Is Bitcoin a scam?

[Twilight]

By default a client has an option to "generate money". By solving some unmentioned mathematical problems. Which I assumed somebody had to pay something to solve, right? It spends 100% of 3.2ghz x4 (Phenom II X4 955) and in one week I got nothing. WHAT exactly is happening behind the scene if it spends 12.8 ghz every second? Does it brute some hashes to get passwords or something?

To a stranger it looks ridiculous. Generating money either devalues the total bitcoin amount vs dollar exchange rate, or it steals your money. How can you realistically "generate" money??

Generate money option looks very suspicious and it bitcoin software there is no explanation. Bitcoin is open source (I assume WITH all the parts and not something 'valuable' removed), or is a single developer uses thousands of machine to brute something?

I'd like an actual developer to reply. That would be much appreciated.

Thanks.

[PLATO]

edit: can we sticky this? people ask this or similar daily

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.

...Mining is the process of generating coins...

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

[marcus_of_augustus]

By default a client has an option to "generate money". By solving some unmentioned mathematical problems. Which I assumed somebody had to pay something to solve, right? It spends 100% of 3.2ghz x4 (Phenom II X4 955) and in one week I got nothing. WHAT exactly is happening behind the scene if it spends 12.8 ghz every second? Does it brute some hashes to get passwords or something?

To a stranger it looks ridiculous. Generating money either devalues the total bitcoin amount vs dollar exchange rate, or it steals your money. How can you realistically "generate" money??

Generate money option looks very suspicious and it bitcoin software there is no explanation. Bitcoin is open source (I assume WITH all the parts and not something 'valuable' removed), or is a single developer uses thousands of machine to brute something?

I'd like an actual developer to reply. That would be much appreciated.

Thanks.

Did you read even one of the pages of the wiki? To a developer your questions look ridiculous, sorry, but they do.

No, it is not a scam. But you just wasted a weeks worth of computational power on a futile exercise ... imagine you just decided to climb Mt. Everest on whim and after getting to base camp said "Eff this, it's impossible, I'm out!" that is the equivalent of what you just did with your attempt at bitcoin mining ... it's not easy, no such thing as free money.

https://en.bitcoin.it/wiki/Main_Page

Return to Go, do not collect $200.

[grondilu]

RTFM

[BioMike]

Does it brute some hashes to get passwords or something?

Well, actually yes. It does. If you get a hit to a difficult challenge, you get the bitcoins.
The network doesn't want more or less then 6 blocks an hour, so it balances the difficulty to get that.

[gigabytecoin]

By default a client has an option to "generate money". By solving some unmentioned mathematical problems. Which I assumed somebody had to pay something to solve, right? It spends 100% of 3.2ghz x4 (Phenom II X4 955) and in one week I got nothing. WHAT exactly is happening behind the scene if it spends 12.8 ghz every second? Does it brute some hashes to get passwords or something?

To a stranger it looks ridiculous. Generating money either devalues the total bitcoin amount vs dollar exchange rate, or it steals your money. How can you realistically "generate" money??

Generate money option looks very suspicious and it bitcoin software there is no explanation. Bitcoin is open source (I assume WITH all the parts and not something 'valuable' removed), or is a single developer uses thousands of machine to brute something?

I'd like an actual developer to reply. That would be much appreciated.

Thanks.

Did you read even one of the pages of the wiki? To a developer your questions look ridiculous, sorry, but they do.

No, it is not a scam. But you just wasted a weeks worth of computational power on a futile exercise ... imagine you just decided to climb Mt. Everest on whim and after getting to base camp said "Eff this, it's impossible, I'm out!" that is the equivalent of what you just did with your attempt at bitcoin mining ... it's not easy, no such thing as free money.

https://en.bitcoin.it/wiki/Main_Page

Return to Go, do not collect $200.

Well put.

[susanexpress]

By default a client has an option to "generate money". By solving some unmentioned mathematical problems. Which I assumed somebody had to pay something to solve, right? It spends 100% of 3.2ghz x4 (Phenom II X4 955) and in one week I got nothing. WHAT exactly is happening behind the scene if it spends 12.8 ghz every second? Does it brute some hashes to get passwords or something?

To a stranger it looks ridiculous. Generating money either devalues the total bitcoin amount vs dollar exchange rate, or it steals your money. How can you realistically "generate" money??

Generate money option looks very suspicious and it bitcoin software there is no explanation. Bitcoin is open source (I assume WITH all the parts and not something 'valuable' removed), or is a single developer uses thousands of machine to brute something?

I'd like an actual developer to reply. That would be much appreciated.

Thanks.

I think it is yes.

[gigabytecoin]

By default a client has an option to "generate money". By solving some unmentioned mathematical problems. Which I assumed somebody had to pay something to solve, right? It spends 100% of 3.2ghz x4 (Phenom II X4 955) and in one week I got nothing. WHAT exactly is happening behind the scene if it spends 12.8 ghz every second? Does it brute some hashes to get passwords or something?

To a stranger it looks ridiculous. Generating money either devalues the total bitcoin amount vs dollar exchange rate, or it steals your money. How can you realistically "generate" money??

Generate money option looks very suspicious and it bitcoin software there is no explanation. Bitcoin is open source (I assume WITH all the parts and not something 'valuable' removed), or is a single developer uses thousands of machine to brute something?

I'd like an actual developer to reply. That would be much appreciated.

Thanks.

I think it is yes.

Lol you have to be kidding. 1 post and you think we are a scam?

Check out the wiki and read through the forum. There are some highly intelligent people devoting a lot of their time to this project. I can assure you it is not a scam.

[stakhanov]

As long as there is no company or central authority behind it, it can't be a scam. It may fail in the future, but it simply can't be a scam.

[BitLex]

Lol you have to be kidding. 1 post and you think we are a scam?

don't feed the trolls,
you're talking to a spammer.  
probably got deleted last time, so it just created a new account to spam wow-gold-links

[LMGTFY]

Lol you have to be kidding. 1 post and you think we are a scam?

don't feed the trolls,
you're talking to a spammer.  
probably got deleted last time, so it just created a new account to spam wow-gold-links

Dammit. I just hunted this thread down so I could satoshi-ise the spammer's signature spam.

I can't remember how the signature looked, but it was something like:

satoshi gold!
More satoshi satoshi!
Yet more satoshi gold satoshi!

[grondilu]

I like also the spirit of the guy who post here his first message, and asks if bitcoin is a scam.

WTF do you expect?  If it IS a scam, do you think anyone will tell you:  "yes, it is a scam.  Go away." ??

Just read the doc and make up your own mind.  Jeez.

[Herodes]

edit: can we sticky this? people ask this or similar daily

The Bitcoin client is not the most user friendly tool out there. I'd suggest to incorporate a HELP menu that have more than the "about"-box, and also remove the "Generate coins altogheter". If it id desirable that people have the "Generate coins" going to support the network, then I'd suggest naming it differently and make sure it only use a few percentages of the CPU to do its task.

As it is now, you have to go online for all your issues, there are no tooltips, and no help menus. I am afraid that will make some people download the application, look at it, don't understand it completely, and then dismiss it completely.

[eMansipater]

@Twilight the explanation PLATO posted is mine--if you have questions after reading it feel free to ask away.  Please ignore the posters above who have forgotten what it was like to try and understand BitCoin for the first time.

Did you read even one of the pages of the wiki? To a developer your questions look ridiculous, sorry, but they do.

No, it is not a scam. But you just wasted a weeks worth of computational power on a futile exercise ... imagine you just decided to climb Mt. Everest on whim and after getting to base camp said "Eff this, it's impossible, I'm out!" that is the equivalent of what you just did with your attempt at bitcoin mining ... it's not easy, no such thing as free money.

https://en.bitcoin.it/wiki/Main_Page

Return to Go, do not collect $200.

Well put.

RTFM

I like also the spirit of the guy who post here his first message, and asks if bitcoin is a scam.

WTF do you expect?  If it IS a scam, do you think anyone will tell you:  "yes, it is a scam.  Go away." ??

Just read the doc and make up your own mind.  Jeez.

Aish guys, stop jumping on the newbies!!

edit: can we sticky this? people ask this or similar daily

I'll copy this and some other key points into a separate thread that can be stickied.  Any requests since I'm at it anyways?

The Bitcoin client is not the most user friendly tool out there. I'd suggest to incorporate a HELP menu that have more than the "about"-box, and also remove the "Generate coins altogheter". If it id desirable that people have the "Generate coins" going to support the network, then I'd suggest naming it differently and make sure it only use a few percentages of the CPU to do its task.

As it is now, you have to go online for all your issues, there are no tooltips, and no help menus. I am afraid that will make some people download the application, look at it, don't understand it completely, and then dismiss it completely.

You are completely right--the user experience for newcomers is horrendous right now.  Please, anybody reading this, go and vote on sample questions for the BitCoin Q&A site proposal.  We need a google-facing newcomer friendly zone, linked directly from the client.

[MoonShadow]

"Is Bitcoin a scam?"

Yes.  So send me all your bitcoins, and you may leave unharmed.

[MoonShadow]

To a stranger it looks ridiculous. Generating money either devalues the total bitcoin amount vs dollar exchange rate, or it steals your money. How can you realistically "generate" money??

Yes, it does look crazy until you understand what the client is actually doing.  Please ignore all of the frustrated 'oldies', but honestly you should have tried to answer your own questions before posting this.  We see this kind of thing every week, and it gets old.

That said, "generating" or "mining" doesn't create money, it is a continuous attempt to solve a proof-of-work compuational problem before anyone else does in order to be the first user to verify the next block in the blockchain.  The blocks contain transaction records, and the blockchain is a huge ledger of all the transactions that have occured between cryptographic accounts, ever.  If your computer is the first to solve a block, and that is accepted as a fact by the network, then you are rewarded for your success with 50 newly issued bitcoins.  In 2013, this block reward drops to 25, and continues to half every four years so that the total number of bitcoins in circulation approaches 21 million.  This proof-of-work combined with a massive, collective and distributed ledger is how Bitcoin can be both distributed without any single point of failure and still prevent double spending of digital funds.

[eMansipater]

Please ignore all of the frustrated 'oldies', but honestly you should have tried to answer your own questions before posting this.  We see this kind of thing every week, and it gets old.

For some, perhaps--but that's not the fault of a new user.  It doesn't cost anything to be silent--if questions from newcomers are rubbing someone the wrong way, stop reading the thread and for heavens sake don't post in it thereby getting notified with every consecutive response!!  The situation for the average newcomer trying to understand BitCoin is terrible, and the rampant misunderstandings of it across the web are the direct result.  These are the BitCoin forums and right now they are the only place on the internet that people can get these questions answered.  If you want BitCoin to succeed, don't fault people for trying to understand it.  That's tough enough already!

/rant

[MoonShadow]

Please ignore all of the frustrated 'oldies', but honestly you should have tried to answer your own questions before posting this.  We see this kind of thing every week, and it gets old.

For some, perhaps--but that's not the fault of a new user.  It doesn't cost anything to be silent

This goes both ways.  When I was a newbie here, I chose to sit back a read for a while before posting anything, and once I did post it wasn't "is Bitcoin a scam"?  That's comparable to seeing a hot chick in a bar and opening with the pickup line, "I guess you don't put out?".  It's pretty much certain to attract an impolite response.

[Jaime Frontero]

That's comparable to seeing a hot chick in a bar and opening with the pickup line, "I guess you don't put out?".  It's pretty much certain to attract an impolite response.

You're quite right - and this really shouldn't be /.

Apparently, if on this forum, her response would be to pull out a .45 and say: "I'll put you out, baby..."

Which brings up some line or another I heard once, about politeness and a gun...

[eMansipater]

My first post was "Won't loss of coins combined with limited supply cripple bitcoin with deflation?"  No joke.  And I'm a smart guy who honestly used the search function first.  This place isn't terribly user-friendly.