Tuesday, May 27, 2014

Bitcoin Specifications

I'm going to start going through all of the major cryptocurrencies and creating a list of their specifications, as it's something I frequently want to look up -- and it will also be interesting to see if (and how much) some of these items change over time. When there's a hard fork in any of the currencies that I encounter, I'll also update the appropriate page with the new information, but I'll keep the earlier specifications visible as a historical record. This is something many of the coin creators fail to do -- often in order to hide potentially questionable behavior. I'll start right at the top with Bitcoin, not because it's hard to find the specs but simply because it's the king of cryptocurrencies and I don't see that changing any time soon. For better or worse, it is simply "too big to fail".

Bitcoin Specifications (5/26/2014)
SymbolBTC
Launch Date2009-01-03
Proof of WorkSHA256
Starting Difficulty1.00
Block Time10 minutes
Block Reward50
Difficulty Adjustment2016 blocks
Reward AdjustmentHalving every 210,000 blocks (~4 years)
Max Coins21 million
Block ExplorerMany options

General Points of Interest:

The Bitcoin genesis block was mined on Jan 3, but it was almost a week before block 1 showed up; perhaps with a starting difficulty of 1.0 and CPU mining  it took a while to get going. The difficulty did not increase above the minimum value of 1.00 until block 32256, where it became 1.18 -- nearly a year after the launch! (Oh, for a time machine....) Relatively few people were involved with Bitcoin until 2011, where it experienced its first bubble; that's when I got involved.

The first bubble took the price from pennies to a high of over $30 in June 2011 in just a few short months, before crashing back down to under $2 by the end of 2011. The second bubble occurred a bit under two years later, peaking at over $250 in April 2013, while the third bubble topped over $1200 in December 2013. 2014 started with a downtrend, but as of late May we may be looking at the fourth Bitcoin bubble; we'll have to see what happens.

While Bitcoin originally started as a distributed CPU computational currency, the first GPU miners were created in July 2010. Once GPU mining came online, CPU mining became generally unprofitable within a few months. The first ASICs wouldn't begin hashing until late 2012, and wider availability of ASICs didn't occur until early 2013. It was still profitable to mine BTC with GPUs until around April 2013, at which point the difficulty/price ratio finally made ASICs the only profitable source of mining income.

While the block reward for Bitcoin halves every 210,000 blocks, technically we will never actually reach the point where there are 21 million BTC -- we'll get very close, but the block rewards will drop so that every four years, we will only mine half of the remaining BTC before we reach 21 million BTC. The network will be supported by transaction fees, which should overtake the block reward some time in the next 20 years. Of course, the size of the blockchain may become too unwieldy before that point, and blocks with tens (or even hundreds) of thousands of transactions could pose serious problems down the road; there are other potential problems as well, which I won't get into right now.

The general attitude in regards to technical problems is that "we'll cross that bridge when we come to it." This attitude is common among nearly all cryptocurrencies, which is why it can be a big gamble and a potentially huge payoff for mining new coins early. Some coins start with larger block rewards that quickly drop off, so those that get in early can benefit. Premines and IPOs (Initial Public Offerings) have also become commonplace, though as the first cryptocurrency Bitcoin had neither of those. All of this has resulted in many scam coins, but even the worst new coin seems to get a fair amount of publicity these days.

My personal outlook for Bitcoin in mid-2014: Excellent. China may be out for now, but it's hard to imagine BTC completely failing at this point, which certainly wasn't the case in late 2011. Millions and even billions of dollars has been invested into the Bitcoin economy, and as the first and biggest cryptocurrency nothing else is really anywhere close to competing. The biggest concern Bitcoin faces is that of centralization; as computational power has become more expensive, much of the network backbone has gone from individuals to large pools, companies, hashing farms, etc. None of these have any desire to see Bitcoin fail, but should a government want to shut down Bitcoin it becomes easier if 90% of all hardware is in the hands of a few dozen companies.


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