

Ask HN: How possible is to create your own currency? - redxblood

So, suddenly Bitcoin is a currency. But doesn&#x27;t that mean someone just decided to &quot;create&quot; money?
Isn&#x27;t that illegal? After all you&#x27;re just making 0&#x27;s and 1&#x27;s out of nothing.
In relation to my question, what about bitcoin mining? You get some machines to mine for them, which is basically making bitcoin out of thin air. (i may be wrong, i don&#x27;t know how mining works)
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canterburry
Listen to this podcast by NPR planet money, it explains everything about what
a currency is and why it has value:

[http://www.npr.org/blogs/money/2013/08/27/216125279/episode-...](http://www.npr.org/blogs/money/2013/08/27/216125279/episode-421-the-
birth-of-the-dollar-bill)

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bmelton
Well, first of all, it isn't a US dollar, which means that it isn't
counterfeit, which means it isn't illegal. Anyone can manufacture anything
(that isn't illegal) and call it valuable. The market determines whether or
not it actually is. In this case, the market has decided that Bitcoins have
value, so they do, at least for now.

There's nothing to suggest that Bitcoin _is_ officially currency, and the
government currently doesn't see it as such. You aren't taxed on bitcoin gains
or losses like you might be if it were a stock, or interest in a bank account.
You're likely obligated to pay taxes for when you cash it out into fiat, but
that's normal.

If it helps, you can think of it more like a baseball card, or a comic book.
If I go and buy a bunch of old comic books for a dollar, then, well, they're
worth a dollar. If they happen to be rare comic books, and are actually sought
by collectors, then perhaps I can sell them for tens of thousands of dollars.
If I sell a comic book for tens of thousands of dollars, then I owe taxes on
that sale.

In the case of bitcoins, yeah, the coins were 'magicked' out of thin air, but
they were done so in a process that prevents (or at least strongly deters)
cheating and tampering. Similarly, "Facebook.com" was just magicked out of
thin air. For that matter, so are US dollars (Okay, yeah, they're paper, but
fiat currencies hold no actual value except for what men with armies say they
do -- if the economy collapsed, your dollars are worth kindling, basically).
More appropos, perhaps, is the idea of a virtual gift. If I make a virtual
flower and send it to you, you have a virtual flower. If you buy a virtual
flower from me for a dollar, than you have a virtual flower, and I have a
dollar.

In the case of Bitcoins, some people had them, and other people wanted them,
so dollars were exchanged for Bitcoin and trade occurred.

That said, the mechanics for how bitcoins are mined is indeed _much_ more
complicated than I'm portraying here, but effectively, there's a pot of gold
in the middle, that contains all the bitcoins that will ever exist.
Contributing CPU time (or GPU time/ASIC time, whatever) towards processing
transactions in the network will occasionally reward you with bitcoins from
that treasure pot. The more you help, the more likely you are to receive a
reward.

In some vague, abstract sense, you can imagine that the blockchain (the pot of
gold) is a bank, and everybody contributing CPU time is an employee, getting
paid commensurately with the work they put in.

Note: This is a string of very bad analogies that oversimplifies things to a
ridiculous level, but is meant more to give a general picture than to provide
a real explanation.

