Originally Posted by
ryanmattes
I'm in software, so I know a bit about this. To give you just a little bit of reason why you should trust my word, my job for the past several decades has been to evaluate new technologies as they come to exist, and tell non-technical people (C-level executives) why they want nothing to do with them. I don't work for a big company making big software, I work for a small company that consults for big companies to help them make technology decisions. My job is to understand these technologies, and get to the bottom of the real costs and benefits of them.
Bitcoin is weird. It is a revolution, but not for the reasons most people (and all the media) thinks. It actually involves two technologies; cryptocurrency and blockchain.
So everybody thinks they know what banks do, but most people are wrong. People who never spent any time thinking about it say "I pay them a fee to hold my money," but that's not right. People who have thought about it more say "What they really do is loan money to make interest, and all the people depositing money is just their way of getting money to lend." But that also not right. They do both of those things, but those are just profitable side jobs. The main job of a bank is to maintain a ledger.
Banks don't sell financial products, they sell trust. Trust in their ledger. The ledger says who has how much money and when. They employ thousands of people and billions in technology to audit and maintain that ledger. But at the end of the day, you're trusting the ledger. When I log into the bank, the number in my account is what I expect it to be because their ledger is trustworthy.
Blockchain is a ledger. But it's a ledger that cannot be cheated. You can't insert fake transactions to hide shady deals, or push money around. Without getting into the details, every transaction both depends on and contains information about every other transaction, for all of time. So any attempt to fake an entry wouldn't work, because of hard math. They're doing crazy things with very large numbers and some really unintuitive math, which makes it literally impossible to fake. So it's a perfectly trustworthy ledger. And it requires zero people, and especially zero banks, to maintain. Don't think of Blockchain of living on a computer some where, blockchain lives in the same place as the number 4. It *is*, just as assuredly as 2+2=4. In fact, exactly like 2+2=4. Transaction A happened and then transaction B happened, and you can trust that implicitly because if it didn't, 2+2 would equal 5. You can look at any entry in the ledger and verify both it's authenticity, as well as he authenticity of any other entry, from any point in time. An all entries are available to the public all the time. So no one can cheat.
So that's blockchain. It could revolutionize banking. But obviously the banks don't like anyone to be able to magically create a perfectly trustworthy ledger, because they just spent decades or centuries building trust in their ledgers. But they're not directly opposed to it, because it also works for them.
Then there's cryptocurrency. It's similar in that first, there exists one coin, which is basically a very, very large, and completely unique number. From that one, you can create more, but it's expensive. For the longest time, it cost a whole lot more to create one than it was worth. This goes back to that complex math. To make another coin, you have to do computations so complex, that you see it in your electricity bill. That's a lot of processing, for sure. So what they did was tie the creation of new coins to the processing of transactions in the ledger. You can't create Bitcoin without recording a transaction.
So what Bitcoin "miners" actually do is process transactions for other people who are using Bitcoin. I don't know what the exchange is now, but in simple terms it looks like this. I want to send you $300 in Bitcoin, for which there is a small processing fee. I send that transaction off to be processed, and an unknown 3rd party, who can't read it and has no idea who it's for, starts processing the transaction. Their computer does tons of complex math, using your new transaction and the previous one on the ledger as variables in that math, and when they're done, two things happen. First, our transaction becomes part of the permanent ledger, and second, they get a little Bitcoin, from that processing fee, and another transaction showing the creation of that Bitcoin becomes part of that ledger.
The idea, from the beginning, is that a currency that didn't cost you anything doesn't hold any intrinsic value. But if it cost you on your electric bill, now it has at least some kind of intrinsic value. At least as much as it cost you to create it. So Bitcoin aren't just fictional currency with not cost or value, being played with by investors. It actually does have an intrinsic cost and value, by nature if how it is "printed." Just like USD, bitcoin can be worth "more than the paper it's printed on," even if it's only "printed" in ones and zeros.
Now, whether it's worth it for you or I to mess around with them is outside of my area of expertise. My expertise is in telling companies whether they should be messing around with it, and the answer is almost always "no." I don't personally have any Bitcoin, and I don't generally recommend my clients get into cryptocurrency or blockchain. But it does have a place, and there are good reasons, under the right circumstances, to use them.
Hope that helps clear up at least what it is.
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