Some people skills, anyone? Treating newcomers as opponents without taking the time to figure out what they're saying is pretty early on the list no matter where or how you learn them.
@al_capwn Don't treat those few responses as representative. I will be happy to answer your questions--no one should be expected to magically understand something as complicated as BitCoin without some detailed, patient feedback. BitCoin
does work, it just takes a little while to fit into your head exactly how. Don't give up yet--I wouldn't want you to miss out on something this cool just because you didn't get your questions answered by the right people.
Your question about what miners are doing is perfectly legitimate, and I agree with you that very few sources on bitcoin explain this properly--it's one of my pet peeves, though I also understand that most BitCoin early adopters aren't exactly customer service professionals.
In order to answer it effectively, let me first explain
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 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". If you're interested I'll be happy to explain specifically how this happens, but
this is the work bitcoin miners are doing--they're not doing any other work for anyone else, and it is very easy to check this both in the sourcecode and also just by observing a running miner carefully, because this is the only data that enters and leaves the program. 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. So it's very fair to ask what amount of energy goes into securing the bitcoin network, but you need to understand what BitCoin gets in return for this. And as someone who's worked extensively in IT, I have to say that
all security costs money. I strongly doubt, however, that a bank could afford to secure
their financial systems as cheaply as BitCoin has, nor as effectively. And unlike banks, every element of BitCoin is laid bare for people to look at. If there
is any way to attack BitCoin profitably, people are welcome to try. At least 3.75 million dollars' worth of trust is sitting there saying it can't be done. And as BitCoin scales up, the coins become worth more--thereby leading to higher and higher security. BitCoin truly is a beautiful technology.
Ask me anything you need to about the parts you don't understand. I'll be happy to explain them to you.
