And
Bitcoin Mining, which apparently explains from where Bitcoins come is about as clear as mud: if I'm understanding it, no entity owns the unissued Bitcoins, rather they're "prizes" in some sort of contest.
Can anybody clarify or expand?
I can try. Each bitcoin is a unique "very special number". Numbers that are very large and meet
very specific criteria. Figuring out if a number meets these criteria is somewhat time-consuming, but not something a computer can't do
fairly fast, as long as there aren't too many to check. But that's the problem, the criteria are tricky and only a very very small percentage of numbers meet the criteria. And there's no way to predict which ones will without actually having to test it. So if you want to find one, you have to test A LOT of them before you find one. And this turns out to be very computer-intensive.
This creates "scarcity", and it's not an "artificial scarcity". Once you find a new number that no one has found before, it's VERY easy for others to check to verify that it's a "special number". (since they only have to test ONE number, not millions or billions) It's a bit like checking to see if a number is prime. You simply have to have a list of all the primes that are lower than it, and check to see if it divides evenly by any of them. (and as a shortcut, only needing to test those that are half the size or less) So verifying a number is prime is monumentally easier than finding a new undiscovered prime.
As time goes on, the numbers get larger, the time to check a new number goes up. Also, since the criteria scale linearly but the processor power of computers does not, the rules also state that the value of each new coin goes down periodically. So a new coin found today may be worth only 50% of what a coin mined last year was worth. (making that up as an example, I don't have hard numbers offhand) But this means that coins continue to be scarce and thus hold their value, even as computers get more powerful.
Users with bit mining hardware try to coordinate their search a little bit, because it's a waste of your time and resources to search a range of numbers that someone has already searched. (whether or not they have found anything) It wouldn't be smart for them to fail to register a new find, because anyone else could later on and then you'd have lost all your time invested in when you were looking for it. (also older coins are easier to find due to the advance in computer hardware) So everyone is "staking a claim" in regions of numbers and searching them, hoping to find a special number in their block. After they've searched it, they simply request a new claim area to search and continue. You're certainly free to search any block you want to, but if others have already claimed to have searched and not found anything, you're probably just wasting your time. Several companies now sell dedicated hardware that is designed to very efficiently and very quickly search for new coins, at a low cost per CPU. ("ant miner" is a name that comes immediately to mind) Part of what makes the coins valuable is the investment required to find them. Hardware can get expensive, it can require a good deal of electricity to really jack up your utility bill, and there's your time invested in the work of managing it too. So you can't just mine for free, it's not "free money". Even if it's "busywork" or "an endeavor with no physical reward", it still is consuming resources and has a tangible benefit, so it has value.
So you "register" this new coin that you have "mined" (discovered) and it is now owned by you. Your ownership of the new coin is rapidly distributed to lots of people so no one can claim ownership of it later. Now the entire economy is tracking who owns this coin, (anonymously) and you can sell it (or part of it) using some cryptographic signing magic. The initial registration of the coin creates a signature that only you have the key to, so only you can sell it, even though others can easily verify if you are the owner when you try to spend it or split it up for smaller transactions. (read up on "asymmetric keys / public-vs-private-keys)
On an interesting side-note, if you lose your private key to the coin, (lose your bitcoin 'wallet') then the coin is lost forever, no one can use it ever again. It's like tossing a benjamin into a fire. And conversely, if someone "steals your wallet" (where the private keys to all your coins and parts of coins are), then they can spend them just as easily as you can (assuming you still have your wallet) If someone spends your coin before you do, you can't spend it again. Its like someone stealing your check book, they can write checks and spend down your bank account just like you can, until you have no money in the account anymore anyway
And that's caused an interesting turn in malware... malware is almost exclusively driven today by their ability to monetarist it. (make money via theft, fraud, deception, etc) So there's a number of malware out there that is written to (in part or exclusively) try to hack computers and copy their bitcoin wallets. Several bitcoin exchanges have claimed to have been hacked and had their wallet stolen, thus causing everyone with bitcoins on deposit at the exchange to lose them as they are quickly all transferred to some other owners and used to purchase easily fenced goods. But it's difficult to say for certain if the exchange owner was the thief or not, due to the ability to spend bitcoins anonymously. But this would certainly make a bitcoin exchange a very attractive target for spearphishing and hacking, so it's very plausible.
