#1 Edited by Elwoodan (1018 posts) -

So the dudes have mentioned them a few times in podcasts/quick looks, and I get that its some sort of digital currency, but what is it actually used for? the wikipedia page is covered in jargon, and I don't understand the practical value (if there even is one) to owning them. Where/how do they get spent/traded/used?

#2 Edited by alternate (2809 posts) -

You can trade them with each others, exchange them with other people for cash and spend them in a very limited number of internet transactions - I remember pirate bay taking them in donation and some asian MMOs.

The idea - depending on how cynical you are - is either an attempt to establish an alternative global currency where the market decides the exchange rate without the influence of regional politics or a scam that is only really beneficial to criminals who want to move their dirty cash across international borders with little oversight.

#3 Posted by MikkaQ (10296 posts) -

Semi-anonymous global currency used to buy crazy drugs and fund fugitives like Julian Assange. Also makes international money laundering pretty simple, it would seem.

#4 Posted by Daveyo520 (7679 posts) -

Money you can't buy anything with.

#5 Posted by Laiv162560asse (488 posts) -
#6 Edited by MattyFTM (14754 posts) -

The one and only Will Smith explains it pretty well in this video.

Moderator
#7 Posted by Everyones_A_Critic (6500 posts) -

People have started trading them like stocks, but they're also used for shit like The Silk Road which is the Amazon of drugs.

#8 Edited by rubberluffy (623 posts) -

Something idiot "internet libertarians" and moronic Ayn Rand fanboys use to try to scam each other.

#9 Edited by HaltIamReptar (2038 posts) -

The lesser twin of Cosby Coins.

#10 Edited by RenegadeDoppelganger (505 posts) -

Bitcoins are a digital currency. To hold "a bitcoin" is to basically hold the solution to a complex math problem. At first it may seem ludicrous that people are putting value into a string of random numbers and letters until you realize that is basically how all currency works and it only has value because we as a people choose to believe it does.

Think of bitcoins as gold. There is only so much gold in the ground. Once we mine it all, it's gone. There's a limited supply so the value of it stays fairly stable. We're never going to be in danger of introducing more gold and suddenly decreasing the value of gold as a whole because we can't make more of it, it needs to be discovered with considerable time and effort.

All the bitcoins on earth are balled up into this massive extremely complex set of math problems. Only something like 22 million bitcoins are contained in this thing, no more will ever be generated. "Miners" use special software to run the calculations necessary to solve a problem (basically by brute-forcing the answer) and are thusly rewarded with the answer or "bitcoins". As the number of available problems shrink, the return upon solving them becomes lower and will eventually become 0.

Back when Bitcoins were first introduced, mining them was fairly simple. A single problem in those early days could be solved in a relatively short amount of time using fairly basic hardware (laptops, a generic gaming GPU). Of course back then the value of bitcoins was pretty low and there really wasn't a whole lot of use for them.

Now the value of bitcoins has exploded and everyone is trying to get in on it. 1 BTC is currently worth around $100USD. With so many bitcoins having been mined already, you need some seriously insane computing power in order to get a decent return. Many people resort to pooling their collective computing power together in order to solve just one of these problems and companies are beginning to design and sell custom-built logic processors specially for mining bitcoins.

Where do you spend them? Anywhere that will accept them. Many people currently getting into bitcoins don't intend to use them to buy anything and are rather speculating on them in attempt to make a profit when the value changes sharply (which it has to be prone to do lately). There are small online stores that have begun to accept them as payment, mostly small e-commerce outfits no one of much note. Of course because almost no personally identifying information is tied to the transaction of bitcoins they can also be used to fund more nefarious ventures. This leads to the distinct possibility of money laundering or being used to pay for illicit goods or services. The Silk Road is where much of this action takes place.

#11 Edited by McTangle (161 posts) -

Fake-ass nerd money. Invest everything you own in it right now.

#12 Edited by joshwent (2897 posts) -

Once you consider that all currency has no inherent worth and is only exchanged based on current perceived value, you might realize that bitcoins are just another currency like dollars or yen or used videogames. They just aren't found in nature, or printed by governments.

#13 Posted by Colourful_Hippie (5349 posts) -

Money you can't buy anything with.

You must be doing it wrong then.

#14 Edited by Daveyo520 (7679 posts) -

@colourful_hippie: Where are all of the amazing places I can buy stuff with bitcoins at? Amazon? Steam? Most places?

#15 Edited by TyCobb (2023 posts) -

It's for money laundering.

#16 Posted by mlarrabee (3663 posts) -

It's credit, just like all fiat currency. It just happens to not have a physical component like paper bank notes.

#17 Posted by joshwent (2897 posts) -

@daveyo520 said:

@colourful_hippie: Where are all of the amazing places I can buy stuff with bitcoins at? Amazon? Steam? Most places?

Wordpress, Etsy, FightfortheFuture, tons of other online groups/retailers and more all the time. Fucking 4chan even!

It's just another currency folks.

#18 Posted by ShaggE (7925 posts) -

First you must ask yourself: "What ISN'T a bitcoin?". Only through the lengthy and arduous process of elimination can you truly be enlightened.

#19 Edited by Nivash (245 posts) -

Yep, pretty much what @renegadedoppelganger said. Supposedly they are very popular with smart drug dealers, being completely untraceable and all, which is probably the only thing keeping the scheme afloat. And I do mean scheme - the very fact that early adopters had an easier time getting Bitcoins than later adopters for no other reason than that they jumped on it first puts up red flags all over the place. That's basically how Ponzi schemes work. It used to be the case that anyone with a decent gaming rig could mine some coins and make a profit, these days you need to build specialized rigs because if you don't, it's perfectly possible that your electricity costs will be higher than the value of the coins you mine. Nobody really knows what will happen to the thing the day it will actually be physically impossible to make a profit on mining, but my guess is that it won't be pretty. Why?

The problem is that the currency isn't actually fulfilling some kind of demand. Overall, people and businesses are perfectly fine with the "conventional" currency. There isn't any massive dissatisfaction with the humble dollar, even if it went through some major inflation in this last crisis - which it did. I should know, I'm Swedish and buy a lot of tech that starts off priced in USD. It used to be that pre-crisis, a USD was worth around 8 Swedish Kronor. On last count that was down to 6.5 SEK, and at the worst points in the crisis that value occasionally dipped below 6. So right now, I'm getting close to a 20 % discount on anything I buy in dollars compared to a few years ago. But for ordinary people this doesn't matter that much - you can still trust that your salary this month will almost certainly be able to buy you the same things it did last month, or will next month, because we trust that our governments and central banks will keep it that way. Which they do, most of the time. For normal people that's all that matters.

So why Bitcoins? Apart from any possible get-rich-quick schemes, or wanting to cover for illegal activity, it's down to ideology. Bitcoin acolytes deride conventional currency as being unreliable and usustainable, prone to rapid shifts in value and doomed to long-term inflation and devaluation, because it's not based on something with physical value or anything else beyond what the Fed and other central banks around the world say it's worth - which Bitcoin, supposedly, is. That's the argument I hear the most from Bitcoin supporters: that because Bitcoins are limited in number they are more resistant to inflation and speculation than real world currency.

Oh, if that was only the case. In reality, Bitcoins are significantly more prone to sudden and dramatic devaluation and revaluation than any other currency on Earth. This is how the value of Bitcoins changed over the past few years:

Yes, you're reading that right - time on the X axis and exchange ratio of Dollars-per-Bitcoin on the Y axis. In May 2011, Bitcoins were worth about 4 USD. At the high-point in June, they were worth an insane 700 % more than that at 29 USD per Bitcoin. They then rapidily devalued back down to 4 USD in November. Imagine if you got a new job paid in Bitcoins and came to an agreement with your employer when it was worth 16 USD in early June: in mid June it looked your salary was going to be worth twice as much, at payday at the end of June it was back to the same value and a little under half a year later, in November, you would struggle to put food on the table because your salary would only be worth 4 USD, a mere quarter of what you started off with. It doesn't actually matter if Bitcoins are immune to inflation, as some claim, because we do not live in a world where you can sustain yourself on Bitcoins alone: you need real currency to pay rent, buy food, electricity for your rig and countless other things. Because of this, the consequence of a devaluation of Bitcoins in relation to USD are identical to an inflation for someone living in America. The end user sees his hard-earned money suddenly drop in value due to factors beyond his control. If you look closely you can spot countless times that Bitcoins underwent devaluation that are less dramatic, and each of those times are like a mini-inflation.

The 2011 spike had nothing to do with the supply of Bitcoins. There was no dramatic decrease in supply which pushed prices. This article speculates that it might be connected to an article in Wired that pointed out to a lot of people that yes, you can totally buy untraceable drugs with Bitcoins, which might have increased demand, but that's impossible to prove. In any case, the vaunted stability of Bitcoins as compared to real currency is an illusion borne only from the ideologically fueled misunderstandings of economic theory that Bitcoins are based on, not actual, real world data.

So you might have figured out by now that I'm not a fan. I'm really not. I mostly find the entire enterprise rather harmless in the grand scheme of things, seeing as how I believe anyone ending up losing money on this only have themselves to blame, although I roll my eyes at the inane arrogance that drives it. Well, mostly harmless if you exclude miners suffering heat strokes while sleeping in the same rooms as the ludicrously heat producing rigs they build and suffer permanent brain damage as a result, I guess.

But mostly my disgust for the whole thing comes down to very simple fact: real currency is born from creation. People providing a service or a product that other people want. It was born from a desire to simplify trade beyond having to figure out how many sheep a cow is worth. Other real currencies that are by design limited in supply are connected to a commodity, mostly gold, that has real world demand and use. Those that are not can be created and destroyed at will, as they are nothing more than what we as a society agree that they are.

Bitcoin adherents say that the commodity Bitcoins are based in is "work" - but this is so laughably untrue that it barely requires refutation. Mining Bitcoins is not work. All you have to do is buy some equipment and run it. It requires nothing else; no expertise, not a single action beyond that to be taken to be taken by the "miner". He can lie down on his couch and let the rig "work" for him. That's not work, it's not even investment - it's barely consumption! It's waste, pure and simple. In all of human history, Bitcoin is the only currency that actively demands that we sacrifice real-life resources to sustain it. Every watt of energy, every piece of electronics that go into mining Bitcoins are things that could be so, so much better put to use somewhere else. Anywhere else. Instead they are wasted on nonsense equations that do not provide anyone with anything in order to make it possible for Bitcoin acolytes to claim, wrongfully so, as I pointed out, that Bitcoins have inherent value. Which they don't. And never will have.

Beyond drug dealers, illegal arms dealers and terrorists who like them because they can't be traced and are the perfect money laundering scheme.

#20 Posted by Colourful_Hippie (5349 posts) -

@joshwent said:

@daveyo520 said:

@colourful_hippie: Where are all of the amazing places I can buy stuff with bitcoins at? Amazon? Steam? Most places?

Wordpress, Etsy, FightfortheFuture, tons of other online groups/retailers and more all the time. Fucking 4chan even!

It's just another currency folks.

Pretty much, just because Steam/Amazon don't accept them doesn't mean that you can't buy "anything"

#21 Edited by Winternet (8362 posts) -

It's the root of all evil.

#22 Edited by HaltIamReptar (2038 posts) -

@nivash: Your graph doesn't even include the recent drama. We're talking about fluctuating between $250 and $100 by the hour.

#23 Edited by Wacomole (1133 posts) -
#24 Edited by Nivash (245 posts) -

@haltiamreptar: I know, I just couldn't find a graph for that - and I really wanted a graph :P. Since the OP asked for an explanation of what it is I took the more educational approach, and the graph I chose was the most didactic I could find.

I think the first article I linked, the Ponzi scheme one, (even though now that I think about it, "Pyramid scheme" is probably a better name since at least Bitcoins don't appear to have been designed as a scam) mentioned how Bitcoins went from $5 dollars a pop a year ago to $266 in the week of April 11 - "an increase of more than 1,000 percent in the last three months" as the author puts it - and then swiftly collapsed down to $105 before rebounding to $165 in a matter of days.

Shit's insane. There's just no way of it being able to keep going if this keeps up. It will erode any shred of confidence in the "currency" faster than anyone can say Reichsmark.

#25 Posted by Gazel_Ministry (130 posts) -
#26 Posted by Daveyo520 (7679 posts) -

@joshwent said:

@daveyo520 said:

@colourful_hippie: Where are all of the amazing places I can buy stuff with bitcoins at? Amazon? Steam? Most places?

Wordpress, Etsy, FightfortheFuture, tons of other online groups/retailers and more all the time. Fucking 4chan even!

It's just another currency folks.

Pretty much, just because Steam/Amazon don't accept them doesn't mean that you can't buy "anything"

Okay, can you go to your corner store and buy a bad of chips with it? And of course I am exaggerating, you can buy some things but not most things.

#27 Edited by Colourful_Hippie (5349 posts) -

@daveyo520 said:

@colourful_hippie said:

@joshwent said:

@daveyo520 said:

@colourful_hippie: Where are all of the amazing places I can buy stuff with bitcoins at? Amazon? Steam? Most places?

Wordpress, Etsy, FightfortheFuture, tons of other online groups/retailers and more all the time. Fucking 4chan even!

It's just another currency folks.

Pretty much, just because Steam/Amazon don't accept them doesn't mean that you can't buy "anything"

Okay, can you go to your corner store and buy a bad of chips with it? And of course I am exaggerating, you can buy some things but not most things.

Then don't say you can't buy anything in the first place. Clearly you can buy stuff and clearly you can't buy milk at the supermarket with it either.

#28 Posted by mixedupzombies (153 posts) -

The fastest way for a one way ticket to the silk road.

#29 Edited by Hailinel (25787 posts) -

@colourful_hippie: It's true that you can't buy anything. Only a small subset of certain things from very select sellers.

#30 Edited by HaltIamReptar (2038 posts) -

@hailinel said:

@colourful_hippie: It's true that you can't buy anything. Only a small subset of certain things from very select sellers.

Who then presumably immediately exchange the coins into USD.

#31 Posted by dudeglove (11351 posts) -

#32 Posted by Elwoodan (1018 posts) -

But mostly my disgust for the whole thing comes down to very simple fact: real currency is born from creation. People providing a service or a product that other people want. It was born from a desire to simplify trade beyond having to figure out how many sheep a cow is worth. Other real currencies that are by design limited in supply are connected to a commodity, mostly gold, that has real world demand and use. Those that are not can be created and destroyed at will, as they are nothing more than what we as a society agree that they are.

@nivash Thanks for the awesome explanation, This is what really had me confused, I guess I didn't understand how a currency existed with 'nothing' backing it. I understand how people attach a value to physical currency like USD or even virtual currency like gold sellers do in WoW, and I guess if enough people say a bitcoin is worth X-amount of USD it eventually becomes true...

regardless its super, super shady.

#33 Posted by Tarsier (1491 posts) -

wake

#34 Posted by GreggD (4595 posts) -
#35 Posted by EvilNiGHTS (1169 posts) -

Think Microsoft Points, but instead of the following scenario...

"But I want to use real money!"

"NO!!! BITCOIN!!!"

it's more like:

"Bitcoin?"

"Ha! I'll just use my fucking Visa, thanks."