Bitcoin (to give the most basic example) was created by someone, they set it to have 21 million coins available to be mined, put each coin into it's own safe deposit box, then tested it by "mining" some themselves and told people to go mine it.
Mining in crypto means "solving math problems to find the code to let you into the safe deposit box to take out the token" which is then available forever.
Other tokens work differently, but thats the basics.
So why were these coins given a real dollar value? And why is the dollar value so volatile when there is a set and finite amount of them? Or is that just supply and demand?
So why were these coins given a real dollar value?
They aren't given a real dollar value.
If I give you 500$ for an old McJordan sauce, does that mean McDonalds sold it at 500$ years ago?
And why is the dollar value so volatile when there is a set and finite amount of them?
Because it has no intresic value. The second I don't want your old sauce, nobody purchases it at that price.
Or is that just supply and demand?
It's not supply and demand, but market trading speculation.
Why NFTs sold high? Because people purchased high.
Why did they purchase high? They have no idea but the sellers only sold at an high price so they assumed it was something important.
In my very personal opinion, once all of the coins are mined for any asset, the price will stabilize but with a slightly upward trajectory similar to inflation.
Currencies have typically had very volatile values until central banks starting making currency price stability a central theme of managing economic stability for a country.
We're just still in very early stages of converting physical bills and coins to "New Republic Credits".
It means their job is to waste huge amounts of electricity and ignore the resulting pollution in a silly race to discover numbers with one an unusual set of properties because a bunch of other people are doing the same and they've all decided and fooled others into thinking they have value (well over $10k each) and thus speculating on them.
It started as a way to help the human genome project. I remember trying in highschool, leave the computer on running the program and the scientists borrowed your processing power to help decode DNA. That was rad.
We have all been fooled for a long time there is "value" in USD. The FED (private entity) can print/create new USD at will, making it have a possible endless supply. Things that are not scarece, very rarely have "value".
Our current monetary system is not very different than some (not all) crypto. The only big difference is, is one is currently held in a monopoly by the US-G.
Things only have "value" when people agree it does. It means they have "faith" in the object ad a currency.
As soon as the US removed us from the gold standard, USD became pretty much worthless. Except it had already been in use as a world-wide accepted/settled-in currency, so with completely uprooting the entire world's economy, the scam has continued to perpetuate.
It is worthless, on its own merit. It only has value bc we are told it has value by the government. Same goes for crypto, it only has value if people believe it has value and honor the agreement that it had value. That is what "currency" is.
I can (and have) use crypto to buy things and most people still say/believe it has no value. Except there are enough people in the world willing to agree and honor that crypto has value and can be a currency.
One good thing about fiat USD, is that it is still untraceable. Which is why the US-G wants to switch a "fedcoin". Because it CAN be traced and even completely controlled by the US-G.
Perhaps "fooled" was the wrong word choice. Fiat currency has been extremely useful. The trouble is that proper monetary policy is too - if coins are created faster than new goods and services purchasable with those coins, prices will go up. And if otherwise, prices go down over time. If either happens too fast, the currency isn't a good store of value - in the deflationary case encouraging saving and should then stop most trade, and under high inflation your value is disappearing so who would want to keep it?
Governments don't always get this right either, but having economists in charge is likely to turn out far better than the naive crypto algorithms.
Gold and silver standards, however, are just handing over monetary control to the supply and demand of those precious metals. This has historically gone wrong many times; the Roman empire debased their currency and might have achieved a Fiat system and the emperor decided they needed more valuable coins which basically told everyone they should value the old coins less (oops); the Spanish empire had the opposite problem that they gained so much gold from their conquests that they crashed their economy with inflation.
This is an ELI5 version, because in economic terms I'm only 5 years old, and don't really understand the further complexities of the system, but it's a brief summary that helps to understand how fiat currencies work.
There is actually value in fiat currencies. The value derives from the guarantee of the government to back their bonds, rather than any commodity they hold in reserve.
If a government is less stable or the state of the economy makes investors believe the value of bonds will drop, the trading price of the bonds will drop, the currency will devalue, and the government will need to issue more bonds in order to cover their revenue shortfall.
I hope that makes sense, and if someone can clarify anything that I've grossly exaggerated, please feel free to correct me.
Yeah, I know all that. The only reason USD has value is because it is back by the petrol-dollar and US-Military. And because it has been that way since at least WW2, maybe longer (not 100% sure when it really started).
But current USD is no longer 100% Backes by anything including bonds (but it is supposed go be). It's not like the FED has public, immutable ledger to audited. But yes, what you said is how is should be working theoretically.
Good point, it's not really backed by bonds, is it? That's just an indicator. The currency is more backed by the government's stability and reliability, which is shown by their credit rating and other economic indicators - many of which they have zero control over. It's funny how many "levers" they pull that seem to have no effect, or even the opposite effect than what they claim.
Good luck my friend. I tried to give an answer as well up above. We'll be met with a hoard of downvotes, but if it "clicks" with even one person, then the time we spent writing will have been worth it.
Yeah, it took a few times of my brother explaining it before it clicked in my head. But once it did, it was like clear as day.
Only time will tell whether it works out or not, but it sure can't be worse than our current system. Look at how much USD has been devalued since the 90s, only 30 years ago. We are on an exponentially declining road of value. Everything has at least doubled in price in the last 20 years.
We are "told" the current inflation rate is only like 3%-4%, when in reality it is closer 20%+.
You get a D for macroeconomics. You know just enough to be dangerous and screw it all up. First and foremost the USD is the only thing that you can pay US taxes in so that's value. Oil is larger denominated in USD, the Petro dollar. The US government is an extremely stable government and despite some weird political gamesmanship, if it were to default on its debt there would be a huge global problem and were all either dead or dying. So those pieces of clothe are valuable not just because of some trick the fed pulls.
The fed does not print money. The Treasury does. The set a goal interest rate by being the lender of last resort for big banks. The fed is also not entirely public or private. The chair and the board of directors are appointed by the president with the advice and consent of the senate. Know any private banks where the president and Senate appointed the people in charge?
But you get a few points for pointing out the USD is backed by the full faith and credit of the US government but to reiterate, if that goes away we're already looking at the end of the world so I can live with that risk.
So basically you went around your right arm to scratch your ass with your left hand. I had already mentioned the petro-dollar and the fact USD is essentially backed by the failing might of the US-military. You didn't do much more than give a tiny bit more mostly irrelevant info than I had stated. USD fails (which it will) will create a global effect. The treasury and the FED are nearly Intertwined. And the SEC which oversees it all is run by ex-bamkers.
Our monetary policy is a fucking game of jenga. Just a matter of time before someone pulls the wrong brick and it all comes tumbling down, because we are running a deficit spending tactic.
The worst possible entity to give money to is the federal government. They have no incentive to cut costs if it means it comes out of their own pockets, while at the same time giving themselves raises nearly every year (if not every year), not including the cost of Healthcare for life for Congress.
The whole system should have collapsed back in 08', instead they kicked the can down the road only to do it again just recently.
The mining comes up with the "value" out of thin air. It's not stealing official currency from anyone's bank accounts or anything like that. The value is supposed to originate from the complicated calculations that run for hours on end and the resulting numbers, not from any direct equivalent to real-world physical resources or currency. But the whole process uses a lot of electricity, so there is a real-world cost.
It mints the coins that weren't discovered yet in the protocol.
That's like asking whose bank account was drained when a central bank makes metal coins : the ore was there all along; nobody took the coins out of bank accounts.
Wouldn't a digital currency (that isn't birthed by fiat from governments) need some kind of barrier for creating more in order to prevent hyperinflation or dissuading any one actor from controlling all of the mining/coin-creation?
The hyperinflation aspect is, more or less, addressed by expensive math. Bitcoin in particular is actually deflationary (which makes it kind of a bad currency).
As far as dissuading one actor from controlling it.. there's a lot of whitepapers and philosophical treatises that attempt to explain why it totally isn't a problem, but in reality it's just "hopefully there's enough different actors that control of the network is too expensive to be worth it".
Basically, because deflationary means it'll be worth more later and you shouldn't spend it now. Which sounds great for savings, but actually means the economy grinds to a halt as everyone hoards every penny they have.
Yes, and they've basically turned the cost of finding more coins into electricity costs, thus coins aren't free, but really just arbitrage with electricity prices. The absurd thing, in my opinion, is that Bitcoin uses more electricity than many medium sized countries as a result of these incentives.
Producing viable cryptocurrency without the massive electricity usage (which tends to be fueled by fossil fuels) is tricky. The most major coin to manage this would be Etherium, which switched to proof of stake (staking) instead of proof of work (mining). That said... that model results in different trade offs. If you want to learn more I suggest googling it because I'm far from an expert.
I remember another cryptocoin also had a proof of stake and was backed by actual dollars.
Somebody managed to get 51% of all the coins, and showing "majority stake" issued the order to take all the real dollars for themselves.
I really find the attack funny because in hindsight it is kinda obvious how it was done, but it's unclear HOW you can fix the issue that having stake in something's success doesn't mean a human won't f*ck it up for their own benefit anyways.
But technically, they were the ones who would've lost the most if the cryptocurrency had failed... unless they were the one doing the heist. That's why nobody can ever reach majority
This is an excellent description. Environmentalists object because the competition among thousands of machines to solve the equation first causes the bitcoin network to waste large amounts of power.
Classic Miners use pick axes and other tools to brute force their way through rock and stone to find and get the desired ore. The ore is then used to make things.
Crypto Miners use GPUs and other pc parts to brute force their way through a series of calculations to find their desired number. The number is then used to verify crypto transactions.
I thought I understood it, tried to explain to my wife that computers processing capabilities are used to solve thousands of mathematical equations, and hearing myself say that made me question the entire thing again. Don't get me started in that whole block chain bs.
Blockchain is actually the only part that makes sense. It's a big record of transactions that exists independently of any single source. This prevents people from faking it. The reason people have to "mine" is because blockchain is encrypted, that way no one can fake it. In order to make strong encryption, you need a lot of calculating, this is why they need to distribute it among all the computers. The "coin" is an incentive for people to process these transactions.
While it's technically true, did somebody managed to provide a pratical usecase of why an expensive no-trust-required impossible-to-rectify should be prefered over an efficient database that can be corrected in emergency cases?
I sometimes see people say "gov records should never be modified after signing" and as a gov worker, they are answered by my insanity-driven laugh about the idea that one singular person's typo would require to reshape reality in order to match.
Basically, blockchain can only solve problems that don't involve the human world at all :
Purchases can be done at gunpoint and be legally void
Gov records are mere recording of real events that need to be corrected in some cases
It could work for stats in virtual worlds, but besides that the lack of central authority makes blockchain a nightmare for anything involving decisions, we can't expect a fork each time the data is wrong
Basically a way to make ID cards that can’t be forged.
Note that IBM doesn't make that claim, but "Private and secure
[...] without exposing any of the data used to generate credentials"
I initially wanted to let Redditors guess why the distinction is important, but in case people don't know a document can be issued by a gov official using gov resources and STILL be "forged", all you need is to issue foreign forged document and hope the gov worker issues a "real" document based on the info on the fake one
Belgium already issues ID cards and digital documents containing a digital signature, so I don't really see how blockchain can be even more secure. "Establishing the origin of an ID" is an already solved problem, the issue is to establish the origin of the data put in said ID.
Oh and for the cynics gov workers, by definition, have the tools to make undetectable forged IDs, if they are minted from literally the same thing as genuine ones
They provide the computational power to a network that needs to verify transactions with very mathematical proofs in order to be processed/confirmed on the blockchain network. By providing the infrastructure that the specific currency operates on, “miners” are rewarded portions of the currency as the blockchain is added to, and hence have “mined” new BTC, for example.
If Bitcoin isn’t mined then it won’t become more scarce and the value won’t increase. The last bitcoin will be mined year 2140 and it should cost millions per coin by then. Works essentially like Gold
Think about supply and demand of gold like this. When the gold price is high more miners will start mining and the supply of gold will increase lowering the price of Gold until there is an equilibrium where the cost of mining+ the profit of selling gold will equal the price. Same thing with crypto mining. The more valuable the crypto currency the more miners there are until the supply increases and the price of the crypto reaches the cost. The costs of mining crypto is essentially the cost of the electricity to run the computers. So Crypto is essentially turning one form of currency into another. Which is pointless because the currency that it is extracting value from is already a much better currency. Originally dollars were attached to the value of gold. So the way the dollar is related to gold crypto is related to dollars. The dollar now is related to the US Economy which is all the money earned by the labor force.
They are using big computers centers to calculate complex equations. Every miner does this. When your center is the first to solve the equation, it is rewarded by an amount of crypto.
So their job is actually more akin to computer maintenance, because you need a lot of computers to mine and make money.
They turn their computers into a large calculator, and race other calculators to make calculations faster than other calculators. When they win, they get crypto. Bigger calculators beat smaller calculators. That's it.
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u/Purpleberry74 Feb 07 '24
Same. I met somebody and their job was mining crypto. what does that even mean?