are governed by Math and Cryptography rather than by a group of humans. Humans have been in charge of our money supply for thousands of years, and we always inevitably make a mistake. Bitcoin was the first form of money to offer an alternative model for managing the supply of money. Since then, there have been many renditions of the rules that dictate when new money is printed, or brought into circulation. Since Go Full Crypto is covering basic topics to start, we dived firmly into the process of mining in order to communicate the process in which new bitcoin come into circulation.
Bitcoin Mining
When we explain bitcoin mining to people, we recognize that the average person doesn't need to know every tiny detail about how the mining process works. What is important for them to know, is how, when, and why new bitcoin enter the system. The first thing we need to establish is that there is a finite supply of bitcoin. Once they have grasped this concept of having a forced finite supply of things, questions naturally arise about how this is possible. Here is what we tell them.
How
New bitcoin enter the system through a process called mining. Mining happens because the network needs to come to an agreement on what transactions place took place within a given time interval. In the case of bitcoin, that time interval is 10 minutes. The whole point of the network is to come to an agreement on where all the bitcoin is, and do it every 10 minutes. This agreement needs to take place between millions of people, all around the world, that don't speak the same language. Bitcoin accomplishes this by having all the computers connected to the network race to solve a problem. The first computer to solve the problem, gets a reward. That reward is more bitcoin. Bitcoin that is not yet in circulation is awarded to the "miner" that solved the problem.
The amount of bitcoin that is given out through the mining process varies over time. In fact, it goes down. Over time, less and less bitcoin is given out as a reward for mining. This has a very interesting effect on both the supply and the price of bitcoin. Roughly every four years, the number of bitcoin thats comes into the system every block is cut in half. In 2009, when the bitcoin network began, that number was 50. Fifty new bitcoin entered the system every 10 minutes. Then sure enough about 4 years later the reward was cut in half to 25. Another 4 years goes by and the number becomes 12.5. Eventually we make it to May 2020 when the number was cut in half yet again to 6.25. This halvening effect we see is deflationary in nature. Eve though the amount of bitcoin increases over time, eventually it will stop around the year 2140.
When
The problem that we mentioned above is solved roughly every ten minutes. The problem is designed in such a way that no matter how many computers are trying to solve the problem, it will always take an average of 10 minutes to solve. Because when the problem is solved, new bitcoin comes into circulation, it is important there is a way of limiting the number of bitcoin that can enter the system within a given period of time. The network will dynamically adjust the difficulty of the problem when more computers join the network and try to solve the problem. This aspects adds a level of predictability into the bitcoin network.
Why
The why is possibly the most important aspect of bitcoin. Why run this network this way at all? It's because throughout human history the people have been plagued with good currencies, that get corrupted over time. I don't actually think there is anything wrong with the way we have our monetary system set up. The problem I see with it, is that it is run by humans. I don't think we can avoid making mistakes. I think part of being human is to make mistakes. I also think that money, and the economy are so large, and so difficult to manage, that we should voluntarily hand over the controls to our digital counterparts. Systems that run on mathematics and cryptography are not subject to greed, corruption, or plain old mistake making.
The whole process of mining is done to enforce digital scarcity. The fact that there are only 21 million bitcoin is quite remarkable. The fact that we can build a network that millions of people that don't each other can use, and trust, is an incredible feat of engineering.
The Go Full Crypto Vision
We want to help people opt-into the world of cryptocurrency, one dollar at a time. In order to do this, people must need a reason. They need their own "why" behind discarding their government currency for the world currency of the future. Go Full Crypto is putting out content to help people discover the reason why they want to get involved in cryptocurrency.
Download Episode 5 of Go Full Crypto - How Bitcoin Mining Works
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