Introduction to Bitcoin Economics
Now that we know what Bitcoins are and how to mine them, let’s move forward and understand the economics of Bitcoins and its benefits along with going into the depths of solo and pooled mining techniques and more.
Economics of Bitcoin:
- Only after each of the Block creation, which is at a reducing and settled rate, the Bitcoins are stamped.
- Roughly after every four years or for every 210,000 blocks, the money issuance rate is decreased by half in Bitcoin ecosystem.
- During the first four years of Bitcoin operation of the system, each and every block contains 50 new Bitcoins.
- The rate of new Bitcoins decreases exponentially more than 64 halvings when it reaches the base cash unit of 1 satoshi, which is until the block that were mined roughly in year 2140, that is, block 13,230,000.
- At once approximately 13.44 million blocks are mined. By 2140, approxiamtely 2,099,999,997,690,000 satoshis, or almost 21 million Bitcoins will be present in the network.
- After that there will be no new Bitcoins in the block. The miners will still be rewarded but only through transaction fees.
|Parameters||Solo Mining||Pooled Mining|
|Definitions||Miners mine the new Blocks alone.||Different miners work together by sharing assets to discover blocks regularly|
|Payments||Miners receive extensive payments along with a higher variance||Miners are rewarded with little payments along with a lower change|
|Returns & Rewards||All the rewards and transaction expenses goes to just one person.||Rewards and transaction expenses are shared among the pool|
|Difficulties||There are mainly two difficulties in Solo Mining which are mining and the Hashing race||There is one main difficulty in Pooled Mining which is Difficulty of Targets|
Let’s understand the difficulties associated with Bitcoin Mining in detail.
- Bitcoin mining and hashing race:
Hashing power in Bitcoin Industry has expanded exponentially each year in accordance with the availability of Bitcoins. The growth in Bitcoins and the miners has resulted in exponential increase in the total hashing power per second across the network. So, since the hashing power used to mine Bitcoin has increased at such rapid rate the difficulty has also risen to match it.
- Difficulty in Targeting:
The mining pool sets low difficulty target for earning shares in order to enable the solo miners to mine, usually more than 1000 times easier than the Bitcoin network’s difficulty. When a new block is mined by anyone in the pool, the earned reward is shared by all the miners in the pool according to the number of shared contributed by each miner which is determined using Proof of work algorithm.
- Main Chain:
The chain of Blocks is considered to be one of the most cumulative difficulties associated with mining. Whenever a new Block is received, the node will read that block’s previous block hash” and try to fit it into an existing Blockchain. The previous Block Hash is the reference to the parent of the new block. The node tries to find that parent in already existing Blockchain. Usually the new block extends the main chain as the parent is the tip of the main chain.
- Orphan Block:
When no parent is found in the existing chains for a newly received and confirmed block, it is referred to as an orphan. These type of blocks are saved in the orphan block pool for as long as their parents are not received. Orphan blocks occur usually when two blocks are mined shortly after each other and are in reverse order, that is, child before parent.
Types of mining Pool
Following are the two types of mining pool pay out systems:
- Pay Per Share (PPS)
PPS is used to utilise flat payout for solving each share. It gets offered from the pool’s existing balance. Instead of waiting for a block to be confirmed, PPS can be withdrawn as soon as possible. Thus it reduces the chance of miners getting fooled by the pool operators along with eliminating the possibility of timing attacks.
- Pay Per Las N Shares (PPLNS)
PPLNS is for miners who are trying to mine faster. It has higher payouts. The hardcore miners will ear way more in PPLNS.