What is bitcoin(20 Posts)
I feel I need to educate myself on this. Can someone explain in simple terms?
It is an electronic, untraceable currency.
To use them you need a virtual wallet. You obtain them by buying or mining. Once you have them you can buy things with them, either using whole bitcoins or part of them. One bitcoin is currently £11,168. It is very volatile and they can be stolen.
I read yesterday that mining is using lots of computing power to support the block chain operating system and is therefore hugely unfriendly to the environment. I still don’t understand it!
Is it really a currency or just an asset used to speculate on something else?
Just listening to R5 discussion and it seems more like some massive game! Techies rushing to solve mathematical problems to get bitcoins. A ceiling of 21 million bitcoins. Oh god. Gimmer!
I don't understand it either, I think to mine them uses a big mathematical equation because there is only a certain number can be mined, hopefully someone will come on and explain that part very simply, I think you need to be very mathematical and know a lot about computing to mine them.
In simple terms, bitcoin is a cryptocurrency - if you own any bitcoin you can use them to buy things from some people - over 100,000 merchants will accept payment in bitcoin. Unlike a normal currency there is no central bank. However, the setup of bitcoin means that there will never be more than 21 million bitcoins in total. There are around 16 million in circulation at the moment. However, creating new bitcoin is through a process called mining (essentially solving a difficult mathematical problem) and it is designed so that the rate at which new bitcoin are discovered will slow down steadily. The system is designed so that the limit of 21 million bitcoins will be reached in around 2140.
The amount of computing power needed to mine a bitcoin has gone up steadily. In the early days the unknown person or people who invented bitcoin mined 1 million of them, giving a net worth of around $10 billion today. Mining bitcoin today uses a lot of energy, which is one of the criticisms of the system.
A single bitcoin is worth a lot of money at the moment. To make it more usable, it can be split into smaller units. The smallest unit is known as a satoshi (named after the pseudonym used by the inventor(s) of bitcoin). There are 100 million satoshi to a bitcoin.
People who got involved in bitcoin early have seen the value of their holdings grow dramatically. It is much harder to make money on bitcoin today. Some think it is the future for money and like the fact it is outside any governmental control. There is evidence that many criminals use it for this reason. Personally I tend agree with those economists who think that we could be seeing a bubble. There is nothing real behind bitcoin and no-one to guarantee its value. It would not surprise me if the value of bitcoin collapses at some point.
Thanks Uplink and prh47, helped me a lot
This thread is blowing my tiny mind.
It's even worse than that Hadron Collider thing.
Even though it's been explained very well, I am still none the wiser really.
<shuffles off to do something she understands>
It is an electronic, untraceable currency.
The Blockchain that bitcoin uses is updated every 10 minutes and lists every transaction made in a public ledger. So if you know bitcoin has been used to buy drugs in a police sting you know the address the purchase came from. You can then use that address to find out what else it paid for and build a picture from that initial fragment.
Of the 15Mn or so mined so far approx 4Mn are lost because people have lost their private key. Unless they can be guessed (highly unlikely, my private key is 16 unrelated words) those coins are lost forever.
To add a bit to my earlier explanation...
Think about real money for a minute (real money for the purposes of this discussion is a conventional currency such as the pound sterling). Your bank balance is just a number in your bank's computers. The bank will turn it into notes and coins if you want but most of the time it is just a number. When you pay for something from your bank account, no actual physical money changes hands. All that happens is that the appropriate amount is deducted from your balance and added to the recipient's balance. It is entirely electronic. The same is true when you pay by credit card or debit card. There are, of course, safeguards in place to make sure that the amount received by the payee matches the amount deducted from your account.
There was a time when the pound sterling was backed by gold. You could, in theory, take your bank notes to the Bank of England and they would give you the appropriate amount in gold. That's what the promise on bank notes (I promise to pay the bearer on demand...) originally meant. However, we abandoned the gold standard a long time ago. If you take your bank notes to the Bank of England you will find that they will only change them for other bank notes (or possibly coins). Our notes and coins only have value because we all agree they do. Of course, they are also backed by a legal system that insists we must accept legal tender in payment of debts and by a central bank (the Bank of England) that makes sure the currency broadly retains its value.
In the same way, if you own bitcoin your balance is just a number on a computer. If you pay someone using bitcoin an amount is deducted from your balance and added to theirs. There are safeguards in place to ensure that the transactions match - your balance will go down by the same amount that their balance goes up. The only way your balance can go up without someone else's balance going down is if you successfully mine a bitcoin.
Just as with real money, bitcoin only has value because the people who use bitcoin agree that it does and are happy to sell goods and services in return for bitcoin. However, unlike real money there is no legal system propping up bitcoin nor is there a central bank tasked with maintaining its value. The exchange rate between bitcoin and real money is governed by what people are prepared to pay for bitcoin.
It may be that bitcoin enthusiasts are right that there is no need for a central bank. Personally, as I said previously, I am with those economists who think we are seeing a bubble and that the value of bitcoin will collapse at some point. But I may be wrong.
By the way, regarding traceability, DoctorTwo is partly right. The blockchain that backs up bitcoin records the date, time, IP address and wallet ID of every transaction. Each transfer is linked forward and backward to other transactions so it is possible to follow the trail. However, the blockchain does not record the user's identity or geographic location. If you don't want to be traced you can change your wallet ID before and after every transaction and it is also easy for anyone wanting to avoid detection to change their IP address. It is also possible to use something called a mixer to "wash" transactions. So it is certainly possible for people to make it very difficult for investigators to piece together their activities.
Also, Bitcoin transactions are currently taking longer and costing more than ever before.
In documentaries from just a few years ago, Bitcoin was claimed to be a cost effective way for people in developing countries to use money without banks.
With today's fees, I just don't believe that anymore.
PersianCatLady, if you send bitcoin as a p2p transaction, ie you buy something with it, you pay no charges, or at least I haven't. Exchanges have to charge commission to stay in business.
PersianCatLady, if you send bitcoin as a p2p transaction, ie you buy something with it, you pay no charges, or at least I haven't. Exchanges have to charge commission to stay in business
Currently there are huge charges to send money to other people.
People have been sending transactions with a standard fee and they are taking three days to get three confirmations, ridiculous.
Obviously the larger fee you pay the quicker you will get three confirmations but who expects to pay upwards of 10-15% on a Bitcoin transaction??
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