The Economics of Bitcoins
Bitcoins are considered as digital assets or digital currency working irrespective of the central system. As the work is based on a blocked chain. The currency is also referred to as digital cash, virtual cash, electronic currency. Many benefits come with digital currency – it eliminates the need for central authority transition; they offer privacy and great accessibility. With many benefits comes some disgrace—the currency has rapid changes and has an unpredictable nature; they are limited to people with network speed so not accessible to all, and there is transaction cost on every bit purchased and sold. Although overall goods and bad bitcoin are great places to invest in.
The difficulty of mining Bitcoin
The process of transition in bitcoin has been easy as the system is supported by blockchain technology created by Satoshi Nakamoto. The money with a simple blockchain system is growing and bringing revolution far beyond the regulation of paper currency. The information uploaded on the database is constantly updated and isn’t located at any specific zone but is located everywhere.
Bitcoins are not currency which can not be seen or touched but can be stored in E-wallets. As the currency cannot be printed but it can be mined. There is a supply of 21 million bitcoins out there stored under math problems. The more you dig deeper the more bitcoins will be earned. As more and more bitcoins are earned the problems get harder and harder.
Bitcoin comes from these mining as minors solve the problem. As the system works with individuals the systems automatically make it a more secure network. The bitcoin network automatically changes the level of difficulty of the math problems depending upon how fast they are solved.
In the initial days, the problem was being solved with these problems with the processor and computers. Later the mirrors cracked the code as they discovered that the graphic card used for gaming makes the process simpler even though it takes more energy and resources.
Soon enough these products including chips came into the market for commercial purposes. The product is a chip specially designed to solve math problems and earn bitcoin. All the product is power-hungry as a lot of electricity is applied and a lot of heat is generated. As the technology changes many chips came into power to make the process use fewer resources and fast working. As the process gets easier, a lot and a lot of minors get involved and make the math problem more difficult for individuals to solve.
To overcome the problem minors have developed a pool system where minors come together and work upon the problems and people working together will share their options. One bitcoin can be divided into 8 decimal places (0.000 000 01). One can spend any fraction of the amount of bitcoin as per choice.
The bitcoins are under block as the segment of the block is solved. A portion of bitcoin is rewarded as ‘block reward’. Every four years the block rewards halve and continue to fall. As it is said that there are 21 million bitcoins available, it is predicted that all bitcoin will be mined by 2140.
Why are bitcoins in limited supply?
As already discussed, there is a set limit to the number of bitcoin available in the market and there will be no coins left to be found by math problems. A fixed number of bitcoins are designed and this design is called a ‘hard cap’. The number of coins can be divided into three parts.
- Circulating Supply: It refers to the number of coins getting regulated in the market and refers to all digital currency. The amount of circulating supply can increase or decrease at times. The circulating supply of cryptocurrency can be used to calculate its market capitalization. This can be done by multiplying the current market value with the number of coins in circulation.
- Total Supply: At times it happens that bitcoins or any other digital currency can get lost in the wallet by people, sometimes people sent coins or even a fraction of coins sent to the wrong address, this made the bitcoins lost. Another reason for stopping bitcoins from stopping circulating is when people lock them up with the purpose of saving. These coins are available in the market but the circulation is not there. The total number of coins irrespective of them being lost, locked up, or in circulation, the total number is called total supply.
- Maximum Supply: This refers to the hard cap. There is a fixed number of coins available and only these numbers of coins can be circulated in the market.
The difference between the three supplies is the total number of coins or digital currency available is the maximum supply. It states that no more coins that the maximum supply will ever rise. Out of the maximum supply, the number of coins out on market or once were there out in the market are now considered as Total supply. Out of the total supply, the number of coins in circulation is called the circulation supply. One can always get the number of supplies from website trading in Bitcoin. Flitpay.com is a website where one can always check all types of supply.
Even after the last bitcoin is extracted the supply and demand chain will not stop and the value of coins will remain high. The reason is that the currency is free of the system as no matter what traction one passes there is no one accountable. The currency is easily accessible and there are more and more digital currencies coming up. The currency works on blockchain and no blunders are found. People are now accepting bitcoin as a way to trade and not just a thing to invest in. In 2017, the Japanese Bitcoin Exchange got into partnership with Recruit Lifestyle and made bitcoin an acceptable currency across 260,000 retail stores. As the value and credibility of cryptocurrency grow, the market will increase.
As when the mining will end, block rewards will end but the transaction fees will be awarded to bitcoin minors along with Bitcoins. To keep things in continuation when there will be no bitcoins to be mined rewards will be earned in form of a transaction fee per block. This process will substantially reduce the number of Bitcoin miners in the market — but it is projected that people will be willing to pay more to get their transactions confirmed faster.
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