
What Is a Bitcoin, Really? - signa11
http://preshing.com/20140127/what-is-a-bitcoin-really/
======
patio11
One of the most fun parts about Bitcoin for me is that there are actually
infinite public ledgers available. You and your counterparty have to agree in
advance on which one you're using. Bitcoiners have solved this coordination
problem by saying "We mutually agree to use the public ledger which a) adheres
to all the rules in the Satoshi client and b) is longest of all ledgers
satisfying that constraint."

From this follows several consequences, like there being an infinite supply of
cryptocurrencies which share every advantage of Bitcoin, the Satoshi client
being really freaking important relative to the "protocol" (whose only
authoritative description is the Satoshi client, since in the case of
disagreement with the Satoshi client the network will reject you no matter how
"correct" your decisions are), and the fact that the ledger which is anointed
as consensus at T1 is not necessarily the same ledger which will be consensus
at some future T2 when looking back at history.

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ap22213
I am kind of embarrassed to admit that after all these years, I still don't
understand Bitcoin. Not the underlying software and algorithms - but the
concept, the system.

I can maybe see where it'd be useful in minimizing electronic transaction
costs. But, most transaction costs (credit card fees) that I pay are already
rolled into the price of things, so I don't benefit by purchasing them with
Bitcoin. And, I guess I can see that it'd be useful to maintain anonymity, but
I don't have that use case. Isn't it just easier to buy things with Dollars?

I also don't understand the dynamics of it. Doesn't it require increasingly
more capital to mine coins and to maintain the ledger? What happens when the
value of a coin is less than the mining costs or ledger maintenance? Or, does
the coin just keep continuing to increase in value? And, if so, what's to stop
people from just using another crypto-currency?

And, what is the 'value' of a coin? The article implies that the value is
created by the users' trust in the value. But, is that how currencies
generally work? I had assumed that currencies either have tangible value, like
precious metals, or that they are abstract derivatives of another's debt
(government or people).

~~~
sirsar
> _But, most transaction costs (credit card fees) that I pay are already
> rolled into the price of things, so I don 't benefit by purchasing them with
> Bitcoin._

It's not common yet, but I have in fact saved money by buying with bitcoins,
because the merchant passed on some of the savings.

> _Isn 't it just easier to buy things with Dollars?_

Sure, if you're allowed to, and you have that preference, why not? Bitcoin can
facilitate the circumvention of censorship (a la Wikileaks). And once you have
bitcoins, sending them is faster than paying with a credit card online.

> _Doesn 't it require increasingly more capital to mine coins and to maintain
> the ledger?_

Yes, if you ignore hardware advances. It might even be true if you don't
ignore that.

> _What happens when the value of a coin is less than the mining costs or
> ledger maintenance?_

There are transaction fees that go to the block miner.

> _Or, does the coin just keep continuing to increase in value?_

Hopefully not too quickly!

> _what 's to stop people from just using another crypto-currency?_

Network effects. People _do_ use other crypto-currencies. Just not as much.
For now.

> _And, what is the 'value' of a coin? The article implies that the value is
> created by the users' trust in the value. But, is that how currencies
> generally work? I had assumed that currencies either have tangible value,
> like precious metals, or that they are abstract derivatives of another's
> debt (government or people)._

Ah, yes. This is classic. The orthodox economists might tell you that Bitcoin
shouldn't have any value at all. Yet, I can sell 1 BTC and pay for months of
gas. I'd rather have a running car than an economist's opinion.

There are historical examples of currency which was neither a debt derivative
nor an intrinsically useful object being used as currency.

Ultimately, anything sellable is "worth" what _other people_ will pay for it.
Bitcoin provides a means of transferring information in a cryptographically
signed manner. We happen to use that fact to transfer information about value.
Other people are willing to buy bitcoins. The price is capped by the fact that
there is a finite number of bitcoins and a finite number of people. Beyond
that, it's pretty much new ground we're breaking here.

Bitcoin is not perfect. I don't know the future. But if you have other
questions, I'm happy to answer them from the perspective of a bitcoin holder.

~~~
jdreaver
> Ah, yes. This is classic. The orthodox economists might tell you that
> Bitcoin shouldn't have any value at all. Yet, I can sell 1 BTC and pay for
> months of gas. I'd rather have a running car than an economist's opinion.

I still don't understand how economists can say that BTC has no "intrinsic
value," so should be worthless, but the fiat currencies around the world are
just dandy.

The whole concept of "intrinsic value" is nonsense. If you can make a Bitcoin
transaction faster, cheaper, and with fewer people knowing about it (if you
value anonymity), then BTC has value. You can send Bitcoin to someone overseas
without anyone else knowing. How powerful is that?

> Ultimately, anything sellable is "worth" what other people will pay for it.

Precisely. I wish we could teach people this before they dismiss Bitcoin for
unfounded reasons.

~~~
richardwhiuk
Fiat currencies have intrinsic value due to taxation.

~~~
mbreese
It's not just the taxation (which is true), it's the fact that they are backed
by a particular entity. In the case of USD, it's the United States government.
Dollars may not be "backed" by anything tangible, but they are accepted
because the US is (largely) a trusted entity. That's what makes USD useful to
people internationally.

Bitcoin doesn't have the advantages of having a government backing it, but
some would probably argue that that _is_ an advantage.

~~~
SilasX
Considering how many trillion definitions people may mean when they say a
currency is "backed by" something, I don't think your explanation is an
improvement.

For that reason, I recommend listing the specific things that make the USD
valued: in this case, the need to pay USD in taxes, and a very wealthy entity
(US government) prefers to trade in that currency, or whatever specific thing
you mean with "backed by" in that statement.

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infogulch
Good article. It's clear, covers the important points, describes the basic
technology reasonably well to a non-expert, debunks some common myths, and,
thankfully, steers clear of "mining".

Mining is really a terrible term for the layperson that evokes thoughts of
real mines that produce resources at a continuous rate. It should be called
"Distributed transaction verification. And, oh yeah, by the way, verifiers
have a chance to win a prize, lottery-style."

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ghshephard
Useful description, but some not 100% accurate statements:

"A private key is nothing but a large pseudorandom number roughly between 1
and 2^256"

Not sure how the "pseudorandom" came in there - the private key might be
random, or pseudo-random, or entirely deterministic - it's essential property
is that it's just a 256 bit sequence that is unknown to others.

"It’s perfectly safe to give your Bitcoin addresses to other people, but
extremely important to keep your private keys secret. "

The essential point trying to be made here is that the Bitcoin Address won't
allow people to determine your private key. but there are a lot of reasons why
you would _not_ want to give your Bitcoin address to other people - the key
reason being that it allows to track you. There is one philosophy that
suggests you should change your Bitcoin address on every transaction.

Overall, though, a nice introductory article to Bitcoin - I'd recommend it to
others.

~~~
leni536
Just for nitpicking, a number is neither pseudorandom or random. It could be
randomly generated though.

~~~
Sammi
Yeah, it should be something like: "A private key is nothing but a number
roughly between 1 and 2^256, that is only known by you. This number is usually
pseudorandomly generated by your bitcoin client, but it could be generated in
any way. The important thing is that it is an uncommon large number, that
others will not be able to easily guess."

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JarekS
For me, this was the best intro to BitCoin -
[http://gendal.wordpress.com/2014/03/27/how-i-explain-
bitcoin...](http://gendal.wordpress.com/2014/03/27/how-i-explain-bitcoin-and-
cryptocurrencies-to-new-audiences/) It doesn't focus on tech - it explains why
BitCoin as a platform is so important and what are the killer apps that can be
build with that platform.

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gaelow
A bitcoin is a commodity. A small piece of a complicated crypto system you can
buy or decipher or even trade for goods (in very few and restricted cases) and
has practically no use apart from storing it in the hope to get a benefit in
the near future by selling it at a higher price. Have you got an old VCR?
Well, a bitcoin is just like that, or it will be soon (Only you can't burn a
bitcoin in the hope to get some heat when your bitcoin acquires absolutely no
value whatsoever but, then again, you may not want to burn a VCR due to toxic
fumes and such...)

Some talk about decentralized currency, anonymous payments, money laundry...
Shenanigans. All shenanigans.

~~~
micahammon
Besides ease of international transactions, consider that only 41% of adults
in developing nations have bank accounts and only 7% of adults in developing
nations have credit cards. With Bitcoin and perhaps technology built around
it, they can now have access to banking-like features, but without the credit
profile which they probably lack, and importantly they can join the digital
age and conduct transactions online without the need for credit cards.

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lisch
I thought the old NPR podcasts were pretty good introductions:
[http://www.npr.org/blogs/money/2011/07/13/137795648/the-
tues...](http://www.npr.org/blogs/money/2011/07/13/137795648/the-tuesday-
podcast-bitcoin)
[http://www.npr.org/blogs/money/2013/04/09/176688096/episode-...](http://www.npr.org/blogs/money/2013/04/09/176688096/episode-450-bitcoin-
goes-to-the-moon)

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astazangasta
They forgot the other, key attribute of a dollar that makes it useful for
'distributing wealth': it has a relatively stable value. Economies rise and
fall because of the struggle to control the price of their currencies. The
notion that a medium of exchange with no such stability should replace the
dollar is bonkers.

~~~
sirsar
If by stable, you mean "decreasing steadily," then sure.

~~~
astazangasta
Yeah, I'll take a fairly predictable rate of inflation over an inherently
deflationary currency with absolutely no controls on its motion. I guess we're
supposed to be excited about currency being able to flit around like a
panicking moth?

~~~
oafitupa
I'll take the deflationary one, ty.

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diminoten
I became familiar with what Bitcoin actually was via an article posted here
about 7 or 8 months ago. It was a very long article, but it started from zero
assumptions and worked through designing a crypto currency, bringing up each
problem and then explaining how Bitcoin solves that problem.

I wish I could supply a link to it - maybe someone else has the article?

~~~
michael_nielsen
Possibly you're thinking of my article "How the Bitcoin Protocol Actually
Works": [http://www.michaelnielsen.org/ddi/how-the-bitcoin-
protocol-a...](http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-
actually-works/) It was on the HN front page 7 months ago.

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the_decider
An excellent series of introductory Bitcoin lectures are available on
Coursmos: [https://coursmos.com/course/dive-deep-into-a-bitcoin-
bitcoin...](https://coursmos.com/course/dive-deep-into-a-bitcoin-bitcoin-term)

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jds375
This is the FIRST article I have ever read that gave me a no bs explanation on
what bitcoins really are. It was a great read. Thanks.

------
known
[https://multibit.org/faq.html](https://multibit.org/faq.html)

