Topic: Where does the money come from when mining? (Read 16407 times)

I just realized this topic is 2 years ago, cause a hero member asking this question just really weird!

In short: Mine bitcoin and sell it

they are supposed to have been answered in this topic aswell I still dont get it though it still seems to me  phase 1 ? ? ? ? phase 2 calculate a block phase 3 ? ? ? ? phase 4 profit

Most of these questions are answered in various FAQs all over the place - have you searched around a bit?
It really does not make sense to answer questions which others have answered with great care already.

Onkel Paul

I am sorry for bringing this topic again to surface but I still feel like I am watching this southpark episode were gnomes were stealing undeware for profit...

10 second sum up clip here:  http://www.youtube.com/watch?v=tO5sxLapAts

I wanted to start mining aswell and to spend heavy $ to get some GH/s power but I am too afraid to do so since  I still understand that this system is supposed to make money out of thinn air..


And no its not like mining gold... gold has not just a pricetag because we like it to have one.. its a metal that doesnt change due time (so it will be like this forever not like steel for example that will become rust eventually)


and it has many uses besides jewlery for example in electronics.. every high end piece of tech has a little amount of gold in its circuitry... so thats why humans need gold to make stuff out of it.. and its precious because its rare and everybody wants it but most importand many need it to make something that has worth (like a cellphone)


so what is a block? how do you introduce a block to the community? what does it contain? who needs it? and who pays for it to be solved... can I put a block on the chain? why? and how?


If I get a special PCIe card that makes 600GH/s needing 300 watts to do so and use it 24/7 I will have as profit ~90 usd per day (and I am talking about PROFIT = I already payed the bills and will get an EXTRA 90$ profit above of that)


who gives me that extra 90$?? the global community because I spend money to get the PCie card and I spend money to power this card??? in less than tree months I will have paid ALL the cost of the card I bought with real money (it costs 4k usd) and all the bills for those 3 months.. and I will just sit and watch my profits.. after those 3 months I have just PURE profit of about 50k$ for the year (by calculating 15 BC per block)


so how can that happen??? I think its a sort of piramid.. that didnt gone wild yet since there is a lot of income from people that invest in it for its rush (buying equipment for having more GH/s) but after this stops (because eventually we all will have our monster PCs) then no money will come in...


has anybody here even accumulated a serious amount of usd? like more than 500$ real 100% profit?? and exchanged it for real USD within a month or two ??


And also why are the block 21.000 and not 3 or 3.000.000.000 who decided that and on what creteria???


and when the blocks end how will you make money by the exchange fees?? which exchange fees? exchange feer for what exchange? and why should one pay a fee for this exchange?

Inflation and deflation are not entirely functions of the money supply; indeed, they are not even functions of that portion of the money supply that is in circulation.  Instead, inflation and deflation are terms which relate to the value of a set amount of units of the currency at a given time in terms of what goods/services it can purchase.

Simple explanation: If the rate of market growth is greater than that of currency growth, the value of each unit of currency will go up (deflation).  If the rate of market growth is less than that of currency growth, the value of each unit of currency will go down (inflation). 

Detailed explanation: The reason it is said that BTC is deflationary is not because the money supply is decreasing (indeed, as was pointed out above, it is steadily and predictably increasing) but because additional merchants are willing to offer their goods and services for the BTCs that exist at a rate faster than the money supply increases.

If there were 100 BTCs in the system, 100 merchants accepting BTCs, and each merchant had 1 item of nominally equivalent value to sell, in a moment of static time each item would cost 1 BTC.

If you had those same merchants with the same goods but 200 BTCs in the system, it would be more likely that each item would sell for 0.50 BTCs. 

Currently, the BTC supply increases by 40% annually.  If the nominal value of goods that are sold for BTCs in that time doubles, we will experience deflation.  If you do the math, you quickly realize that each BTC will purchase about 43% more than it did the previous year.  (100/100 = 100%, 200/140 = 143%)

Obviously this is a gross simplification that only works practically in an economy with only a single viable currency, but it serves well to illustrate the point.  Since the number of merchants accepting BTCs is growing rapidly as is the total number and value of goods offered for BTCs, it is extremely likely that market growth will vastly outpace currency growth.

For what it's worth.  You cannot mine on electricity alone.  You also have to have a motherboard, cpu, graphics card (or 2, 3, 4, 5, 6 of them), power supply, network AND the electricity to run it all.  Oh yea, and the time and knowledge to get it all running.

Saying mining's only cost is electricity is like saying you can dig for gold with only gasoline as a cost.

So again at the end you create blocks wich are added to the system.
For creating these you get a BTC bounty wich is much more worth in USD/EUR then you put in at the beginning in the form of electricity.
And this bounty is paid by a tiny x % of the total amount of BTC avaialable in the system?

So all people who own bitcoins and invested USD/EUR in them pay you indirectly for mining and basicly lose money?

Sorry for maybe asking the same question in a different way.
But my guts just never trusted systems that say you get free money (BTC -> EURO/USD) for doing almost nothing (mining).

At the end it comes around as the following:
2 euro - > Electricty -> Mining -> 1 BTC -> 15 euro
Profit = 13 euro for just running your mining rig all day.
But who pay for these 13 euros that just got created when mining?

Thanks for that answer! If I had any BTC I'd toss some at you.

/i.

I think strictly speaking that isn't so.  Dollars and Euros have value because you can buy things with them, rather than because the government says they do.

You can sell $10 of your time cleaning cars, say.  That $10 could buy you $10 worth of wheat.  The farmer can take your $10 and buy $10 worth of oil.  The $10 was entirely an intermediary, what has actually happened was oil was bought for time.  The numbers on your money simply serve as an exchange rate between those things.

No government is able to say "1 unit of currency equals 5 minutes of a master carpenters time" (although many have tried).  They can issue another unit of currency, but only the market can tell you what it's worth.

Nowhere. They Euro/Dollar has value because the government says it has value. Now stop questioning the logic of it before the IRL currency collapses!

where the rate to dollar/euro comes from then

Erm... no.

Decreasing inflation is not the same as deflation.

Bitcoin is inflationary, and will be until it stops being so.  It's not a problem though because it is predicted.

Excluding lost coins, Bitcoin will never be deflationary.

(I'm using the strict definitions of inflation and deflation: money supply).

The 50BTC comes from the miner being permitted by the network to add a transaction of 50BTC with an address of a public key that the miner controls to the newly generated block.  You are correct that this devalues btc a little tiny bit, but the system has inbuilt deflation by reducing the amount of BTC you get for solving a block (currently 50, will reduce to 25 next year) so, over time, the whole currency will deflate rather than inflate.

Will

Weird that no one has given the true answer:

Where does the 50 BTC come from when mining?

The answer is that it comes by devaluing all the previous Bitcoins by the tiniest amount.

It is exactly the same as the government printing money, it is inflation.  Being that it is predictable and controlled inflation to a set formula, we can assume that that inflation has already been priced in by the existing owners/purchasers of Bitcoins.

well, in the end, the people willing to buy bitcoings for EUROS/USD are indirectly paying your bounty, for the electricity/time you put in mining the bitcoins.  BTC are only worth what people are willing to accept for them, be it goods, or government backed currency.  But yes, at the time you solve the block, the BTC are coming from nowhere except the work you put in.  There is no real world analogy for this.

Will

So at the end your creating/finding EUROS/USD out of nothing wich pays the bounty?

The bounty is paid by the person finding the block being allowed to simply add a 50BTC transaction paying them to the block.  It's a reward for solving the block, and comes from nowhere except the work required to solve the block.  This is permitted by the network because every client is able to verify that, for the block which contains this transaction, 50BTC is the right amount to add... i.e. by consensus of the fact that everyone is using the same implementation.  When this drops to 25BTC next year, anyone putting a 50BTC free bounty transaction on any blocks they solve will simply get their block rejected.  These special 'generation' transactions, because they contain relatively large amounts of BTC, take 120 blocks to verify.  This is called 'maturing' your generation block.  At 6 blocks an hour, 120 blocks takes 20 hours - and this is why pools often have 'unverified' and 'verified' funds - 'unverified funds' are those funds related to a generation transaction that has not yet matured.

Blocks cannot be equated to gold or BTC.  If you need a real world analogy, blocks are like the ledgers that contain all the transactions of buying and selling gold and the amount that has been mined.  If all the gold that everyone owned was stolen and put in a huge vault, then it would be possible to go through all these ledgers and work out who owns what bit of gold.  This is what your bitcoin client does all the time - it starts with 0 BTC in your wallet, and then goes through every block and every transaction in that block to see if anyone has paid you BTC, and if so, adds it to your wallet (it determines this using public key cryptograpy), it also goes through and sees if you've paid anyone BTC and subtracts that.  Thus, a complete record of the ownership of every BTC in the network can be determined by simply parsing the block chain.

Will

I am getting close and closer to my answer.
Thanks for replying.
I still do not understand the bounty part. Who pays the 50BTC bounty as the transaction fee currently is very low?
Also, "Blocks contain transactions."
Gold doesn't contain transactions, how can gold (to compare) already be sold (made into a transaction) when you just found it?

Blocks contain transactions.  Blocks are distributed across the bitcoin network to every client in order to verify that a transaction hasn't happened twice (double spending).  This is the fundamental reason why bitcoin works.

When a block is successfully solved, the person who solved the block gets to add a magic generation transaction of 50BTC to their account, and also take all the transaction fees for any transactions included in their block.

The bounty for solving a block (currently 50BTC) will reduce every 4 years, as per design of the network, so some time next year it'll drop and people will only get 25BTC per block, and so on.  As this happens the profit from solving a block will move from the bounty to the transaction fees.  This is why miners will continue to mine in 2033 - when you are earning 0BTC from solving, but potentially a lot of BTC from including transactions that you have verified by solving the block.

Right now the bounty totally outweighs the transaction fees (50BTC vs approx 0.1BTC) but this will change as more transactions happen on the bitcoin network.

Will

How about asking another question: why is gold so valuable? What can you do with it? You can exchange it for money. But what can the person you exchanged it with do with his gold? Exchange it for some money too. That's it, that's all it's good for. Just like bitcoins.