The creation of cryptocurrency

Learn all about how bitcoin is made and how you can get yours!

In the first entry to our “Bitcoin for Beginners” series, we covered the ins and outs of blocks, blockchains, and miners. Now, we’d like to take a look at how bitcoin is made. The two subjects overlap quite a bit, and while the following might seem like a rehash, it will also serve to build upon our initial piece.

In the beginning…

Bitcoin was created and released as open-source software in 2009 by an unknown programming group or individual known as Satoshi Nakamoto. At the time of its creation, bitcoin was the first-ever cryptocurrency — a type of digital currency that uses encryption to make transactions, as well as new bitcoin.

This means that while all bitcoin is cryptocurrency, not all cryptocurrency is bitcoin. We will return to this thought in a later post, when we will detail the differing types of cryptocurrency.

On the record

Bitcoin transactions are recorded in a digital ledger known as the blockchain, which is made up of individual blocks. To be added to the blockchain, these blocks must contain the answer to a complex mathematical equation.

Machines known as bitcoin miners solve these equations, in exchange for a bitcoin reward, effectively birthing new bitcoin. The reward currently sits at 12.5 BTC per mined block, and decreases by half after a certain number of blocks are mined (this occurs approximately every four years), until 21 million bitcoin have been issued. At that point, bitcoin will stop being created. (No need to worry, however—the last bitcoin is not estimated to be mined until 2140!)

Bitcoin website The Halvening offers an interactive, real-time countdown chart to when the reward will halve. It shows how many blocks remain to be mined, and an ETA as to when that will occur. Check it out via the link below.

This is why bitcoin makes such a good currency — it is difficult to reproduce, and has a limited supply, thus creating demand.

The more miners are mining — working together in what is known as a mining pool — the more difficult the math equation used to solve a block becomes. As miners continue to be put into action, then, the longer it will take to create bitcoin.

Be a proud owner (or seller)

Bitcoin is a decentralized currency (meaning it is not controlled by central authority), and is generated on a peer-to-peer network. The “bitcoin mining algorithm” determines how much and when new bitcoin is introduced. This is why bitcoin is known as a “controlled supply.”

Purchasing bitcoin is quite the easy task. There are a number of exchanges that allow you to use a credit card or bank transfers to convert your paper currency into bitcoin. In certain locations, there are even bitcoin ATMs, at which you can buy and sell bitcoin for cash.

Note: If you are in the United States, you can even buy directly from your wallet, thanks to our partnership with global digital asset exchange Kraken.

Once bitcoin has been purchased, it can be sold, traded, or sent to other wallets. Bitcoin can be as simple or complex as you want it to be. As your knowledge and experience grows, so do the possibilities. That’s why it pays (sometimes literally) to learn as much as you can!