Please explain Bitcoin to me

[DonkeysNotDisney]

I've googled it before anyone posts that helpful suggestion, however all the articles, even the one from the BBC, seem to expect some level of pre knowledge.

I don't understand it, they use words like mine, but mine what, why do they need so many computers, how do you plug in computers (or hijack them) and make something that has value irl, and how do you make it have value irl.

Please if someone could explain in the most basic sense I would really appreciate it. The level I'm looking for is along the lines of Poppy and Sam in the Osborne books, bitcoin for dummies is probably too advanced.

BTW Tesla has stopped accepting Bitcoin. Elon Musk cited environmental concerns.

Thanks for the explanation!

To me, it all seems a bit too much like tulip mania. I don’t really trust it and after seeing what happened when Musk said he wouldn’t accept BitCoins for Teslas anymore. I think it seems too high risk. Maybe like a pyramid scheme. Those at the top get rich, those at the bottom get shafted, but maybe I’m misunderstanding.

It's really not as complicated as all the technology lingo makes it sound.

It has value because it is finite, and very complex to make more.

Think of it like a £50 note, why does everyone not just make their own? Because the complexity of making an exact replica makes it cost prohibitive, the materials, machines, expertise, knowledge of the exact patterns all needs to be factored in. Even if you could do it, the cost on a small scale would be prohibitive.

On to bitcoin - a formula was written with 21 million solutions, each one equal to a bit coin, initially it was quite easy to find unique solutions, didn't take much processing power or time, as the solutions have been whittled away, it takes exponentially more processing power and time, therefore electricity to find (mine) more bitcoin.

It has reached the point where just using any old computer to mine is probably not worth the cost in electricity - i.e. the profits or very small, or not even breaking even. People have started using very specialised computers called ASICs which all they do is process bitcoin calculations, or some very high end gaming graphics cards can perform similar functions. these are many times more efficient (measured in processing units 'Hashes' per Watt of energy consumed). The costs being the mining hardware and electricity, hence why people are stealing electricity to run these bitcoin factories, a large bitcoin mining factory could easily cost £400/day in electricity to run, but generate many times more than that in bitcoin depending on what the current prices are.

Tulip Mania - exactly.

Who wrote the formula?

Bitcoin was and is an experiment - can we have electronic money without needing a central bank to explain it? In particular, can we prevent someone spending the same money twice. The developers found a solution, the "blockchain".

You need to know about "hash functions". A hash function is just a calculation you can do on a load of data that spits out a small(ish) number, and even a tiny change in the data changes the hash completely.

A block in the blockchain comprises information about the previous block (which makes the "chain" in "blockchain"), some data for example bitcoin transactions, a variable number known as a nonce (no relation to certain other uses of the word!), and a hash of the block.

"Mining" is then a process of finding a nonce so that the hash starts with a certain number of zeroes, and the only way to do that is to try lots of different nonces until finding one that works. Once one is found, it's a valid block and it's sent out to the network. It's hard to find the right answer, but very easy for everyone else to check the answer is right. This is the "proof of work" - it requires computers, and the electricity to power them, to do and it means you can't have somebody sending out a zillion fake blocks. It also means, as described above, that changing previous transactions is extremely difficult.

One of the transactions is one that gives the miner money from nowhere, according to the rules that everyone agrees to. This transaction only becomes valid if that miner succeeds in "mining" this particular block, and it provides the incentive to do the mining process that is required to validate the transactions everyone else is making.

I don’t really ‘get’ it but I understand it to be a bit like google whacking ( www.google.com/search?q=google+whacking&source=hp&ei=FBWxYKWHNpKhUPjBhcAE&oq=google+whackin&gs_lcp=ChFtb2JpbGUtZ3dzLXdpei1ocBABGAAyAggAMgYIABAWEB46BAgpEEY6BQgpELEDOgUIKRCgAToCCCk6BwgpEAoQoAE6EQgpELEDEIMBEMcBEK8BEJMCOg4IKRCxAxDHARCvARCTAjoECCkQQzoKCCkQsQMQgwEQCjoHCCkQsQMQCjoICAAQ6gIQjwE6CAgAELEDEIMBOgUIABCxAzoICC4QxwEQowI6CwguELEDEMcBEKMCOgsIABCxAxCDARDJAzoFCAAQkgM6BQgAEMkDOgIILjoECAAQCjoICAAQFhAKEB5QsBBY3ipgxzJoAXAAeACAAccBiAG6CJIBBDEzLjGYAQCgAQGwAR4&sclient=mobile-gws-wiz-hp) but more complicated

It was decided it had value because it was rare enough and enough people agreed that it had value.

Can I just thank each and everyone one of the posters above, both those that haven't made me feel like the only person that doesn't get it, and those that have tried so hard to explain it in a language I understand.
It feels very much like a foreign language (which I've mastered) so I will read and re read the posts and links until it starts to become slightly more ordered in my mind.

I do have two questions at the moment. Who made the 21 million questions?
Is it only bitcoin that has 21million coins, could I make mncoins using the same principle and then limit them to 21 million, if so would they gain worth if other mnetters wanted them?

mercuree I am so far behind you, I just want to know what bitcoin means, 'what it all means' is a massive next step. I would need to spend a lifetime in a cave and still not get a conclusion.

Oh I'm definitely nowhere near understanding what it all means either! Is anyone? I just like reading opinions from others more in the know about what it could all potentially mean.

I think the exciting thing about it is the possible potential. It almost felt like everything had been discovered, and the only thing we could do next is just get smaller and faster?

You want to sell products? You go to Amazon. You want to create a group chat? You go to whatsapp. Food? Just Eat. Taxi? Uber. Pay? Contactless. Read? Kindle. TV? Netflix. Question? Wikipedia.

It's hard to imagine anyone starting now and improving any of those things with better ideas or technology because... it's already excellent? We could only really make those same things more excellent?

But I guess that was probably how they all felt with coal. This is excellent, we could only really make it more excellent? Then someone comes along with electricity and the world changes again and suddenly it's not about just making existing things more excellent it's about brand new concepts. The people with money and resources are getting rich wondering how to make electricity more excellent and boom comes the internet.

So it's like that feeling. The world is flat and ends here, then suddenly you have America and a gold rush and new opportunities for people who missed the last ones. (I realise that's probably a very problematic example considering the people who already lived there, but I mean purely in terms of feeling like a new era of opportunity might be around the corner).

Will this be blockchain? Who knows. Maybe not. Some people think it's America, some think it's a deserted little island made of rock. But that's the reason I kinda keep half an eye on it (even if I don't fully understand it).

To quote Steve Jobs... If you want to know what’s going to happen in five years, you don’t look in the mainstream. You look at the fringe.

The other thing to note is that while everything that's for us seems to be at the stage of final frontier... there are things that have never been for us because it has been built off a system created 100+ years ago. A Steve Jobs cannot come along and revolutionise the way we buy and sell houses. A Steve Jobs could not have came along and revolutionised global financial services. Until a Steve Jobs came along with crypto and tried it.

The technology behind it could be used for basically anything that requires trust and truth. Patient healthcare data could be yours, readily available to share securely with any doctor in the world. Voting and politics? Regulation and compliance? Creators being able to control their assets and who has use of them? Education and training?

I can see why the term Tulip Mania might be used, especially if we are talking about crypto specifically (and not the blockchain where there are wide ranges of applications from traditional banking to home ownership, and thus actual value). The tulip bubble popped because supply caught up with demand, but it's impossible to create more bitcoin. So that leaves demand falling. And I think that depends entirely on how many people find value in actually using it as a currency? (And not some speculative investment opportunity where they are in to make money).

Right now I believe paypal are at the stage of accepting crypto as a funding source, and some governments are developing or calling for development of their own. So if that happens, and your average joe begins to trust and use UKcoin or EUROcoin, then Bitcoin (the first and best known) might never 'pop' because trust and awareness and use in the way it was intended would have grown so far and wide that demand could never be problem.

If that doesn't happen, then it might never get to the stages of being used as an actual currency and thus demand would drop off. I think

But that is exactly why I believe it's the technology behind it that people should take the time to learn about, if they just want to keep an eye on the ball. If bitcoins are tulips then blockchains are... soil. And soil is always going to be needed.

Until we grow food in test tubes .

Have not got a clue what it is all about but I have bought some , and have decided not to really look at there value again until I retire in five years time !! I will have either made some money to do some travelling or will have lost the lot!! Bit like the lottery really!!

But there isn’t just Bitcoin now, there’s the Shibainu, Dodgecoin, Dubaicoin and many others. Surely, the more cryptocurrencies you have, the less they will be worth? It seems the value is purely in what people are willing to pay.

Who made the 21 million questions?

Nobody knows! A person or people who go by the name Satoshi Nakamoto.

Is it only bitcoin that has 21million coins, could I make mncoins using the same principle and then limit them to 21 million, if so would they gain worth if other mnetters wanted them?

Theoretically yes, but what value would you be offering to mnetters who adapt the currency and use it?

There are loads of different coins in existence and like bitcoin they can set their own rules and have their own ways to reward people.

The top two are Bitcoin and Ethereum. The best way of explaining this is to say GBP has different uses and is better at some things than others i.e you can store your life savings in GBP and also give your children, send them to the shops for milk and tell them to keep the change.

So imagine Bitcoin is the GBP that's used for live savings and house purchases and Etherium is the GBP you give to the kiddos.

MNcoin would be the GBP you...? Use to invest in female run start-ups in the creative arts? So you'd probably want to add tokens.

An extremely high level explanation of tokens would be: storing information along with the transaction.
MNartist creates a painting, MNuser buys the painting and now she owns it.
It's a digital product though, and the token is one of a kind because while the MNartist could still sell copies of the painting (if that was the agreement), she can never sell another "original ownership" again.
So now MNuser has original ownership of MNartists painting.

WHY?????

Well. Imagine MNuser is actually a creative too. Now MNartist (creator) can sell copies of her work to other people to enjoy, but MNuser (buyer / token holder) is a book cover designer, and can use that painting on a book cover, sell it to an author, and get paid. All of this would be pre-agreed rules written into the code of MNcoin.

Then when it gets even more interesting is MNcoin could be set up so that MNartist (creator) gets 10% of the transaction fee every time that token (ownership of painting) changes hands. So the book cover designer sells ownership to author, MNartist gets 10%. Then when the the MNauthor is done, the token could be sold to another MNuser, maybe this one makes bookmarks from home. Again, original creator gets 10%. OR in the case of second sales, original creator gets 5%, original owner gets 5%. Thus incentivising everyone to do great work and help each other market everything to do with the artist, the designer, the author, the bookmark maker. Then ownership changes hands again to god knows who... a single mum who narrates audiobooks at night?

And throughout this process each little cog is creating new original works based on that one original painting, with new tokens, and if the coin is set up to pay all the cogs up the chain %s, they are all getting paid and all invested in each other doing well. A really good artist could have multiple users interested in owning the token, and the price of her artwork will go up.

Did I mention any corporate giants like Amazon or Paypal getting a cut? Nope. This is business to business, or business to consumer setting up a system that works for all of them in exactly the way they want it to.

So could you theoretically make a MNcoin and could it theoretically have a use? Yes. That's just one high level of many.

Would you want to? Probably not ! But hopefully you can see how this could be life changing for one sector of society and there is real value in the concept of "MNcoin" if it wasn't such a niche. A global system that could be used by artist and photographers? Yes, absolutely. But you would want that coin to be set up by a group of artists, designers, authors, narrators, and merch makers so the system is based on the trust and truth they need and actually works for those people.

If you got through all of that you are a legend I only know about this because I make covers as a side hustle and sell ebooks.

@CrazyCatsAndKittens I think I kinda explained that in my post (if you have the patience to get through it)

A coin will probably only really work if it is set up to benefit the people who use it. Bitcoin serves people who want a lot of security and Ethereum serves people who want microtransactions (high level explanation).

For any of the other coins people decide to launch, like the theoretical MNcoin, the value is in how people use the coin or are benefitted by using the coin.

Dogecoin which I'm pretty sure started as an internet joke? Yeah I would not be putting my life savings into that. I haven't even researched it.

A PBcoin created by NSI as a crypto Premium Bonds which had certain rules and benefits written into the code, was secure etc? Wouldn't put my life savings there but yes I would consider diversifying into that.

And similarly if say Tesco came up with a system where I earn cashback on my shopping, or am entitled to certain benefits, and I always spend £200 a month in Tesco then again, that might have use as a coin.

Thank you so much for the explanation!

For anyone wondering about the questions such as "what is money, what is 'the economy' and how does it work, how did we get from simple bartering to the system we have today" etc, I would recommend reading the book "How an economy grows and why it crashes" by Peter Schiff. Written in everyday language, It starts right from basics, with an imaginary scenario of three people on a desert island, building an economy from scratch, starting with making a fishing net. It should be a required part of the school syllabus IMO.

I don’t grasp it fully either. I’ve always been a bit thick about all things tech. I’m just not interested which doesn’t help.

However, when you remember that the Congolese used cowrie shells as currency, by having the supply under the King’s control, you can see that anything can be currency and the value is lent by the perception of the customers. It’s worth something because it’s wanted.

If you keep that in mind, the details of exactly how it’s coded and encrypted don’t matter beyond knowing that it IS encrypted and it’s finite, but it’s completely untraceable.

So my takeaway is that it’s therefore mainly of interest to geeks, carpetbaggers and really serious criminals. Shady.

So yesterday’s story of illegal Bitcoin mining in a warehouse didn’t make too much sense to me, but I’ll believe them that it’s a thing.

Dogecoin which I'm pretty sure started as an internet joke? Yeah I would not be putting my life savings into that. I haven't even researched it
It started as a bit of a joke but then they got Elon Musk behind it and it rocketed. My sister made 4.5 million from a 15k investment in it last year. That's the sort of money being made. She bought a few hundred for my daughter just as a bit of laugh for her and its already up to a few thou.
Bit yes, none of this is something you'd put your life savings into, it's so volatile, my sister watches and withdraws and reinvests all the time and it's a massive gamble. If ypu have cash to spare though it's worth a punt

For those of you wanting to understand money, the basic concept is as follows:

Sam is good at making bread, but can’t grow wheat. Poppy grows wheat but can’t make bread. Sam swaps bread for wheat with poppy. When all their friends then want jam on toast, they all swap bread, wheat, jam, toasters. This is a barter system based on how much bread they swap for each the jam, and wheat.

One of them also makes shiny coins and Jewellery.

Poppy and Sam get into accessorising and interior design. Swap food for jewellery and coins.

One year no wheat grows. Poppy and Sams neighbors have wheat but no jewellery or coins. They swap this with other groups. Applying a value to the shiny metal and as influencers, get everyone else nearby into coin swapping.

Then as lots of friends join, they agree everything has x value and use coins to pay.

The coin is the value of the metal used to make the coin. One gold coin is £10, one copper coin is £2. They swap bread for coins. The coin maker gets bread, the bread maker gets coins.

Voila, money is created as part of the barter system.

Then, someone decides it’s getting out of hand. They want control! The rulers take over the creation of coins and apply values to them. They tax people to fund making more coins.

Fast forward to today, and GBP issues £10 notes that state ‘to the bearer’ on them. Effectively, the £10 note is a representation of £10 worth of gold bullion held by the uk bank.

Now, there are more £10 notes doing the rounds than there are £10 worth of gold bullion held by the uk.

This is as a result of inflation (rise in costs) and something called quantitative easing, where they flood the economy with more cash. They do this to manage the economy. (Eg. To influence inflation).

They also want the value of GPB to be high for importing and exporting stuff, so they effectively manipulate cash value for these purposes.

Then, someone doesn’t like all this manipulation of cash being linked to countries as it fluctuates in unstable political times.

They say, can we create a crypto currency that is not linked to countries banking systems? So it’s been a tech race to figure this out.

Mining allows the creation of the crypto and block chain the record to oversee it. But it’s still not linked to any central banking system. The maths behind it allows for finite crypto coins to ensure it can be treated as a finite resource to manage the value of it, same as gold.

Value of goods and services go up and down due to demand. Hence inflation. All of poppy and sams descendants now want to have homes and decorate them. This drives demand.

Demand for crypto is rising, so it’s a race between investors to buy into it and for companies to start accepting it.

Elon musk bought loads, made statements about accepting crypto in Tesla, then changes his mind. This has caused value to fluctuate as all the Sam and Poppy descendants want to be able to spend the crypto. Either they can, or they can’t. This pushes the value up and down.

Is this helpful???

The best explanation I have read is, you use your computer to solve complex sudokus and swap the solved sudokus for drugs.

It works because people agree it works, just like ordinary national currency as people have explained above.

The picture of the building that PP posted is a good explanation of what a blockchain is. Many computers are trying to solve the sudokus (cryptographic problems) at once, and every solution depends on the previous solutions in the block. Each solution is associated with transactions. You can’t fraudulently alter the transaction without all the other computers noticing. That’s why a blockchain is also called a distributed ledger - lots of different computers keep the encrypted ledger instead of its being held by one central institution.

Imho blockchain is a very big sledgehammer to crack a very small nut and is much more interesting as a thought experiment about money, trust and libertarianism than as a currency.

I have read and re read these replies, thank you, I do feel slightly nearer to understanding (suduko and drugs was probably my level) I will be back, I just didn't want anyone to think that I hadn't taken the time to read your posts when so much thought had gone into them. I appreciate it, I won't be a crypto dunce

The real significance of Bitcoin is the blockchain it is based on. Blockchains are actually computers and can be programmed (by buying into the blockchain) to execute contracts.

medium.com/@samuel.brooks/blockchain-the-infinite-state-machine-ffc39f32e182

Something that I don’t think has been touched on is the decentralised nature of the blockchain. There are many different ‘nodes’ run by various people and entities and anyone with some technical ability can run one. It’s essentially a computer running a certain code.

These nodes have to achieve consensus on the state of the blockchain. Each one agrees and validates the state of the ledger, recording all balances and transactions. If anyone tries to tamper with the code and say a certain account had more than it should have, this would be picked up and ignored by the others. Therefore no one person has control of who owns what. When this consensus is achieved, the ‘block’ is written into the chain with the same version of the blockchain stored in many places. A new block is then created, using the previous one as the starting position and so on. For Bitcoin, each new block takes about ten minutes to confirm. If you sent Bitcoin now to another address, it would be validated by the nodes and written indefinitely into the block. After 10 minutes, the block would be confirmed and the recipient could then spend the Bitcoin they received.

As far as mining goes, a certain number of Bitcoin is available to be mined per block. By about 2040, all of the potential Bitcoin available will be mined and there can be no more.

DH said about 18 months - 2 yrs ago that he thought we should buy some, like £1k worth. I thought that was a ridiculous idea and bought £10 worth. They went down in value so they were worth around £4 ish, fluctuating daily of course. A couple of months ago they were worth £90! 🙈
They are currently worth £40, fuck you Elon Musk!
I, however, still have absolutely no idea what they are!

We looked into buying some but pulled out at the last minute as our bank wouldn't allow the transaction to go through and since then have had some many phonecalls trying to get us to buy some. I could block them but they all come from different numbers either international or, as started last week, coming from our area code. Wish we'd never done anything now!