Mike Murphy wrote:The process of mining has two functions in the protocol of Maxcoin: coin generation and signing transactions.
The miners of Maxcoin are creating Maxcoin blocks. These make up the blockchain. Each block contains a list of all the transactions that have occurred after the previous block. Mining a block is akin to a bank signing it's ledger / transaction list at regular intervals to ensure a definitive transaction order is maintained. The more people mine, the more hashpower. Miners are rewarded by the network for securing the blockchain and confirming transactions. The market determines what the value of that reward is worth.
The block reward is halved at 12 monthly intervals. It is likely that the transaction count will increase over time. The coin generation curve is a decreasing exponential function, just like mining for gold or silver, which is what ensures the value will increase over time as supply reduces. The initial coins are cheap and easy to find, the last ones to be mined will be expensive and difficult to find.
Once all the coins have been issued, miners will be paid from the fees generated by transactions. By that point (long into the future) there will be many transactions occurring.
The more hashpower, the greater the security of the blockchain, whether it is processing transactions for 100 people or 1,000,000 people. If the entire network was only 1gh/s transactions would still work and blocks would still be created. It's just that the security of the network would be very poor and an individual with substantial hash power could gain 51% of the network and double spend the currency.
The difficulty is an arbitrary quantity. It is increased by the network if the length of time between blocks is too short and reduced if the length of time is too long to ensure that new blocks are created at regular intervals and to ensure that the coin generation curve is smooth.
The blockchain does not discriminate. A transaction is a transaction, and the network does not define the economic motivations behind the transactions it facilitates.
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