Three generations of cryptocurrencies. Introduction to Cardano ADA. Part 2. Coin supply and blockchain technology.
Limited coin supply on the Bitcoin network
On the Bitcoin network, miners compile transactions into the blocks of the network. To give miners an incentive to do the work, the network gives a reward for creating a block of the Bitcoin blockchain. This is how the network adds Bitcoins to the circulation.
On average, the network creates a block every 10 minutes. This number may vary depending on the number of miners on the network and the number of transactions that users are sending to each other. You can see how quickly the network is creating blocks as you are reading this article by vising Bitcoin blockchain explorer at https://blockchain.info/ and check out the “Age.” For example, if you see that the latest block was created 4 minutes ago and the block before that was created 15 minutes ago, it means that it the Bitcoin network 11 minutes to create the latest block.
In total, there can only be 21 million bitcoins. This is how Satoshi Nakamoto programmed the code of the Bitcoin network. As of January of 2018, there have been more than 16 million bitcoins in circulation, which is over 80% of the total supply. The network was giving 50 bitcoins for mining a block on the network for the first 210,000 blocks. Then, the reward divided in half and was 25 bitcoins for the next 210,000 blocks. After that, it split in half again and became 12.5 bitcoins. It is estimated to drop to 6.25 bitcoins in 2020. You can see the latest up-to-date information about the number of bitcoins in circulation, total number of bitcoins left to mine, current bitcoin price as you are reading this article by visiting http://www.bitcoinblockhalf.com/. The reward for block creation will keep going down until the network has 21 million bitcoins in circulation. This is supposed to happen around the year 2140. Nakamoto’s vision for the network was that after 2140 the miners will keep doing the work because they will be receiving transaction fees from the Bitcoin network users.
The fees on the network are completely voluntary. Users do not have to include a fee when they initiate a transaction, yet miners also do not have to include any of the transactions into the blocks that they mine.
Bitcoin is possible because the Bitcoin network operates using blockchain technology. Blockchain is an open, transparent ledger created by the Bitcoin miners. The bitcoin ledger includes all the transactions that have occurred on the Bitcoin network since its inception in 2009. The ledger will also include all future transactions that will happen on the network.
Blocks of the blockchain are similar to paper pages in a paper ledger. Every new block contains a hash for the previous block. A hash is a function of a cryptography algorithm. For example, if you have a set of numbers (1, 1, 1, 2, 2, 3) and you run it through a cryptography algorithm, you would get a much shorter hash, say, 4e2. On the bitcoin blockchain, the set of numbers is information about bitcoin transactions and previous blocks of the blockchain. The sets are much bigger than in the example above. For instance, block #506659 of the bitcoin blockchain contained 1820 transactions. However, the principle stays the same: a large set of data returns a much smaller hash. A cryptography algorithm (Bitcoin uses SHA-256) will always return the same hash for the same set of data. For example, the hash for block #506659 was 00000000000000000004c6c40974e1b01c5dfdb4f7141ce01927e4b9abeead70. You can see all the information for block #506659, including information about hashes and transactions,here: https://blockchain.info/block/00000000000000000004c6c40974e1b01c5dfdb4f7141ce01927e4b9abeead70.
Fundamentally, blockchain technology allows miners to seal the blocks with hashes. A real-world analogy would be a paper ledger each page of which contains a summary of transactions on the previous pages. This summary (hash) is created in such a way that if someone were to change any information about previous transactions, the hashes would stop to match. As a result, the Bitcoin network contains a series of blocks with all the transactions that have occurred on the network since 2009 and because all the blocks are sealed with hashes, they are tamper-proof. Because the network is decentralized, anyone can download a full copy of the ledger (a computer with a full copy of the ledger connected to the network is called a node) and if someone were to try and temper with the network, that someone would have to change the information in over 51% of the copies of the ledger to be successful.