Aww shucks guys.  Thank you .  Some day I will have to publish some statistics on my tips--they are an awesome feedback tool to know that I'm doing something right.  The only wish I have is that I could do a different address per post and increase the resolution of it!  Maybe that will be the killer app for bitcoins.  Any of you coders--hint, hint .

Glad to hear it!

As Reto said, bitcoins will need to become much more popular before they are accepted widely in "meatspace".  Personally I estimate that it will be a couple years before the value of bitcoins stabilises enough that the value proposition for large, established companies will be sweet enough.  But depending on who your landlord is and where you get your groceries, you might be able to convince them sooner.  Since most people aren't earning their living directly in bitcoin yet this isn't a problem, but I can see that some people will need to use another currency as an interface, like you said.  It will be the existence of these people that will provide the incentive for more established companies to start adopting bitcoin.

You're exactly right that exchanges merely facilitate trade between users.  Although I'm sure exchange operators do some trading, the vast majority of volume is travelling between their users.  In fact, a fair bit of trading still occurs through #bitcoin-otc where there is no exchange and users trade with aid of the "web of trust" system.

As far as how transactions actually occur--some exchanges leave the actual transaction up to the users, while some are essentially acting as escrow agent, like you said.  Obviously when you hold both the bitcoins and the dollars/euros/whatever of users directly it increases the confidences of the users drastically, provided the exchange itself is trusted.  That way you know the person is actually capable of completing their order--and in fact it is done immediately.  So having trusted exchanges is the ideal vs having to figure out whether you trust each individual users.  Exchanges like Mt. Gox, for example,  have secured the trust of the community and this is why the Mt. Gox price is often used as the benchmark of bitcoins' exchange value.

My personal advice to people is always that the riskiness of BitCoin itself is much greater than that of using a major exchange like Mt. Gox, or a trusted trader like Bitcoin4Cash or CoinPal.  Bitcoin is groundbreaking technology that has a chance of being wildly successful, but you still shouldn't be putting any money that you can't afford to lose into bitcoins.  Put a small amount in and start using it, and get your friends to do the same.  BitCoin needs to scale up slowly and carefully, prove itself, and then become wildly successful if all the kinks have been worked out.  Most of us here in the BitCoin community are in it for the long haul--we don't need the price to go through the roof tomorrow and have bitcoins accepted at the grocery store on Monday.  Building a successful currency will take time, patience, and a lot of hard work.  But if you can help that process along by participating in the BitCoin economy, the powerful business models it enables, and ideally offering goods or services for BitCoins yourself, the future would be greatly indebted to you.  Even if all BitCoin becomes is the greatest experiment ever, the knowledge gained will be incredibly worthwhile.  Just think of the stress-testing of the cryptography alone!

At the end of the day, buying bitcoins today is a little bit like buying shares in Microsoft at its IPO.  Sure, there is the potential for incredible gains and the investment of capital is critical for its success.  Everybody these days wishes that they had bought shares in Microsoft, or Google, or whatever at just the right time.  But back when the buying of those shares had to happen, the future of that company was a big question mark.  It was simply impossible to tell for sure what would happen--which is the whole reason initial investors made so much.  Make sense?  To invest in bitcoins now is to take on the risk of the bitcoin's future.  We need people to do it, and if BitCoin is successful they will be greatly rewarded, but you shouldn't take a risk that you can't afford to.

Maybe that investment advice was completely superfluous there, but I always try and include it just in case its not.  On a more personal note, I've convinced a number of my friends and family to put small amounts into bitcoin and start playing around with it--it's a fantastic idea and I believe it may well be bigger than any of us realise.  But it's also unproven--be wise.

Fascinating find BitterTea--you have to put an address in your signature for tips!

We're also only about 5-10 years away from the possibility of a fully p2p internet based on long-range wireless mesh networks.  In fact, within 25 I'd bet the internet will be essentially armageddon-proof.

BitCoin.exe will only use your CPU, but more advanced mining programs like poclbm, which is available with a graphic interface, use the parallel processing power of GPU's to far outperform them.  Because mining is essentially a competition, this is why it has become so difficult to earn bitcoins this way.

Based on other people's numbers it looks like your total generating capacity would be only 1-2 "MHash", which equates to earning one 50 BTC reward every 11 years.  These days the most powerful mining is done with leading edge AMD graphics cards where the owner of an AMD Radeon HD 6990 will get a 50 BTC reward about every 6 days if mining continuously.  But competition is always reducing the rate people earn, like Ricochet explained.

Thanks humphrey--we like to track down misinformation whenever we can.  It sounds like those numbers were either very out of date or a misunderstanding.

Thank you.  Tips always make my day .  By the way, I'm always curious to ask where people got their first bitcoins, since it used to be quite difficult but is getting easier and easier all the time.  Was it from CoinPal, or a friend, or something else (if you don't mind my asking)?

Yes, exactly--see above.

That's correct.  It's the limited amount that gives bitcoins their value--if there were an unlimited number there wouldn't be any competition to own them and it would be foolish to treat them as money.  Wampum, for example, started being mass-produced by dutch settlers and was ruined as money.

The initial 21 million are going to be very gradually distributed, mostly over the next few decades, instead of running out.  But you will always be able to get bitcoins by trading goods, services, or other money for them with other people, just like you would get any other kind of cash.  Similarly, the total amount of gold in the world doesn't tend to change very much but instead the existing gold is just traded around and re-used.  Unlike paper currencies, bitcoins don't wear out so this isn't a problem.

Trying to buy up the majority of bitcoins would be like trying to buy up the majority of gold in the world--it would soon get very expensive, and all the remaining bitcoins would increase greatly in value.  So in short--they would make everybody else rich.  As far as technically, having less bitcoins isn't a problem because unlike normal banknotes they can be divided into as small of pieces as you need.  The entire bitcoin economy could run on a single bitcoin if it needed to, because you could just transfer .0000001 btc at a time, for example.  For the time being we only use amounts as small as .01, but we can change that as bitcoin becomes more valuable.

Yes, it is very impressive!  And it's also a great sign for BitCoin's future.

Right--the underlying mathematics of how mining works is ingenious, but intricate!  I would be happy to explain it if you're interested.

As transactions are processed and verified on the BitCoin network, they are put into blocks and an SHA256 checksum is computed of the whole block.  This is so that those transactions cannot be changed later.  However, the p2p network of bitcoin clients won't accept just any checksum, or hash, for a block.  Only hashes starting with a certain amount of zeroes are accepted (the number of zeroes depends on how fast blocks are appearing on the network), so if the first hash calculated doesn't work the block has to be changed slightly by adjusting a number called a nonce, and the hash calculated again.  This process gets repeated many, many times until the miner randomly finds a hash that starts with enough zeroes.  Because this block will now be accepted by the network, we call this "finding a block".  So the work a miner is doing is to first doublecheck all the transactions it has seen recently to make sure they are valid, then put them all in a block and try using different nonces many many times until they find a block with enough zeroes in its hash to be accepted by the network.  The difficulty in finding a hash guarantees that no one can just make up their own blocks to try and change the official record of transactions.  And, because each block also includes the hash of the previous block, these blocks together form an unbreakable series called the blockchain.  As long as a client connected to the BitCoin network uses the most computationally difficult blockchain, they will know they that the list of transactions in it is the "official" one and can be trusted.

Confused?  It's a little complicated, but once you understand it this is the underlying reason that BitCoin doesn't have to trust anyone, and why it would be very expensive for a fraudster to try and "write two cheques on the same bank account" in a double-spend attack.  Feel free to ask for more clarification.  The BitCoin wiki, which I keep linking to, is also a great source of detailed information.

The reward for generating a block (which is included as a transaction to themselves by the miner who finds the block, and accepted as valid by the rest of the network as long as they follow the rules) follows a set schedule and is currently 50 bitcoins.  Miners also earn any transaction fees paid by transactions they process (you can pay a fee to to jump to the head of the line, which is important if the bitcoin network ever starts to fill up with more transactions than can be processed for free).  The set schedule will reduce the reward over time to gradually approach that magical 21 million bitcoin total, and as the reward decreases it will be replaced by transaction fees to ensure people keep mining for ever without any new bitcoins having to be created.  By this time, if it is successful, the bitcoin network will probably have so many transactions on it that the fee will be very low but still create an incentive for miners to keep joining.

The more people start using bitcoin, the more bitcoins become worth (due to the limited number), and thus the more valuable block rewards become.  More miners join in the competition to find blocks, the network adjusts the number of zeroes needed for a block to count, and bitcoin becomes more secure.  So what this means is, the more people use bitcoin, the more secure it becomes.  Isn't that ingenious?!!  BitCoin is incredible.

Well, if you have a $700 graphics card you will find one, on average, every 5-6 days of continuous mining--though it's random when it actually occurs.  If you have a $100 graphics card you will find one every 24 days of continuous mining on average (For mining AMD cards tend to outperform NVIDIA cards due to their differences).  Because of the randomness and the long waits, some people choose to join a mining pool where they mine together with a large group of people and split the proceeds.  Most mining pools charge a small fee for the server, so in the end the $100 graphics card tends to make a more consistent 2 BTC per day or so.  Of course, as new miners are always entering, this will go down over time with the increased competition.

By the time you pay for the electricity, the graphics card, and the time spent on it, nobody's really making a whole ton of bitcoins this way.  The best and simplest way to get bitcoins is simply to buy them, which is what most people do.  For smaller amounts CoinPal works well off a verified PayPal account.  For larger amounts most people do a bank transfer to a BitCoin exchange like Mt. Gox.  In both cases there will be a slight fee for exchange because of either the expense involved or the risk of fraud (people will do crazy things for bitcoins because they're so secure and they're basically digital cash).

You can also sell something or work for bitcoins, just like any other kind of cash!



When you use the normal bitcoin client, this happens behind the scenes.  What's going on is that a person's public address, like the one in my signature, is where coins are sent to.  But only the person who holds the private encryption key to that address can spend them.  These keys are normally stored in a file on your computer called your "bitcoin wallet" and then used by bitcoin.exe every time you send coins.  If someone gets these keys they can steal your bitcoins, so be careful to protect them!  You should also make a backup of them in case your computer crashes.  Right now making a secure backup is a little intricate, but it will probably be much easier in a future edition of the bitcoin client.

Yes, if the private keys in your wallet are lost and you don't have a backup, no one will ever be able to spend those bitcoins and they will be essentially lost.  The simplest way to move bitcoins from one address to another is simply to send them like a normal transaction--then you will only need the new private keys in the new wallet file to spend them, no matter what happens to the old computer.

I hope that answers some of your questions

I have just one question---what happens when Mr. Lucky fights Chuck Norris?

This seems like a good mitigation strategy.

Anyone starting to learn about "elsewhere" is going to use a higher-detail abstraction anyways.  What this comes down to is, when introducing someone to paper money for the first time, do you tell them that printing presses create dollar bills, or that trusted organisations do by employing printing presses?  You can explain the details of the relationship later.

All I'm suggesting here is that we:

• Change our terminology for directly explaining BitCoin to newcomers at the simplest level
• Change the mining forum sub-title to something technically accurate like "Block-chain generation"
• Change the client menu option to something technically accurate and simple like "Participate in network processing"

Personally, I'm getting really tired of having to explain to 80% of all people who hear about BitCoin that bitcoins aren't "worthless because anyone can create as much of them as they want."  The whole mining thing is far and away the #1 source of confusion slowing adoption.

The money cowry was used in Africa under no particular jurisdiction in a purely p2p fashion.  If bitcoin proves as comparatively useful as the money cowry did in its day, it too won't need a backing or a fiat.

Theymos, I understand where you're coming from--but saying miners create coins is exactly like saying that printing presses create dollar bills.  It confuses the sequence of the thing with the source of its identity in the eyes of anyone who doesn't already know how the whole system works.  Coins don't take any work to create:  the work the miners are doing is to verify transactions and create blocks.  The reason we treat that one transaction they include to themselves as valid is because it allots them a subset of the pre-agreed-upon 19 million, according to the pre-agreed-upon schedule, all of which was mathematically defined from the get-go, or none of us would have started using bitcoins as money.  It is because of that mathematical definition that the multibillion coin block was considered a bug rather than just a very prolific miner, and why everyone went to so much trouble to correct it.  If the network as a whole makes a change, the network as a whole will have to agree to it before it happens, thus changing the community agreement that BitCoin is.  It's the same as the difference between testnet and BitCoin--only the latter is money, barring the emergence of a separate testnet community with their corresponding agreement.

Don't confuse the implementation with the abstraction--when you are teaching someone how to use a computer you tell them that the mouse "moves" the pointer even though technically what happens is that based on the electronic signal from the mouse's optical sensor pixels on the screen are varied in colour and intensity so that a pre-existing pattern is displayed using a different subset of pixels.  Coins are exactly as imaginary as a mouse pointer--for human beings we choose an abstraction of the underlying mathematics that makes sense without creating unnecessary confusion.  For the average user a mouse does move the pointer, the windows are the computer programs, you do click a dialogue button, and bitcoins are awarded to miners for their essential work.  And that's how all the literature and software should describe it.  Power users will know the difference.

Borogrove you are completely right about block validation, and you also make a good point.  We need to change the abstraction we present to new users.  Anyone who digs into the technical details will learn the implementation of it themselves.

Just one question for you steelhouse--what or who backed the money cowry?  There is plenty of precedent for currencies with no other use than as currencies.  All that is required is that they be limited in supply, fungible, and easy to transport.  As a purpose-built currency, BitCoin beats out cotton-linen pictures or little printed squares of plastic any day.  That's all it needs to succeed.

Yeah Nefario, what's with that?  No transsexuals allowed?

I've been able to explain it well enough that people who still ask me to buy their computers for them have purchased a combined total of close to 2500 BTC between them all.  Analogies, as cdhowie points out, are key--human beings think in terms of existing concepts.

No more coins would be awarded.  We're the ones who create the coins by using the bitcoin protocol--they were all hardwired in as soon as the code was finalised as, essentially, an agreement between the people who use it.

To someone who already understands BitCoin this might seem like a head-game, but it's a critical difference for newcomers.  I think we need to intentionally reframe this in our terminology.  All these different ways of explaining the math are just abstractions, but we should be using an abstraction that leads to as little confusion as possible.  For a newcomer, if computers can just generate coins, then they're worthless.  Saying that they do is literally like going back in time and trying to sell people on paper money by saying that printing presses create dollar bills.  It's the restrictions on them and the community valuation of them that makes them bitcoins instead of just meaningless numbers.

Hi Humphrey,

Don't worry--BitCoin is a complicated technology and it can take a while to wrap your head around just how ingenious it is!  The mining and "generating coins" thing is probably the #1 source of confusion for newcomers--you should know right off the bat that you don't need to know anything about mining to use bitcoins.

The idea that computers, or "miners" generate bitcoins is a common misunderstanding compounded by the fact that it's been repeated in trusted sources like the www.weusecoins.com video.  This is only true in the sense that a job "generates" income for you--bitcoins do not come from the mining operation.  Instead, bitcoins are awarded to miners in a highly competitive market as a reward for processing transactions and securing the bitcoin currency network.  Because this market is so competitive, you're unlikely to earn much from turning on that option for your CPU--most mining these days is done on high-end graphics cards and returns an income relatively close to the costs involved, such as electricity and time.


Here is a good summary to help you understand BitCoin in general, by focussing on what BitCoin is and what problem it solves.  These two things are not typically well explained on most websites, and it is difficult to appreciate just how effective a technology BitCoin is until they are understood.

What BitCoin is:  An agreement amongst a community of people to use 21 million secure mathematical tokens--"bitcoins"--as money, like the Iroquois used wampum.  Unlike wampum, there will never be more bitcoins, they are impossible to counterfeit, they can be divided into as small of pieces as you want, and they can be transferred instantly across great distances via a digital connection such as the internet.  This is accomplished by the use of powerful cryptography many times stronger than that used by banks.  Instead of simply being "sent" coins have to be cryptographically signed over from one entity to another, essentially putting a lock and key on each token so that bitcoins can be securely backed up in multiple places, and so that copying doesn't increase the amount you own.

Because bitcoins are given their value by the community, they don't need to be accepted by anyone else or backed by any authority to succeed.  They are like a local currency except much, much more effective and local to the whole world.  As an example of how effective the community is at "backing" the bitcoin, at the beginning of this week someone sold 30,000 bitcoins on the largest exchange, consuming nearly all "buy" offers on the order book and dropping the price by nearly 1/3.  But within a couple of days, the price on the exchange has fully rebounded and bitcoins are again trading at good volumes, with large "buy" offers slowly replacing the ones consumed by the trade.  The ability of such a small economy (there are only 5 million out of the total 21 million bitcoins circulating so far, or about 3.75 million USD worth at current exchange rates) to absorb such a large sell-off without crashing shows that bitcoins are already working beautifully.

What problem BitCoin solves:  Mathematically, the specific implementation of the bitcoin protocol solves the problem of "how to do all of the above without trusting anyone".  If that sounds amazing, it should!  Normally a local currency has to trust all kinds of people for it to be able to work.  So does a national currency.  And in both cases, that trust is often abused.  But with bitcoin, there's no one person who can abuse the system.  Nobody can print more money, nobody can re-use the coins simply by making a copy, and nobody can use anyone else's coins without having direct access to their keys.  People who break its mathematical "rules" simply end up creating a whole different system incompatible with the first.  As long as these rules are followed by someone, the only way bitcoin can fail is for everyone to stop using it.

This marvelous quality of not having to trust anyone is achieved in two ways.  First, through the use of cutting-edge cryptography.  Cryptography ensures that only the owner of the bitcoins has the authority to spend them.  The cryptography used in BitCoin is so strong that all the world's online banking would be compromised before BitCoin would be, and it can even be upgraded if that were to start to happen.  It's like if each banknote in your pocket had a 100-digit combination lock on it that couldn't be removed without destroying the bill itself.  BitCoin is that secure.

But the second way of securing the system, called the "blockchain", is where the real magic happens.  Even with top-notch digital encryption, if there was no central registry to show that certain bitcoins had already been "paid" to someone else, you could sign over the same coins to multiple people in what's called a "double-spend attack", like writing cheques for more money than you have in your account.  Normally this is prevented by a central authority, the bank, who keeps track of all the cheques you write and makes sure they don't exceed the amount of money you have.  Even so, most people won't accept a cheque from you unless they really trust you, and the bank has to spend a lot of money physically protecting those central records, even if they are kept in a digital form.  Not to mention, sometimes a bank employee can abuse their position of trust.  And, in traditional banking, the bank itself doesn't have to follow the rules you do--it can lend out more money than it actually has.

The blockchain fixes all these problems by creating a single master registry of the already-cryptographically-secured bitcoin transfers, verifying them and locking them down in a highly competitive market called "mining".  In return for this critical role, the bitcoin community rewards miners with a set amount of bitcoins per block, taken from the original limited quantity on a pre-agreed schedule.  As that original amount gradually runs out, this reward will be replaced by fees paid to prioritise one transaction over another--again in a highly competitive market to ensure the lowest possible cost.  The transactions are verified and locked in by the computational work of "mining" in a very special way that means no one else can change the official record of transactions without doing more computational work than the cumulative work of all miners across the whole network.

This means that no matter where or how you process bitcoin transactions, the network remains secure.  Which is incredible--no one else has ever tried to create a system that worked this way!  All previous monetary systems have relied on trusting somebody, whether it was the king, town hall, the federal reserve, or banks.  BitCoin doesn't.  This also explains what "miners" are doing--they are processing transactions for the BitCoin network, and securing it against attack.  They do this through working on "blocks" but actually generating a block is quite rare, so nobody is earning 50 coins every 6 hours unless they have thousands of dollars worth of mining hardware.  In fact, block generation is so rare that most people mine together in large pools to even out the irregularity of the process.

The bitcoin.exe software downloads all blocks off the network in order to have a full, up-to-date record of transactions--this has nothing to do with mining but is just the way the BitCoin network works.  Does that make sense?  I'm sure you have lots of questions so feel free to ask away.


Your explanation is spot on, but please change this terminology so as not to confuse newcomers.  Miners generate blocks, for which they earn coins.

Alright, I'm back for a run at the other half

How about emphasizing the digital aspect instead of bitcoins in particular?

So, "Digital Trading Stock Exchange" or DTSE for short.  The .com for dtse is taken but for sale at an unknown price.  I also liked DSE with 'trading' left out, but that domain is taken.

another option would be to emphasize the internet aspect of bitcoins.

So, "Net Gain Stock Exchange" or NGSE.  That one's a bit corny, but you could always move to emphasize the acronym as you take over the world.  I also like "Internet Trading Stock Exchange" or ITSE.  Including the "IT" in there makes it feel techy.  Both of those domains are likely for sale.

Finally, "Bitcoin Internet Trading Stock EXchange" would let you abbreviate to.....oh wait....maybe "Bitcoin Online Trading......" nope that's even worse.  Maybe just stick with the first three there.

+1

I'm very interested to see what happens with this too.  Do FPGA's follow a similar tech curve to GPU's?

"Generating coins" perpetuates the mistaken belief that, well, miners generate coins.  We need a community shift to the mental model that all coins were created mathematically right at the launch of the bitcoin protocol, and that we as bitcoin users award the coins to miners in return for the processing of transactions and for securing the blockchain.  The use of "generating coins" terminology is a source of great confusion for newcomers and the most common reason for the belief that bitcoins are worthless or "imaginary".  The true source of value in bitcoins is the fact that the community chooses to value them due to their unique properties, limited amount, and inherent security, and we need to start presenting this simply to newcomers.

Unfortunately, yes--it's very understandable that you adopted this terminology yourself and I certainly meant no slight against you--but this is something the entire community needs to change.