Hi everyone!
My name is Caroline and I'm a newer-than-new newbie. I am interested in Bitcoin and over the last week or so I read just about everything there is to read about the topic.
My reaction is: "huh? What?". In other words: I am totally confused about the point of this venture.
It can be a bit confusing at first. There are also a lot of confused people here at bitcointalk that will give bad advice, which can make it even more difficult to learn. Fortunately, there are several members of this forum that understand things well and give good advice.
I understand that a) it's kind of secure,
The protocol itself is VERY secure. However, using bitcoins requires you to protect something called "private keys". They are what allow you to transfer control of bitcoins to someone else. If someone manages to get your "private keys", then can spend and steal your bitcoins. It is up to you to make sure that you properly secure the "private keys" from loss (make sure you have good backups) or theft (hackers, viruses, malware, etc).
b) it's money of some description
Correct. I find it easiest to think of it as foreign currency. If you are in the U.S. then your local currency is the U.S. Dollar, and all other currencies (Euro, Yen, Peso, Pound Sterling, Bitcoin, etc) are "foreign" currency. Since bitcoin isn't a "local" currency anywhere, it is a "foreign" currency everywhere.
and c) it's open source. Everything else is goobledegook to me.
Keep asking your questions here, and hopefully it will start to make more sense.
Mining?
Mining is a misleading name for what is actually happening. "Mining" is actually "transaction processing". "Miners" gather up the unconfirmed transactions from the network, verify that they are valid, and then add them to a globally shared permanent ledger called "the blockchain". They do some work to make it extremely difficult for anyone else to modify the transaction ledger once the block of transactions has been added. Transactions that have been added to the blockchain are "confirmed". As more blocks of transactions are added to the ledger, each new block is said to be an additional "confirmation" of all previously confirmed transactions.
In exchange for providing this service to the network, miners get paid. They receive all the transaction fees paid by all the transactions that they include in their block. They also receive a subsidy of brand new bitcoins. Right now that subsidy is 25 BTC per block. The subsidy will drop to 12.5 BTC in 2016. Then approximately every 4 years, the subsidy will be cut in half until somwhere around the year 2140 when the subsidy will drop to 0 BTC, and the "miners" will be paid exclusively with transaction fees.
Faucetting? What are those when they are at home?
Faucets are a waste of time.
Some people have created websites. They load up the websites with advertising. They get paid by the advertisers for each time a person visits the website. In order to get more people to visit the website more often, they give away "free" tiny fractions of a bitcoin.
The amounts that they give out are so small they are practically unspendable. The transaction fees for spending bitcoins in a bitcoin transaction are not based on how much bitcoins are being sent. They are based on how many bytes of data are necessary to build the transaction. Each transaction that you receive adds 140 bytes to a transaction when you try to spend it. So, if you receive a single transaction of 1 bitcoin you can send it with a very small transaction fee, since spending that 1 bitcoin only adds 140 bytes to the transaction that you create. On the other hand, if you receive 1000 transactions from a "faucet" each valued at 0.001 BTC, you've still received 1 bitcoin. Only now if you try to spend that 1 bitcoin, each of those transactions that you received in the past will add 0.001 BTC of value to the transaction with 140 bytes. That's a total of 140,000 bytes. This will result in a very expensive transaction fee when you try to use the bitcoins in the wallet.
Most "faucets" give you amounts that are so small that they create more transaction fees for you in the future than the amount of bitcoins they have paid you. Therefore, the "Faucuet" ends up costing you money in the long run instead of earning you money.
The faucet owners know that they are doing this to you, but they don't care. Most newbies don't learn about this problem until they have already visited the "faucet" website thousands of times. By then the unknowing newbie has already told many people about how great it is that you can earn "free" money by visiting a website, and so the "faucet" owner has gained additional "customers". The "faucet" owner has also already earned significantly more from advertisers than they have paid the newbie. They are taking advantage of the fact that newbies don't understand how transaction fees work in order to trick them into wasting time at the "faucet" website.
What if I don't want to mine anything or turn on a faucet but I just want to use Bitcoin as a savings account?
Then you would be very smart.
Mining is a very competitive industry, and acquiring the necessary resources at a cheap enough cost to realize a profit is quite difficult. We've already discussed why faucets are a waste of time.
Is that possible?
Certainly. Most users of bitcoin don't mine or use "faucets".
If I was going to visit europe, I wouldn't try and start up an electronic payment processing company to earn euros. I'd just exchange some of my U.S. dollars for euros. Then I'd save and spend my euros until I decided to return to the U.S. at which time I'd exchange some of the euros for dollars.
You can do the same with bitcoins. Exchange some of your local currency for bitcoins. Save and spend them however you like. Then if you have bitcoins but need some local currency, you can exchange some of the bitcoins back to your local currency.
It is also possible to find work that you can do and get paid for the work in bitcoins. You can sell products and services and accept bitcoins as payment from others that have bitcoins.
Is my money save?
As long as you protect your "private keys" from loss and theft, then you won't lose any bitcoins. However, (just like any foreign currency) the exchange rate between bitcoins and your local currency is constantly changing according to current market conditions. Because bitcoin is so new, there is a lot of uncertainty in exactly what it should be worth. This results in very large changes in exchange rate. As such, you may find that your bitcoins will buy MUCH more or MUCH less in the future than they will buy today.
Since it is very difficult to know how much the bitcoins will be able to purchase in the future, you should not convert any money that would be devastating to lose into bitcoins.
Do I get persecuted by angry tax people if I save through Bitcoin?
Make sure you pay your taxes. It is required by law. As long as you properly pay your taxes, you won't be any more likely to be "persecuted by angry tax people".
What's a Bitcoin worth in the kind of money that the supermarket will accept?
That depends on what country you are in.
In the U.S.: 1 bitcoin is worth approximately $625 right now.
In most of Europe: 1 bitcoin is worth approximately €460 right now.
In England: 1 bitcoin is worth approximately £375 right now.
Just like those other currencies can be broken into smaller parts (cents, pence, etc), a bitcoin can be broken into smaller pieces as well.
So, if 1 bitcoin is worth approximately $625, then 1 one-thousandth of a bitcoin (written as either 0.001 BTC or 1 mBTC and called 1 millibitcoin) is worth about $0.625
The list of questions marching through my head is endless.
Hopefully you'll find some good answers here.
Could someone please explain it all to me, preferably in the type of language a five-year-old can understand? I'm not five years old but when it comes to High Finance, I'm a newborn babe.
I'm not sure that a 5 year old can understand the concept of money at all. But I'll try to keep my explanations relatively simple so that they can be understood by a reasonably educated adult.
