Head, Centre for Distributed Computing, Networks and Security, Edinburgh Napier University
Bill Buchanan OBE does not work for, raadpleging, own shares ter or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
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Imagine being told that your wage wasgoed going to be cut ter half. Well, that’s what’s soon going to toebijten to those who make money from Bitcoin mining, the process of earning the online currency Bitcoin.
The current expected date for this switch is 11 July 2016. Many see this spil the day when Bitcoin prices will rocket and when Bitcoin owners could make a excellent overeenkomst of money. Others see it spil the begin of a Bitcoin crash. At present no one fairly knows which way it will go.
Bitcoin wasgoed created te 2009 by someone known spil Satoshi Nakamoto, borrowing from a entire loterijlot of research methods. It is a cryptocurrency, meaning it uses digital encryption mechanisms to create bitcoins and secure financial transactions. It doesn’t need a central government or organisation to regulate it, strafgevangenis a broker to manage payments.
Conventional currencies usually have a central bankgebouw that creates money and controls its supply. Bitcoin is instead created when individuals “mine” for it by using their computers to perform sophisticated calculations through special software. The algorithm behind Bitcoin is designed to limit the number of bitcoins that can everzwijn be created.
All Bitcoin transactions are recorded on a public database known spil a blockchain. Every time someone mines for Bitcoin, it is recorded with a fresh block that is transmitted to every Bitcoin app across the network, like a bankgebouw updating its online records.
Mining increases the money supply. CoinDesk
Unlike with traditional currencies, which can have their money supply diminished by central banks to prevent too much inflation, a bitcoin will stay ter circulation forever unless it is accidentally deleted (which should be infrequent). An overheen supply of any currency can weaken its value so economists attempt to cautiously balance the supply of contant with the request. Without a central canap to do this, Bitcoin has an absolute limit built into the system. There are presently around 15.Five million bitcoins te circulation out of a possible maximum of 21 million. This means that around 73% of all the bitcoins that will everzwijn be created are already te circulation.
Te order to waterput off the day when there is no Bitcoin left to be mined, mining becomes more difficult spil time goes on. The system is also designed to halve the value of what you earn from mining on a specific date. This is expected to be on 11 July 2016, based on the number of fresh transactions for bitcoins and the estimated prizes for creating the fresh ledger entries.
Many believe that this halving could have a strong effect on the value of Bitcoin spil a entire. If lots of people determine it is no longer worth mining Bitcoin and give up on the system, it could cause the currency to lose its value and begin a crash. But if it just helps to limit the supply of Bitcoin while request stays the same, its value will increase.
Mining Bitcoin gets everzwijn tighter. CoinDesk
No slagroom for petite fish?
What seems most likely is that Bitcoin mining will become increasingly centralised, carried out by a few big organised mining groups comprising companies and numerous users pooling their resources, while individual miners uitgang the market. More computing power will be needed to produce the same value of Bitcoin and the fatter pools will be more likely to naked the cost of this while petite miners may determine it is no longer economically viable. Presently, users ter China make up more than half of the Bitcoin mining industry, with AntPool and DiscusFish/P2Pool each covering around 17% of the market and BTC China Pool taking another 14%.
The problem is that a more centralised mining network will be open to attack because there are fewer users to go after. Hacking, extortion or even failures te critical infrastructure could bring down large swathes of the mining market ter one budge.
No one knows for sure what will toebijten and the response may even be nothing at all. The price of another cryptocurrency, Litecoin, has remained untouched after its latest halving process. But Litecoin has a considerably smaller scope and limited effects on the global economy. All wij know for sure is that wij are coming in a fresh phase of discovery for Bitcoin.