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Author Topic: What Is Bitcoin?  (Read 1228 times)
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June 03, 2011, 05:25:39 PM

Hello all,

I'm working on an article for Bitcoin and I was hoping to get some feedback from some experts. The reason I'm writing this is because I get a lot of people asking me what Bitcoin is and even though they have read the docs and watched the vids, they still don't understand it. So this is an attempt to clarify what it is and why it's important. Thanks.

What is Bitcoin?
I'm going to try to explain some of the highlights here, but it's likely to be a horrible representation of what Bitcoin actually is, so bear with me. There’s no easy way to explain all that one would need to know in order to grasp why Bitcoin is important right now.

First of all, you have to understand how money is created today. Anyone know? Is it created by our government? No. The government has no direct connection to how money is created. The Federal reserve and your local bank has the power to create money. Who owns the Fed? The US Government owns it right? Wrong. The Fed is owned by a conglomerate of banks. In other words, corporations in the form of banks determine how much new money is created arbitrarily. When a local bank receives a deposit of new money from the Fed, it is legally entitled to create new money out of thin air based on a percentage of the amount that was deposited into their bank. This is ultimately what is driving the US dollar into the ground. It’s become devalued in this way.

The only relationship the government has with the Fed is bond notes or contracts, which the government exchanges for new money. Here’s a brain bender for you. If interest is charged on the creation of new money (which is the case today) where does the money required to pay for the interest come from? It simply doesn’t exist. In other words, it’s no longer possible for the US to ever get out of debt to the Fed or group of corporations. That’s right, corporations own America and it’s impossible for America to repay its debt to the Fed. Let that sink in a little bit. By the way, please don’t take my word for any of this. Go out and do your research. Start by reading “Modern Money Mechanics” which was published by the Fed to explain the new money creation process. Everyone should be required to read this in school, but I don’t ever remember it being discussed do you? I think you can find a copy here Also watch this when you can It explains the entire process.

In our current scenario The Federal Reserve has a monopoly on the creation of American currency, and considering it’s owned by corporations, this should be illegal. The government now enforces laws that entitle them to put you in jail for creating a new currency based in the United States. In other words, you will be violently controlled and dealt with if you attempt to create a currency that will compete with The Federal Reserve’s currency. How can we allow corporations to own our money supply and allow our government to protect corporate monopoly? We just do. People are too afraid to stand up to the Fed. Until now.

Now that we’ve covered how money in our current system is created, let’s take a look at Bitcoin. Bitcoin is technically considered an open source currency. That means that all the source code and programming algorithms are accessible by anyone. If you want to see exactly how Bitcoins are generated, you can look at the source code and see. Supposedly, it’s a completely transparent process so there are no secrets. I have seen some of the code, but I have not looked through enough of it to fully understand what’s going on. It’s on my “to do” list, so if you’re interested, I’ll be happy to share what I learn when I get around to looking through the code. So that’s the first important part of Bitcoin. It’s transparent. I find that refreshing.
What are Bitcoins? From the Bitcoin Wiki (  “Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (eg: “100 BTC”) A Bitcoin isn't actually a 'thing' you can point at. It is just a number associated with a Bitcoin Address. See also an easy intro to Bitcoin.”

Bitcoins are exchanged via a peer-to-peer network, meaning no bank is required for you to conduct a transaction. American currency requires a bank (shocking considering they have a monopoly) in order to perform a transaction. There is no centralized banking structure. However, there are transaction fees, but presently they’re tiny. Those fees could go up in the future. I’m not sure how the fees are regulated or even if they are. Anyone else know?

The value of something in a currency based system is determined by its availability or scarcity. There is a finite number of Bitcoins. ~21 million Bitcoins will have been generated by around 2030 at current estimates. In addition as Bitcoins are mined and more and more people attempt to mine Bitcoins, a complexity modifier is increased based on the number of people attempting to mine them. Mining is done by using a computer program called a Bitcoin miner, which too is open sourced. I’m still a little schetchy on this part, so I’m not sure how valid this is but, to my understanding the miner app obtains blocks of algorithms through the peer-to-peer network and begins to attempt to solve a complex math puzzle, which again the complexity of the puzzle is determined by the number of people attempting to open a block. Every time a block is opened, or a math puzzle is solved, 50 new Bitcoins are generated. This makes the production of new Bitcoins predictable. Unlike our current system of random money creation, we know pretty precisely how many new Bitcoins will be created over a given period of time making their value somewhat predictable as well.

Here’s more on mining again from the Bitcoin Wiki: “What is mining?
Mining is the process of spending computation power to find valid blocks and thus create new Bitcoins.
Technically speaking, mining is the calculation of a hash of the previous block and a nonce. If the hash value is found to be less than the current difficulty, a new block is formed and the miner gets 50 newly generated Bitcoins. If the hash is not less than the current difficulty, a new nonce is used, and a new hash is calculated. This is done thousands or millions of times per second by each miner.

You can also simply purchase Bitcoins on the Bitcoin exchange, the current rate is around $10 per Bitcoin, already up from a couple of days ago. Or you can provide a service or product in exchange for Bitcoins.

When you obtain a Bitcoin, it’s stored on your local computer in something they’re calling a digital wallet. It’s up to you to keep it secured. If your hard drive explodes, you lose your Bitcoins unless you have created a secured backup. This is a problem I see with Bitcoins. But it’s no different than current money. When you obtain US dollars, it’s up to you to keep them safe and secure. If your US dollar notes catch fire they’re permanently removed from the exchange system and can only be replaced by creating more. By the way, are you aware that only 3% of all US dollars actually exist in physical currency? The other 97% exists only in digital form.

So, I think that’s probably enough info for the time being. Please feel free to ask questions if you have any. I’m not going to recommend that you invest in Bitcoins or that you attempt to mine them. That’s up to you. I’m not a financial adviser of any sort and I wouldn’t pretend to know what’s good for your money. I’ve run the Bitcoin mining software, but haven’t been able to generate any actual Bitcoins yet. Because the complexity is rapidly increasing, more and more computer hardware is needed to keep up with the complexity of the math puzzles. You need about 4-8 high end graphics cards with high performance GPUs that support CUDA in order to be able to produce Bitcoins at a reasonable pace. With an average computer or laptop, it will take about 5 years of full time computer crunching to generate 50 Bitcoins. The electricity required to run this hardware will probably cost more than what Bitcoins will currently yield. But, if the value of Bitcoins goes up, that could change. I’m not going to speculate though.

There are many companies and services who are already accepting Bitcoins as a currency. You can buy all sorts of stuff right now online with Bitcoins. I want to clarify that I’m not advocating Bitcoin. There’s still a lot of unknowns associated to it. Many people believe the US Government will outlaw Bitcoins because clearly it’s creating competition for the Fed, and the corporate oligarchs don’t like competition for their highly guarded and controlled money monopoly. Bitcoin threatens the Fed in a very direct way. It’s direct competition to the US dollar with the possibility of ending the Fed’s monopoly.

Here’s a question worth pondering. If you’re required to use a currency, why not use one that you have more control over? Bitcoin gives us a choice, which we didn’t have before. It may just be a flash in the pan. There might be some sinister people behind Bitcoin with some sort of long term plot. I can’t rule out this type of possibility. The cone of uncertainty is wide at this point, which makes Bitcoin very risky.

Over all, I hope it destabilizes the current market system and gets people to start thinking about the inequalities presented by all forms of currency. In our current monetary system, money is = to freedom. The more money you have, the more freedom you have. For those with very little money, they have very little freedom. In other words, the monetary system itself promotes inequality. It entitles some to much and prevents many from obtaining even a little. This is inhumane and unjust. In addition money is now used as a weapon. As long as you’re in debt, you will have to keep working. In fact the monetary system says in order to survive you must work. This is also called forced labor and is identical to a labor camp scenario used by fascist governments in the past. The US Government is now considered to be a fascist oligarchy due to the fact that it rules by violent control and corporations own the currency. In addition the monetary system says, if you can’t afford food or health care, you don’t deserve it. Is this broken inhumane system worth your undying devotion? How much does it really care about you or me?

This is why Bitcoin is important. It helps to raise awareness of the inequalities inherent in all forms of currency. Hopefully people will start to wake up and realize that they’re living a lie and perhaps then they’ll be empowered to influence some change in the system by choosing to no longer participate in it.
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