Bitcoins for Dummies -> Me

Can someone help out this brah? WTF is this bitcoin mania?

#SemperAugustus

buy high, sell higher

It’s like gold, I guess, except that there is absolutely zero usefulness aside from a medium of exchange (gold is useful in electronics because it does not oxidize (except under very specific conditions), and there is jewelry use too).

Eventually, the supply is likely to be vulnerable to hacking and then manipulation (probably by Russians or Chinese, though my bet is that the Russians will get there first).

People like bitcoins because they are afraid that fiat money will lose value, so they like it for the same reason people like gold. However, the fact that it exists in a virtual space makes it extra attractive to some people, particularly criminals and tax evaders - those who like the privacy aspect - as well as those who don’t want to be bothered with trying to store a precious metal like gold.

It is a form of virtual currency that needs to be “mined” by computers. Lets say for example you have a pretty good computer, with a computer you can use your computer’s power to mine a bitcoin and with the coin mined you can transfer it to anybody anonymously. The way that the coins get their value is because it is in high demand and there is only a certain amount that can be mined. It is in high demand because the pendulum has swung to greed people are just seeing dollar signs.

So, basically it is very convenient for illicit transactions because it is theoretically anonymous and easy to transfer between parties. From what I hear though, converting it into actual currency can take some time.

The reason I think this will implode is because of:

  1. The criminal element will lead to a crackdown on exchanges by law enforcement. You can say the currency itself is legal but still crackdown on exchanges.

  2. The exchanges, from what I understand, suck. If large liquidation orders come in it is possible they will go bankrupt. See 3.

  3. The people who are promoting bitcoin are also those who own a lot of bitcoin. A whole lot. Like, imagine if somebody owned 5% of the gold in the world. Sounds a lot like a pump and dump opportunity to me.

I saw Silk Road was a huge marketplace that sold services and items of questionable legality for bitcoins. I believe BustedMugshots, whom posted my mug when I was arrested, also accepted bitcoins as currency to take your info down.

How do you ‘mine’ a bitcoin? How are bitcoins valued and traded via the exchange?

How is the mining regulated? Is there an int’l bitcoin monitoring group or something?

At least when you mine gold you can do a bunch of chemical testing to determine its purity. How the heck do you know you found a bitcoin?

The mining was set by rules at the very begining. Now it’s virtually pointless to mine, as it takes a long time for very little.

CvM, listen to this. It should help: http://www.npr.org/blogs/money/2011/07/13/137795648/the-tuesday-podcast-bitcoin

That is the beauty of bitcoin, it is not based on some subjective purity bs, it is based, on the fact that it takes certain amount of time to find a unique 2^128 (i think) unique number. Difficulty level is adjusted, so that next number is found every 10 minutes or so. Note, difficulty level is adjusted by distributed network so there is 0 change of fraud unless some one actually has 51% of mining capacity.

It is regulated as a part of what bitcoin itself is. It is all built around cryptographic security. Bitcoin mining is based on the SHA-256 bit hash funciton. From Wikipedia:

" SHA-2 is a set of cryptographic hash functions ( SHA-224, SHA-256, SHA-384, SHA-512 ) designed by the U.S. National Security Agency (NSA) and published in 2001 by the NIST as a U.S. Federal Information Processing Standard (FIPS). A hash function is analgorithm that transforms (hashes) an arbitrary set of data elements, such as a text file, into a single fixed length value (the hash). The computed hash value may then be used to verify the integrity of copies of the original data without providing any means to derive said original data. This irreversibility means that a hash value may be freely distributed or stored, as it is used for comparative purposes only. SHA stands for Secure Hash Algorithm."

Bitcoin mining involves finding inputs to the hash function that lead to outputs with a continually more consecutive zeros at the begining. Thus, the problem becomes more difficult as more functions are solved.

As I understand it, please somebody correct me if I’m mistaken, it works like this: whereas real-world banks have physical resources at their disposal (buildings, offices, personnel, etc) to carry out their activities, Bitcoin has none, as it is an open, distributed system. And as its nature is to be purely digital, it must feature a strong cryptographic algorithm for its transactions, otherwise it would be vulnerable to hacking. Lending a computer for ‘mining’ makes it an active part of the Bitcoin infrastructure; it is now processing chunks of the very complex cryptographic functions at the core of the paradigm. The lending of the resources is then rewarded by the network with Bitcoin credit.

^ I now feel fckin’ stupid after reading that and not understanding a fckin’ word.

Meh, I’ll stick to guns and butter.

Good summary:

http://www.washingtonpost.com/blogs/the-switch/wp/2013/11/19/12-questions-you-were-too-embarrassed-to-ask-about-bitcoin/

This has been a big week for Bitcoin. On Monday, the Senate Committee on Homeland Security and Governmental Affairs held the first-ever Congressional hearing on Bitcoin. Later in the day, the currency’s value reached an all-time high of more than $800.

That has left a lot of people scratching their heads. What’s Bitcoin? How do you use it? And why would anyone want to? Read on for answers. (Inspired by Max Fisher’s classic explainer on Syria)

1. What’s Bitcoin?

Bitcoin is an online financial network that people use to send payments from one person to another. In many ways, Bitcoin is similar to conventional payment networks like Visa credit cards or Paypal. But Bitcoin is different from those and other payment networks in two important ways.

Mining bitcoins is done by dedicating computing power to maintaining logs of bitcoin transactions (very simply put). Every transaction using bitcoins can be publically viewed, but the buyer and seller and anonymous. If you dedicate resources (computing power) to help maintain the system, you’ll be rewarded with bitcoins. Though nowadays it takes a huge amount of power to mine a single bitcoin.

Look at our other thread on bitcoins. I discussed much of this already.

Edit: Here’s the link to the transaction data (called a blockchain.)

http://blockchain.info/

Respect.

They only release so many bitcoins per month, so the more people the mining, the less bitcoins per miner. So minning has a point of equilibrium.

They are releasing this monthly installment of bitcoins until the reach (i think) 24 million.

Until you can use bitcoins to buy stuff, maybe by a debit card of sorts, then they really arent worth sh*t

I dont get the whole gold and bitcoins thing because if fiat currency crumbles were going into a state of anarchy, marshall law (if we’re lucky), or striaght up episode of the walking dead but with very hungry living people instead of zombies… So not sure how useful bitcoins will be when nobody has power or internet.

There is a zone between “Currency is out of control” and “Walking dead” where Bitcoins could be valuable. Brazilians and Argentines know what that is like from the 1980s and 1990s. Those scenarios are a lot more likely than the Walking Dead kinds of scenarios, though by no means guaranteed.

I’m talking in terms of the american dollar. It may be a good store of wealth for non-world reserve currencies. My american-centric mind didn’t really render that. Good point.

I think if the dollar gets axed, then we may go straight to walking dead though

No need to use such an extreme example. Fiat loses money every year. If the Fed actually does their job, the dollar loses 2% a year. On the other hand, one ounce of gold buys about as much now as it did back in Roman times. One ounce of gold has always been able to get you a pretty nice suit - or toga. In another 100 years I’m willing to bet it still will where as $1,200 will no longer be able to buy you even a suit from JC Penny’s.

There’s no question gold has been successful at holding its value. Bitcoins may, but it’s way too early to tell. A good adage I heard yesterday: Bitcoins are something you show your grandkids, you give them gold.

I read something somewhere that said an ounce of gold has historically been able to purchase about 400 loaves of bread throughout most of history (famines presumably excepted).

No one is ever going to get rich “investing” in gold, because it isn’t likely to increase its real value for any reason (unless there is a new industrial use discovered for it that is high in demand and requires large quantitites). However, it is a useful method for preserving value in a time where confidence in the abilitities of central banks to do the right thing is uncertain (either because they can’t figure out what the right thing is, or because there are corrupt incentives not to do it).

It can be profitable to trade gold (as opposed to investing in it), and those decisions probably have more to do with evaluations of fiat currency than evaluations of gold itself (with the possible exception of analysis of cost to extract and refine more, but that tends to change more slowly than central bank policies).

i read this and now my head is spinning

i have decided that it is best if i try NOT to learn about this fad / bubble that will implode in the near future

Bitcoins are only used to hire hitmen and buy pounds of meth.