i am confused as to how they originate. you perform a service for someone and they enter Bitcoins in your account?
Posted on 03/23/2013 6:34:02 AM PDT by GiovannaNicoletta
With all its other problems, the euro is also getting unexpected — and “underground” — competition from a new virtual currency.
It’s called the bitcoin, and in case you haven’t heard, it is the most ambitious (and to-date, successful) attempt to create a new online currency, generated by the calculations of thousands of computers. Some say it amounts to a kind of anarchic money.
This week, as the euro crisis has reached Cyprus, the bitcoin (BTC) marked a record high on the largest online exchange, bitcoin.de. The exchange rate has approached 50 euros, more than doubling the value of the virtual currency within four weeks.
(Excerpt) Read more at stratrisks.com ...
Ping!
After attempting to use it for a purchase of small something/other from Britain, I gave up in frustration/patience and went another route.
i am confused as to how they originate. you perform a service for someone and they enter Bitcoins in your account?
I don’t trust it. What’s to prevent them from just creating more and more of it, thus devaluing it and driving inflation and runaway debt spending....
Oh, wait, I was thinking of the US Dollar.
Nevermind.
It appears that initially you have to buy them for some other currency, but then you can exchange bitcoins with anyone who accepts them. If you sell a sofa on eBay, I suppose you can be paid in bitcoins.
Money is an abstraction, like imaginary numbers (or integers for that matter) but one so deeply ingrained in us we impute real value to virtually indistinguishable pieces of paper, that represent some kind of claim on the goods and services of society.
Most of the money exchanged these days never takes any material form, it merely exists as information in computers. My employers bank electronically transfers dollars from its payroll account to my checking account and my bank’s computer transfer the same information to MasterCard or Visa at my request. When I but a fishing rod or car, I do it by promising to transfer some of the money in my account to some other account.
I suppose bitcoins have the virtue of not being intermediated by any government, and the process does have the virtue of transparency. Still, unless bitcoins are readily convertible to a hard currency they will probably enjoy the same wide acceptance as the Zimbabwe dollar.
so they are originally bought and after that they have a life of their own... but you can also work for them in lieu of regular currency right?
As long as two parties to the transaction agree, I suppose so. What happens in the event of a dispute is interesting. What if you perform a service, but the payer claims the service was not performed in satisfactory? How do resolve such a dispute. It seems to be a way to avoid taxes and government oversight. As a banking institution, it appears to completely unregulated.
they are ‘mined’. They originate from a complicated algorithm that has a limited number of bit coins able to be created. At the start many were able to be created and used as time goes on the number of coins available to be ‘found’ decreases and the computing power to find them increases. Thus it creates a limited amount of currency to avoid deflation. So the original ‘work’ to create them is computer power. There are actually ‘mining’ pools you can join. you contribute some of your computer’s processing power when you are not using it to help the pool ‘mine’. If a bit coin is found it is distributed among the pool based on how much processing power you contributed. A neat theory, and as bitcoin wallets get easier to operate they hope more people will use it.
The system basically works by having a public list of “coins” with a unique encryption key assigned to each one. It is always known how many coins exist, but not who owns them.
To “spend”, you simply send someone a spend key. This is generated from a combination of your own unique private key and the recipient's public “receiving” key.
Sending the spend key can be done by email, phone, carrier pigeon, etc. If you use a secure method to send they keys, it is impossible to trace payments.
When that spend key is entered into the algorithm by the recipient, it changes the keys of the coins that you wished to transfer. The coins will now have a key that matches the new owner of the coins.
All that changes publicly is the key of each coin. It is impossible to prove ownership of the coins unless you already have the unique key to unlock them.
There is no centralized server. How it works is there are volunteers (nodes) who process the coin updates and continuously match the lists to each other. Because of how the algorithm works, no one person or group can change the list on their own. The majority of the “nodes” must agree that a change is valid 6 times before the list is confirmed. The more nodes there are, the more impossible it becomes for a small group of people to manipulate the list.
The process is 256 bit encrypted and very processor intensive. The “nodes” are rewarded by generating a coin after a certain number of cycles. This is called “mining” because they are contributing processing power and electricity.
As the number of coins increases, it becomes harder and more costly to “mine”. Basically, the system self-limits the amount of mined coins by continuously increasing the required processing power. When the cost of mining exceeds the value of the mined coins, mining slows down until technology or demand makes it profitable to mine once again.
The method of coin creation is completely analogous to gold mining!
OK, now i am even more confused... you can't buy them, you mine them by looking for them, then you can spend them, so if there is no intrinsic worth, what makes them valuable is the time spent in looking for them and their limited number, is that it?
Yours is one of the more thought-provoking taglines I’ve ever seen on FR. Excellent.
so it's the looking for them that gives them value... right?
yes and no. In the sense that it should keep inflation under control, yes. No, in that gold is not valuable just because of the work that it takes to mine it. It is valuable because people are willing to take it. Same with bit coin. It’s value is determined by people being willing to take them, invest in them. Same as any currency, except this one isn’t backed by any country, has a limited supply, and anonymity.
“what makes them valuable is the time spent in looking for them and their limited number,is that it?”
Basically yes. That is also the reason gold is so valued. Gold has little useful intrinsic value but it is rare, easy to verify and hard to find/create.
You don't go looking for the coins. You create them but it requires computing resources. The architecture of the system always keeps the creation cost near the value of the coins. So just like with the “gold standard”, nobody can flood the market with cheap, easily obtained currency.
If enough people in the world use such a system, IMO it is much more secure than the paper fiat currency most people use today. The only issue is that it requires a global network to always be online (internet). Unlike gold, you can't store the “bits” under your mattress if the power goes out.
but he still has to pay the sales tax in dollars, yes???
The tax is usually paid when you transfer ownership of the property but if the contract is in bitcoins there is theoretically no “real” currency transferred. Legally it becomes a “trade” rather than a sale.
If the tax in that jurisdiction is based on the assessed “real currency” value of the property transferred (regardless if it is sale or trade), then he will have to pay the tax.
If the tax is based on the amount of “real currency” actually paid for the property, then he technically owes no tax. In such jurisdictions you will often see homes officially sold for $1. These are property transfers between family or private cash deals to avoid the tax.
The problem with making such large purchases “under the table” is that you can't prove someone was paid. If something goes wrong with the deal, you can't prove you actually gave someone cash or bitcoin in court. This is why such deals are most often between family or trusted friends.
i bet their taxman will have something on the books before the next Bitcoin property transaction occurs other than to family members though... they ALWAYS gotta have their cut of the action
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