|Not Logged In||
Viewed: 11 times
Subject: Eh. I'm not sure the explanation below is right. - [Edit Post] 0 0
I summoned all of our young computer scientists and grilled them for like 2 hours until I understood stuff. Strong use of company resources.
Bitcoin works like this: Person A wants to send bitcoin to Person B. The system needs to validate that this transaction is legitimate. To do this, they need to test a bunch of keys in a lock (hash functions/cryptography).
"Mining Bitcoin" = Validating Transactions = Trying Keys in a Lock
So Person A goes "I want to make this transaction. Here is the amount I will pay to whoever validates it". And a whole bunch of people try to validate it. When one does, they show their answer and everybody checks their proof of work. If its confirmed that they have validated it, they (and only they) get paid. The idea is that everybody working on a problem wants to be the one who solves it, so if somebody else tries to lie about solving it, the competitors will reveal them.
Of course, this is happening at huge scale, and you do this so often that you can successfully validate transactions at a reasonable rate - it doesn't feel random.
This is complicated by the fact that people used to get paid twice for validating a transaction: First, by the person who wants to make the transaction (the tip) and second by Bitcoin. The amount that Bitcoin chips in is exponentially decreasing over time, which means there's a fixed total amount of currency in the system (in the limit).
Eventually, the system just becomes tips: people pay for the privilege of having a secure and validated transaction.
So, if you ask what the "Social Value" or whatever is, there's actually a relatively clear answer: People place a value in being able to securely and discretely pay for and buy for things. That value is the "tip" they will pay for a bitcoin transaction.
It is sort of analogous to a credit card - we pay (in lost interest, etc) for being able to conveniently access our money.
So I think the statement that there's no inherent value to bitcoins to be a bit misleading. I hope the above explanation was clear.