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Clueless about blockchain?


MrXxxx
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If you are clueless about HOW blockchain works [like i was before watching this] you may like to watch this, as it makes it really easy to understand:

 

OK, now I understand how it can be used as a secure transaction/accounting system for transferring worth within a FIAT based system, but what I still don't get is how crypto can have value i.e. why can the value of Bitcoin etc change?...surely if 1 bitcoin = x Fiat it should always be the case?!

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goldbug9999
11 hours ago, MrXxxx said:

If you are clueless about HOW blockchain works [like i was before watching this] you may like to watch this, as it makes it really easy to understand:

 

OK, now I understand how it can be used as a secure transaction/accounting system for transferring worth within a FIAT based system, but what I still don't get is how crypto can have value i.e. why can the value of Bitcoin etc change?...surely if 1 bitcoin = x Fiat it should always be the case?!

... then you havnt understood it at all.

A blockchain has one and and only one unique property, namely Byzantine Fault Tolerance https://en.wikipedia.org/wiki/Byzantine_fault  TL;DR there is single version of the truth shared by participants in a network who dont trust each other.

It can only have that property when there is a) a cost to creating, or "mining", a block (the so called "proof of work") and b) that cost can be payed for by a reward granted by the block creation. (b) requires that the blockchain can create new money to reward the  miner hence it can actually ONLY work where the blockchain itself is the source of new money.

It cannot work for any external money including any fiat currency without an on chain currency to secure it - you can use data stored in a blockchain to record anything you like including external currency movements e.g tether on ethereum, but the recording of tether movement is only immutable, and therefore useful, by virtue of the issuance of Ethereum as a mining reward. 

 

Edited by goldbug9999
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6 hours ago, goldbug9999 said:

... then you havnt understood it at all.

A blockchain has one and and only one unique property, namely Byzantine Fault Tolerance https://en.wikipedia.org/wiki/Byzantine_fault  TL;DR there is single version of the truth shared by participants in a network who dont trust each other.

It can only have that property when there is a) a cost to creating, or "mining", a block (the so called "proof of work") and b) that cost can be payed for by a reward granted by the block creation. (b) requires that the blockchain can create new money to reward the  miner hence it can actually ONLY work where the blockchain itself is the source of new money.

It cannot work for any external money including any fiat currency without an on chain currency to secure it - you can use data stored in a blockchain to record anything you like including external currency movements e.g tether on ethereum, but the recording of tether movement is only immutable, and therefore useful, by virtue of the issuance of Ethereum as a mining reward. 

 

I understand all of the above, what I don't understand is why Bitcoin can be worth x£ one moment and then without any further work it can be worth xx£...unless someone at point x reduces the commodity by half so that at point xx it's a rarer state.

Will take a look at the video to see if it enlightens me, thanks.

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goldbug9999
4 hours ago, MrXxxx said:

I understand all of the above, what I don't understand is why Bitcoin can be worth x£ one moment and then without any further work it can be worth xx£...unless someone at point x reduces the commodity by half so that at point xx it's a rarer state.

Will take a look at the video to see if it enlightens me, thanks.

Its price is determined by what people are willing to pay for it, much like everything else. Of course what people are willing to pay depends on what they think other people are willing to pay, which can seem odd but is no different in essence to how gold is valued.

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10 minutes ago, goldbug9999 said:

Its price is determined by what people are willing to pay for it, much like everything else. Of course what people are willing to pay depends on what they think other people are willing to pay, which can seem odd but is no different in essence to how gold is valued.

But commodities have a use as well as a store of value I.e. gold=jewellery, electronics, equities=potential to return profits on products produced etc....to me Bitcoin seems the same as FIAT, and why would you pay £2 for a £1 coin?

Note, this is a genuine post, and not a Bitcoin bashing exercise, I am just trying to get a better understanding of this area, and whilst I now appreciate the beauty of the Blockchain process, I cannot `square` bitcoin as an asset.

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goldbug9999
24 minutes ago, MrXxxx said:

But commodities have a use as well as a store of value I.e. gold=jewellery, electronics

Gold increased in price 9-fold between 2002 and 20012, then dropped by half then doubled again. Its price is set by speculation in the spot markets like comex, not by people buying jewellery or electronics. 

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5 minutes ago, goldbug9999 said:

Gold increased in price 9-fold between 2002 and 20012, then dropped by half then doubled again. Its price is set by speculation in the spot markets like comex, not by people buying jewellery or electronics. 

OK, so for want of argument lets say that Bitcoin is the modern equivalent of gold, and both are a store of value. Both are tightly correlated to inflation, so why if they are equivalent has Bitcoin shown so much more volatility/price changes...surely if both are a store of/hedge against inflation in Fiat they should show similar properties i.e. gold goes up 10% then Bitcoin goes up 10%?

Another question, as a Blockchain gets longer [and so more 'work'] and/or has a greater number of independent records/distribution peers [and so more 'reliable'/'Certifiable'] does it value increase?.

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goldbug9999
34 minutes ago, MrXxxx said:

OK, so for want of argument lets say that Bitcoin is the modern equivalent of gold, and both are a store of value. Both are tightly correlated to inflation, so why if they are equivalent has Bitcoin shown so much more volatility/price changes...surely if both are a store of/hedge against inflation in Fiat they should show similar properties i.e. gold goes up 10% then Bitcoin goes up 10%?

Bitcoin is much more volatile because it is new and relatively small (about 1/10 of gold cap). Imagine that gold didn't exist but 10 years ago an asteroid carrying a few thousand tonnes of it broke up in the earths atmosphere and showered the planet with small gold fragments - do you think the price of gold would be any less volatile by now than bitcoin is ?.

Quote

Another question, as a Blockchain gets longer [and so more 'work'] and/or has a greater number of independent records/distribution peers [and so more 'reliable'/'Certifiable'] does it value increase?.

The length is immaterial except for the fact that the older a block is the harder it is to change, the transactional finality is not actually absolute but rather a blocks tx's get "hardened" more by each block that is added after it in the chain. To rewrite a past block you would need to rewrite that block and then rewrite all subsequent blocks in the process redoing all the proof of work for all those blocks. This transactional hardness is referred to as "number of confirmations".

Does the value increase with network size ?  - yes, just like any network is more value as it grows but by how exactly is a market decision. Its adoption as legal tender in El Salvador for example will make it more valuable ultimately but noone knows by how much.

Edited by goldbug9999
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24 minutes ago, goldbug9999 said:

Bitcoin is much more volatile because it is new and relatively small (about 1/10 of gold cap). Imagine that gold didn't exist but 10 years ago an asteroid carrying a few thousand tonnes of it broke up in the earths atmosphere and showered the planet with small gold fragments - do you think the price of gold would be any less volatile by now than bitcoin is ?.

The length is immaterial except for the fact that the older a block is the harder it is to change, the transactional finality is not actually absolute but rather a blocks tx's get "hardened" more by each block that is added after it in the chain. To rewrite a past block you would need to rewrite that block and then rewrite all subsequent blocks in the process redoing all the proof of work for all those blocks. This transactional hardness is referred to as "number of confirmations".

Does the value increase with network size ?  - yes, just like any network is more value as it grows but by how exactly is a market decision. Its adoption as legal tender in El Salvador for example will make it more valuable ultimately but noone knows by how much.

Ok now I think I get it, scarcity and acceptance. So a couple more questions

1. Is there a [meaningful] limit to the number of bitcoins that can be mined?

2. Regarding acceptance, do you think in the future bitcoins with smaller denominations I.e Etherium will become more popular/acceptable as a form of currency rather than Bitcoin, where it has to be traded in fractions for everyday transactions?

Thanks.

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goldbug9999
14 minutes ago, MrXxxx said:

Ok now I think I get it, scarcity and acceptance. So a couple more questions

1. Is there a [meaningful] limit to the number of bitcoins that can be mined?

Yes its capped at 21 million, but the mining rate drops by half every 4 years or so the overall issuance rate is a logarithmic curve.

Quote

2. Regarding acceptance, do you think in the future bitcoins with smaller denominations I.e Etherium will become more popular/acceptable as a form of currency rather than Bitcoin, where it has to be traded in fractions for everyday transactions?

The bitcoin minimum transactable unit is 100 millionth of a bitcoin (called a "satoshi") i.e. at £1 million per coin your transactable unit is 1p, so no, small denomination Tx's are not a barrier. 

Edited by goldbug9999
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A good back to help understand Blockchain and specifically Ethereum rather than Bitcoin is Out of the Ether. It covers the very early history and how the Ethereum founders wanted to overcome some of the drawbacks of Bitcoin. You can get it on Amazon etc.

 

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nirvana
On 11/07/2021 at 13:42, MrXxxx said:

But commodities have a use as well as a store of value I.e. gold=jewellery

r u sure? I thought jewellery was just to make ugly old hags look better xD

I keep hearing silver is used in some manufacturing but I doubt that really happens much in reality when other metals are so much cheaper and do the job just as well......again maybe used by some gangsters in their teeth cos it makes them feel better :S

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nirvana
On 11/07/2021 at 13:42, MrXxxx said:

why would you pay £2 for a £1 coin?

collectors innit, they like to stick beer mats on their bedroom wall too :P

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nirvana
On 11/07/2021 at 14:24, MrXxxx said:

Both are tightly correlated to inflation, so why if they are equivalent has Bitcoin shown so much more volatility/price changes...surely if both are a store of/hedge against inflation in Fiat they should show similar properties i.e. gold goes up 10% then Bitcoin goes up 10%?

Gold ain't correlated to inflation cos 'the big boys' are manipulating the crap out of the price

OK 'goldbugs' might point you to the price of their coins and the cost down at the 'Hatten Garden Gold jumble sale' but do they ever sell the fookers? lol

I think the big boys are into manipulating the price of bitcoin and other cryptos at the mo too O.o

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5 hours ago, nirvana said:

r u sure? I thought jewellery was just to make ugly old hags look better xD

I keep hearing silver is used in some manufacturing but I doubt that really happens much in reality when other metals are so much cheaper and do the job just as well......again maybe used by some gangsters in their teeth cos it makes them feel better :S

So your silver dropped again today I see :-) :-) :-)

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nirvana
4 minutes ago, MrXxxx said:

So your silver dropped again today I see :-) :-) :-)

Not as much as my Argo Blockchain has been dropping. bastards!! :PissedOff:xD

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