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Author Topic: Im confused, where is this money coming from?  (Read 3870 times)
killer2021
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June 25, 2011, 04:14:26 AM
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BitTalk.tv is up for me

Yea I can get to it now. Odd for like 2 minutes I couldn't connect. Gonna watch the podcast. Good to listen to people who actually know what they are talking about in terms of money and how it related to bitcoin.

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June 25, 2011, 04:17:24 AM
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It's very exciting to watch what has only been theoretical for so long have a real chance to become the new normal.  Hope you enjoy the show, write in if you want us to hit any topics specifically, or want to get your voice heard.

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June 25, 2011, 04:22:27 AM
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It's very exciting to watch what has only been theoretical for so long have a real chance to become the new normal.  Hope you enjoy the show, write in if you want us to hit any topics specifically, or want to get your voice heard.

Definitely exciting. I am not going to lie, bitcoin is one of the most exciting things I've seen in a while. The last major thing that got me excited was during the ron paul movement. I've been highly against fiat money but for the longest time there has been no alternative. Now we have bitcoin which can completely replace fiat. This is huge and a world changing invention. Most people don't realize that. Bitcoin will go down in history as one of the top 10 greatest inventions in the world, thats how big bitcoin is. When people look back on early bitcoin they will have wish they got in early when bitcoin was only 10-20$. This is like buying google stock during the first couple months of google going public.

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June 25, 2011, 04:35:22 AM
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My poo is scarce.  There is a limited supply of it produced over time.  Therefore my poo is a valuable currency that need not be backed by anything.  Smiley

No hard feelings, friend, but I just registered the domain EnochainPooExchange.com...you know just in case your "currency" is accepted on SilkRoad.
Then you just wasted a few dollars on a typo Smiley

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June 25, 2011, 04:39:30 AM
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It's very exciting to watch what has only been theoretical for so long have a real chance to become the new normal.  Hope you enjoy the show, write in if you want us to hit any topics specifically, or want to get your voice heard.

Definitely exciting. I am not going to lie, bitcoin is one of the most exciting things I've seen in a while. The last major thing that got me excited was during the ron paul movement. I've been highly against fiat money but for the longest time there has been no alternative. Now we have bitcoin which can completely replace fiat. This is huge and a world changing invention. Most people don't realize that. Bitcoin will go down in history as one of the top 10 greatest inventions in the world, thats how big bitcoin is. When people look back on early bitcoin they will have wish they got in early when bitcoin was only 10-20$. This is like buying google stock during the first couple months of google going public.

Are you saying bitcoin might go up as high as google stock ($474.88)? That would be cool...
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June 25, 2011, 04:45:01 AM
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It's very exciting to watch what has only been theoretical for so long have a real chance to become the new normal.  Hope you enjoy the show, write in if you want us to hit any topics specifically, or want to get your voice heard.

Definitely exciting. I am not going to lie, bitcoin is one of the most exciting things I've seen in a while. The last major thing that got me excited was during the ron paul movement. I've been highly against fiat money but for the longest time there has been no alternative. Now we have bitcoin which can completely replace fiat. This is huge and a world changing invention. Most people don't realize that. Bitcoin will go down in history as one of the top 10 greatest inventions in the world, thats how big bitcoin is. When people look back on early bitcoin they will have wish they got in early when bitcoin was only 10-20$. This is like buying google stock during the first couple months of google going public.

Are you saying bitcoin might go up as high as google stock ($474.88)? That would be cool...

YES. The sky is the limit really, it really depends on how many people adopt bitcoin. As more people adopt it, the value of the bitcoins increases. So if a couple hundred million or billion people start using it then you do the math. If everyone had 10$ in bitcoins and there are 1 billion people using it then thats a $10 billion capitalization. Right now the capitalization was around 100-150 million at  10-30$/bitcoin. Also put it into perspective in relation to USD. The total amount of USD in circulation is around 14-15$ trillion. At a 10$ billion valuation, thats still very tiny. Remember there is 1,000 billion in a trillion.

To say the least, bitcoin has alot more upside potential than downside potential.

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June 25, 2011, 04:45:55 AM
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The thing to keep in mind about bitcoin

There will never be more than 21 million BTC in existence
There are currently around 14 million BTC in existence
The price is currently supported at 17.50 BTC with a community of about 100,000 in a world of 6,000,000,000 at a time when "Money" as most people know it (the dollar) is imploding.


The fundamentals there speak for themselves, and since BTC can be divided currently to the .00000001BTC level with no cost (try getting someone to make you 100 .01oz gold coins for the same price as a single 1oz gold coin for why this is good), it means that no matter how high the price goes every BTC will always be useful for purchases (unlike say, a 100oz gold bar - good luck breaking a piece off that to buy milk).

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June 25, 2011, 04:49:30 AM
 #28

The thing to keep in mind about bitcoin

There will never be more than 21 million BTC in existence
There are currently around 14 million BTC in existence
The price is currently supported at 17.50 BTC with a community of about 100,000 in a world of 6,000,000,000 at a time when "Money" as most people know it (the dollar) is imploding.


The fundamentals there speak for themselves, and since BTC can be divided currently to the .00000001BTC level with no cost (try getting someone to make you 100 .01oz gold coins for the same price as a single 1oz gold coin for why this is good), it means that no matter how high the price goes every BTC will always be useful for purchases (unlike say, a 100oz gold bar - good luck breaking a piece off that to buy milk).

Yup, exactly. However, there is only around 7 million BTC in existence right now (http://en.wikipedia.org/wiki/Bitcoin#Economics). You also have to factor in the fact that some people have lost their wallets and their bitcoins are gone FOREVER. So in reality, there is less than 7 million in existence. Probably 6-6.5 million but thats only a guess. So that makes your argument sound even better lol.

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June 25, 2011, 05:00:00 AM
 #29

Thanks for the correction on the number of BTC, but you're right it doesn't matter much - The mere fact that the number tops out at 21 million, and that's it makes the arguement by itself.

Deflation is only bad if you're in debt to the currency.

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June 25, 2011, 05:07:32 AM
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Deflation is only bad if you're in debt to the currency.

So even if we get to the point where the deflation is at a slow steady rate..  doesn't this work against the usefulness of BTC in the economy?
Who is going to take out a BTC loan if they not only have to pay a little interest, but also have to work x% more hours to pay it off just due to the background deflation?
Perhaps lenders will be forced to only apply very tiny interest rates - and do even more thorough credit checks on people than they currently would?

This is (just?) one aspect of the bitcoin economy I don't grasp.
Availability of credit is surely an underpinning of economic growth and wealth distribution.

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June 25, 2011, 05:08:50 AM
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It comes out of thin air. Thats how bitcoins are put into circulation in the first place. The only thing backing bitcoin is confidence that people place in it. Confidence is the same reason fiat currency has value. Remember, current fiat currencies are backed by NOTHING as well. They put confidence because of several high quality value - primarily that bitcoins are finite, easy to transfer, anonymous. Unlike traditional fiat currency, the government cannot print bitcoins into oblivion. Thats why bitcoins goes up in value year over year while fiat goes down in value year over year. Bitcoin is a far superior system than fiat currency.

This is the correct answer. It is not the computational power that gives the new bitcoins value. If it were playing a high graphic game should give you money because its uses a lot of computational power. The coins come from nothing as a reward for those who are keeping the network safe (that is what mining is about).

Th eonly detail is that fiat currencies are not based on confidence. They are impose by force by the governments. I assure you that its not confidence that holds them in place, its the violence or thread of violence of governments. When a fiat currency has stopped being the government currency and has had to compete they always collapse, because nobody trusted them but were forced to use them. F.e. people say that Andrew Jackson closed the central bank of his time, the Second Bank of the USA. What he did in reality was to remove the charter they had and let them opperate as a normal bank. He did not really close it, he just removed the government regulations. The bank went bankrupt, even when they tried to get some state to regulate for them.
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June 25, 2011, 05:16:07 AM
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Quote
Deflation is only bad if you're in debt to the currency.

So even if we get to the point where the deflation is at a slow steady rate..  doesn't this work against the usefulness of BTC in the economy?
Who is going to take out a BTC loan if they not only have to pay a little interest, but also have to work x% more hours to pay it off just due to the background deflation?
Perhaps lenders will be forced to only apply very tiny interest rates - and do even more thorough credit checks on people than they currently would?

This is (just?) one aspect of the bitcoin economy I don't grasp.
Availability of credit is surely an underpinning of economic growth and wealth distribution.

Plans that have a high likelihood of succeeding will seek loans and be approved for them.  That doesn't mean they will only be status quo, but rather that blatantly bad ideas will have a much harder time gaining funding because there will be little chance of them paying it back.

Similarly however, if had no bitcoins but decided to work doing something and be paid in bitcoins, the BTC you are paid would increase in value in a deflating environment while at the same time the price of things to buy with BTC would also be going down

Money = Debt is the current model, but it's also the reason why the economy is in shambles - The whole thing is a ponzi scheme that needs infinite money printing or else face slashing the cost of government around the world by between 40-80%.   Ironically, the longer and more they  print money the closer we get to the hyper-inflationary firestorm.     What's your preference, fire or ice?  Bitcoin doesn't have that problem of being used to work for the benefit of a small group, at the expense of the many - BTC is the peoples money, for the people, by the people.

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June 25, 2011, 05:46:46 AM
 #33

When someone "mines" for bitcoins, where does the money come from? I know back in the old days, when the U.S. printed money, they had gold to back it up. What is backing bitcoins? Could someone explain it in laymans terms?

As I explained as a comment in the topic "Who or what is this math being done for?":

All around the world there are thousands or millions of CPUs/GPUs grinding away on math equations in the hopes that they will "solve" one of them and reap the reward of 50 bitcoins. One thing that troubles me (and Ive yet to find the answer); who is this math being done for?

To which I replied:

The energy is not wasted.  It goes to feed the bitcoin gremlin.  The bitcoin gremlin likes to eat hash cycles.  If you provide the bitcoin gremlin with enough hash cycles, he will reward you with 50 bitcoins.

I should also mention why it is that us humans have reached this mutually-beneficial agreement with the bitcoin gremlin.  Long ago, there was a great conflict between us humans and the gremlins.  Basically, these gremlins would eat anything, and I mean anything!  This is all explained in an excellent 1984 dramatic theatrical documentary entitled "Gremlins" by Steven Spielberg.  Gremlins are descendents of cute sentient creatures known as Mogwai.  According to the Wikipedia article on Mogwai, there are 3 "rules" for keeping a Mogwai:

Quote
(1) "Don't get him wet" as, when exposed to water, it immediately reproduces more of its kind asexually by budding from its back.
(2) "Keep him away from bright lights....especially sunlight." Sunlight will kill a mogwai and bright light is known to hurt it.
(3) "Never feed him after midnight" because if it eats food after midnight, it will create a cocoon and emerge as reptilian monster called a gremlin.

Unfortunately, one of the humans who obtained a Mogwai failed to follow these rules.  Chaos ensued (i.e. lots of gremlins eating lots of humans' property).  The issue still wasn't resolved even by the next decade as can be shown in the 1990 documentary "Gremlins 2: The New Batch".  As I said before, basically these gremlins would eat anything!  It wasn't until late 2008 when a genius Japanese security researcher called Satoshi Nakamoto figured out a clever solution.  The key was to realize that these gremlins would eat anything.  Satoshi devised a clever mechanism whereby large numbers of humans would be incentivized into running their CPUs and GPUs at maximum utilization rate producing needles strings of 1's and 0's such that their SHA256 hash would have 0's in their most significant bits.  It turns out that these gremlins really like the taste of bit strings that have SHA256 hashes containing 0's for their most significant bits.  Yes, the gremlins like to eat your hash cycles, but they really really love these tasty SHA256 hashes with the 0's at the top.  Furthermore, Satoshi's figured out a way that the humans would be non-coercively incentivized to produce on average one of these so-called "blocks" every 10 minutes.  This was a significant discovery, because that rate just so happened to satisfy the gremlin community's demand rate for these tasty 0-topped SHA256 hashes (although there was some very tough negotiation on behalf of Satoshi representing the humans to reach this amenable agreement).  In return, it turns out that these gremlins excrement something in their feces from eating one of these special 0-topped SHA256 hashes that we all know and love dearly called bitcoins.  Peace & Happiness ensued between the humans and the gremlins.  And thus this concluded the great conflict between humans and gremlins.  If you are curious, this will all be animated in an upcoming documentary entitled "Gremlins 3: The Bitcoin Accord".

Anyway, back to your original question of "What is backing bitcoins?", well the answer is that mining for bitcoins is the price society pays for peace and social stability with the gremlins.  Failure to meet the gremlins' appetite will mean utter destruction of most tangible human property and most likely a return to the stone age.  Yes, you could say that mining for bitcoins is the price we pay for civilization.  This is why these bitcoins are valuable to humans, and is why humans will gladly exchange valuable goods, services, and fiat currency for bitcoins.

"We will not find a solution to political problems in cryptography, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

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June 25, 2011, 08:12:45 AM
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When someone "mines" for bitcoins, where does the money come from? I know back in the old days, when the U.S. printed money, they had gold to back it up. What is backing bitcoins? Could someone explain it in laymans terms?

As I explained as a comment in the topic "Who or what is this math being done for?":

All around the world there are thousands or millions of CPUs/GPUs grinding away on math equations in the hopes that they will "solve" one of them and reap the reward of 50 bitcoins. One thing that troubles me (and Ive yet to find the answer); who is this math being done for?

To which I replied:

The energy is not wasted.  It goes to feed the bitcoin gremlin.  The bitcoin gremlin likes to eat hash cycles.  If you provide the bitcoin gremlin with enough hash cycles, he will reward you with 50 bitcoins.

I should also mention why it is that us humans have reached this mutually-beneficial agreement with the bitcoin gremlin.  Basically, long ago, there was a great conflict between us humans and the gremlins.  Basically, these gremlins would eat anything, and I mean anything!  This is all explained in an excellent 1984 dramatic theatrical documentary entitled "Gremlins" by Steven Spielberg.  Basically, these gremlins are descendents of sentient creatures known as Mogwai.  According to the Wikipedia article on Mogwai, there are 3 "rules" for keeping a mogwai:

Quote
(1) "Don't get him wet" as, when exposed to water, it immediately reproduces more of its kind asexually by budding from its back.
(2) "Keep him away from bright lights....especially sunlight." Sunlight will kill a mogwai and bright light is known to hurt it.
(3) "Never feed him after midnight" because if it eats food after midnight, it will create a cocoon and emerge as reptilian monster called a gremlin.

Unfortunately, one of the humans who obtained a Mogwai failed to follow these rules.  Chaos ensued.  The issue still wasn't resolved even by the next decade as can be shown in the 1990 documentary "Gremlins 2: The New Batch".  As I said before, basically these gremlins would eat anything!  It wasn't until late 2008 when a genius Japanese security researcher called Satoshi Nakamoto figured out a clever solution.  The key was to realize that these gremlins would eat anything.  Satoshi devised a clever mechanism whereby large numbers of humans would be incentivized into running their CPUs and GPUs at maximum utilization rate producing needles strings of 1's and 0's such that their SHA256 hash would have 0's in their most significant bits.  It turns out that these gremlins really like the taste of bit strings that have SHA256 hashes containing 0's for their most significant bits.  Yes, the gremlins like to eat your hash cycles, but they really really love these tasty SHA256 hashes with the 0's at the top.  Furthermore, Satoshi's figured out a way that the humans would be non-coercively incentivized to produce on average one of these so-called "blocks" every 10 minutes.  This was a significant discovery, because that rate just so happened to satisfy the gremlin community's demand rate for these tasty 0-topped SHA256 hashes (although there was some very tough negotiation on behalf of Satoshi representing the humans to reach this amenable agreement).  In return, it turns out that these gremlins excrement something in their feces from eating one of these special 0-topped SHA256 hashes that we all know and love dearly called bitcoins.  Peace & Happiness ensued between the humans and the gremlins.  And thus this concluded the great conflict between humans and gremlins.  If you are curious, this will all be animated in an upcoming documentary entitled "Gremlins 3: The Bitcoin Accord".

Anyway, back to your original question of "What is backing bitcoins?", well the answer is that mining for bitcoins is the price society pays for peace and social stability with the gremlins.  Failure to meet the gremlins' appetite will mean utter destruction of most tangible human property and most likely a return to the stone age.  Yes, you could say that mining for bitcoins is the price we pay for civilization.  This is why these bitcoins are valuable to humans, and is why humans will gladly exchange valuable goods, services, and fiat currency for bitcoins.

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June 25, 2011, 08:22:10 AM
 #35

My poo is scarce.  There is a limited supply of it produced over time.  Therefore my poo is a valuable currency that need not be backed by anything.  Smiley

Well... http://en.wikipedia.org/wiki/Artist%27s_shit

Quote
A tin was sold for €124,000 at Sotheby's on May 23 2007[1]; in October 2008 tin 083 was offered for sale at Sotheby's with an estimate of £50-70,000. It sold for £97,250[2]. The cans were originally to be valued according to their equivalent weight in gold — $37 each in 1961 — with the price fluctuating according to the market[3].

His poo is valuable, very valuable  Grin
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June 25, 2011, 10:58:21 AM
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It comes out of thin air. Thats how bitcoins are put into circulation in the first place. The only thing backing bitcoin is confidence that people place in it. Confidence is the same reason fiat currency has value. Remember, current fiat currencies are backed by NOTHING as well. They put confidence because of several high quality value - primarily that bitcoins are finite, easy to transfer, anonymous. Unlike traditional fiat currency, the government cannot print bitcoins into oblivion. Thats why bitcoins goes up in value year over year while fiat goes down in value year over year. Bitcoin is a far superior system than fiat currency.

This is the correct answer. It is not the computational power that gives the new bitcoins value. If it were playing a high graphic game should give you money because its uses a lot of computational power. The coins come from nothing as a reward for those who are keeping the network safe (that is what mining is about).

Th eonly detail is that fiat currencies are not based on confidence. They are impose by force by the governments. I assure you that its not confidence that holds them in place, its the violence or thread of violence of governments. When a fiat currency has stopped being the government currency and has had to compete they always collapse, because nobody trusted them but were forced to use them. F.e. people say that Andrew Jackson closed the central bank of his time, the Second Bank of the USA. What he did in reality was to remove the charter they had and let them opperate as a normal bank. He did not really close it, he just removed the government regulations. The bank went bankrupt, even when they tried to get some state to regulate for them.

Yes exactly. Its very important to understand the history of money. Most people do no know the history of money, therefore, they do not understand bitcoin and what role it plays.

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June 25, 2011, 01:22:11 PM
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Rolling back a bit,

Being limited is a property of bitcoin, but not a property of currency. That's what I was stating.

Actually we'd in the past currencies backed by gold, however they ended up suck to fractional reserves, as even if the gold itself was of limited supply, the paper representing it wasn't.
Obviously limitless currencies will degenerate sooner or later in inflation wormholes and are in nature a scam, but while people accepts it for trading they're currency.
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June 25, 2011, 02:02:52 PM
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The problem with a poo based currency is that it is too easy to counterfeit.

As we slide down the banister of life, this is just another splinter in our ass.
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June 25, 2011, 02:08:50 PM
 #39

Reminds me of Douglas Adam's "So Long & Thanks for all the Fish", in which the people of pre-historic earth (mostly telephone sanitizers, hairdressers, and mid-level executives) opt for a leaf-based currency (leaves of the trees), and when the problem of rampant inflation emerges, the solution is to burn down the forests.

Good money is hard to find, but if you can get someone to accept your poo as currency you've earned the right to call it that.

But not until you find that first person (has to be real trade too lol)

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June 25, 2011, 02:13:10 PM
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Thats an important thing to remember.

Fiat currency is backed by NOTHING. So you can't use that excuse as a reason not to use bitcoin since fiat is backed by nothing and created out thin air just like bitcoin. The major benefit is the fact that bitcoin is open source and everyone has agreed that the bitcoin money supply will creat at xyz rate. Compared to the government where they just print it up non stop to fund wars, welfare systems and other such projects. As a result, fiat continually loses value over the long term. If someone had $100 in USD in 1913 and held that cash then the value of that money would be worth the equivalent of 4$ today or a 96% loss of value. These days fiat loses about 10% of its value per year. Thats why gas, food, housing, healthcare etc all goes up every single year. When you use bitcoin, this does not happen. Rather, bitcoin adjusts to inflation since dollars are losing value while bitcoin is gaining value due to limited supply.



Let me help you read that properly... If they had $100 in 1913 it would be worth $100 today assuming they hadn't invested it.

What that graph is really saying is that with a dollar in 1913, could could buy 25 times as much as you could with a dollar today.  $100 is $100, the difference is in 1913 you could buy a tommy gun in the Sears catalog for $19.95, and nowadays $100 gets you a shitty ipod dock.

Be fearful when others are greedy, and greedy when others are fearful.

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