Theoretical Emission Handbook of Cryptocurrency based on Bitcoin
“Bitcoin is the aerobatics in the world of technology” — Bill Gates, Microsoft founder, investor and philanthropist.
The popularity of cryptocurrencies is growing every day, and the largest banks are one step away from the introduction of digital counting units. Many people say that cryptocurrency is our future, but many fear it might replace the usual financial solutions. In particular, the Bank of England fears that with the increasing popularity of bitcoin, central banks will lose the ability to manage inflation. The peculiarity of the cryptоcurrency is that the rate of the cryptоcurrency is formed on the basis of supply and demand, while it is impossible to create artificial money supply to change quotations.
On 3 January 2009, the first unit and the first 50 bitcoins were generated. The first bitcoin transfer transaction took place on January 12, 2009 — Satoshi Nakamoto sent 10 bitcoins to Hal Finney. So how do cryptocurrency appear in our world?
Cryptоcurrency issue depends on the number of active users — the more transactions are made, the higher the price. Cryptocurrency emission occurs during mining and is the creation of digital code in coins. Their issue can be decentralized or controlled by a central organisation. The latter option is inherent mainly in tokens, which are issued to attract investment in the project, and are digital analogues of stocks.
Examples of coins with maximum one-time emission are cryptocurrencies such as NEM and ADA. Often in such cryptocurrency networks, mining functions are not available because all coins are already issued when the first block is generated.
Most cryptocurrencies have a limited emission with a phased issue of coins during mining. The emission in this case occurs by algorithm in a certain sequences. This measure helps to prevent inflation, since the number of coins in use will grow in proportion to the demand for them. An example of cryptocurrency with unlimited emission is Ethereum. The final number of coins in this network is not set, but the production of new coins is adjusted to the actual use of the network and controlled at an optimal level. Bitcoin refers to limited-emission cryptocurrency. The maximum emission of Bitcoin will never exceed 21 million coins. The process of releasing new cryptocoins is controlled exclusively by a cryptographic algorithm embedded in the network, which performs the following functions:
- determines the frequency, number and time of new coin generation;
- prevents human interference with the emission process.
Bitcoins are emitted during mining. Whenever the miner is able to find a signature for a block of transactions to add to the block of transactions, it receives a reward for its work in newly issued new coins. At the moment, the reward is 12.5 ВTC. You can add a new block and issue coins accordingly once in 10–15 minutes, but no more than six times per hour. Bitcoin emission is not only limited to the final amount of coins, but also decreases in stages. Every four years, the signature fee is halved. As the cost of Bitcoin and other cryptocurrencies is determined, first of all, by the ratio of supply and demand, the algorithm of coin output allows to prevent inflation of their cost, according to a clear schedule with geometrical progression.
Advantages of cryptocurrency over traditional money
Due to the fact that the currency is backed up by server hardware worldwide, issued and not being under the control of regulatory authorities, it has gained great popularity among ordinary users and large companies. They are the ones who are involved in bitcoin mining: the activity of creating new blocks using the computing power of the computer and the entire network makes it possible to get rewards in the form of the issued currency. Unlike other means of payment used in investment and speculative purposes the cryptocurrency has the following advantages:
- Active emission, which does not allow to control it from the outside.
- Restrictions on the total number of coins mined.
Price volatility supported not by political and economic factors, but by demand and supply for the currency itself. Today, buying bitcoins for storage and resale is an economically viable business. However, there are risks here, as well as in other currency related transactions. They are often pitfalls related not to the Bitcoin itself, but to the credability of exchange services.
Bitcoin’s emissions are limited, but why?
Even though the issue of other currencies can last forever, Bitcoit decided to stop at 21 million coins. So, blocks are verified on average every 10 minutes (this is what the network is configured for with an update every two weeks) or 6 blocks per hour. 6 x 24 hours x 365 days x 4 years = 210,240 or approximately 210,000 blocks are produced during each four-year cycle.Quadrennial halving (halving the award by half) is built into the algorithm. Originally the award was 50 BTC, then 25, now 12.5, and in May 2020 was reduced to 6.25 BTC.If you add up all the awards per block: 50 + 25 + 12.5 + 6.25 + 3.125 + 1.5625 … you will end up with 100. By multiplying the 210,000 blocks produced in each reporting period (4 years) with the maximum amount of 100 awards for the whole time, we get exactly 21 million bitcoins.
Summing up the article, we can make the following conclusion — the issue of cryptocurrency is an important indicator that determines the potential of the cryptocurrency value growth. There are only 3 types of emission, each of them differs in its unique feature and principles of work. However, we would like to note that many people prefer to buy only those cryptocurrencies with controlled issue of coins. The main feature of these currencies is that their systems work properly due to the mining process, which produces new coins in circulation, controlling their value, while giving time to develop the Blockchain-platform. It is due to this approach to algorithm construction that they continue to grow, becoming more popular, in demand and more expensive. In theory, sooner or later the number of issued Blockchian cryptocurrency should be equal to the number of coins in circulation, but in practice this is unlikely to be achieved, as many factors contradicting this theory are not considered. If you look at the example of Bitcoin cryptocurrency software, by 2140 the total number of coins on the market for this system should be 21,000,000 BTC. However, there are already many cases when users simply forget their private keys to crypto wallets, losing their digital savings forever. Accordingly, this amount of coins can never be recovered. This is due to the specifics of Blockchain technology, it is impossible to crack, delete or change it. That is why the total number of cryptocurrency in free circulation is generally considered to be less than the declared number.
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