Bitcoin miners

In the previous post I asked the question, "Why would anyone spend valuable electricity and computing power to validate a block in the blockchain." The answer is this - if you are the first person to validate a block, i.e. find a hash of the current unverified transactions floating around in the Bitcoin network together with the previous block's hash and a salt that is lower than the current "hash difficulty number" then you get to include a transaction in the block that magically assigns some Bitcoins to your own Bitcoin address. So there's a reward for being the first to create a new block.

Now to explain the difficulty: the hash that needs to be found to validate a block has to be smaller than a certain number. This number is set by looking how long it took to validate the previous 2016 blocks. If they were found too quickly then the difficulty increases, and if they took too long to find then they difficulty decreases. In practice the formula is set so a block is expected to be verified every 10 minutes.

People who are trying again and again to create the next block are called "miners", but perhaps "verifiers" would be a more accurate term. If you've followed the Bitcoin news reports you'll know that the reward used to be 50 Bitcoins for each block, but it halves every 4 years, so now it's 25, and in four more years it will be 12.5, and so on until the reward is so low it's 0. That will happen in about 2140. The upshot of this is twofold: a) the supply of Bitcoins is increasing over time, and b) the rate at which the supply increases is decreasing so there will never be more than about 21,000,000 Bitcoins in existance.

Over half of the Bitcoins that will ever exist have already been created. And they're in the hands of the early adopters that started playing around with Bitcoin before most people had heard of them. Satoshi, as the first Bitcoin miner probably has over two million of them[1].

Personally I think he deserves every single one.


1: 50 Bitcoins every 10 minutes over about two years, before other people really got involved, means 50 * 6 * 24 * 365 * 2 = about 5 million.