Topic: Im confused, where is this money coming from? (Read 4350 times)

that's simple; for the best analogy: imagine an overwhelming difficult equation that to calculate it you need a powerful grid of computing power, each solved part of that equation is "a bitcoin".

Why don't we answer the OP's original question, which was where are the mined coins coming from; how are the blocks generated and discovered, etc.

Let's start with the first bitcoin. Suppose the bitcoin economy is worth 10 dollars and there is one coin in existence. That coin then has an inferred value of $10. Now let's say we want to verify that this coin is legitimate in an anonymous fashion. In order to do that we need to do some difficult calculations to ensure the coin is authentic. In order to finance this we create another bitcoin and give it to the person who does the work to solve the verification calculation. Now there are 2 bitcoins, but the economy is still worth $10 at the moment, so now the two bitcoins are each worth $5. Instead of paying directly for the service of verification, we paid indirectly through inflation.

So to answer your question, the money comes from the value of existing bitcoins, which are worth slightly less as we inflate (if we don't factor in btc exchange rate for a moment), but it is a situation that is well known ahead of time and accepted as part of the cost of owning bitcoins. When this process ends and there is no more inflation, transaction fees will pay for the verification since it is assumed that by then transaction fees will make up a bulk of the profits for miners anyway.

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.

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)

The problem with a poo based currency is that it is too easy to counterfeit.

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.

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.

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


His poo is valuable, very valuable 

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


To which I replied:


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:


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.

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.

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.

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.

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.

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.

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).

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.

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

Then you just wasted a few dollars on a typo