Michael

As crazy as this scheme sounds, it is real.

I don't know if you've heard of bitcoins but it a virtual currency (not a physical currency) that is traded among investors and can be used to purchase products and services at certain online retailers. Apparently there is black box somewhere in the world that is creating 25 bitcoins every 10 minutes and selling them to anyone who wants to buy them. The money paid for the bitcoins goes to the black box and is never seen again. If a retailer accepts bitcoins and wants dollars, pounds, or francs, he/she will have to try to sell their bitcoins on the internet via peer to peer transactions and not through any exchange.

Supposedly the bitcoins are guaranteed to have been originated from the black box via digital signatures and trading is performed with a bitcoin application on anyone's computer.

The price of a bitcoin has varied from about $3 to about $300 over the past 4 years and at the current price, there is currently about $1 billion worth of bitcoins in circulation. It is stated that the black box will be issuing 25 bitcoins every 10 minutes until 2040 and then stop issuing bitcoins.

Whomever owns that black box (nobody knows) could possibly receive several billion dollars for the bitcoins that it is issuing by 2040 but will never have to pay a cent since it is not debt and no contract is signed. If hackers can crack the bitcoin protocol, they can create and sell their own bitcoins (theoretically counterfeiting). Since transactions don't go through any exchange or clearing house, governments have no way to regulate or track transactions or trades in bitcoins.

kimilseung

bitcoin value just crashed.

As I understand it, it is not a single black box, but individual computers, that are combined in to bitcoin "mines".

Michael

You are correct but I stated black box make it easier to understand but the "bitcoin mines" are just an unknown computer or computers that know how to create bitcoins that will work with the bitcoin application.

kimilseung

Hopefully someone will be along who understands it better.......

I thought anyone can start a computer to mine, most join forces because it would take forever to produce on a single computer.

sir_eccles

As real as it is, it verges on scam and pyramid scheme.

The formula for creating bitcoins is structured so that as time goes on it takes longer and longer to mine them. So if you got in early and started mining when it was easy, you minted it literally and could do so with spare cycles on a single PC. If you tried to start mining now on a single PC you won't get anything.

The value of them is very volatile and right now it looks like someone or some group is intentionally pumping and dumping bitcoins to create that volatility.

Also while the name Mt.Gox sounds nice it actually used to be called "Magic: The Gathering Online Exchange", trading cards. So there's no SEC oversight, no FDIC insurance nothing.

Michael

That may be possible but there would have to be some black box that controlled the amount of bitcoins produced. If there wasn't a black box and anyone could acquire the application that created bitcoins, what would stop a person from producing as many bitcoins as desired? So whoever owns the black box would seems to be able to charge people to create bitcoins.

Why would bitcoins take that much time to create since only 1 is created about every 25 seconds it doesn't take that long to create digital messages and encrypt.

I don't understand the total concept and how it is controlled to make sure that only 25 bitcoins per 10 minutes are produced and who gets the profits from creating the bitcoins.

Michael

If it took that long to mine then it seems that it would also take very long to verify that the bitcoins are genuine when traded and it apparently doesn't take long to trade bitcoins.

kimilseung

I am probably just exposing my ignorance.....

I thought it along a distributed network model. Anyone can start no entry costs, when your mine make coins, you get whatever anyone is prepared to pay you for them, no commissions. There is an upper limit of how many can be produced, it will be a finite resource.

Michael

I am just as ignorant but the following is what is stated.

The number of bitcoins that can be produced is limited to 25 per 10 minutes until 2040 and then no more bitcoins will be produced. In theory, this makes bitcoins valuable since unlike a central bank that can produce currency as much as it wants, the limited amount of bitcoins means that it could become standard currency that is immune from inflation.

If anyone can produce bitcoins at no cost to them, why would anyone buy bitcoins since they can produce them?

I don't know how the concept works and if there is a black box, you would think that would be easily traceable so maybe there isn't a black box but somehow the creation of bitcoins has to be limited to 25 bitcoins per 10 minutes.

kimilseung

To mine them takes a lot of computer horse power and as has been stated, requires the combined powers of computers. If you want to buy something today with bitcoin it makes more sense to buy them than to mine them. Just like most of us go to work rather than finding a mine to get gold. I am pretty sure there is no box, but a distributed network.

We need Fatbrit, he would set us straight on this one.

Bob

I don't know much about them, but a friend flogged a few and made almost $300 from selling to a trader.

All seems a bit voodoo and silly, but whatever if you're making money from nothing eh

Michael

I am now suspecting that mining is more like a lottery. All these miners are connected pier to pier and when a bitcoin is to be produced, one computer gets the authorization to produce that bitcoin. Maybe there is also a priority scheme that gives new miners a lower chance of being authorized.

sir_eccles

The rate at which they can be mined gets halved every few years until 21 million are produced. Don't think of it as a currency, think of it as a commodity. It is traded just like any other commodity and its price goes up and down just like any commodity.

It cost electricity to run the computers to mine the coins. This is why botnets (created by malware on your PC) are now being harnessed to do the dirty work, this way other people pay the electricity bill. It's all rather seedy.

Check out http://slashdot.org/tag/bitcoin for the daily bad news about bitcoin.

kimilseung

The whole thing is run peer to peer at a management level, but the mines are agreed upon, a bunch of people agree to cooperate, when that coin is produced, they all share in it. I don't know how they manage themselves.

Michael

It is not important how they manage themselves but how the whole system is managed to limit the number of bitcoins that are produced over the next 27 years. The big question is how that is kept track of and limited among possibly thousands of groups unless they all communicate with each other or to a common server.