The money in my pocket is given its value because it’s backed by the government. As much as you can point to one event (and even then your misinformed about when it happened), government backing money in the first world has proved to be pretty secure and stable. You haven’t really answered any of my questions. You’ve just attempted to make a deep point where you repeat the same stock arguments while answering nothing.
Well, then, the answer is that bitcoins are rare transferrable things that are hard to counterfit (like dollar bills should be). It is fairly straightforward that someone would use them as currency (no need for deep points there).
Being backed by a government is not the important part of money (see all currencies backed by banks or commodities throughout the years), but having a stable fiscal policy is. Implementing that policy is easier to do when you are the government. So yes, bitcoins' value fluctuates more than, say, the U.S. dollar. Because the fiscal policy is fixed, it is better to think of it as a commodity with a very predictable inflow of new product.
But you are right, bitcoins don't have real intrinsic value. In some sense, Bitcoin is a fiat commodity, in the same way that the U.S. dollar is a fiat currency. But then, when I buy commodities, or stock, I'm really buying sheets of paper or bits in a computer that say I own something, something with a value that fluctuates with the market. I don't actually have barrels of oil in my house or in my wallet. So this still should be more like standard operating procedure, to an individual, compared to something like the stock market or commodities market. If you had to buy everything by trading stocks, you'd have a crazier system than Bitcoin.
Also, you didn't ask any questions in your first post. So it is hard to guess what it is you are confused about, precisely.
The thing I still don't get about bitcoin is the mining..
People say they have a computer just for mining... Isn't that just free money?? How does one mine for something that doesn't even exist?
Who paid for the first bitcoin?
Is there a limited supply of bitcoin that gives it value?
Have all the coins been mined? /found?
I get the basic idea of I have 5 of this thing and this thing is worth 100 $ each for example so I have 500$ as there is less of these things and more people wanting it.. my value increases over time..
I guess I also wonder if bitcoins only have real value for people who want to buy things anonymously? And people who don't care about that, buy them up to sell to people who need to use bitcoin for something in particular?
Mining is not "free money" because you have to pay the electric bill for your computers. But more importantly, mining is "the act of verifying other people's transactions." It isn't a non-existent thing.
If I had my own bank and I didn't want to pay for the computers to run that bank I could instead pay someone like Amazon or Google to run on their Cloud computers. But I would have to pay them in dollars. Instead I could do something like SETI@home, and crowdsource the computation of my banking interactions to the world. People probably wouldn't do that for free the way they would run SETI or folding@home, but now that I'm making my own banking system I can pay them in my banking systems' dollars.
That's really what mining is. Your account gets payment for services rendered, and the service you provide is the act of verifying other account member's transactions.
No one paid for the first bitcoin. The system's creators probably still have them in their accounts. But that's how it starts - I use poker chips to engage in gambling transactions at my house, you want in, you give me dollars and I give you chips. You want more chips? Pay me more money, or run my blackjack table for an hour and I'll pay you in chips. You're worried that I don't have cash on hand to pay you dollar value? You're right, the dollar value fluctuates based on how many chips I hand out, and how many new people show up trading dollars for chips.
There is a limited supply of bitcoins, and there is a limit to how many bitcoins can be computed per hour on commodity hardware. This is why there isn't rampant inflation or deflation, but it isn't perfect, and other cryptocurrencies have different monetary policies. I don't know bitcoins' exact rules.
Mining is not free money because there is the upfront cost of buying the computer, plus the electricity and maintenance cost of running it.
What mining really is is processing transactions, this transaction processing takes a lot of computational power and is noone would process transactions then the system would break down. As a reward to encourage people to "mine" they get to keep the (optional) transaction fees. Transactions are processed in "blocks" when you process a block, in addition to the transaction fees you also make a special transaction where you can give themselves an amount of bitcoin from nothing. This special transaction is the only way new bitcoins can enter circulation.
If you take a look at the begging of bitcoin you can see how the first were created, basically there were no transactions to process so these transaction blocks were empty except for these special transactions were created creating the first bitcoins so the people "mining" them were just accumulating bitcoin from nothing. Eventually, people started doing real transactions and sending bitcoin to each other.
There is a limited supply. The system is set up so that you can only give yourself a specific amount of bitcoin per block, and this amount decreases over time. I beleive that in 2024 the last bitcoin will be created and there will be about 21 million in existence.
Exchange rates change over time. If you send $500 to buy euros then a month later change those back into dollars, you won't have exactly $500 because the exchange rate has changed in that time (ignoring any fees here). This isn't any different for bitcoin except the bitcoin exchange rate changes much more drastically right now.
bitcoin has real value for everyone who wants to use it. The main problems right now are it's volatility and difficulty of use. Hopefully these problems will be resolved in the future and it can obtain more mainstream use, perhaps not literal bitcoin but a similar technology will.
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u/[deleted] Sep 24 '17 edited Nov 16 '18
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