Can you explain how bitcoin works?

[corn18]

Leverage away. There clearly is no downside to this asset.

[jIM_Ohio]

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.

You could say the same thing about the US dollar.

[disneysteve]

Until it is accepted universally, it must be converted back and forth to real currency.

You could say the same thing about the US dollar.

Jim, I'm not following you here. If using bitcoin requires first converting it to US dollars, that's not the same as using US dollars in the first place.

When I go to buy something with US dollars, there's no conversion needed. Heck, in many foreign countries I can buy things with US dollars without any conversion. Can you explain what you mean when you say the situation with bitcoin is the same as with USD?

[rennigade]

Jim, I'm not following you here. If using bitcoin requires first converting it to US dollars, that's not the same as using US dollars in the first place.

When I go to buy something with US dollars, there's no conversion needed. Heck, in many foreign countries I can buy things with US dollars without any conversion. Can you explain what you mean when you say the situation with bitcoin is the same as with USD?

I think he's saying that us currency isnt worth the paper its printed on. Its printed from thin air and not backed by anything. In this country we all agree that we can exchange us currency for "things."

If tomorrow everyone agreed to start exchanging bitcoin for "things" then it wouldnt be any different than the current USD model. I could be wrong but thats how I took it.

[jIM_Ohio]

Jim, I'm not following you here. If using bitcoin requires first converting it to US dollars, that's not the same as using US dollars in the first place.

When I go to buy something with US dollars, there's no conversion needed. Heck, in many foreign countries I can buy things with US dollars without any conversion. Can you explain what you mean when you say the situation with bitcoin is the same as with USD?

The US dollar is not backed by anything other than the good faith of the US government- the difference between green money and monopoly money is that people give one value, and the other people give none.

There is no backing of the current US monetary system. If we want more money, we just print more...

that is not a good place to be in long term... we are creating a bubble

[disneysteve]

I think he's saying that us currency isnt worth the paper its printed on. Its printed from thin air and not backed by anything. In this country we all agree that we can exchange us currency for "things."

If tomorrow everyone agreed to start exchanging bitcoin for "things" then it wouldnt be any different than the current USD model. I could be wrong but thats how I took it.

The US dollar is not backed by anything other than the good faith of the US government- the difference between green money and monopoly money is that people give one value, and the other people give none.

There is no backing of the current US monetary system.

Are there any developed countries where the currency is "backed" by something? If so, what is that something?

I know that the US ended the gold standard in the early 70s. But what did backing the currency by gold really mean anyway? I never really understood that. You say that the only reason our currency has value is because we say it does. The same could be said for gold. It's just a shiny rock that we dig up out of the ground. It's not worth anything. It only has value because we say it does.

[silvor]

Are there any developed countries where the currency is "backed" by something? If so, what is that something?

I know that the US ended the gold standard in the early 70s. But what did backing the currency by gold really mean anyway? I never really understood that. You say that the only reason our currency has value is because we say it does. The same could be said for gold. It's just a shiny rock that we dig up out of the ground. It's not worth anything. It only has value because we say it does.

Well, being backed by gold is like mining Bitcoin at first. Gold was fairly easy to pan for in the 1800's. Bitcoin was easy to get with your computer programs in 2009. As we extracted gold over the years, it now takes millions of dollars worth of equipment to get today. Same with bitcoin. It now takes massive amounts of technology to mine bitcoins.

That said, I don't buy into the precious metals or bitcoin ideas. To me, dollars or crypto currencies are simply a medium of exchange. The US dollar is generally accepted throughout the developed world. Crypto currencies may change that. Or banks will have to apply crypto technology to dollars.

Thanks to rennigade for posting how bitcoin works. That is about the best I've seen it explained.

[Gailete]

Are there any developed countries where the currency is "backed" by something? If so, what is that something?

I know that the US ended the gold standard in the early 70s. But what did backing the currency by gold really mean anyway? I never really understood that. You say that the only reason our currency has value is because we say it does. The same could be said for gold. It's just a shiny rock that we dig up out of the ground. It's not worth anything. It only has value because we say it does.

Our we could use cowrie shells. At one point I had two bead necklaces that I got in Colombia. Some of the native Indians there, decked their wives out with these necklaces as a display of wealth. The women would be wearing probably 100 or more of those necklaces. Within the tribe they had value, but for everything else you needed pesos.

I've never understood the desire for gold against emergncies and hard times. How do you make change for a 1 ounce coin of gold? In my head I think I would rather go into hard times with a warehouse full of toilet paper plus any other necessity that people wouldn't want to go without. Gold? No.

[corn18]

Or banks will have to apply crypto technology to dollars.

This is the outcome I am hoping for. Apply blockchain to the US dollar. That will change the world.

[silvor]

I've never understood the desire for gold against emergncies and hard times. How do you make change for a 1 ounce coin of gold?

Silver.

Talk to any precious metal guy and they will refer to trading a silver dime for a loaf of bread in a financial crisis. Like they know how much something will cost or in a certain situation. Of that even will silver or gold be universally accepted?

[Gailete]

I think I will preprice the toilet paper at one ounce of gold per pack! But then I have to decide how many rolls in a pack for one ounce. Who knows though if the guy I want to buy eggs from is going to sell a dozen eggs for an ounce of gold or two ounces. Just the fact that you have 18 gold ounces saved up, depending on the 'cost' of groceries, it could be gone in a day just getting food to eat.

[james.hendrickson]

I think I will preprice the toilet paper at one ounce of gold per pack! But then I have to decide how many rolls in a pack for one ounce. Who knows though if the guy I want to buy eggs from is going to sell a dozen eggs for an ounce of gold or two ounces. Just the fact that you have 18 gold ounces saved up, depending on the 'cost' of groceries, it could be gone in a day just getting food to eat.

Precious metals are fine - there is probably a weak correlation between gold & silver and stocks, so adding these assets to your portfolio probably helps you diversity. I've seen credible recommendations that you can hold 3-5% of your total net worth in precious metals - that's uncontroversial.

Whats not clear is how cryptocurrencies like bitcoin reduce your overall risk profile. Are they correlated with stocks and real estate? If so, how much? Do you have more or less diversification if you hold these assets?

What is also concerning to me is that 'gurus' like Tai Lopez and other people with shady backgrounds are piling onto the bitcoin wagon. That is a massive red flag.

[rennigade]

The same could be said for gold. It's just a shiny rock that we dig up out of the ground. It's not worth anything. It only has value because we say it does.

Thats not true. We think of it as value because of jewelry...but its an insanely good conductor...used in electronics. The most precise equipment and most expensive equipment all use gold in them. And unless it changed every single computer has gold in the components.

http://geology.com/minerals/gold/uses-of-gold.shtml

"The most important industrial use of gold is in the manufacture of electronics. Solid state electronic devices use very low voltages and currents which are easily interrupted by corrosion or tarnish at the contact points. Gold is the highly efficient conductor that can carry these tiny currents and remain free of corrosion. Electronic components made with gold are highly reliable. Gold is used in connectors, switch and relay contacts, soldered joints, connecting wires and connection strips.

A small amount of gold is used in almost every sophisticated electronic device. This includes cell phones, calculators, personal digital assistants, global positioning system (GPS) units, and other small electronic devices"

[disneysteve]

Thats not true. We think of it as value because of jewelry...but its an insanely good conductor...used in electronics.

Sorry, I should have qualified my statement. I'm aware that it is used in electronics. But that isn't really significant when you're talking about using it in case of a global apocalypse. And the fact that it has some industrial use really doesn't explain why it's value fluctuates so wildly on the open market.

[scfr]

When reading about an extortion scheme that requires payment in bitcoin, I just learned that bitcoin payments are irreversible.