nsimmons, thank you for that.
Best explanation I’ve ever seen.
Can you go further into what exactly your computers are mining? My understanding is they are working on an algorithm…? What is the discrete event that produces more bitcoin?
Here I admit my knowledge is lacking. I am working through a number theory / cryptography text at the moment, but pure math was never my strong suit.
Here is the gist.
When a block is created, what it is, is a sequential chain of all the transactions that occurred on the network since the last block creation. The protocol takes the collection of transactions and pads the end with some random information. It then double hashes the block of data twice using the sha-256 algorithm.
Stolen from wikipedia
A cryptographic hash function is a hash function that takes an arbitrary block of data and returns a fixed-size bit string
hello
2cf24dba5fb0a30e26e83b2ac5b9e29e1b161e5c1fa7425e73043362938b9824
(first round of sha-256)
9595c9df90075148eb06860365df33584b75bff782a510c6cd4883a419833d50
(second round of sha-256)
What the protocol does then is create a hash that is starts with leading 0’s the higher the difficulty the more leading zeros.
example
easy difficulty
00000c9df90075148eb06860365df33584b75bff782a510c6cd4883a419833d50
harder (around the current difficulty)
0000000000000000000000000000003584b75bff782a510c6cd4883a419833d50
So the computer only has the second hash to start with. It must guess that data created that hash, the first hash, then it must guess what data created the first hash, the block and random information.
It is like everyone has the same lock, and a pile of the same keys. Each miner tries key after key until one miner find the correct key, opens his lock, then broadcasts “hey everyone use key #72372662772”
All the other miners grab that key, check its correct and verify miner one is the winner.
In this way the solution is very difficult to solve but easy to verify.
As soon as the solution is discovered, the protocol creates a new transaction sending the block reward to the winners address. It is possible for two miners to discover the key immediately after one another and both get the block reward at the same time. What happens in this case is as the solution is broadcast, the network will determine which block was found first and the second block becomes whats called an orphan and is ignored. The block reward vanishes and no subsequent blocks are built on top of it.
The block reward started at 50 and is halved every few years created an exponential decay, the next halving should occur in 2016 and reduce the reward to 12.5.
In theory since the coins are more scarce and harder to make they should increase in value. This has been happening so far. If the miner spent 5000 dollars for his equipment, he is more likely to hold out for at least that much for his coins. Eventually the prices are driven up.
Since all the blocks are linked together, the random data for block one becomes the seed to for the lock on block two, etc…the entire ledger is called the blockchain.
Bitcoin use the sha-256 hash algorithm for coin generation. Other coins use other algorithms, Litecoin uses scypt and darkcoin uses a chain of 11 different algos called X11
The asics are designed to solve only sha256 so they cant be re purposed and can onyl be used on sha256 coins, there are a few. As a response to this requirement of specific hardware, people developed new coins, using the bitcoin protocol, with different hashing algos to allow hobbyists to continue mining with consumer grade hardware. Litecoin was developed, but now asics for scrypt are on the market so people are again moving away to something else.
Non of this really matters for the investor. As bitcoin was first it has the largest market cap ~6 billion, compared to 1 billion for all the hundred of copies combined.
A common criticism I hear is that if anyone can create a different coin, the market really is inflationary and people can switch to a different coin at any time and unseat bitcoin. This is unlikely to occur, because all these miners with their hundreds of millions of dollars worth of gear would need to move to support an alternate coin. If the miners dont exist, the hashes cant be solved and transactions cant be relayed, the coins network with lock up and freeze, which has happened to some small coins in the past when people abandon them.
edit
Forgot an important detail. If a backdoor to sha256 is discovered the worst that would happen is coins could be generated faster. People would notice the block rate dropping from 10min and the network could be segregated. But people have been studying this algo since the 90’s and no holes have been found yet. Most likely if a reasonable threat was to occur they algo would just be changed.
The other encryption used is secp256k1, this is for securing keys with an rsa public/private pair, like your bank does. This encryption is threatened by quantum computers, but so is all online encryption. We have a few decades I would think and then it also can be changed if quantum computers become a threat.
[quote]Diddy Ryder wrote:
I’d blow it all on coke and hookers. Somewhere hot.[/quote]
[quote]twojarslave wrote:
I would buy ammunition, [/quote]
Came here to say both of these, and they were the first two posts…
My time in this thread is done.
[quote]nsimmons wrote:
Here I admit my knowledge is lacking. I am working through a number theory / cryptography text at the moment, but pure math was never my strong suit.
Here is the gist.
When a block is created, what it is, is a sequential chain of all the transactions that occurred on the network since the last block creation. The protocol takes the collection of transactions and pads the end with some random information. It then double hashes the block of data twice using the sha-256 algorithm.
Stolen from wikipedia
A cryptographic hash function is a hash function that takes an arbitrary block of data and returns a fixed-size bit string
hello
2cf24dba5fb0a30e26e83b2ac5b9e29e1b161e5c1fa7425e73043362938b9824
(first round of sha-256)
9595c9df90075148eb06860365df33584b75bff782a510c6cd4883a419833d50
(second round of sha-256)
What the protocol does then is create a hash that is starts with leading 0’s the higher the difficulty the more leading zeros.
example
easy difficulty
00000c9df90075148eb06860365df33584b75bff782a510c6cd4883a419833d50
harder (around the current difficulty)
0000000000000000000000000000003584b75bff782a510c6cd4883a419833d50
So the computer only has the second hash to start with. It must guess that data created that hash, the first hash, then it must guess what data created the first hash, the block and random information.
It is like everyone has the same lock, and a pile of the same keys. Each miner tries key after key until one miner find the correct key, opens his lock, then broadcasts “hey everyone use key #72372662772”
All the other miners grab that key, check its correct and verify miner one is the winner.
In this way the solution is very difficult to solve but easy to verify.
As soon as the solution is discovered, the protocol creates a new transaction sending the block reward to the winners address. It is possible for two miners to discover the key immediately after one another and both get the block reward at the same time. What happens in this case is as the solution is broadcast, the network will determine which block was found first and the second block becomes whats called an orphan and is ignored. The block reward vanishes and no subsequent blocks are built on top of it.
The block reward started at 50 and is halved every few years created an exponential decay, the next halving should occur in 2016 and reduce the reward to 12.5.
In theory since the coins are more scarce and harder to make they should increase in value. This has been happening so far. If the miner spent 5000 dollars for his equipment, he is more likely to hold out for at least that much for his coins. Eventually the prices are driven up.
Since all the blocks are linked together, the random data for block one becomes the seed to for the lock on block two, etc…the entire ledger is called the blockchain.
Bitcoin use the sha-256 hash algorithm for coin generation. Other coins use other algorithms, Litecoin uses scypt and darkcoin uses a chain of 11 different algos called X11
The asics are designed to solve only sha256 so they cant be re purposed and can onyl be used on sha256 coins, there are a few. As a response to this requirement of specific hardware, people developed new coins, using the bitcoin protocol, with different hashing algos to allow hobbyists to continue mining with consumer grade hardware. Litecoin was developed, but now asics for scrypt are on the market so people are again moving away to something else.
Non of this really matters for the investor. As bitcoin was first it has the largest market cap ~6 billion, compared to 1 billion for all the hundred of copies combined.
A common criticism I hear is that if anyone can create a different coin, the market really is inflationary and people can switch to a different coin at any time and unseat bitcoin. This is unlikely to occur, because all these miners with their hundreds of millions of dollars worth of gear would need to move to support an alternate coin. If the miners dont exist, the hashes cant be solved and transactions cant be relayed, the coins network with lock up and freeze, which has happened to some small coins in the past when people abandon them.
edit
Forgot an important detail. If a backdoor to sha256 is discovered the worst that would happen is coins could be generated faster. People would notice the block rate dropping from 10min and the network could be segregated. But people have been studying this algo since the 90’s and no holes have been found yet. Most likely if a reasonable threat was to occur they algo would just be changed.
The other encryption used is secp256k1, this is for securing keys with an rsa public/private pair, like your bank does. This encryption is threatened by quantum computers, but so is all online encryption. We have a few decades I would think and then it also can be changed if quantum computers become a threat. [/quote]
Thats cool, but what is actually being done?
Like with the stock market I have X shares of XYZ corp. and there is an agreement that I own a percentage of the company and am entitled to a share of their profits.
So what tangible good or service is being provided for trade to create wealth? Otherwise (and please excuse my ignorance- I am the opposite of tech savvy) it just looks like a bunch of computational power dedicated to solving cryptographs for bingo chips.
The simplest analogy is digital gold, all the characteristics of gold with the ability to teleport. Transfer around the world instantly.
There is nothing tangible, it is simply information. It might seem silly to spend money for information, but think of math, knowledge, this website, the content of the internet. None of that is tangible, but clearly it has value.
The difference here is that the coins, the “information”, are entirely fixed and predictable, making them suitable as a currency. The coins are divisible up to 8 decimal places, but that is just a soft limit. As many decimal places are required can be implemented.
For example I have 0.19btc in my laptops wallet at the moment, about 84US.
[quote]SkyzykS wrote:
it just looks like a bunch of computational power dedicated to solving cryptographs for bingo chips.
[/quote]
This is exactly what is happening, the only difference is that people can’t create chips at will or counterfeit them.
I’m now coming round to the idea of buying bitcoins.
When you say “paper wallet”, do you mean keeping the access codes on a piece of paper in a wallet? Or am I an idiot?
[quote]nsimmons wrote:
[quote]SkyzykS wrote:
it just looks like a bunch of computational power dedicated to solving cryptographs for bingo chips.
[/quote]
This is exactly what is happening, the only difference is that people can’t create chips at will or counterfeit them.
[/quote]
I noted this before, but you guys should definitely ready “What has our government done to our money?” It will give you a good understanding of what money really is. Maybe I won’t have to hear “But who will print money” if everyone understood.
But to make it simple, money is simply ANY COMMODITY that it is used to as a means for trade.
The more generic that COMMODITY is (i.e. the more people that want it, the more uniform it is, etc), the better that item is at being “Money” So money used to be grain, olive oil, etc.
Over time, humans have determined that Gold was the best “Money.” All gold is the same, it’s fairly rare, its transportable, any everyone values it.
People mine the gold, sell it for other commodities (grain, oil, cattle, whatever), and now you have gold in circulation.
That’s what Bitcoins are, a commodity used to as a catalyst for trade. The more people willing to accept Bitcoins are “Money”, the more Bitcoins are worth. So it takes people to believe in it as a method of trade. Just like gold (except for use in electronics and I suppose jewelry), it has no intrinsic value.
[quote]ZJStrope wrote:
Money[/quote]
More on money. Long but worth the watch, really enlightening.
[quote]Diddy Ryder wrote:
I’m now coming round to the idea of buying bitcoins.
When you say “paper wallet”, do you mean keeping the access codes on a piece of paper in a wallet? Or am I an idiot? [/quote]
yes exactly
this site will generate a printable one
every bitcoin address has a public/private pair. the public address is your receiving address, where people send you money.
here is one of my addresses
14jBWPAZUbqs5giK1fUDktu2UeVPfV92VV
if you want to send me money, you send it here. If you want to view its history you can view it on blockchain.info
Now if i want to move these coins around I need the private key, this is on the paper wallet marked private and is top secret. The keys are paired, so you only need the private key. As soon as its imported to a wallet somewhere the software will know which address it belongs to.
To make a wallet to play with, this site is one of the best
Everything is online, and they dont have access to the private keys.
Afterwards you can make a paper wallet and play around with moving a few dollars back and forth. The blockchain.info supports importing paper wallets to gain access.
Be very aware, if anyone sees your private key, friend, trojan, keylogger etc, they can steal your coins, they dont need anything but the key
[quote]ZJStrope wrote:
Maybe I won’t have to hear “But who will print money” if [/quote]
You steal that line from the basic bitcoin bitches video on youtube? That chick is hot…just saying…
[quote]nsimmons wrote:
[quote]ZJStrope wrote:
Maybe I won’t have to hear “But who will print money” if [/quote]
You steal that line from the basic bitcoin bitches video on youtube? That chick is hot…just saying…
[/quote]
haha. Never seen it. Never really did much research on bitcoins, but I understand the economics of it.
Please share that video. I like seeing hot chicks talking smarts.
[quote]Derek542 wrote:
[quote]BlueCollarTr8n wrote:
[quote]Derek542 wrote:
Is this considered a lot of money?
[/quote]
Considering that $38,000 is the the current individual annual median earnings; I suspect at least half the population would consider is a significant windfall. If you came across 25% of your annual wouldn’t you feel the same? [/quote]
Thank you that puts it in perspective. I mean 10 k is a couple of weeks for me. [/quote]
You forgot to mention your 12 inch cock.
[quote]nsimmons wrote:
[quote]ZJStrope wrote:
Maybe I won’t have to hear “But who will print money” if [/quote]
You steal that line from the basic bitcoin bitches video on youtube? That chick is hot…just saying…
[/quote]
Actually now that i think about it, she uses the line in an anti government video. Thereis also lines like “who will start the wars?”
[quote]Derek542 wrote:
[quote]BlueCollarTr8n wrote:
[quote]Derek542 wrote:
Is this considered a lot of money?
[/quote]
Considering that $38,000 is the the current individual annual median earnings; I suspect at least half the population would consider is a significant windfall. If you came across 25% of your annual wouldn’t you feel the same? [/quote]
Thank you that puts it in perspective. I mean 10 k is a couple of weeks for me. [/quote]
Sounds nice.
The price just broke out, the downtrend may be reversing, up 10%. I have bought back in.
Do your homework.
I think I’m gonna buy a coin. Talk me through making it secure:
I have my wallet at blockchain, do I just leave it in there?
[quote]doogie wrote:
[quote]Derek542 wrote:
[quote]BlueCollarTr8n wrote:
[quote]Derek542 wrote:
Is this considered a lot of money?
[/quote]
Considering that $38,000 is the the current individual annual median earnings; I suspect at least half the population would consider is a significant windfall. If you came across 25% of your annual wouldn’t you feel the same? [/quote]
Thank you that puts it in perspective. I mean 10 k is a couple of weeks for me. [/quote]
You forgot to mention your 12 inch cock.[/quote]
lol Thanks Doug
[quote]Derek542 wrote:
[quote]doogie wrote:
[quote]Derek542 wrote:
[quote]BlueCollarTr8n wrote:
[quote]Derek542 wrote:
Is this considered a lot of money?
[/quote]
Considering that $38,000 is the the current individual annual median earnings; I suspect at least half the population would consider is a significant windfall. If you came across 25% of your annual wouldn’t you feel the same? [/quote]
Thank you that puts it in perspective. I mean 10 k is a couple of weeks for me. [/quote]
You forgot to mention your 12 inch cock.[/quote]
lol Thanks Doug[/quote]
