Cryto currency and mining

astrofool

Wanderer78 wrote: »

I believe it is common that money and it's creation is rarely explained in economics courses, is this true?

That's pretty much Secondary School economics, page 1.

Geuze

Wanderer78 wrote: »

I believe it is common that money and it's creation is rarely explained in economics courses, is this true?

No.

It's in all standard textbooks.

Wanderer78

Wanderer78 wrote: »

I believe it is common that money and it's creation is rarely explained in economics courses, is this true?

I'm an economics graduate and the answer to this question is no.

I can't help thinking a lot of the hype around bitcoin is based on a fundamental misunderstanding of the nature of money.

Bitcoin supporters appear to attach great importance to the idea that fiat currency isn't REAL money, that money is just 'created' by governments etc etc.

All true but what makes fiat money actual money is precisely the fact that it is created, supported and backed by governments. It's nothing to do with scarcity, security, transparency and all the other arguments for bitcoin. It's one thing and one thing alone - the relevant government enforces the use of it as a medium of exchange and accepts it as a medium of exchange. There's a clue in the name after all.

Bitcoin is very clever but I still don't understand the mechanism by which it becomes a real currency rather than a bubbly investment. And if it never becomes a currency, what is it actually for?

I get that libertarians who don't believe in governments are excited about it but other than that I must admit I find it mystifying and I've never heard a decent explanation for why it will maintain its value.

alb

Deleted User wrote: »

Bitcoin is very clever but I still don't understand the mechanism by which it becomes a real currency rather than a bubbly investment. And if it never becomes a currency, what is it actually for?

Depends what you mean by 'real currency'. If you mean national currency replacing dollars and euros then I agree that I don't think that is going to happen, things will be pretty crazy if it ever even comes close to happening.

People are trying to classify bitcoin as currency or commodity or paypal alternative etc but cryptocurrency is a new classification all of its own that doesn't fit neatly into any of the old boxes.

Bitcoin is seeing adoption in a few different fronts simultaneously. Firstly it's eating into the market of precious metals use as money. Some people interested in decentralised money as a store of value are choosing bitcoin over gold. There's still way more room for this to grow as the estimated value of gold above ground used as money (i.e. not including industrial use) is $3.5 trillion. This can be anyone from zerohedge libertarian nutjobs to silicon valley nerds to institutional investors looking to have some small exposure to something outside the traditional system.

Bitcoin is also being used as a payment system online, but mostly only by those being refused access to the traditional alternatives.

Crytpocurrencies are seeing a lot of adoption as a trading instrument, it trades on globally accessible markets 24/7 365. If you already have bitcoin you can be up and running on an exchange very quickly. People trade either as a profession, as a serious hobby or as gambling.

Bitcoin isn't finished, it's still a work in progress, the more it grows and the longer it hangs around the better it will get and there are a lot of potential uses beyond money, but first and for now it's mainly 'digital gold'.

ArchXStanton

Atoms for Peace wrote: »

So it seems all the cool kids are investing in bitcoins and mining for etherium these days.
Maybe I'm just getting old and not with it any more but I don't really understand how they work, to me they appear to be pyramid schemes infused with some modern day tulip mania.

The future is now old man...

alb

This digital "newspaper/mail/commerce/photography/music/video/books/video streaming/money" will never take off.

Wanderer78

CruelCoin wrote: »

A key one being anyone living under such a system not being able to afford anything better than a Lada.

The current form of currency and economic structure we have puts into the hands of the average industrial worker: foreign trips, 2 cars, tvs in every room, fag and booze money aplenty.

There is no other system, conceived or attempted that can achieve that level of prosperity.

Are there issues? Absolutely, but at the end of the day, unlike lefty nations, people don't starve to death in capitalistic countries.

more boring regularly trotted out crap, yes yes those lefties and their socialist/communist ways:rolleyes: BORING!

the alternatives i speak of are actually in operation in capitalist countries such as america and germany, one of my favourite being 'public banking'

dont forget, the majority of the 'money' supply, is in fact in the form of debt!;)

the highlighted statement is an interesting one, care to back it up!

Deleted User wrote: »

I'm an economics graduate and the answer to this question is no.

I can't help thinking a lot of the hype around bitcoin is based on a fundamental misunderstanding of the nature of money.

Bitcoin supporters appear to attach great importance to the idea that fiat currency isn't REAL money, that money is just 'created' by governments etc etc.

All true but what makes fiat money actual money is precisely the fact that it is created, supported and backed by governments. It's nothing to do with scarcity, security, transparency and all the other arguments for bitcoin. It's one thing and one thing alone - the relevant government enforces the use of it as a medium of exchange and accepts it as a medium of exchange. There's a clue in the name after all.

Bitcoin is very clever but I still don't understand the mechanism by which it becomes a real currency rather than a bubbly investment. And if it never becomes a currency, what is it actually for?

I get that libertarians who don't believe in governments are excited about it but other than that I must admit I find it mystifying and I've never heard a decent explanation for why it will maintain its value.

i think you ve just confirmed my fears, a large proportion of people believe that the majority of our money supply is created by governments, this is in fact untrue. the majority of money supply is actually created by banks in the form of loans, i.e. debt, this is done by whats called 'double entry book-keeping'. this has been recently confirmed by the english central bank and the german Bundesbank. some believe that this equates to roughly 97% of the total money supply.

governments to can create money in the form of bonds, but a lot are discouraged to do so, largely due to conservative thinking regarding these matters, opting for a more reduced role in money creation, i.e 'balancing the books'.

effectively we have left the majority of our money creation abilities to the financial sector, but i do feel we must now ask, is this approach working for the benefit of all, and is it the best approach?

Geuze

All regular economics textbooks discuss the role of comm banks in the money creation process.

Geuze

Wanderer78 wrote: »

governments to can create money in the form of bonds, but a lot are discouraged to do so, largely due to conservative thinking regarding these matters, opting for a more reduced role in money creation, i.e 'balancing the books'.

What exactly is meant here?

Govts issue debt all the time, they issue bonds, and borrow funds. This totally normal.

The issuing of bonds is borrowing, and is not a deliberate increase in the money stock.

Dohnjoe

Wanderer78 wrote: »

effectively we have left the majority of our money creation abilities to the financial sector, but i do feel we must now ask, is this approach working for the benefit of all, and is it the best approach?

There are no glaring issues with the current system if it's done right. It's in place pretty much everywhere.

Cookie_Monster

DominoDub wrote: »

Wow I had just finished reading this... when I spotted this thread

https://qz.com/1054805/what-its-like-working-at-a-sprawling-bitcoin-mine-in-inner-mongolia/

That's insane :eek:

what a waste of energy and resources for nothing more than a virtual currency.

Sheeps

Cookie_Monster wrote: »

That's insane :eek:

what a waste of energy and resources for nothing more than a virtual currency.

So long as people want it and it can be exchanged for fiat currency it has real value. You make it sound worthless. I personally know 2 millionaires who are just that because of it's value.

This video is 26 minutes long but gives a great overview of how bitcoin works and what mining does. I highly recommend it as it covers some general crypto stuff as well at a basic level.

To people who call it a pyramid scheme, you're just refusing to learn what it is. A classic comparison would be if we bought gold and shops accepted it as payment.

https://www.youtube.com/watch?v=bBC-nXj3Ng4

https://www.reddit.com/r/mealtimevideos/comments/6lviv8/ever_wonder_how_bitcoin_and_other/

Sheeps

Sheeps wrote: »

So long as people want it and it can be exchanged for fiat currency it has real value. You make it sound worthless. I personally know 2 millionaires who are just that because of it's value.

These type of arguments do bitcoin proponents no favours at all.

"If someone will pay for it it has value". Well yes, of course. That's a given. Also applies to tulips and any other previous bubble.

"I know 2 millionaires" etc. Well yes, of course. Also applies to tulips and any other previous bubble.

What is necessary is to explain the intrinsic value of bitcoin. As some have noted the closest comparison is gold, but I would argue it is possible to explain the intrinsic value of gold beyond an investment vehicle.

If anything the frothy and volatile nature of bitcoin's dollar value only confirms that we don't really know its intrinsic value.

Ush1

Deleted User wrote: »

These type of arguments do bitcoin proponents no favours at all.

"If someone will pay for it it has value". Well yes, of course. That's a given. Also applies to tulips and any other previous bubble.

"I know 2 millionaires" etc. Well yes, of course. Also applies to tulips and any other previous bubble.

What is necessary is to explain the intrinsic value of bitcoin. As some have noted the closest comparison is gold, but I would argue it is possible to explain the intrinsic value of gold beyond an investment vehicle.

If anything the frothy and volatile nature of bitcoin's dollar value only confirms that we don't really know its intrinsic value.

What's the intrinsic value of dollars? Hasn't been a gold standard since the seventies I think.

Ush1

Ush1 wrote: »

What's the intrinsic value of dollars? Hasn't been a gold standard since the seventies I think.

The intrinsic value of dollars is that it is the official currency of the USA as mandated by the US government.

Ush1

Deleted User wrote: »

The intrinsic value of dollars is that it is the official currency of the USA as mandated by the US government.

Hmm, not sure that's exactly "intrinsic" value of the dollar itself...

Ush1

Ush1 wrote: »

Hmm, not sure that's exactly "intrinsic" value of the dollar itself...

Well, it is. Ultimately (and in a simple terms) what gives the dollar its value is that it is issued by, and accepted as payment by, the government of the US.

http://neweconomicperspectives.org/2013/12/fair-price-bitcoin-zero.html

Permabear

This post has been deleted.

Ush1

Deleted User wrote: »

Well, it is. Ultimately (and in a simple terms) what gives the dollar its value is that it is issued by, and accepted as payment by, the government of the US.

http://neweconomicperspectives.org/2013/12/fair-price-bitcoin-zero.html

Still don't think that's intrinsic value I'm afraid, and the article seems more intent on comparing bitcoin to gold, than bitcoin to dollar.

LuckyLloyd

Dohnjoe wrote: »

Yeah I'm not too good with the tech part, and I'll probably butcher this horribly, but..

Think of it like a mini lottery programmed to make a few coins available every few minutes to those that enter. In order to enter the lottery you have to start your PC solving the problem (mining). So your PC becomes like having a lottery ticket. The more PC's you have (mining power) the more tickets you have, the higher chance of "winning" every few minutes

Your reward will be a few coins

All this is recorded on a public ledger and the coins go to your address on that public ledger. Everyone can see it, but only you can access it with a private key (password)

All of this is "group-validated" by other machines to avoid cheating or duplication

The smart programme that you were solving for the coins will have a raft of features built in, e.g. a limited number of coins that will ever be produced, difficulty of mining increasing over time, etc

You can e.g. transfer the coins from your address to another address (of a shop) to pay for something

All of which is recorded and validated on the central ledger

What percentage of total coins have been issued at this stage would anyone know?

alb

16,522,663 out of about 21,000,000

LuckyLloyd

alb wrote: »

16,522,663 out of about 21,000,000

Thanks. So once all coins have been successfully mined, where is that likely to leave the project? Without any chance of reward for continuing to download and verify the ledger and history of same how will the entire thing be maintained?

Permabear

Permabear wrote: »

This post had been deleted.

Yes, for various reasons Venezuela is failing as a state and so the currency associated with that state is worth less and less. That's EXACTLY how it works, you are proving my point.

The Atlantic article is more of an opinion piece and says nothing about Venezuelans using bitcoin to pay for necessities.

Budawanny

LuckyLloyd wrote: »

Thanks. So once all coins have been successfully mined, where is that likely to leave the project? Without any chance of reward for continuing to download and verify the ledger and history of same how will the entire thing be maintained?

Current projections are that wont happen till 2140 because the difficulty of discovering a token increases over time.

LuckyLloyd

Budawanny wrote: »

Current projections are that wont happen till 2140 because the difficulty of discovering a token increases over time.

Right, but:

1) if we reach a point where it becomes so difficult to mine a coin that mining farms in China no longer are viable what is the effect on the reliability of the ledger?
2) if the current computing power (or inflated equivalent over the next 123 years) hangs in there mining the coins up to 2140 what happens at that point?

blackwhite

Wanderer78 wrote: »

more boring regularly trotted out crap, yes yes those lefties and their socialist/communist ways:rolleyes: BORING!

the alternatives i speak of are actually in operation in capitalist countries such as america and germany, one of my favourite being 'public banking'

dont forget, the majority of the 'money' supply, is in fact in the form of debt!;)

the highlighted statement is an interesting one, care to back it up!



i think you ve just confirmed my fears, a large proportion of people believe that the majority of our money supply is created by governments, this is in fact untrue. the majority of money supply is actually created by banks in the form of loans, i.e. debt, this is done by whats called 'double entry book-keeping'. this has been recently confirmed by the english central bank and the german Bundesbank. some believe that this equates to roughly 97% of the total money supply.

governments to can create money in the form of bonds, but a lot are discouraged to do so, largely due to conservative thinking regarding these matters, opting for a more reduced role in money creation, i.e 'balancing the books'.

effectively we have left the majority of our money creation abilities to the financial sector, but i do feel we must now ask, is this approach working for the benefit of all, and is it the best approach?

To be honest - all you seem to be doing is repeating stuff you've seen in a youtube video and confirming that you don't actually understand a word of what you are typing.

Fractional reserve banking & lending isn't the arbitrary magicing up of money by banks. It's tighly regulated and controlled by central banks (which are a branch of Govt), and banks are restricted in how much they are allowed lend out by reference to a central bank defined multiple against their desposits and capital reserves.

But I know it's pointless actually explaining any of the detail of it to you, because if it's not a 30 minute youtube video that just re-confirms whatever you want it to say, then you won't pay the slightest bit of attention.

Budawanny

LuckyLloyd wrote: »

Right, but:

1) if we reach a point where it becomes so difficult to mine a coin that mining farms in China no longer are viable what is the effect on the reliability of the ledger?
2) if the current computing power (or inflated equivalent over the next 123 years) hangs in there mining the coins up to 2140 what happens at that point?

For number 1 it will be viable because the increase in difficulty . i.e scarcity will mean a associated increase in value.
And number 2, in theory is transaction fees will incentivise the miners.

Permabear

This post has been deleted.

alb

LuckyLloyd wrote: »

Right, but:

1) if we reach a point where it becomes so difficult to mine a coin that mining farms in China no longer are viable what is the effect on the reliability of the ledger?
2) if the current computing power (or inflated equivalent over the next 123 years) hangs in there mining the coins up to 2140 what happens at that point?

The mining difficulty adjusts every 2 weeks so that the average time to solve a block is 10 minutes, so if mining power reduces, then it gets easier. The number of coins awarded every block (so every 10 minutes) halves every 4 years, it started at 50, it has halved twice, so it's currently 12.5. So regardless of mining power the mining reward will still be steadily distributed in a gradually decreasing manner between now and 2140.

Miners also get to keep the transactions fees of any transactions they include in blocks. As the reward has been going down the number of transactions, and the fees have been rising. The idea was that over time the fees would replace the block reward gradually, and so far it's been working like that.