silvervigilante.com / By SV / March 12, 2013
As developers for Bitcoin called for a temporary halt to Bitcoin transactions, many members of the community began holding their breath. Many, many of these individuals had only just entered into the realm of stateless currencies. Could it be that they were watching the end of the BTC experiment before their very eyes? Others acted in contribution to a sharp sell-off resulting in the currency briefly falling 23 percent to $37 before regaining much of its value. Still other implored everyone, except for miners, to just wait this out “a few hours.”
The compromise took place at the network’s core, in the shared transaction register called the blockchain. Here is an explanation of how this works:
The complete Bitcoin record of transactions is kept in the block chain, which is a sequence of records called blocks. All computers in the network have a copy of the block chain, which they keep updated by passing along new blocks to each other. Each block contains a group of transactions that have been sent since the previous block. In order to preserve the integrity of the block chain, each block in the chain confirms the integrity of the previous one, all the way back to the first one, the genesis block. Record insertion is costly because each block must meet certain requirements that make it difficult to generate a valid block. This way, no party can overwrite previous records by just forking the chain.
We have mentioned in the previous section that adding a block to the block chain is difficult, requiring time and processing power to accomplish. The incentive to put forth this time and electricity is that the person who manages to produce a block gets a reward. This reward is two-fold. First, the block producer gets a bounty of some number of bitcoins, which is agreed-upon by the network. (Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks.) Second, any transaction fees that may be present in the transactions included in the block, get claimed by the block producer.
This gives rise to the activity known as “Bitcoin mining” – using processing power to try to produce a valid block, and as a result ‘mine’ some bitcoins. The network rules are such that the difficulty is adjusted to keep block production to approximately 1 block per 10 minutes. Thus, the more miners engage in the mining activity, the more difficult it becomes for each individual miner to produce a block. The higher the total difficulty, the harder it is for an attacker to overwrite the tip of the block chain with his own blocks (which enables him to double-spend his coins. See the weaknesses page for more details).
Besides being important for maintaining the transaction database, mining is also the mechanism by which bitcoins get created and distributed among the people in the bitcoin economy. The network rules are such that over the next hundred years, give or take a few decades, a total of 21 million bitcoins will be created. See Controlled Currency Supply. Rather than dropping money out of a helicopter, the bitcoins are awarded to those who contribute to the network by creating blocks in the block chain.