

What is the simplest way to explain Bitcoin? - avni000

i understand the basics of Bitcoin (purely digital virtual coins with no middle man for exchange) but can someone explain some of the details like why only 21M cap and what mining vs buying entails (eg can anyone with right hardware mine?). Also what roll do the exchanges play and is there compatibility between different currencies on the Bitcoin protocol? Would love a simple primer on some of the nuances.
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mod
21M was built-in to the specification. I don't know the entirety of the
reason, but presumably to help prevent decreasing the value of existing
bitcoins for all time. (If you kept minting them, there'd always be new ones
devaluing existing ones, like how the US gov't does with dollars).

Buying means you buy already-minted bitcoins. You can buy them privately or on
exchanges. Then they're yours. The exchanges' role is to facilitate trading
between users, and they operate at a profit (they charge you a % to buy).
Basically, it'd be hard to sell your bitcoin if you didn't have exchanges.
You'd be posting on craigslist or something. And people would be scamming you
for the money. Stuff like that.

Anyone can mine on virtually any hardware, however due to competition, it's
hard to mine profitably. You have to have specialty equipment that is both
very good and very efficient (power-wise). You can mine on your own or as part
of a pool, but you essentially have to 'get lucky' on your own, and it's very
unlikely that'll happen. My advice is to not think about mining until you've
done a lot of research and for some reason decide you want to do it. It's a
bad idea for almost every non-expert at this point.

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bbcbasic
Mining requires expending computing power to solve a puzzle. The puzzle is to
get the hash of a bunch of transactions below a certain number. The first to
solve it receives a number of bitcoins.

Mining is based on a network agreed difficulty level. So as more miners
participate and get better hardware the difficulty of the puzzle increases (by
lowering the bar).

Currently it requires dedicated custom-built hardware (built solely for mining
bitcoins) to make any kind of money mining Bitcoin. Even then you have little
chance of winning the reward - so you normally would join a mining pool to
pool computing power and share rewards with other miners.

The mining acts as a proof of work. It helps solves the problem that in a
peer-peer system you can't trust anyone, because in a democratic system an
attacker can run up any number of nodes they like at little cost. However with
mining this is not possible, such nodes will not be trusted.

This is a very simplified view of things and there are more complexities but
it gives you an idea.

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avni000
This is really helpful - thanks. A follow up question about volatility - is it
true that volatility only really exists when trying to convert to currencies
like the dollar or pound but doesn't exist if you remain within Bitcoin?
Wouldn't that imply that it's like gold where it's good to buy as much as you
can when the price in dollars drops but that once you own Bitcoin the price of
goods in Bitcoin would remain constant?

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logn
The BTC price of goods only remains constant if sellers decide so. And they
generally have a supply chain and labor that is heavily impacted by exchange
rates. Plus, neither consumers or producers are ignorant of exchange rates, so
there aren't going to be products marked at 1 BTC forever if BTC
appreciates/depreciates.

But there's nothing within BTC itself that's volatile. The currency is slowly
being inflated to the target 21 MM coins.

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J-dawg
To add to this question, I'd love a simple primer on how the blockchain works.
I understand that mining Bitcoin is the process of bruteforcing a hash
function which is derived from a previous part of the blockchain. To transfer
ownership / spend Bitcoin I simply have to send this string to somebody. But
how does this work with Bitcoin being de-centralised? What if two or more
people mine the same Bitcoin (succeed in bruteforcing the hash function) at
the same time. How do you decide who is the real owner with no central
authority to confirm ownership?

~~~
logn
This paper is worth a read:
[https://bitcoin.org/bitcoin.pdf](https://bitcoin.org/bitcoin.pdf)

From page 3:

 _Nodes always consider the longest chain to be the correct one and will keep
working on extending it. If two nodes broadcast different versions of the next
block simultaneously, some nodes may receive one or the other first. In that
case, they work on the first one they received, but save the other branch in
case it becomes longer. The tie will be broken when the next proof-of-work is
found and one branch becomes longer; the nodes that were working on the other
branch will then switch to the longer one._

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brudgers
Tulip bulbs less the nutritional content.

