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8035 posts

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  #500775 2-Aug-2011 13:49
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Having an alternative to the existing reserve bank(s) based fiat money system sounds kind of useful to me given the state of things atm eg: US "printing" money to devalue their currency and inflate away the effect of overseas debt.

Seems to have a better design than the various local barter card type systems and is global.

Money has value because we get paid it and can then use it in exchange for goods and services. If bitcoin was stable and enough businesses accepted it, people will begin to use it.

Couple of big if's though ^


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  #500932 2-Aug-2011 17:37
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Would sooner use gold than some made up thing by crypto-nerds.



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  #500945 2-Aug-2011 18:11
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I think you're misunderstanding it to some extent.
First of all, think of bitcoin more like another currency, that's what its purpose is meant to be. You can exchange this currency on exchanges for other currencies, such as USD, GBP, or whatever.

You can also use it to buy things if people accept them for payment. One infamous and commonly used example is Silk Road, a 'black market' exchange only accessible on Tor, and frequently used for selling prohibited items. Of course the existence of this makes people paint the entire currency with a bad name (the media love this), but its quite ignorant as USD in cash are used for paying for illicit merchandise too.

In terms of the 'work' done, because bitcoin is decentralized, something has to keep it in check, as a reserve bank would. Algorithms calculate the coin output of the network, and adjust the difficulty this work, rewarded with coins, approximately every two weeks, making it easier, or more commonly harder, to generate more coins. This is the same as a reserve bank keeps a steady flow of new printed money into an economy, but no single person controls it, a bunch of algortithms do.

The work you're doing generates 'blocks' of coins, and also has a piggybacked attachment on it which is a list of transactions since the last block that was 'found'. When a block is 'found', the list of transactions  will say this much money has moved from this account to that account and so on, to allow money to move around securely.
This means that you cant just make a transaction out of thin air, theres a big chain of records that go way back from where the money you are transferring originated (when it was generated in its own block). Several nodes on the network have to authenticate that your transfer is legit, and this is done by the miners whenever they find blocks as i understand it. So it appears while the actual work done is pointless (calculating SHA1 sums, as opposed to protein folding for example), the purpose or reason for the work has a point, and thats to maintain a constant coin output that can be controlled, and to verify transactions are legit. So yes it could be seen as a waste of processing power, as people ask why cant that work be made something useful, but then it would be much harder to adjust the difficulty of work, and who would decide what the work was when there is no central authority controlling it?

Its rather difficult to understand, people call it everything from a pyramid scheme to totally flawed and everything in between. When you learn more about it it makes more sense in the way it works. Its also amazing how far its got, since no one has control over it, you'd think something like this would NEVER take off.
The problem comes in execution though, the fact it isnt that straightforward to understand makes people doubt it, and secondly people are pretty much just playing it like a currency or stock exchange, buying low and selling high, and the miners purchasing lots of hardware to generate coins and sell on these exchanges to people wanting to buy. So i believe the majority of buying is people speculating they can sell it off higher. For this reason bitcoin will never be adopted by more than nerds.

I mined for a while and made a bit exchanging it for NZD or USD. Im selling off my hardware i bought for it, and i'm very happy with how its gone for me, but ive decided its not worth my time anymore.

Its still profitable to mine even now, i did some power calcuations and figured out i'd make $2 profit per day with one graphics card after power (so $14 "free" per week, $56 a month etc). For me this isn't worth the fact that my PC is in my room and the extra noise isn't worth it being harder to sleep. For some people though, this "free" money might means their internet bill is cancelled out or something. I've seen photos of a huge setup in which a guy was earning $11,000USD per day (no joke), so works out rather nicely for him.

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