Bitcoins are created by “miners,” i.e. computers running specialized computations. Simply put, if an owner of such a computer runs these cryptographic calculations for long enough (“mines”), he will be rewarded with a bitcoin.
So if I buy a lot of mining equipment, can I mine a hundred bitcoins per hour?
No. The amount of bitcoins mined per hour by all the miners connected to the network is set in stone (actually it’s in the bitcoin code).
How can that be? If I add more computing power, should I get not more results?
No. The difficulty of the mining process adjusts whenever additional miners are added to the network. Thus, if you own 10% of all miners on the network, you should, on average, receive 10% of all bitcoins created per hour.
Then why not just keep adding computers and get 90% of the network?
Since the difficulty adjusts automatically, that gets expensive quickly. Eventually, the price of bitcoin reaches an equilibrium with the price of electricity (and other upkeep costs) of the miners.
Couldn’t I just change the code? So that I get more bitcoins per hour?
Of course you could. Except that the change will be obvious to everyone in the system – any changes you make will be baked into the bitcoins that you mine; these fake “bitcoins” you created will be rejected by the network and no-one will want to buy them.
So all miners do is create bitcoins?
That’s actually a side effect and an incentive. They create the blocks that make up the blockchain. For each block, there is an award of bitcoins to reward the miners for their expenses. We’ll explore the blockchain in my next post.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing full-service law firms in the United States. With 14 offices in seven states, and the District of Columbia, and growing by 50% in two years through expansions in New York City and Charlotte, North Carolina, Offit Kurman is well-positioned to meet the legal needs of dynamic businesses and the individuals who own and operate them. For over 30 years, we’ve represented privately held companies and families of wealth throughout their business life cycles.
Whatever and wherever your industry, Offit Kurman is the better way to protect your business, preserve your family’s wealth, and resolve your most challenging legal conflicts. At Offit Kurman, we distinguish ourselves by the quality and breadth of our legal services—as well as our unique operational structure, which encourages a culture of collaboration and entrepreneurialism. The same approach that makes our firm attractive to legal practitioners also gives clients access to experienced counsel in every area of the law.
Find out why Offit Kurman is The Better Way to protect your business, your assets and your family by connecting via our Blog, Facebook, Twitter, Instagram, YouTube, and LinkedIn pages. You can also sign up to receive LawMatters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
DELAWARE | MARYLAND | NEW JERSEY | NEW YORK | NORTH CAROLINA | PENNSYLVANIA | VIRGINIA | WASHINGTON, DC