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Anyone heard of or use Bitcoins?

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Jameson

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Jan 26, 2012
4,041
Bitcoins are a decentralized, anonymous non-FIAT currency. They are used to do illegal activities because of the anonymity but have legal uses as well, as long as they are accepted wherever you are trying to buy something. The total amount of bitcoins will max out at 21 million, but their value versus other currencies can change and they can be traded in increments up to 8 decimal places.

There have been serious hacking issues that have affected the price of a Bitcoin and the confidence in the system. Here you can see a giant drop in value versus the USD after a major theft in June 2011.



What do you guys think about all of this? I find it interesting and perhaps promising but am not confident in the security of it yet.
 

kanderson

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Jul 7, 2012
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Bacterius

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MHB Math Helper
Jan 26, 2012
644
I used to mine for bitcoins for fun but it just took way too long without dedicated hardware (and I have a pretty beefy graphics card), I was barely minting $5 a week and power costs were almost as high. Besides, the only interesting thing I could find I could buy with bitcoins was an internet domain name, and the site was dodgy. I suppose if you're interested in drugs, the silk market could be an option... lol..

Basically there are three ways to make bitcoins:
1. you can buy some for real money and then do some speculation to earn more (or lose everything) trader-style
2. getting bitcoins donated to you by friendly supporters
3. you can spend great amounts of computing power to "create" new bitcoins: by solving particular proof-of-work problems, you can prove that you've done such and such amount of work and hence "earn" a freshly minted bitcoin.

This is called "bitcoin mining" and requires decent hardware to get anywhere, because difficulty increases steadily with the total number of bitcoins in circulation to prevent everything being mined too quickly (at the launch of bitcoin, you could get hundreds of bitcoins a day with a crappy laptop, now you really need a few graphics cards to even get close to a single bitcoin per day).

There are two ways to mine, you can go solo, but the problem is that the mining process is randomized, meaning there is a large amount of variance in the process, so it might take a very long time before you earn bitcoins - but if you do earn it, it's all yours! The other method is to mine in a "pool" which is essentially a group of people mining together and sharing the profits fairly, this works because mining is infinitely faster and hence variance goes down considerably, which allows you a roughly steady bitcoin income.

In reality bitcoins are mined 50 bitcoins at a time (in "blocks") which makes the variance problem even worse. Realistically, if you do not have at least a recent graphics card on which you can mine, don't even bother trying because you will not earn any significant amount by mining, even in a good pool.

Don't forget to check out the bitcoin faucet, which hands out a modest amount of bitcoins to new people to get them started (but don't try to abuse it - one per IP)

There are lots of mining software out there (just make sure you get the GPU ones if you have a graphics card) that is fairly intuitive to use. As for actually creating bitcoin addresses, you just download a bitcoin wallet (the official site has a good one, but it may suck for you if you are on a bandwidth cap because it requires you to download the record of every bitcoin transaction ever made, by design, I think it weighs about 2.5GB so far - a better one to use would be "on-the-fly" wallets which only use what you need, but just look around). Do NOT use "online wallet services", it is the equivalent of giving your credit card and pin to someone.

Also, the "bitcoin crash" your graph shows was not a problem with the bitcoin design itself, but a security vulnerability in the biggest bitcoin transaction portal (mtgox)
 
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Jameson

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Jan 26, 2012
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@kanderson: I've figured out how to use them finally, thanks though. :)

Mining Bitcoins is actually not an efficient way of making money at all. In fact for most it will lose money once you factor in the electricity used on the computer or computers. See this link for predicting profits.

I'm more interested in discussing the idea of decentralized, anonymous money. It has so many potential uses, both good and bad.