But what you said there is literally the end of my understanding of what crypto is. It has something to do with computers solving math problems, and somehow that’s worth money.
I’m gunna try to explain the basics of just Bitcoin here, its probably the easiest to understand out of all of them.
It’s all based on a mathematical function called the hash function.
Basically the hash function can take in any input and produce a unique number between zero and a bazillion that represents it. Statistically speaking, the outputs of the hash function are random, and if you only have the output its impossible to find the corisponding input - it cant be reversed.
When a transaction happens with a cryptocurrency its broadcast to the whole network, and made very public. All the information about it, the sender, the receiver, the amount, the time, and a few other things too, all that is sent around the network. That bundle of information is basically all a transaction is. But the process of validating it is what makes it real. Some people have computer programs that collect all of these transactions broadcast across the network, and they combine them into large chunks, known as blocks. Each block, along with all the financial data inside it, has an extra number attached to it known as a nonce. These people who listen for new transactions and later store them, take the block, and apply the hash function to it. If the output of the hash function is in a very small range - with is unlikely - a new special transaction happens, from no one, to the person who calculated the hash, minting new bitcoins (rn I think this amount is 3.125 Bitcoin but that might be outdated). (This is what Bitcoin mining is). If the output of the hash isn’t in the range, they try again. The network automatically changes the size of this range to make sure that over a given amount of time the same number of bitcoins are minted, making Bitcoin free from spikes in inflation. Additionally, the network halfs the reward from mining a block about every 4 years, causing the inflation rate to drop over time. As this happens the network with settle on a fixed number of usable bitcoins, slightly less than 21 million. And that part of it makes its a viable alternative to gold, because while new gold is always being mined, its not much so overall gold has very low monetary inflation. But a large amount of bitcoins value stems from the fact that eventually Bitcoin wont have any at all.
I’d be more than happy to further explain how this stuff works, I’m no expert but I’m really interested in the math and economics behind it all. I really recommend reading the original Bitcoin paper, https://bitcoin.org/en/bitcoin-paper , its not a light read but it explains it all a lot better than I can.
Have a nice day!
I still barely understand, but I understand more than I did five minutes ago, and that is worth something.
Why is this math problem worth monetary value to anyone if it’s just a randomly generated number? I don’t care if something generated a number somewhere. Like, good for them I guess? Why is that valuable?
Thank you!
Well its really not that useful by itself, just like little green papers aren’t that useful. But its just more practical for the world to imagine that the paper is worth something its not, because this makes trade a lot easier to do. Same thing with Bitcoin
When I think of crypto I think of that bloke grubbing through landfill for a lost hard drive. I think of Sam Bankman Fried. I think of Trump’s meme coin. Yes, I’m sure someone must be explaining it wrong to this old lady.
I feel like there’s so much nonsense happening with crypto that people will overlook any of the legal, ethical use cases of it. Like its got lower inflation than gold, I mean that’s actually incredible from an economic standpoint.
So the same as most currency that isn’t backed by actual valuables? Like the US dollar after it stopped being backed by gold like 100 years ago?
Crypto is a world currency that people have assigned value to. Pretty much all other money is a currency that individual countries have assigned a value to. Both types can be just as worthless. Hyper inflation has made money from many countries worth less than a roll of toilet paper to wipe your ass with. For that matter, the US dollar could buy you 30 rolls of toilet paper 75 years ago. Now it can only buy you like 1 roll.
You have a good point, the value of any money (even a lot of gold’s value) is a social construct, i.e. only what the population makes of it. For that reason, I don’t think that crypto is inherently bad, but the fact is that most people trading aren’t using it as money (you know, an intermediate good to facilitate trades), they’re attempting to use its wildly fluctuating value to make a quick buck. Those types of trades ironically only make it more volatile, and are what made it volatile in the first place, so there’s now a vicious cycle. Will crypto ever stabilize? Fuck if I know, I’m not qualified to talk about this, but frankly I think you could say the same about most people in the stock market and especially in crypto. Maybe if a critical mass of people start actually using cryptocurrency as a currency it’ll change, but who can say.
Crypto has already started stabilizing. But only proof of work can demand the trust and longevity to make it so. Everything else has the threat of a scam. Do not trust proof of stake. Research those terms and the Birds Eye level of the crypto they represent for more info.
A pretty generous comparison. USD is at least FDIC insured and somewhat tied to our country’s finances. Crypto only stabilizes around the markets that use it, i.e. black markets.
If your interested in learning more about the math behind Bitcoin and how it functions at a lower level I’d recommend reading the original white paper for it
A central part to it is that each coin is defined as a series of transactions, not the other way around like with real world items. For example if a new Bitcoin is mined, that’s described as a transaction from no-one, to someone.
Its just an entry in a ledger. It says something like, “blandfordforever sends courageousstep 1 coin” along with a cryptographic signature from blandforever that validates the transaction. This means you now have and can transfer that coin to someone else, provided that you have the key to sign the appropriate transaction. That’s all it is.
The miners are all competing to sign a “block” of transactions onto the ledger by figuring out new correct answer to a math problem that’s determined in part by a number from the previous block. They are rewarded for this by being able to send themselves a preset number of coins in this new block they’ve signed. Transactions aren’t final until they’ve been added to the blockchain by this mechanism.
It’s a speculative asset that fluctuates based on the whims of billionaire hedge funds and early crypto investors. There is zero value in owning it unless you got in early enough. And even then it’s a situation of the last man holding the bag. Someone will end up losing their asses.
Most crypto is. Proof of work crypto is not and brings actual stability and longevity to the table. Most people don’t understand this. Proof of stake is never anything more than gambling.
Well it really depends. The good thing about PoS is that it lowers volitilatity to some extent, because stakeholder cant take out too much of their money otherwise they’d be losing out on money they couldve been making.
PoW is definitely more concrete though, PoS is really abstract for sure
On average the value of any crypto token is less than 0 because of the high cost to produce and transfer them. Ironically it seems people find the most wasteful tokens more valuable. “It’s hard to make so it must be valuable” or some such nonsense.
Not all crypto is hard to mine you know.
Stuff like Ethereum and Solana don’t use up that much electricity bc they use a different method called proof of stake, rather than bitcoins proof of work. Basically people who wanna validate transactions stake some money on the network, and if they validate a transaction right, they get paid a bit. If they get it wrong, they lose that money they staked. And the more money they stake, the more they make from validating transactions.
The reason for all this work is basically the concept of a currency that isn’t backed by and dependent upon governments while also being impossible to counterfeit, hence a lot of encryption because it fundamentally says that you can’t trust the other computers that you’re talking to. Everybody holds a ledger that says that you have $5, so you can’t suddenly say that you actually have $10. And all the math is to prevent inflation by limiting the amount of currency that exists at any time. The more currency there is from solving the math, the harder the math gets to slow down the creation of new money.
It all falls apart, though, because the only value that crypto has is what it’s worth in traditional fiat currency - the very thing that it’s supposed to replace.
So it’s just a bunch of computers doing a lot of math to make funny money that’s supposedly worth something because…of reasons?
it’s also at the same time libertarian political project that aims to, how they put it, “separate money from state”, which is in itself absurd, but not for libertarians, because their only problem with capitalism is that they’re not on the top. crypto is an attempt to “fix” that “problem”. see also doings of peter thiel, curtis yarvin, urbit,
first they build a place with no state interference and then they learn hard way why there’s so many financial regulations. sometimes it’s deliberate and it’s a way to use novelty to repackage old financial crimes to deflect responsibility long enough to fuck off to Dubai. sometimes it’s scams all the way and scammer already lives in North Korea
prevent inflation by limiting the amount of currency that exists
which is a flawed premise itself. the supply of currency needs to expand at the same rate as productivity increases or else you get deflation which has its own set of problems
well…no.
Gold goes up because of the same reason and its not ruining everything. And I’m pretty sure actually no currency has THAT much inflation, like that’s a lot more than you might think
You’re close. 1 unless the coin is proof of work you can’t trust it. 2 the value it brings it in the replacement of third party trust for economic transactions and the infrastructure and labor required for that, along with global, instant access to transfer infinite amounts of value as well as store that value logically within your own mind.
Downvotes are coming but if you’re seriously intellectually curious where the value is, read the Bitcoin standard.
The Blockchain is a distributed database instead of a centralized one where normally people can verify that each other part of the database is correct.
Generally anything a distributed database can do, a centralized database in good hands can do better. Except for crimes. It’s more difficult to get away with crimes when they can be shut down in one place.
Also it’s harder to undo Blockchain/crypto stuff. They sell this as a benefit while the primary use is scams and rug pulls.
“The government can’t get your money back.” Yeah, gonna be hard to get back thr money you were scammed out of with a court order, isn’t it.
They also try to sell it as anonymous, but it’s very much not. Everything is on the record, so if they link you to an address (and they generally can), they can see every transaction you’ve ever made. There used to be services to obfuscate this, but the government has well and truly broken through those. They can find you of they want to.
Crypto is a an MLM for guys. You can make money, if you’re lucky enough to be the scammer and not the scammee.
There used to be services to obfuscate this, but the government has well and truly broken through those. They can find you of they want to.
Not all currencies have this issue, like stuff like Zcash and Monero cant be traced
Government currencies are backed by taxes - someone did something and gave a portion of the value of their labor to the government, represented by currency. The government then reinvests the labor into the country supposedly for the public good. This is expected to continue indefinitely and it is this cycle that gives the currency value.
Crypto companies have investors. Investors are only attracted by the prospect of growth. They have no natural revenue cycle, no way of creating value without hype and people gambling with their.money.
The exception is the value inherent in being a currency outside of the control and surveillance of the Governments. Hence all the illegal activities. As time goes on cryptocurrencies will be more regulated and controlled by government, and it will diminish that trait.
Traditional currencies are backed by governments and the global economy. Boiling down USD/EUR to “it’s worth money because we say so” is many many magnitudes larger of a splicification than saying the same for crypto.
I think it helps to reinforce how silly crypto is, though. Once you establish that fiat currency is basically magic paper we all agree is worth something because it’s backed by things like the government’s reliability and contract to uphold that value, and then you say, “and crypto, designed to replace fiat currency, is backed by fiat currency,” the whole thing falls apart like the house of cards that it is.
How can you justify a funny money that doesn’t do anything new in terms of cyber security, while burning vastly more resources to do it, and is only worth something because of the currency that it’s supposed to replace, and that value rapidly fluctuates from moment to moment.
How can you justify a funny money that doesn’t do anything new in terms of cyber security, while burning vastly more resources to do it, and is only worth something because of the currency that it’s supposed to replace, and that value rapidly fluctuates from moment to moment.[?]
Well its got lower inflation than gold, that’s something.
Fiat currency is just as silly. As is all money, really.
“I trade numbers for food. The numbers are accessible via a magnetic strip on some plastic in my pocket.”
or
“I trade paper for clothing but the number of papers isn’t as important as the number printed ON the papers.”
Both of these realities are absurd. :)
As a store of value representing labor rendered: neither of those are terrible systems and most people don’t understand either of them anyway. Fiat seems “normal” because we grew up with it. That said: I’m no apologist. Popular crypto currencies offer little novelty for the layperson, no true improvement on the concept of currency generally, and cost orders of magnitude more to maintain their required infrastructure. I fail to see the appeal.
There are some projects which focus on the practical utility of decentralized currency (I remember thinking Nano (wikipedia.com) was cool back in the day) but they don’t get the same kind of attention as meme coins because they can’t be abused as easily. I’ve heard stories of these kinds of tools facilitating commerce in places where the local currency collapsed. Neat as that may be it isn’t revolutionary… Still more convenient than bartering via cigarette though.
Fiat isn’t “silly” insofar as there’s an underlying reason why fiat has value. The US dollar is valuable because the US government only accepts tax payments in USD. As long as the US government demands tax payments and has the ability to make good on those demands, US dollars will have value.
It’s decentralized, so how do you prevent people from making up bullshit lies that didn’t happen about where the money is? You do it by incorporating a difficult math problem. Then to incentivize people to actually work on that instead of just using the money, people who solve it get a reward.
But what you said there is literally the end of my understanding of what crypto is. It has something to do with computers solving math problems, and somehow that’s worth money.
What?
I’m gunna try to explain the basics of just Bitcoin here, its probably the easiest to understand out of all of them. It’s all based on a mathematical function called the hash function. Basically the hash function can take in any input and produce a unique number between zero and a bazillion that represents it. Statistically speaking, the outputs of the hash function are random, and if you only have the output its impossible to find the corisponding input - it cant be reversed. When a transaction happens with a cryptocurrency its broadcast to the whole network, and made very public. All the information about it, the sender, the receiver, the amount, the time, and a few other things too, all that is sent around the network. That bundle of information is basically all a transaction is. But the process of validating it is what makes it real. Some people have computer programs that collect all of these transactions broadcast across the network, and they combine them into large chunks, known as blocks. Each block, along with all the financial data inside it, has an extra number attached to it known as a nonce. These people who listen for new transactions and later store them, take the block, and apply the hash function to it. If the output of the hash function is in a very small range - with is unlikely - a new special transaction happens, from no one, to the person who calculated the hash, minting new bitcoins (rn I think this amount is 3.125 Bitcoin but that might be outdated). (This is what Bitcoin mining is). If the output of the hash isn’t in the range, they try again. The network automatically changes the size of this range to make sure that over a given amount of time the same number of bitcoins are minted, making Bitcoin free from spikes in inflation. Additionally, the network halfs the reward from mining a block about every 4 years, causing the inflation rate to drop over time. As this happens the network with settle on a fixed number of usable bitcoins, slightly less than 21 million. And that part of it makes its a viable alternative to gold, because while new gold is always being mined, its not much so overall gold has very low monetary inflation. But a large amount of bitcoins value stems from the fact that eventually Bitcoin wont have any at all.
I’d be more than happy to further explain how this stuff works, I’m no expert but I’m really interested in the math and economics behind it all. I really recommend reading the original Bitcoin paper, https://bitcoin.org/en/bitcoin-paper , its not a light read but it explains it all a lot better than I can. Have a nice day!
I’m not religious, but God bless you.
I still barely understand, but I understand more than I did five minutes ago, and that is worth something.
Why is this math problem worth monetary value to anyone if it’s just a randomly generated number? I don’t care if something generated a number somewhere. Like, good for them I guess? Why is that valuable?
Thank you! Well its really not that useful by itself, just like little green papers aren’t that useful. But its just more practical for the world to imagine that the paper is worth something its not, because this makes trade a lot easier to do. Same thing with Bitcoin
the problem with crypto is that when you try to explain it, it sounds so stupid that someone else thinks you have to be explaining it wrong
but if you want explanation, this one is fine https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-ponzi.html and this https://www.ic.unicamp.br/~stolfi/bitcoin/2021-01-16-yes-ponzi.html
When I think of crypto I think of that bloke grubbing through landfill for a lost hard drive. I think of Sam Bankman Fried. I think of Trump’s meme coin. Yes, I’m sure someone must be explaining it wrong to this old lady.
I feel like there’s so much nonsense happening with crypto that people will overlook any of the legal, ethical use cases of it. Like its got lower inflation than gold, I mean that’s actually incredible from an economic standpoint.
So the same as most currency that isn’t backed by actual valuables? Like the US dollar after it stopped being backed by gold like 100 years ago?
Crypto is a world currency that people have assigned value to. Pretty much all other money is a currency that individual countries have assigned a value to. Both types can be just as worthless. Hyper inflation has made money from many countries worth less than a roll of toilet paper to wipe your ass with. For that matter, the US dollar could buy you 30 rolls of toilet paper 75 years ago. Now it can only buy you like 1 roll.
You have a good point, the value of any money (even a lot of gold’s value) is a social construct, i.e. only what the population makes of it. For that reason, I don’t think that crypto is inherently bad, but the fact is that most people trading aren’t using it as money (you know, an intermediate good to facilitate trades), they’re attempting to use its wildly fluctuating value to make a quick buck. Those types of trades ironically only make it more volatile, and are what made it volatile in the first place, so there’s now a vicious cycle. Will crypto ever stabilize? Fuck if I know, I’m not qualified to talk about this, but frankly I think you could say the same about most people in the stock market and especially in crypto. Maybe if a critical mass of people start actually using cryptocurrency as a currency it’ll change, but who can say.
Crypto has already started stabilizing. But only proof of work can demand the trust and longevity to make it so. Everything else has the threat of a scam. Do not trust proof of stake. Research those terms and the Birds Eye level of the crypto they represent for more info.
I wouldn’t say PoS is a scam but it 100% increases that existential threat of a 51% attack.
A pretty generous comparison. USD is at least FDIC insured and somewhat tied to our country’s finances. Crypto only stabilizes around the markets that use it, i.e. black markets.
At this point, the US is becoming a black market.
FDIC insures you won’t lose your money if a bank or something goes under. It doesn’t do anything to insure that the money’s value stays good.
These are great, but they don’t explain what a crypto coin actually is.
If your interested in learning more about the math behind Bitcoin and how it functions at a lower level I’d recommend reading the original white paper for it
A central part to it is that each coin is defined as a series of transactions, not the other way around like with real world items. For example if a new Bitcoin is mined, that’s described as a transaction from no-one, to someone.
technical details vary and honestly matter little. what matters more is what people do with these things, and that’s what’s explained
Its just an entry in a ledger. It says something like, “blandfordforever sends courageousstep 1 coin” along with a cryptographic signature from blandforever that validates the transaction. This means you now have and can transfer that coin to someone else, provided that you have the key to sign the appropriate transaction. That’s all it is.
The miners are all competing to sign a “block” of transactions onto the ledger by figuring out new correct answer to a math problem that’s determined in part by a number from the previous block. They are rewarded for this by being able to send themselves a preset number of coins in this new block they’ve signed. Transactions aren’t final until they’ve been added to the blockchain by this mechanism.
This has been my favorite response so far. It explains nothing, but the mental image is priceless.
It’s a speculative asset that fluctuates based on the whims of billionaire hedge funds and early crypto investors. There is zero value in owning it unless you got in early enough. And even then it’s a situation of the last man holding the bag. Someone will end up losing their asses.
Most crypto is. Proof of work crypto is not and brings actual stability and longevity to the table. Most people don’t understand this. Proof of stake is never anything more than gambling.
Well it really depends. The good thing about PoS is that it lowers volitilatity to some extent, because stakeholder cant take out too much of their money otherwise they’d be losing out on money they couldve been making. PoW is definitely more concrete though, PoS is really abstract for sure
On average the value of any crypto token is less than 0 because of the high cost to produce and transfer them. Ironically it seems people find the most wasteful tokens more valuable. “It’s hard to make so it must be valuable” or some such nonsense.
Not all crypto is hard to mine you know. Stuff like Ethereum and Solana don’t use up that much electricity bc they use a different method called proof of stake, rather than bitcoins proof of work. Basically people who wanna validate transactions stake some money on the network, and if they validate a transaction right, they get paid a bit. If they get it wrong, they lose that money they staked. And the more money they stake, the more they make from validating transactions.
I literally said that there is a difference between tokens in their cost to produce. E.g. bitcoin is more expensive than others and valued higher.
No, that’s basically it.
The reason for all this work is basically the concept of a currency that isn’t backed by and dependent upon governments while also being impossible to counterfeit, hence a lot of encryption because it fundamentally says that you can’t trust the other computers that you’re talking to. Everybody holds a ledger that says that you have $5, so you can’t suddenly say that you actually have $10. And all the math is to prevent inflation by limiting the amount of currency that exists at any time. The more currency there is from solving the math, the harder the math gets to slow down the creation of new money.
It all falls apart, though, because the only value that crypto has is what it’s worth in traditional fiat currency - the very thing that it’s supposed to replace.
So it’s just a bunch of computers doing a lot of math to make funny money that’s supposedly worth something because…of reasons?
it’s also at the same time libertarian political project that aims to, how they put it, “separate money from state”, which is in itself absurd, but not for libertarians, because their only problem with capitalism is that they’re not on the top. crypto is an attempt to “fix” that “problem”. see also doings of peter thiel, curtis yarvin, urbit,
first they build a place with no state interference and then they learn hard way why there’s so many financial regulations. sometimes it’s deliberate and it’s a way to use novelty to repackage old financial crimes to deflect responsibility long enough to fuck off to Dubai. sometimes it’s scams all the way and scammer already lives in North Korea
which is a flawed premise itself. the supply of currency needs to expand at the same rate as productivity increases or else you get deflation which has its own set of problems
well…no. Gold goes up because of the same reason and its not ruining everything. And I’m pretty sure actually no currency has THAT much inflation, like that’s a lot more than you might think
You’re close. 1 unless the coin is proof of work you can’t trust it. 2 the value it brings it in the replacement of third party trust for economic transactions and the infrastructure and labor required for that, along with global, instant access to transfer infinite amounts of value as well as store that value logically within your own mind.
Downvotes are coming but if you’re seriously intellectually curious where the value is, read the Bitcoin standard.
You know what a normal database is.
The Blockchain is a distributed database instead of a centralized one where normally people can verify that each other part of the database is correct.
Generally anything a distributed database can do, a centralized database in good hands can do better. Except for crimes. It’s more difficult to get away with crimes when they can be shut down in one place.
Also it’s harder to undo Blockchain/crypto stuff. They sell this as a benefit while the primary use is scams and rug pulls.
“The government can’t get your money back.” Yeah, gonna be hard to get back thr money you were scammed out of with a court order, isn’t it.
They also try to sell it as anonymous, but it’s very much not. Everything is on the record, so if they link you to an address (and they generally can), they can see every transaction you’ve ever made. There used to be services to obfuscate this, but the government has well and truly broken through those. They can find you of they want to.
Crypto is a an MLM for guys. You can make money, if you’re lucky enough to be the scammer and not the scammee.
“it’s somehow worth money” is basically true of all fiat currencies. It’s worth what the consensus agrees it is worth.
(this comment should not be read as a defense of crypto)
Government currencies are backed by taxes - someone did something and gave a portion of the value of their labor to the government, represented by currency. The government then reinvests the labor into the country supposedly for the public good. This is expected to continue indefinitely and it is this cycle that gives the currency value.
Crypto companies have investors. Investors are only attracted by the prospect of growth. They have no natural revenue cycle, no way of creating value without hype and people gambling with their.money.
The exception is the value inherent in being a currency outside of the control and surveillance of the Governments. Hence all the illegal activities. As time goes on cryptocurrencies will be more regulated and controlled by government, and it will diminish that trait.
It’s fucking stupid.
Traditional currencies are backed by governments and the global economy. Boiling down USD/EUR to “it’s worth money because we say so” is many many magnitudes larger of a splicification than saying the same for crypto.
I think it helps to reinforce how silly crypto is, though. Once you establish that fiat currency is basically magic paper we all agree is worth something because it’s backed by things like the government’s reliability and contract to uphold that value, and then you say, “and crypto, designed to replace fiat currency, is backed by fiat currency,” the whole thing falls apart like the house of cards that it is.
How can you justify a funny money that doesn’t do anything new in terms of cyber security, while burning vastly more resources to do it, and is only worth something because of the currency that it’s supposed to replace, and that value rapidly fluctuates from moment to moment.
Well its got lower inflation than gold, that’s something.
What is a fiat currency?
Oh, I just looked it up. So it’s the USD.
It’s any currency that is unbacked by a commodity.
Fiat currency is just as silly. As is all money, really.
“I trade numbers for food. The numbers are accessible via a magnetic strip on some plastic in my pocket.” or “I trade paper for clothing but the number of papers isn’t as important as the number printed ON the papers.” Both of these realities are absurd. :)
As a store of value representing labor rendered: neither of those are terrible systems and most people don’t understand either of them anyway. Fiat seems “normal” because we grew up with it. That said: I’m no apologist. Popular crypto currencies offer little novelty for the layperson, no true improvement on the concept of currency generally, and cost orders of magnitude more to maintain their required infrastructure. I fail to see the appeal.
There are some projects which focus on the practical utility of decentralized currency (I remember thinking Nano (wikipedia.com) was cool back in the day) but they don’t get the same kind of attention as meme coins because they can’t be abused as easily. I’ve heard stories of these kinds of tools facilitating commerce in places where the local currency collapsed. Neat as that may be it isn’t revolutionary… Still more convenient than bartering via cigarette though.
Fiat isn’t “silly” insofar as there’s an underlying reason why fiat has value. The US dollar is valuable because the US government only accepts tax payments in USD. As long as the US government demands tax payments and has the ability to make good on those demands, US dollars will have value.
It’s decentralized, so how do you prevent people from making up bullshit lies that didn’t happen about where the money is? You do it by incorporating a difficult math problem. Then to incentivize people to actually work on that instead of just using the money, people who solve it get a reward.
I am not pro crypto, just explaining.