What Is Bitcoin?

[brandelynmarie]

Could someone please explain this in layman's terms for me? When I think of bitcoin I think of Super Mario Bros. or maybe another video game where virtual coins are only used for virtual goods.

[Basilisa Marie]

It's complicated. Bitcoin is a virtual currency. It holds value simply because people give it value, and are willing to accept it. Because it's a new currency, it's subject to a LOT of fluctuation (which is why you hear of some people selling their bitcoins for millions of dollars, or losing all their bitcoins). It's supposed to be an extra secure currency because you generate a unique secret password for each new transaction based on lots of math. You could "mine" bitcoins by setting up your computer to use some of it's processing power to help generate these passwords and make the transactions happen.  Now there's some more sophisticated ways (read: fancier computer stuff) dedicated to mining. People like it because it might turn into a good way to make online buying and selling more secure. 

[arfink]

Could someone please explain this in layman's terms for me? When I think of bitcoin I think of Super Mario Bros. or maybe another video game where virtual coins are only used for virtual goods.

 

Bitcoin is what is called a crypto-currency. It is a digital currency which is backed not by a bank or government, but by very strong computer cryptography. Bitcoins are stored on your local computer in a file called a Bitcoin wallet, which is encrypted. The system is operated primarily by "miners" and also merchants, who operate special software that runs the currency network over the internet in a peer-to-peer fashion with no central server to regulate it. The currency is unregulated and decentralized.

 

Bitcoin has a fixed, known inflation rate. The system will issue new bitcoins (in tiny fractional amounts) at random to people who run bitcoin mining software. The mining software is what monitors all transactions on the network and provides the non-centralized encryption and counterfeit protection. If you provide more computing power to the bitcoin network, you are more likely to be awarded a free coin. This is to encourage the propagation of the network backbone, and is programmed to produce diminishing returns until eventually it plateaus and the randomly issued bitcoins become increasingly rare. Right now, bitcoins are not awarded very often because the value of the currency is quite high compared to USD, however when they are awarded, the monetary value of the reward is still quite substantial, and makes bitcoin mining continue to be proftable for people with good knowledge of computers.

 

To transfer money, you use a peer-to-peer based system over the internet which publicly shows what time the transaction took place, how much money it was, and the ID number of the wallet your are sending money from and to. By doing this, you cannot forge the currency, because every person on the bitcoin network can see the transaction taking place, and since the number of bitcoins is fixed and known at all times, you cannot fake it. (OK, to be fair, it is mathematically possible to fake a bitcoin handoff and thus forge bitcoins, but doing so would require you to control over half of the online mining nodes in the world at any one time, and given the incentives individuals have to mine bitcoins, this is highly unlikely to ever happen.) To convert from regular dollars to Bitcoin, you would go to a vendor who will offer you a particular trade, much like how a bank would do.

 

The value of the bitcoin is thus inherently flexible, and based upon trust in a cryptography standard rather than a government, but also upon supply and demand. Given that the transactions are inherently secure and the currency is uncontrollable by governments or banks, many people who have reason to fear such entities will use it as a more modern replacement for cash.

[Nihil Obstat]

(Mining bitcoins is not a viable way to make money without a lot of computing power at your disposal. Far more than the average person has available to them. It makes me sad too. :sad2: )

[arfink]

(Mining bitcoins is not a viable way to make money without a lot of computing power at your disposal. Far more than the average person has available to them. It makes me sad too. :sad2: )

 

Read, a lot of efficient computing power. It's about how many floating point operations you can do per watt-hour. If you can design a good ASIC for it, you're in business. Also, living in, say, Idaho, where electricity is less than a penny per kWh, helps a lot.

Edited November 19, 2013 by arfink

[Nihil Obstat]

Read, a lot of efficient computing power. It's about how many floating point operations you can do per watt-hour. If you can design a good ASIC for it, you're in business. Also, living in, say, Idaho, where electricity is less than a penny per kWh, helps a lot.

I have one Macbook Pro that can be wiped and made available for mining. Make me money and you get a 25% cut of any profits above $10 000 per year based on the exchange rate of Bitcoin at the end of the relevant fiscal year. :| Any necessary cash transfers will be done only via Hawala networks. You know the codeword. Your instructions for taking delivery of the equipment will be delivered by my associate according to the usual protocols.

[arfink]

I have one Macbook Pro that can be wiped and made available for mining. Make me money and you get a 25% cut of any profits above $10 000 per year based on the exchange rate of Bitcoin at the end of the relevant fiscal year. :| Any necessary cash transfers will be done only via Hawala networks. You know the codeword. Your instructions for taking delivery of the equipment will be delivered by my associate according to the usual protocols.

 

Sorry, X86 has a horrible FLOPS/Wh rating, unless you'd like to pay for the electricity too. :hehe:

[brandelynmarie]

This all sounds really complicated...so one may use cash & convert to Bitcoins...but may Bitcoins be converted to cash?


It all seems so strange to me...like I could arbitrarily create a "money" system among a certain group of people... & give it value just because I say so. Phatcash anyone? :p

[brandelynmarie]

Read, a lot of efficient computing power. It's about how many floating point operations you can do per watt-hour. If you can design a good ASIC for it, you're in business. Also, living in, say, Idaho, where electricity is less than a penny per kWh, helps a lot.

Hmmmm....maybe I should move to Idaho.

[arfink]

This all sounds really complicated...so one may use cash & convert to Bitcoins...but may Bitcoins be converted to cash?


It all seems so strange to me...like I could arbitrarily create a "money" system among a certain group of people... & give it value just because I say so. Phatcash anyone? :P

 

Yes, bitcoins are interchangeable with other currencies, just as USD is interchangeable with Euro. You just have to go to someone who will change it for you.

 

And really, money is arbitrary. It's just that "normal" arbitrary money is fixed at a certain value by governments and banks. Bitcoin is fixed at a certain value by what goods and services people are willing to exchange for it. And given the fact that bitcoin is essentially anonymous and impossible to track to any one person while still being incredibly secure means that many people are quite happy to exchange goods and services using it.

[brandelynmarie]

Incredible...I wonder if any world gov'ts are mining it?

[Nihil Obstat]

Sorry, X86 has a horrible FLOPS/Wh rating, unless you'd like to pay for the electricity too. :hehe:

Swap it out with whatever you want and bill it against future cashflow. Also pretend that instruction makes sense.

[arfink]

Incredible...I wonder if any world gov'ts are mining it?

 

I don't imagine they are. Most governments have better ways of making (and spending) money. The only way a government might use btcmining would be if they wanted to forge bitcoins, but the amount of processing power needed for that task at this point is so obscene, I don't think even the NSA's massive new datacenter could do it. And where tracking criminals is concerned, it's easier for them to target the TOR network than Bitcoin.

[Nihil Obstat]

Governments have no need for mining bitcoins. They simply print their own money. After all, it is free! :shock:

[CatholicsAreKewl]

Unless you're a hit man, an dealer, or a prostitute, i don't get the point of using bitcoins right meow.

Edited November 19, 2013 by CatholicsAreKewl