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Old 02-05-2013, 06:14 PM   #301
dmross
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I ain't dumb, and I have yet to understand where the value of bitcoins originated. I understand it works like money - as a means to simplify trade... but, an individual can't print money, so how can you manufacture bitcoins? where is the value created with the mining of bitcoins?
The important thing to keep in mind about "mining":

mining = transaction processing

The creation of bitcoins is a reward for people who volunteer computing power to process transactions.

When people send each other bitcoins, the transactions are broadcast throughout the network. People "mining" coins are providing computing power to solve a math problem that takes pending transactions as a parameter. Whenever a miner solves the problem, the transactions are committed to the shared ledger and that miner is rewarded with newly created bitcoins. The network adjusts the difficulty of the math problem so that it is solved on a 10 minute interval average, so the rate of creation remains relatively constant.


Quote:
Originally Posted by Protege Menace
I still don't get bitcoins.
This is probably the biggest "problem" with bitcoin. It's a meta-technology. It takes some effort to understand and comprehend the various processes that are going on, and most people aren't interested in devoting time to that.

I recently tried to explain it to my in-laws who are not technical at all, and this was the description I used -

You have an account at your local bank along with a bunch of other people who live in your town. The bank maintains a ledger of all the accounts and their balances. When you write your neighbor a check for the lawnmower you bought from him and he deposits it, the bank subtracts the funds from your account and adds them to your neighbors account.

The bank makes sure nobody can steal your money.
The bank makes sure you can't withdraw money from your neighbors account.
The bank makes sure nobody is cheating and adding imaginary money to their account balance.
The bank facilitates transfers of money between accounts.

Can these functions be accomplished without the bank and how?

So you get together with your neighbors and decide to start your own new system to replace the bank. First, you decide that transparency is the only way to make sure nobody is cheating the system, so you agree to publish the bank ledger and give every one of your neighbors a copy. Now everyone can see all the money in the system. When you buy your neighbors snow-blower, you announce it to all your neighbors, and everyone updates their copy of the ledger and adds the transaction, moving the money in your account to your neighbors account on their copy of the ledger. Everyone confirms that their ledgers are the same, and if someones ledger shows a different balance it is rejected.

So you use your system for a while and find that it works pretty well, but it's a lot of work to constantly update all the ledgers, so you elect a group of neighbors to do the ledger updates on a regular interval and pay them a small fee to do the work. Whenever they update everyone's ledger with the latest transactions, you still compare your ledger with all your neighbors to make sure nobody is cheating.

So now you have a system that is working pretty well, but some of your neighbors want to buy sex toys from each other and don't want anyone to know. You think to yourself, hmm, we don't really need to use our real names, we can use one or more made up names and accounts and transfer money between them and the system still works.



Now take that example and turn it into a peer-to-peer computer network, and you have bitcoin. The neighbors who are updating the ledgers for everyone are the "miners". A bitcoin address is an account. The check to ensure everyone's ledgers is the same is done using a hash tree.
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Old 02-05-2013, 06:23 PM   #302
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until then its currency thats good for buying drugs online, and thats about it



http://bitpay.com

http://www.bitcoinstore.com
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Old 02-05-2013, 06:28 PM   #303
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and how much, percentage wise of the market, do you think those two sites, and their derivatives account for? do you think its even half of TSR? I mean there was certainly a spike over the superbowl weekend which makes sense for gambling sites, but day to day transactions, do you think anything other than TSR accounts for the great majority of btc transactions?
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Old 02-05-2013, 06:39 PM   #304
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I'm still confused, but from:
Quote:
Those who chose to put computational and electrical resources toward mining early on had a greater chance at receiving awards for block generations. This served to make available enough processing power to process blocks. Indeed, without miners there are no transactions and the bitcoin economy comes to a halt, though it's planned to have small transaction fees pay for processing when mining becomes unprofitable.
It sounds like the sooner you jump on board, the more bitcoins you will get, and so all the early adopters pretty much have a leg up on everyone....?
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Old 02-05-2013, 06:49 PM   #305
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I'm still confused, but from:


It sounds like the sooner you jump on board, the more bitcoins you will get, and so all the early adopters pretty much have a leg up on everyone....?
yes. I remember when first hearing about it, downloading the client and having 'mined' 1 btc in 48 hours just leaving my core i7 16gb pc running. that was 2009-early 2010. I think now if you have one of those crazy mining PC's youd be lucky to mine .00000001 btc in 24 hours (as the "mining" continues it becomes more complex and resource hungry, and the coins generated become even more fractional)

the system 'generates' a fractional coin (dont know the actual size) like every 10 minutes, so its possible, not probable, to make X/Y btc every 10 minutes
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Old 02-05-2013, 06:57 PM   #306
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yes. I remember when first hearing about it, downloading the client and having 'mined' 1 btc in 48 hours just leaving my core i7 16gb pc running. that was 2009-early 2010. I think now if you have one of those crazy mining PC's youd be lucky to mine .00000001 btc in 24 hours (as the "mining" continues it becomes more complex and resource hungry, and the coins generated become even more fractional)

the system 'generates' a fractional coin (dont know the actual size) like every 10 minutes, so its possible, not probable, to make X/Y btc every 10 minutes
So... it's possible to use more electricity (in US $) than you harvested from Bitcoin (converted to US$)?
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Old 02-05-2013, 07:26 PM   #307
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I'm still confused, but from:


It sounds like the sooner you jump on board, the more bitcoins you will get, and so all the early adopters pretty much have a leg up on everyone....?
Yes. Just like all pyramid schemes.
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Old 02-05-2013, 07:39 PM   #308
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I went ahead and started mining just to see if I can even make anything off of it. The school pays for electricity so it won't cost me anything extra to try.
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Old 02-05-2013, 07:46 PM   #309
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And then you devise a computer-intesive system that constantly runs EVERY transaction and bitcoin in existence on countless iterations, constantly, again and again and again. Just seems like a huge waste of computing power and electricity to me. At least you only write a transaction in a ledger once....

Quote:
Originally Posted by dmross View Post
The important thing to keep in mind about "mining":

mining = transaction processing

The creation of bitcoins is a reward for people who volunteer computing power to process transactions.

When people send each other bitcoins, the transactions are broadcast throughout the network. People "mining" coins are providing computing power to solve a math problem that takes pending transactions as a parameter. Whenever a miner solves the problem, the transactions are committed to the shared ledger and that miner is rewarded with newly created bitcoins. The network adjusts the difficulty of the math problem so that it is solved on a 10 minute interval average, so the rate of creation remains relatively constant.




This is probably the biggest "problem" with bitcoin. It's a meta-technology. It takes some effort to understand and comprehend the various processes that are going on, and most people aren't interested in devoting time to that.

I recently tried to explain it to my in-laws who are not technical at all, and this was the description I used -

You have an account at your local bank along with a bunch of other people who live in your town. The bank maintains a ledger of all the accounts and their balances. When you write your neighbor a check for the lawnmower you bought from him and he deposits it, the bank subtracts the funds from your account and adds them to your neighbors account.

The bank makes sure nobody can steal your money.
The bank makes sure you can't withdraw money from your neighbors account.
The bank makes sure nobody is cheating and adding imaginary money to their account balance.
The bank facilitates transfers of money between accounts.

Can these functions be accomplished without the bank and how?

So you get together with your neighbors and decide to start your own new system to replace the bank. First, you decide that transparency is the only way to make sure nobody is cheating the system, so you agree to publish the bank ledger and give every one of your neighbors a copy. Now everyone can see all the money in the system. When you buy your neighbors snow-blower, you announce it to all your neighbors, and everyone updates their copy of the ledger and adds the transaction, moving the money in your account to your neighbors account on their copy of the ledger. Everyone confirms that their ledgers are the same, and if someones ledger shows a different balance it is rejected.

So you use your system for a while and find that it works pretty well, but it's a lot of work to constantly update all the ledgers, so you elect a group of neighbors to do the ledger updates on a regular interval and pay them a small fee to do the work. Whenever they update everyone's ledger with the latest transactions, you still compare your ledger with all your neighbors to make sure nobody is cheating.

So now you have a system that is working pretty well, but some of your neighbors want to buy sex toys from each other and don't want anyone to know. You think to yourself, hmm, we don't really need to use our real names, we can use one or more made up names and accounts and transfer money between them and the system still works.



Now take that example and turn it into a peer-to-peer computer network, and you have bitcoin. The neighbors who are updating the ledgers for everyone are the "miners". A bitcoin address is an account. The check to ensure everyone's ledgers is the same is done using a hash tree.
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Old 02-05-2013, 08:19 PM   #310
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So... it's possible to use more electricity (in US $) than you harvested from Bitcoin (converted to US$)?
For 99% of people trying, that's a guarantee.


Quote:
Originally Posted by Artiki View Post
I went ahead and started mining just to see if I can even make anything off of it. The school pays for electricity so it won't cost me anything extra to try.
Pointless at this point unless you have a Beowulf cluster of Beowulf clusters running the client..

Check back in in a month and let us know how much of a single coin youved mined - seriously I'd be curious. Last time I tried I gave up after 3 weeks and that was about a year ago.

If the 'goal' is easy/cheap money it's faster just to buy a bunch of coins after the market tanks when someone hacks the online wallet sites and sucks all the coins out, that's only happened a dozen or so times and lost people only hundreds of thousands in real US currency

Think about someone walking up to a pc with a thumb drive and stealing $100,000, it can happen with bitcoin!
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Old 02-05-2013, 08:22 PM   #311
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So, what I don't really get is that ok, you say the mining is "transaction processing", but it isn't really. If it was just secure transaction processing it'd happen almost instantly. It's processor make-work that at best is a waste of energy and processing power. And since the rate is artificially controlled, what's the point of that?
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Old 02-05-2013, 08:24 PM   #312
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Originally Posted by WRX300 View Post


Pointless at this point unless you have a Beowulf cluster of Beowulf clusters running the client..

Check back in in a month and let us know how much of a single coin youved mined - seriously I'd be curious. Last time I tried I gave up after 3 weeks and that was about a year ago.

Cheaper/faster just to buy a bunch of coins after the market tanks when someone hacks the online wallet sites and sucks all the coins out
Yeah I'm just curious myself. I have nothing to lose and it took maybe 5 minutes to set up. I will just have it running during the day. I'll run it for a few weeks just to see and i'll report back.
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Old 02-05-2013, 08:28 PM   #313
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Yeah I'm just curious myself. I have nothing to lose and it took maybe 5 minutes to set up. I will just have it running during the day. I'll run it for a few weeks just to see and i'll report back.
If you don't run it 24/7/365 every time you fire the client back up you'll have to 'catch up' on the block chains that have been processed since you stop the proces, that can take hours itself. Just FYI
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Old 02-05-2013, 08:30 PM   #314
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Originally Posted by Matt K View Post
So, what I don't really get is that ok, you say the mining is "transaction processing", but it isn't really. If it was just secure transaction processing it'd happen almost instantly. It's processor make-work that at best is a waste of energy and processing power. And since the rate is artificially controlled, what's the point of that?
I believe it's all designed to create scarcity in the market, instead of just dumping 20m "coins" of currency on the market that gets cornered by the first guy with a wallet big enough.


The point of that is **** if I know
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Old 02-05-2013, 08:33 PM   #315
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If you don't run it 24/7/365 every time you fire the client back up you'll have to 'catch up' on the block chains that have been processed since you stop the proces, that can take hours itself. Just FYI
Good to know thanks. If i get nothing out of it in a few weeks i'll just uninstall and forget about it.
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Old 02-05-2013, 08:47 PM   #316
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Originally Posted by Howl
Yes. Just like all pyramid schemes.
No, it really isn't. For one thing, a pyramid has top. Bitcoin is free, open-source software. You can use it for free if you find it useful, and nobody cares if you don't.


Quote:
Originally Posted by bakadayo View Post
I'm still confused, but from:


It sounds like the sooner you jump on board, the more bitcoins you will get, and so all the early adopters pretty much have a leg up on everyone....?

Bitcoin is still very early in "early adopter" phase right now, with a total market cap of $200M. People who are investing in it are taking a risk wasting time and money on an experimental technology that has a large chance of failing. But you are looking at it wrong in the first place. Bitcoin isn't meant to make you rich, it's meant to be used like a currency.

If you want to send any amount of money anywhere in the world, instantly, without fees or any middle man, you can buy some bitcoins and do it. It enables money to be sent and received like an email, but privately and securely without the need to trust any 3rd party. That could potentially be a very disruptive technology. It's a tool that anyone can use, so use it or ignore it.
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Old 02-05-2013, 08:58 PM   #317
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It's hardly instant when it takes 60-90min to confirm the initial 'buy' transfer. You can't just go to mtgox, buy coins, send them to a wallet, and buy something in under an hour. And keeping them at mtgox or another exchange seems just like asking for trouble

Last edited by WRX300; 02-05-2013 at 09:03 PM.
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Old 02-05-2013, 09:06 PM   #318
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Originally Posted by dmross View Post
No, it really isn't. For one thing, a pyramid has top. Bitcoin is free, open-source software. You can use it for free if you find it useful, and nobody cares if you don't.





Bitcoin is still very early in "early adopter" phase right now, with a total market cap of $200M. People who are investing in it are taking a risk wasting time and money on an experimental technology that has a large chance of failing. But you are looking at it wrong in the first place. Bitcoin isn't meant to make you rich, it's meant to be used like a currency.

If you want to send any amount of money anywhere in the world, instantly, without fees or any middle man, you can buy some bitcoins and do it. It enables money to be sent and received like an email, but privately and securely without the need to trust any 3rd party. That could potentially be a very disruptive technology. It's a tool that anyone can use, so use it or ignore it.
How do you convert bitcoins to hard cash in hand?
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Old 02-05-2013, 09:09 PM   #319
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I believe it's all designed to create scarcity in the market, instead of just dumping 20m "coins" of currency on the market that gets cornered by the first guy with a wallet big enough.


The point of that is **** if I know
Right, I mean, I know it's to create scarcity. I just don't quite grasp why there has to be some kind of processor intensive operation to do that. Why not just like, use a timer or something?
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Old 02-05-2013, 09:11 PM   #320
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Right, I mean, I know it's to create scarcity. I just don't quite grasp why there has to be some kind of processor intensive operation to do that. Why not just like, use a timer or something?
And what math problem is being solved? Or is it just random, useless transactions?
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Old 02-05-2013, 09:14 PM   #321
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Right, I mean, I know it's to create scarcity. I just don't quite grasp why there has to be some kind of processor intensive operation to do that. Why not just like, use a timer or something?
Because computers?
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Old 02-05-2013, 09:16 PM   #322
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This totally not how it works but imagine it this way, the network of peers dedicates their processor power to overpower the processor power being used to crack the hashes by outside players.

They are encouraging you to contribute to their botnet basically.
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Old 02-05-2013, 09:17 PM   #323
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Originally Posted by Matt K View Post
So, what I don't really get is that ok, you say the mining is "transaction processing", but it isn't really. If it was just secure transaction processing it'd happen almost instantly. It's processor make-work that at best is a waste of energy and processing power. And since the rate is artificially controlled, what's the point of that?
Transactions are broadcast all over the network the moment they occur, but they aren't in the shared ledger (aka blockchain) until a miner includes them in a block. Blocks are groupings of transactions that are added to the shared ledger every ~10 minutes.

Over time as blocks are solved and added to the blockchain, transactions get deeper and deeper in the chain, and this is one mechanism by which they are secured. If a malicious entity wanted to rewrite any part of the blockchain, they would need to exceed the total processing power of the miners for some time in order to do so.
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Old 02-05-2013, 09:18 PM   #324
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How do you convert bitcoins to hard cash in hand?
www.localbitcoins.com

Or you could set up an account on an exchange and buy/sell there, but there are some inconveniences and delays you will have to deal with.
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Old 02-05-2013, 09:19 PM   #325
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This totally not how it works but imagine it this way, the network of peers dedicates their processor power to overpower the processor power being used to crack the hashes by outside players.

They are encouraging you to contribute to their botnet basically.
So the "real" system has to constantly be rechecking itself so a rogue system can't can't come in and say "X doesn't hold Z coins Y does" and then X loses all his money?
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