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    Can you explain how bitcoin works?

    I keep seeing posts about bitcoin but I really have very little understanding of what that actually is. Can anyone explain what it is and how it works? How does one acquire bitcoin? Once you have it, how do you use it to make purchases? Do you have to buy a full bitcoin or is it sold in partial units or shares? I see that the current price is $17,000 so I imagine not a lot of average folks can buy at that price. I see that there are stores, hotels, even bars that accept bitcoin as payment so how does that actually happen?
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

    #2
    Bitcoin was invented by a group or a person that goes by: satoshi nakamoto. No one knows the real identity.

    If you want bitcoin you have to mine for it...or just purchase it. To dumb it down...when a computer mines for bitcoins...its basically solving a complex puzzle. Once the puzzle is solved it gets added to a thing called a blockchain (I believe.) Its just a ledger that verifies a puzzle was solved...and can verify its real (not counterfeit.) Each time a puzzle is solved...the next puzzle becomes more and more difficult to solve...and also takes longer to solve. There is only a certain amount of puzzles to solve...so bitcoins are not endless.

    Some retailers allow you to use actual bitcoins to buy things..others require you to sell some of your bitcoin to a broker who provides you with US currency or whatever currency you need. If a retailer accepts bitcoins as payment...they're either going to cash it in on their end or sit on it and hope it increases in value.

    You can split a bitcoin up...so 1 bitcoin is worth $17k....5 bitcoin is worth $8.5k, etc etc etc...down to the cents...so you can break up your bitcoin and buy something for a quarter if you need to.


    I was just listening to a podcast where this dude builds water wells for pigmys in africa. Around a year ago or so the podcast (joe rogan) created a bitcoin wallet and accepted donations to help build the wells. At the time he received 5 bitcoins...only worth around $1k in total. So he gave the organization $1k in cash and let the bitcoins sit in the wallet. Well today they're worth $85,000. He had the guy back on and told him and said he is going to hand them over to his organization (fight for the forgotten.) They can sit on them or cash them in. I hope they cash 1 or 2 in at least just to be safe. Pretty cool story.

    I like the fact that there is no middle man. If you want to send money to someone on the other side of the world all they need is a digital wallet that can accept bitcoins. No fees period. Of course you can see the negative flip side to this...every now and then one of these broker sites who handles your wallet goes offline or gets hacked I guess and all your bitcoin disappears. Very difficult to track money being moved around by terrorists, drug lords, etc.
    Last edited by rennigade; 12-07-2017, 09:10 AM.

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      #3
      Bitcoins are relatively uninteresting. They are the "physical" manifestation (crypto currency if you will) of the really interesting technology: blockchain.

      Blockchain enables safe and secure open ledger transactions. The banks should all fear this technology as once we figure out how to get it mainstream, banks will be relegated to loans and CD's.

      Bitcoin uses blockchain to manage transactions. But there are now myriad additions in the crypto currency world and it is the wild west on how many may emerge and what "value" they will have. I could start a crypto currency today and hope that it catches on and I get rich. This is where the craze is with pricing. Everyone wants a bitcoin and there are a limited number of them, so the price is skyrocketing. Then the clones got invented and they are skyrocketing. There is no limit on the number of different crypto currencies that can be introduced, so while there may be a shortage of crypto currency right now (driving the hype), that will not be sustained.

      I am going to sit back on the sidelines and let the crypto currency craze run its course. I would love to find an investment avenue into blockchain. Blockchain is the next internet.

      Comment


        #4
        https://www.youtube.com/watch?v=6WG7D47tGb0

        https://www.youtube.com/watch?v=r43LhSUUGTQ

        This is probably the best simple video that explains blockchain...and yes...financial institutions should be quivering over this technology.

        Comment


          #5
          What remains to be explained is the intrinsic value of bitcoins. The news is saying that a single bitcoin is going for $19,000 as of yesterday evening.

          Think about this for a second, $19,000 is enough for a downpayment on a home, enough to buy a used car or enough money to hire two or three people in Asia for a year.

          Is a single bitcoin really worth that much?
          Last edited by james.hendrickson; 12-07-2017, 10:12 AM. Reason: misspelling
          james.c.hendrickson@gmail.com
          202.468.6043

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            #6
            Originally posted by james.hendrickson View Post
            What remains to be explained is the intrinsic value of bitcoins. The news is saying that a single bitcoin is going for $19,000 as of yesterday evening.

            Think about this for a second, $19,000 is enough for a downpayment on a home, enough to buy a used car or enough money to hire two or three people in Asia for a year.

            Is a single bitcoin really worth that much?
            An item is worth what someone is willing to pay for it. Didnt a da vinci painting just sell for $450 million dollars? Was that painting really worth that much? The market dictates the price of things.

            Comment


              #7
              Originally posted by rennigade View Post
              If you want bitcoin you have to mine for it...or just purchase it. To dumb it down...when a computer mines for bitcoins...its basically solving a complex puzzle.
              So your computer can solve a puzzle and you get something worth thousands of dollars? Is there any cost involved in mining?

              Some retailers allow you to use actual bitcoins to buy things.
              So this is done through an electronic interface of some sort that transfers a portion of your bitcoin to the retailer's account to pay for your purchase?

              Why is the value of a bitcoin increasing? What occurs that makes the value go up (or down for that matter)? What inherent value does a bitcoin have?
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


                #8
                At this point, a bitcoin has no real value. Until it is accepted universally, it must be converted back and forth to real currency. That greatly diminishes its utility as a currency. The pundits are now calling it a "store of value". Poppycock. It's a gamble on whether the "price" of a bitcoin will go up or down.

                Comment


                  #9
                  So your computer can solve a puzzle and you get something worth thousands of dollars? Is there any cost involved in mining?

                  Yes. In the early days of mining, a simple graphics card could mine a bitcoin. The value was $0.20 back then (2010). Now it takes a meshed computer network of uber super duper computing power to get a bitcoin.


                  So this is done through an electronic interface of some sort that transfers a portion of your bitcoin to the retailer's account to pay for your purchase?

                  Yes. But most retailers are pricing items for sale via bitcoin in US $$$. That creates a problem when the price of bitcoin in US $$$ is fluctuating a lot (which it is). It is not a stable currency. So you might pay 1 bitcoin for a new Honda Civic. That bitcoin is worth $16,000 at the time of the transaction. 5 minutes later it could be worth $17,000 (as it is today). Bitcoin is behaving more like a stock than a currency in the trading markets.

                  Why is the value of a bitcoin increasing? What occurs that makes the value go up (or down for that matter)? What inherent value does a bitcoin have?

                  Because people want them due to the hype. And since they are not regulated, anyone can buy them and anyone can hype them without fear of prosecution. They have no inherent value.

                  Comment


                    #10
                    Originally posted by disneysteve View Post
                    So your computer can solve a puzzle and you get something worth thousands of dollars? Is there any cost involved in mining?
                    Like corn said...when this crazy first started a single coin was worth pennies...less than a penny I believe..and it was simple to generate a coin. Now it takes insane rigs and massive amounts of computing power to generate 1...oh..and you're competing against everyone else.

                    Heres a google search of some mining rigs...some of these are personal...some are companies..and these setups are really expensive. I read an article recently that some kid had a rig set up in his home and how he hasnt paid for heat in 3 years since these things run so hot due to the constant processing.

                    https://www.google.com/search?q=bitc...ih=750#imgrc=_

                    A guy a in 2009 mined 7,500 bitcoins...which he later threw away by accident (they were stored on a hard drive.) I guess they're now worth around $140 million. He's seeking help to dig up a landfill to recover the hard drive, lol.

                    http://www.news.com.au/finance/money...cdaf1d37392ab2
                    Last edited by rennigade; 12-07-2017, 11:01 AM.

                    Comment


                      #11
                      That is another interesting feature of crypto currency: once it's lost, it is lost forever. There is no way to regenerate it. That's why it can be risky to hold your bitcoin in a virtual wallet. If they get hacked or lost somehow in the virtual world, they are lost forever. You can keep them offline on a hardware wallet (it's a USB stick), but don't lose it. And if it's on a hardware wallet, it makes it difficult to spend.

                      The blockchain technology makes it very difficult to nearly impossible to steal bitcoins via a hack. But they can be destroyed via a mistake or a hack.

                      Comment


                        #12
                        Originally posted by rennigade View Post
                        https://www.youtube.com/watch?v=6WG7D47tGb0

                        https://www.youtube.com/watch?v=r43LhSUUGTQ

                        This is probably the best simple video that explains blockchain...and yes...financial institutions should be quivering over this technology.
                        I'm still lost with all this. Seems very complicated. I don't know how it will catch on with the average person. Maybe I'm getting old but everything seems so complicated today, ugh.

                        Comment


                          #13
                          Lol, late again. Also, I don't know how far you guys want to go for an explanation, but if you want to start from the beginning, first, we need to keep in mind that our agreed method of value store must be inherently limited somehow, easy to carry and transfer, and perhaps more importantly, almost impossible to counterfeit.

                          Perhaps the easiest way to explain this is if we agreed to use prime numbers as a means of currency. There are only so many, and even with powerful computers, it will get harder and harder to find these prime numbers as they get bigger and bigger. Great.

                          However, we have to make sure people like Shady Sam from down the street isn't going to try to pretend his long string of numbers seem like a legit prime number, but actually isn't. Luckily, we have a built-in mathematical method for checking, as everybody knows only prime numbers are allowed. Great, because anybody can run it through a computer program to verify it.

                          Of course, it isn't enough to have a number that is legit. You also need to know who owns it. Ok, so you decide to insert the owner's name using this prime number somehow. Let's pretend that we are inventing a new coin called SACoin, and in SACoin, we are going to use the following message as a means of proving ownership, "SACoin owner is Disney Steve". Let's also pretend that Disney Steve owns the prime number 3. Ok, let's say our method of encryption is going to be to move all the letters forward 3 letters (as per his prime number). The result is a garble (or hash) that reads, "VDFrlq rzqhu lv Glvqhb Vwhyh". That garble is what you would share with the online world as a "coin". And when they decrypt that "coin" to read it (remember, you don't tell anyone you have a 3. That number is privately stored in your hard drive.), they will see a clear message that indeed this coin belongs to Disney Steve.

                          Want to give someone your coin? Transfer your private, prime number there to another person, and let them rehash that garble to reflect the new owner's name. You can even split the coin by having multiple names of owners in there.

                          Now, how do you buy stuff? Let's pretend that each coin is worth ten paper dollars. Our owner Steve buys a sammich using two dollars worth of that coin. But how do we track that? Oh, I know. Why don't we also digitally encrypt that value by extending the message to say, "SACoin owner Disney Steve now owns eight credits. SACoin owner Mr. Deli owns two credits." Now, our new garble will read, "VDFrlq rzqhu Glvqhb Vwhyh qrz rzqv hljkw fuhglwv. VDFrlq rzqhu Pu. Ghol rzqv wzr fuhglwv." We can even extend the idea to include what kind of transaction you have made, the time and date, and more.

                          And because we have a method of verifying amongst ourselves who owns what and how much is left, well then we don't need a banking middle man right? Well, not exactly. We still need someone or some thing to help store it on the internet, and when we buy another sammich, we need them to change that garble to reflect those changes. Of course, we will need volunteers to help with that, and I know, we'll offer anyone in this forum to help use their computers to keep track of that stuff online. The more the merrier. We'll even pay them with some SACoins for doing so. Ta da, blockchain.

                          Now, at this point, it's worth noting that I am just making up some overly-simplistic and ultimately FLAWED example for illustration purposes (they would at least use some combination of two prime numbers for example), but in each of these sections, a lot of variations and methods can be used that actually do work, resulting in all kinds of coins. In the end, it's all about trying to find a system where a computer can be used to solve all our requirements that we have listed in the very beginning of this post as a value store. And it turns out that using cryptography (and using computers to speed up the process and make it work transparently) solves that problem, hence the name Cryptocurrency.

                          The beauty with all this though is that you don't have to even know anything. The computers will handle everything for you, from checking legitimacy, to recording ownership, to tracking transactions. It does it so well, it can even cut out any middle men from actually having to write it down somewhere.
                          Last edited by Tabs; 12-08-2017, 07:47 PM.

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                            #14
                            In the previous post, I've explained what cryptocurrency is and how it basically works, and in this post, I will address the why.

                            The appeal of cryptocurrency is its built-in system of checks and financial self-governance that is above human intervention. That means it's practically immune to government corruption or mishandling. This is great when you can't rely on your own country's currency, such as Venezuela, Zimbabwe, and maybe Mongolia. To be exact, cryptocurrency itself isn't actually the appeal, but rather the built-in, self-regulating nature of it that makes it appealing in economically distressed places.

                            Another group that is highly interested in cryptocurrency are those that want to deliberately cut out the human middle men, even in places where the regular currency is financially stable. Why? Some are criminals. Some are pioneers. Some are speculators. Some are visionaries that wants to see an universal currency that is beyond borders....

                            But despite all these high hopes, as I have argued and warned repeatedly, including in this forum, today's cryptocurrency is still far from the visions of some grand future.

                            Because cryptocurrencies are beyond human intervention, this also means that most governments can not use it as a way to implement monetary policies. Hyper-inflation and even deflation can stunt an economy, and we all already know that even federal governments can do very little to stem such tides. But now, imagine asking them to relinquish what little powers they have at all from them by adopting cryptocurrencies. Why would they even do that? They have nothing to gain and everything to lose. This is why I don't think any government at all will ever fully accept any cryptocurrencies as it is right now.

                            Plus, most governments have a way to track their money somehow. Criminals want to avoid this, and that's why they have been leaning towards cryptocurrencies to help cover their tracks. Again, what government do you know would willingly give up their powers to track their own money? Again, nothing to gain, and everything to lose.

                            Last but not least, even if they like the idea of it, chances are good that converting to a new currency will cause uproars, short-term destabilization of your market, and potentially devaluating yourself (hence the reason why the UK went back to using the Pound, from the Euro). And it's going to require tax dollars to make all that transition happen too. Why even bother if your current currency is working, even if it has some warts?

                            All this leads me to ultimately question the point of current cryptocurrencies. Why indeed? To me, it's like a solution looking for a problem. Let me repeat that again: Current cryptocurrencies are a solution looking for a problem. A problem we don't have. In fact, conversion might even cause a problem, where currently there isn't one. Mainstream adoption just makes no sense right now.

                            However, that is NOT to say that I think cryptocurrency is a bad idea. Quite the contrary, there are a lot of built-in benefits that makes me believe that it will and even should be integrated with existing fiat currency some day. Now, it is most likely going to be something that is proprietary that a government creates and can regulate, track, and hopefully, introduce quietly and smoothly in the background.

                            To the end user, this system can literally exist without you ever even knowing about it! Ideally, you just swipe your credit card like always, and it just works like always, while your friendly deli owner hands you your sammich. In exchange, we would actually have robust protection of some kind, which is a win for both individuals and governments alike.

                            I don't know about you, but I hardly carry any cash anymore as it is. I almost always use credit cards, and I know I am not the only one. Folks, that's digital currency. Digital currency via credit cards are already here, and to me anyway, it's not a huge jump to believe that our digital currency can't be backed and protected by some kind of cryptocurrency system some day. The real problem right now is that our current system of credit cards is both archaic and horrendously vulnerable. As we march into the cashless society of the 21st century, we need protections and assurances that our money, in digital form, will continue to work safely and reliably. This benefits everyone, from the individual consumer to the strengthening of a country's fiat currency. That is why I am bullish on the long term future of cryptocurrency.

                            However, the cryptocurrency that we see right now; the likes of Bitcoin and Etherum and so forth, are really more like a science experiment gone amok, and people not knowing any better are flocking to it out of sheer greed. I don't know what will happen to them in the future, but as Warren Buffett once said, "Be fearful when others are greedy. Be greedy when others are feaful." I am staying out of this one.
                            Last edited by Tabs; 12-08-2017, 07:57 PM.

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                              #15
                              I just saw a news report that people are mortgaging their homes to buy into Bitcoin! Hello out there! It is one thing to maybe do some work for someone that will pay you in Bitcoins, but taking the equity out of your home to buy into it? No way!
                              Gailete
                              http://www.MoonwishesSewingandCrafts.com

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