A Bitcoin and Crypto Primer: Part 1
January 6, 2018, 10:11 am
So. Last year around this time, I went nuts for 3D Printing. I mean I bought and constructed about seven 3D Printers. I love it, and I learned a lot.
This year I've gone full bore into Cryptocurrency, and I would like to impart some knowledge onto anyone who reads this.
First off, let's get one thing straight. You may call them all bitcoins if you want, but there are a number of cryptocurrencies now, and you don't want to be your grandma calling all game systems Nintendos. Bitcoin is one of and the first cryptocurrency. It is also currently the most expensive of the cryptos. But what is its worth?
What is Bitcoin worth?
This is perhaps the most wrong question new people ask. As of this writing BTC (the identifier for bitcoins) are worth different things in a lot of different places. Bitcoin is a pure currency, like dollars. What are dollars worth? Nothing. That bill that you hold is worth nothing, except what someone is willing to trade it for. It's not worth anything in gold, or anything else, inherently.
Dollars don't have a value in gold. Dollars are worth nothing. Gold is worth something in Dollars, not the other way around. Dollars are worth nothing except your own trust in a system.
So what are Bitcoins and other Cryptocurrencies worth? Bitcoin can be given a worth in Dollars, because it can be traded into dollars, but it can also be given a worth in apples, a worth in Ethereum, a worth in Euro, and a worth in drugs. It is a currency in the purest sense. The difference is that although your Dollar responds only to your trust in the system, Bitcoin is built around a technology called the Blockchain.
What is the Blockchain?
The blockchain is a digital, decentralized ledger of every Bitcoin transaction that has ever occured. So imagine that you were a bank, and you wanted to accept a check. You would need to talk to the new bank and make sure that that check actually came from the other bank, that it actually belonged to that customer, and that there was actually a worth denoted by the check. At that point, that worth could transfer from one bank to the other.
Now imagine that instead of needing to communicate with a bank, you could just pull 6 random people off the street and tell them you wanted to move money to a new location. What if everyone was their own bank all hooked into the same ledger. Imagine that you would say you wanted to move money somewhere, and everyone knew the original location. If 6 people all were checking around the ledger that day, and they all confirmed that the money from the original location was legit, then the money would go through, and everyone's ledger would update with value in a new location.
That is an overly simplified description of the blockchain, but it's good enough for these purposes. The blockchain is a virtual decentralized guarantee that the amount of currency you say you're transferring came from somewhere and is the amount you said it was.
So how does Bitcoin mining work?
Not all cryptocurrencies are based on the same technology, and some of them have utility beyond their worth as a currency. Bitcoin mining is the way that the ledger is proved. Anyone can become a miner and it serves two purposes.
One, when Bitcoin was first proposed, in order to not allow anyone to be able to fully control it, not all of the coins were produced at once. Coins can be mined by solving complex mathematical problems. As these problems are solved, new coins are unearthed at certain stages. Everyone mining improves the distance for everyone else toward the next coin, but only the last person gets the coin. Everyone chips away at a gold mine, until only one person gets the nugget. This system actually encourages miners to pool their resources and then share the spoils if a coin is unearthed.
Two, as miners mine, they also are the ones proving transactions. When bitcoin transactions are occuring they get passed to miners for approval before being confirmed in the core ledger. Every transaction also incurs a small fee, and these fees are then passed on to the miners to encourage the act of mining beyond the possibility of finding whole Bitcoins, and indeed the time after all Bitcoins have been mined.
How many Cryptocurrencies are there?
Lots. Hundreds, bordering on thousands.
So isn't that bad? Sort of. Not really. Think about it this way, most countries have their own currency. Wouldn't it be better if all countries, indeed all peoples, used the same currency? Possibly, but that's not happening. Although any country can issue its own currency, it doesn't mean anyone will use it.
Likewise, although anyone can create a currency based on a doge, it doesn't mean anyone will use it for anything other than collecting and trading. These days there are not just different Cryptocurrencies, but there are even different underlying technologies. Many of these currencies are based on what's called a fork of the original Bitcoin documentation. They took what Bitcoin was, and made their own version. Some of them even took the same ledger as Bitcoin at the time, and gave everyone who had some Bitcoin some of their new altcoin.
If you would like to tip me some Bitcoins, you can use this address.
1N37odPafRyrKRnKxEsPLFqiEgtoPbxE4S
