How Are Bitcoins Created?
To determine fair allocation of new coins, bitcoins are distributed as payment to transaction processors known as miners (see What is Bitcoin Mining? for more information on how mining is performed).
Imagine a room full of accountants sitting at desks, balancing books for all the trades happening across the globe. At the front of the room is the boss that pays exactly 25 coins every 10 minutes. Whichever accountant does the most work gets to run up to the front of the room and receive the 25 coin payment. There’s a massive amount of transactions that need to be processed, and the newly issued coins are a reward for those doing the most work to support the system.
Transactions are recorded in a “block” – which is a ledger of all transactions that occurred over the last 10 minutes, as well as a small payment to the person that created it. Instead of accountants, bitcoin uses the world’s largest network of computers to to verify the transactions. The block payment system provides incentive for people to dedicate computing power to the bitcoin network, and significantly reduces the ability of malicious attacks to be successful. The difficulty in finding a block is continuously adjusted based on the speed of the network to ensure that blocks are only creation only occurs every 10 minutes.
A Limited Supply – 21,000,000
Bitcoins are designed to be a deflationary currency, meaning that each coin will get more valuable over time relative to the products and services that it can purchase. The rate of creation is set to a publicly available and pre-determined schedule. When bitcoin was first created in January 2009, each 10 minute block paid 50 bitcoins, and this number will halve every 4 years until the last coin is created in 2140. The first halving occurred in 2013 and then in 2016 – so the current creation rate is 12.5 bitcoins per block.
The total number of bitcoins ever created will be 21,000,000, and the current money supply of bitcoins recently passed 14,000,000. This means that more than half the bitcoins that will ever exist have already been created.