Can someone explain to me Bitcoins? [2013]

Discussion in 'General Discussion' started by fehu, Jun 30, 2013.

  1. fehu

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    I've read something, but still can't understand the whole.

    If I do mining, the computer elaborates bitcoins or random calcs for some client, similar to a paid version of seti@home?

    If there's no connection with money, why someone accept them as payment?
    Is this the next big financial bubble?
     
  2. Bludd

    Bludd Experiencing A Significant Gravitas Shortfall
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    Funny, It Worked Last Time...
    A currency is usually backed by a nation state and guaranteed to be accepted as legal tender in that nation. Bitcoin is backed by ???.

    Money is an invention and without trust is basically worthless. Bitcoin is virtually worthless.
     
  3. pcchen

    pcchen Moderator
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    Basically, if you "mine" Bitcoin, you are doing a service for other Bitcoin users by "timestamping" their transactions (e.g. sending some Bitcoins to other users). It's very important to timestamp all transactions so that a Bitcoin can't be spent twice, so the protocol requires a "proof-of-work" using a very difficult computation to "timestamp" transactions. In order to encourage people to do this "proof-of-work," the first one to complete it receives 25 (this number will change with time) Bitcoins as rewards, and that's how "mining" earns you Bitcoins.

    As long as some people are willing to accept them as payment, you can use it as payment. In ancient times, people use a lot of different things, such as shells, various kinds of metal, very large stones, etc. as money. The most important property for money is "limited amount." Bitcoin is designed with a hard limit for the total number of Bitcoins, so if the protocol is secure, it can be used as money as long as people are willing to accept it.

    A side note: I disagree with the idea of a hard limit. I think for Bitcoin to be a useful cash for every day transaction, it needs to expand with the economy (and that's basically why we need a central bank). A hard limit of total amount of Bitcoin creates an artificial deflation and encourages hoarding (but maybe that's exactly what its designers wanted).
     
  4. Babel-17

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    No, I can't explain them but I'm willing to speculate. :)

    They supposedly can't be counterfeited and the amount in circulation is tightly regulated. So, they can be made scarce,

    Though scarcity is dependent on people desiring them. Initially, I'm guessing, a lot of that was based on novelty and geeks liking the whole idea of being in on something new and stealth like.

    And, of course, it's ideal for an underground economy.

    So, in a way, bitcoins can be seen as the coinage of a new underground government, the government of a nation that isn't based on geography but rather on a loose alliance of people engaged in dubious transactions.

    Currently they are getting away with minting money like this but they have already had to tighten things up, it's harder to make a coin now, And afaik most efforts are now group based. The odds of successfully creating a new coin are a lot lower for individuals. Though the payoff is higher, of course.

    So, maybe the bitcoiners can be seen as functionaries of this new government. This government gets its cut in that bitcoiners get to take their work home with them. People are ascribing them value because they can be used in the stealth/dark economy.

    Which sort of gives one pause if you consider who is willing to give such a cut in order to be stealthy. Though I suppose if you take into account income taxes and transaction fees like sales tax/VAT then there is room for subsidizing bit coining.

    Still, I think it has a lot to do with people wanting to be able to transfer wealth without having government monitoring that.

    Naturally, really competent law/code enforcement just laughs at the idea and encourages it so as to burrow inside.

    My take is that there's an opportunity here but I can't begin to fathom the risks. I see nothing illegal (but I am not a lawyer) by just bit coining but in today's world there is guilt by electronic association.

    P.S. In the old days we used gold and society paid for that privilege. We mined far more than we needed for industry and dentistry. We mined more than we needed for jewelry though who can say how much of it people would wear if it were cheaper.

    The point being is that there was overhead. But we needed gold in circulation/backing the printing of money in order to stimulate the economy.

    Bit coining could work because the underground economy needs a safe currency and bit coining has no competition and the guys behind it seem trustworthy.

    Still, I see it all coming apart if they arrest some guy with bombs and they find he was involved.

    Edit: I posted before seeing pcchen's explanation. I would have agreed with his explanation of things though I didn't know about the time stamps and other details.
     
  5. Babel-17

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    Thanks for that explanation as it alters my perception of things. So, it seems bitcoins have an actual intrinsic value. They can be seen as virtual couriers of real money?

    That would change my opinion. There is real commerce going on and bitcoins just enable the transfer of funds. They are like Western Union. You pay a fee to wire money. The coins are mined so as to provide encrypted security for a unique transfer. But now, like you, I am wondering about the scarcity.
     
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  6. MfA

    MfA
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    If someone accepts them for payment they are money ...
    It's too small.

    The gold collapse over the last couple of months, now that has hurt some people.
     
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  7. pcchen

    pcchen Moderator
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    Yeah. Except that Bitcoin is probably the first way to electronically transfer "valuables" without a government controlled central authority. Of course, to convert Bitcoins into real money, you still need an exchange and governments can control that. But basically Bitcoin provides a very cost efficient way for money laundry.

    Further, it's very difficult for governments to control Bitcoin now. You can't just declare Bitcoin software illegal. That didn't work for DeCSS, and won't work for Bitcoin. Trying to block Bitcoin related traffic is also very difficult. Making Bitcoin exchanges illegal is also a possible way, but that's only going to drive these exchanges to some offshore financial centers.

    There are also some more basic ways to disrupt Bitcoin. One possibility is to defeat its protocol. The protocol is probably not as heavily reviewed as other security protocols, but I guess it's going to be reviewed more thoroughly now. Another possibility is a government invests heavily into the P2P network in order to disrupt its operations. It's estimated that currently the P2P network is several times more powerful than all computers in the Top500 list combined, but it's not impossible for a government of a rich country to design and manufacture large quantities of dedicated ASIC miners if it allows them to destroy Bitcoin.
     
  8. fehu

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    But what if I timestamp a transaction that has connection with something illegal?

    And if I have a gigawatt fluxcomputer, it make sense to use it for mining? The value of 25 bitcoins surpass that of the power bill?

    And if I understand it well, if in ten years bitcoins will still be with us, their value will be increased?
     
  9. BRiT

    BRiT (>• •)>⌐■-■ (⌐■-■)
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  10. pcchen

    pcchen Moderator
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    The transaction is only about someone sends some Bitcoins to another one. It does not contain any information about what's exchanged for the Bitcoins, so it's impossible to know some transaction have connection with something illegal.

    This is actually the tricky part: no matter how powerful your computer is, it needs to be power efficient enough to mine Bitcoins to be profitable (unless you have access to extremely cheap electricity). That's also why the future of Bitcoin mining is all ASIC.

    In theory, yes, as the total amount of Bitcoins is going to be limited to 21 million. If the economy of Bitcoin grows at similar rates to real economy rates, Bitcoins should be even more valuable than now.
     
  11. BRiT

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    Yes, each full bitcoin will be more valuable then. However, Bitcoins can be split into fractional components and traded that way.
     
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  12. TheAlSpark

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    Bison dollars > *.* :yep2:
     
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  13. zed

    zed
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    One of the things I just don't understand.
    Sure I understand its just a 100% speculation scam, just ppl trying to get rich off other ppl. i.e. it doesnt serve any real purpose like actually paying for things in reallife situations as its mathematically impossible to do this, but heres me thinking it would crash at $20,000 when everyone cashes out but no it keeps on going :lol:
    consuming more power than Pakistan and will be consuming more power than the Netherlands soon at the current rate. you would think someone would of thought of a way of using all this computing power to actually solve something useful, eg cancer research, instead of computing long equations and then discarding the answer
    Even the kadashians or trump being president makes more sense :shock:
     
  14. Davros

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    If your never 1st does that mean you never make any money ?
     
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  15. eloyc

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    Why bumping up this thread? Why "omeone"?
     
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  16. dskneo

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    Because bitcoin - although now rudimentary technology wise - was the birth of a concept.

    Its the discovery of electricity or the invention of the Internet itself. The concept is capable of changing society. The monetary value that it has is a part of the equation that makes it secure. The more expensive, the harder it is to hack. The harder it is to hack, the more trust it gets, and more people buy it and more people try to mine it. This circle of life is fundamental to its purpose.


    But the concept doesn't stop with bitcoin, which now can only serve as some sort of digital gold. Much like the combustion engine paved the way for the electric car, bitcoin paved the way for Ethereum. It requires the same circle of life as bitcoin, but its a programming language that runs on a world computer. Unhackable code, where code is law.


    Its only a funny detail that if you bought 50$ of BTC when this topic was created, you would be a millionaire today. But like I said, the monetary value is only part of the equation it requires to survive.
     
  17. orangpelupa

    orangpelupa Elite Bug Hunter
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    bitcoin risen from the grave, peaked
     
  18. zed

    zed
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    30 June 2013 bit coin was $96.61 thus you would hardly be a millionaire, you would have ~$12,000

    But the problem is basically bitcoin has become the sole defacto cryptocurrency, all the copycats havent really taken off. I know! lets invent another cryptocurrency, to fix it all the problems of bitcoin == result theres now 2677+1 cyptocurrencies.
    No offence mate but the rest of your crypto babble sounds very much like stuff from the church of Scientology, or reiki energy, homeopathy etc Yes sure blockchain is cool and should be used more. but
    My chief problem is bitcoins implementation is super terrible, how terrible? Like I said it uses more energy than pakistan and doesnt have any where the capabilities of acting as a currency by orders of magnitude due to its design.
    hmmmm something this incompetent .... wait a minute I think I have figured out who nakamoto is!


    Its gotta be rudolph guilaini
    made Him a lot of cash though :lol:
     
  19. dskneo

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    To start (and end this discussion really quick), you have a lot of misconceptions on your post, which leads me to believe you know little about anything. But more importantly is how out of date your bullet points are.

    So, lets say that if you had began this transaction with respect and curiosity instead of the way you did, something could be learned today. But by all means, I will let you playout your stereotypes gathered from facebook or general news on the subject without me actually giving a damn! Cheers.
     
  20. milk

    milk Like Verified
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    You seem still under the common misconseption dispelled in this very thread that the computations done during mining serve no purpose whatsoever. Mining is essentially lending conpute time to serve in the transaction infrastructure of the whole system. When you transfer traditional money, that also uses compute power, only there its centralized in few large entities such as banks and regulatory bodies. Bitcoin decentralized that, essentially crowd-sourcing banking book-keeping. Of course making that spread-out system safe entails signifficantly less efficiency. I do think every decentralization of large international power structures is always welcome. Less efficiency is a small price to pay.
     
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