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Digital Currency for Dummies

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  • #31
    Originally posted by Teallaura View Post
    No, where the heck money entered the process. How does Alice have an initial balance to buy Bob's danged lawnmower in the first place?


    Um, actually, it didn't say how that was done.... That's also from 'mining', right? Er... maybe I don't quite got it yet...
    I'm not sure how the initial "seed" Bitcoins entered circulation ... I imagine they were created wholly-formed from on high. After that, though, the new money entered the process from sending transactions from one holder to another as rewards. That's the lottery aspect the video was talking about. Since it's virtual currency, there's no actual holding cell or storage ... the current and maximum number of Bitcoins is determined via the software and reflected on the public ledger.

    It makes sense to me by thinking about how I perceive a PayPal transaction ... I check my bank balance online and see how much money I have. Then I head over to PayPal and send some of that virtual money over to someone else. I then see my bank account balance drop. The other person sees the same transaction, only they see their bank balance go up. PayPal, as the person managing the transaction, also sees its balance go up a bit. The difference with the Bitcoin network is that PayPal's balance is going up because I pay a little extra to cover the transaction fee — the person who ends up verifying the transaction on Bitcoin sees her balance go up because the extra Bitcoins are being "mined" or created as a separate deal to my transaction.

    In real money terms, it would be like a bank not charging you for online bill pay but just taking a couple cents out of a big storage vault that all the banks draw from to pay for managing transactions. Just how much that banker money is worth depends on how much people who aren't bankers are willing to exchange dollars or euros for it and so the price of the banker money (Bitcoin) fluctuates in value.

    —Sam
    "I wonder about the trees. / Why do we wish to bear / Forever the noise of these / More than another noise / So close to our dwelling place?" — Robert Frost, "The Sound of Trees"

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    • #32
      Originally posted by Raphael View Post
      the "mining" is solving particular algorithms. When the algorithm is solved for a particular "block" it is mined (resulting in 24 bitcoins IIRC) and no-one else can mine the same block (sorted out using cryptographic keys, hence the name cryptocurrency).
      in the early days the calculations of the algorithm were easily solved. As is goes along the calculations get harder and harder (so uses more computing power for longer so uses more electricity) to the point now where with 65% (IIRC) of all possible bitcoins having been mined (the algorithm allows for a finite number) "mining" requires specialised computers (using multiple GPU's) to solve the algorithms.

      Alice either mined the bitcoins or she purchased some at one of the exchanges.
      *emphasis mine

      She can do that? It works like a normal exchange (i.e. I give you dollars and get euros)? Ah, that makes a lot more sense.
      "He is no fool who gives what he cannot keep to gain that which he cannot lose." - Jim Elliot

      "Forgiveness is the way of love." Gary Chapman

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      • #33
        Originally posted by Teallaura View Post
        *emphasis mine

        She can do that? It works like a normal exchange (i.e. I give you dollars and get euros)? Ah, that makes a lot more sense.
        Pretty much yeah. I've not ever bought any. I do know TruthSeeker has some (and I hope for his sake he didn't buy them when the exchange was riding high at over US$1000/bitcoin rather than the US$256/bitcoin it is now.)
        Be watchful, stand firm in the faith, act like men, be strong.
        1 Corinthians 16:13

        "...he [Doherty] is no historian and he is not even conversant with the historical discussions of the very matters he wants to pontificate on."
        -Ben Witherington III

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        • #34
          Originally posted by Raphael View Post
          Pretty much yeah. I've not ever bought any. I do know TruthSeeker has some (and I hope for his sake he didn't buy them when the exchange was riding high at over US$1000/bitcoin rather than the US$256/bitcoin it is now.)
          Ouch... Although doesn't that kinda kill the 'immune to inflation' theory?
          "He is no fool who gives what he cannot keep to gain that which he cannot lose." - Jim Elliot

          "Forgiveness is the way of love." Gary Chapman

          My Personal Blog

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          • #35
            Originally posted by Teallaura View Post
            Ouch... Although doesn't that kinda kill the 'immune to inflation' theory?
            mmm think commodities, like gold price or oil price (neither of which are totally immune to inflation)
            Be watchful, stand firm in the faith, act like men, be strong.
            1 Corinthians 16:13

            "...he [Doherty] is no historian and he is not even conversant with the historical discussions of the very matters he wants to pontificate on."
            -Ben Witherington III

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            • #36
              Originally posted by Raphael View Post
              mmm think commodities, like gold price or oil price (neither of which are totally immune to inflation)
              Gotcha.
              "He is no fool who gives what he cannot keep to gain that which he cannot lose." - Jim Elliot

              "Forgiveness is the way of love." Gary Chapman

              My Personal Blog

              My Novella blog (Current Novella Begins on 7/25/14)

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              • #37
                Originally posted by Truthseeker View Post
                Perhaps someday I will critique one part of your post (copied above).


                It seems self-contradicting. Anyway, you should give at least one reason why you think it would fail as currency; otherwise you are just guessing.
                1a) Because Bitcoin's decentralized nature is its downfall as a currency — without the backing of a state, no currency's value can be stable.

                1b) Because it's wildly vulnerable to speculation, like stocks or gold. Unlike those things, however, there's nothing "there" to keep it rooted. Reminds of The Simpsons' "Gump Roast" episode:


                Image 002.jpg

                Grampa Simpson: Holy Toledo! What's keeping that dress on?
                Sideshow Mel: The entire collective will of this audience!


                That's all Bitcoin, as a currency, is. The collective agreement of value. Unlike other currencies, however, Bitcoin has no central bank, no reserve assets, no state to serve as backing. So, like gold or stock, its value is not controlled and speculators can wreak havoc. Anyone who bought into Bitcoin when it was >$1000/bc has seen the value of her asset tank. And there's no guarantee, or even likelihood, that value is coming back.

                I like the technology behind Bitcoin. But it's a terrible currency (the worst performing currency of 2014, if I remember right).

                —Sam
                "I wonder about the trees. / Why do we wish to bear / Forever the noise of these / More than another noise / So close to our dwelling place?" — Robert Frost, "The Sound of Trees"

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                • #38
                  yeah I don't trust cryptocurrency. I think if it basically as a stock, but without any product or company behind it. Basically a junk bond. It has value because of what people agree the value is, and that value goes up and down all the time. If someone were to find a way to do the mining cheaply, or break the crytocode, the entire currency would collapse in a puff of smoke.

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                  • #39
                    Originally posted by Sparko View Post
                    If someone were to find a way to do the mining cheaply, or break the crytocode, the entire currency would collapse in a puff of smoke.
                    Not in favour of cryptocurrencies, but the hashing protocol is very secure, there is no way to break the cryptocode. However, your other point is right. Bitcoins have a specialized type of machines called ASIC's that can mine extremely fast, it hasn't brought down the currency yet...although there is always a chance.
                    "It's evolution; every time you invent something fool-proof, the world invents a better fool."
                    -Unknown

                    "Preach the gospel, and if necessary use words." - Most likely St.Francis


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                    • #40
                      Originally posted by Sam View Post
                      I do agree that the technology can be applied past the financial sector but I haven't given those applications much thought — got any marketable ideas?

                      —Sam
                      Right now, I can only think of a SSL replacement which uses the blockchain to secure websites.
                      "It's evolution; every time you invent something fool-proof, the world invents a better fool."
                      -Unknown

                      "Preach the gospel, and if necessary use words." - Most likely St.Francis


                      I find that evolution is the best proof of God.
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                      • #41
                        Originally posted by Irate Canadian View Post
                        Not in favour of cryptocurrencies, but the hashing protocol is very secure, there is no way to break the cryptocode. However, your other point is right. Bitcoins have a specialized type of machines called ASIC's that can mine extremely fast, it hasn't brought down the currency yet...although there is always a chance.
                        Yeah. saying something is uncrackable is usually what is claimed just before someone notices some flaw in the code that allows it to be cracked. Humans write the code and humans make mistakes. The "unsinkable Titanic" syndrome.

                        Also, if a major government wanted to bring down bitcoin, such as the USA, just think how much processing power they could use to flood the market with bitcoins, or perhaps even crack the hash.

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                        • #42
                          Originally posted by Sparko View Post
                          Yeah. saying something is uncrackable is usually what is claimed just before someone notices some flaw in the code that allows it to be cracked. Humans write the code and humans make mistakes. The "unsinkable Titanic" syndrome.
                          But it's a hash which cannot be replicated. I can't explain how complex the code is for this stuff. It's extremely secure. However, there are problems in implementations and other issues of Bitcoin.

                          Also, if a major government wanted to bring down bitcoin, such as the USA, just think how much processing power they could use to flood the market with bitcoins, or perhaps even crack the hash.
                          This is another flaw of bitcoin called the 51% hack. If a enemy tries to flood the network with too much processing power, they can control all transactions.
                          "It's evolution; every time you invent something fool-proof, the world invents a better fool."
                          -Unknown

                          "Preach the gospel, and if necessary use words." - Most likely St.Francis


                          I find that evolution is the best proof of God.
                          ---------------------------------------------------------------------------------------------------------------
                          I support the :
                          sigpic

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                          • #43
                            Originally posted by Irate Canadian View Post
                            Not in favour of cryptocurrencies, but the hashing protocol is very secure, there is no way to break the cryptocode. However, your other point is right. Bitcoins have a specialized type of machines called ASIC's that can mine extremely fast, it hasn't brought down the currency yet...although there is always a chance.
                            *emphasis mine

                            This assumption has been the downfall of nations.
                            "He is no fool who gives what he cannot keep to gain that which he cannot lose." - Jim Elliot

                            "Forgiveness is the way of love." Gary Chapman

                            My Personal Blog

                            My Novella blog (Current Novella Begins on 7/25/14)

                            Quill Sword

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                            • #44
                              Originally posted by Irate Canadian View Post
                              But it's a hash which cannot be replicated. I can't explain how complex the code is for this stuff. It's extremely secure. However, there are problems in implementations and other issues of Bitcoin.
                              I don't doubt it's extremely complex - I've just lived long enough to know that 'can't be broken' are usually famous last words.
                              Originally posted by Irate Canadian
                              This is another flaw of bitcoin called the 51% hack. If a enemy tries to flood the network with too much processing power, they can control all transactions.
                              It surprises me that it hasn't been tried...
                              "He is no fool who gives what he cannot keep to gain that which he cannot lose." - Jim Elliot

                              "Forgiveness is the way of love." Gary Chapman

                              My Personal Blog

                              My Novella blog (Current Novella Begins on 7/25/14)

                              Quill Sword

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                              • #45
                                Originally posted by Teallaura View Post
                                I don't doubt it's extremely complex - I've just lived long enough to know that 'can't be broken' are usually famous last words.
                                There is one way it can be broken...a quantum processor IIRC. Otherwise, the mathematics is sound.
                                It surprises me that it hasn't been tried...[/QUOTE]

                                It has, but not purposely... It's happened once, and will probably happen again.
                                "It's evolution; every time you invent something fool-proof, the world invents a better fool."
                                -Unknown

                                "Preach the gospel, and if necessary use words." - Most likely St.Francis


                                I find that evolution is the best proof of God.
                                ---------------------------------------------------------------------------------------------------------------
                                I support the :
                                sigpic

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