HOW BITCOIN CLIMBED TO VALUE OF THOUSANDS OF DOLLARS
New Bitcoins are created by users running the Bitcoin client on their computers. The client “mines” Bitcoins by running a program that solves a difficult mathematical problem in a file called a “block” received by all users on the Bitcoin network. The difficulty of the problem is adjusted so that, no matter how many people are mining Bitcoins, the problem is solved, on average, six times an hour. When a user solves the problem in a block, that user receives a certain number of Bitcoins.
The elaborate procedure for mining Bitcoin ensures that their supply is restricted and grows at a steadily decreasing rate. About every four years, the number of Bitcoins in a block, which began at 50, is halved, and the number of maximum allowable Bitcoins is slightly less than 21 millions. As of 2021 there were more than 18.6 million Bitcoins, and it is estimated that the maximum number will be reached around 2140.
Because the algorithm that produces Bitcoins makes them at a near constant rate, early miners of Bitcoins obtained them more often than later miners because the network was small. The premium that early users received and Nakamoto’s silence after 2011 led to criticism of Bitcoin as a Ponzi scheme, with Nakamoto benefiting as one of the first users. (An analysis of the first 36,289 mined blocks showed that one miner, believed to be Nakamoto, had accumulated over 1 million Bitcoins. However, as of 2021, those Bitcoins, then valued at $50 billion, remained unspent.) Defenders of Bitcoin claim that early users should receive some return for investing in an unproven technology.
The value of Bitcoins relative to physical currencies fluctuated wildly in the years following its introduction. In August 2010 one Bitcoin was worth $0.05 (U.S). Beginning in May 2011, the Bitcoin increased sharply in value, reaching a peak of about $30 that June, but by the end of the year the value of a Bitcoin had collapsed less than $3. However, Bitcoin began to attract the attention of mainstream investors, and its value climbed to a high of over $1,100 in December 2013. Some companies even began building computers optimized for Bitcoin mining. With the marked increase in value, Bitcoin became a target for hackers, who could steal Bitcoins through such means as obtaining a user’s private key or stealing the digital “wallet”.
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