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re: Bit coins... I want the general definition

Posted on 11/19/13 at 1:21 am to
Posted by rocketc
Member since Oct 2013
270 posts
Posted on 11/19/13 at 1:21 am to
The simplest analogy to bitcoin, although dumbed down and technically incorrect, is that it's an investment like a stock.

It's value fluctuates based on supply and demand and perceived value, like stocks. There are very few places where bitcoin can be exchanged for products and services, but quite a few ways to convert dollars to bitcoin and vice versa.

Bitcoins are produced out of thin air on a fixed schedule, by an open network of people who own specialized computers that validate transactions. Similar to a credit card, when a transaction of bitcoins happens, the transaction is authorized and verified, but unlike a credit card, this verification is not done by a bank's computers, but buy these privately owned computers in a very large network. These participants are rewarded by receiving bitcoins or fractions thereof for their participation. Without this reward, people would not invest thousands and millions into these computers and electricity to run them. These people and their machines are "bitcoin miners."

Besides this premise that makes bitcoin work, the appeal of bitcoin is that it's like a virtual gold. There is a fixed number of bitcoins that will be awarded to these miners, like the fixed amount of gold on this planet, some of which has not been mined yet, just like bitcoins. Bitcoins are not tied to a currency like the dollar.

Since the supply of bitcoins is predetermined, there is no agenda that can affect the inflation or deflation of bitcoins, unlike traditional currency created by government. The US govt. is printing money at a record pace, and more money is released than is being destroyed. The notion that our dollars will buy less and less because we print more and more money is pretty well understood.

It now requires immense computing power to "mine" bitcoins. As more people buy more advanced equipment to "mine" bitcoins, the costs to mine bitcoins are going up immensely, along with the increasing popularity of BTC (bitcoin) which is driving up the value of the coins exponentially.
This post was edited on 11/19/13 at 1:32 am
Posted by rocketc
Member since Oct 2013
270 posts
Posted on 11/19/13 at 1:36 am to
If you're aware of the bitcoin situation, the difficulty to mine these coins will continue to increase rapidly over the next few months, maybe the next year. I strongly believe that the value will also increase to over a thousand dollars per BTC, possibly before year end.

I would advise anyone with the means to purchase them to do so now, as the value will increase as the market continues to grow. There are over 8 trillion USD worth of bitcoins in existence. I purchased several bitcoins in august and september from between $90-$125 each. And I'm holding them. In the next year or so I expect the technology advances in mining to slow down, causing the price to level off and grow more slowly, but there is still significant meat on the bone for new short term investors.
Posted by Dooshay
CEBA
Member since Jun 2011
29879 posts
Posted on 11/19/13 at 7:30 am to
quote:

The simplest analogy to bitcoin, although dumbed down and technically incorrect, is that it's an investment like a stock.


Wow...
Posted by Poodlebrain
Way Right of Rex
Member since Jan 2004
19860 posts
Posted on 11/19/13 at 8:23 am to
quote:

The simplest analogy to bitcoin, although dumbed down and technically incorrect, is that it's an investment like a stock.
I disagree. A Bitcoin is the solution to a discrete mathematical equation assigned a specific identifier, think of it as a file name. Ownership of each Bitcoin is tracked via the specific identifier. So Bitcoins are in essence information. Information does not have trade value unless it is exclusive. (Kind of ironic that Wiki opposes intellectual property, but he touts the value of the exclusive knowledge of certain information.)
Exclusivity of the information is maintained using high level encryption. The owner of the Bitcoin is the person who has the key to open the file containing the solution to the equation.

The value of a Bitcoin is determined solely by how much a buyer is willing to pay for it. So the value comes from someone else being willing to purchase the Bitcoin for equal or greater price at some point in the future. That is unlike a share of stock since the price a buyer will pay for the share is dependent on the historic operating results of the company, the expected future operating results and the ability to pay dividends.
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