Visualizing How A Bitcoin Transaction Works

Maybe I don't understand how Bitcoin works, but from what I've seen the fee to convert Bitcoin to real money or vice versa is outrageous.
 
which real money would that be? there is always a premium to buy gold
 
Okay, whats the deal with this Bitcoin crap... Can you actually make money by just running your computer with some piece of Bitcoin software 24/7, like Folding@Home except involving money? Is that what these "miners" do? Or am I completely missing the point?
 
If you are thinking of getting into Bitcoin now... don't. You missed the boat by about 2+ years at this point.
 
raen7 said:
Okay, whats the deal with this Bitcoin crap... Can you actually make money by just running your computer with some piece of Bitcoin software 24/7, like Folding@Home except involving money? Is that what these "miners" do? Or am I completely missing the point?
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Yes, essentially you are being paid to use your computer as a workhorse to verify everyone else's transactions. However, Bitcoin was designed with a finite cap on the number of Bitcoins that could be "discovered" (aka mined). As we approach that limit (it may have already passed), your chances to find new coins go down substantially, which leads us to:

extide said:
If you are thinking of getting into Bitcoin now... don't. You missed the boat by about 2+ years at this point.
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What I don't fully understand is what the incentive is to continue using a pc to mine if no coins are left to be mined. And if no one is mining anymore, how do transactions get verified?
 
Automaticman said:
What I don't fully understand is what the incentive is to continue using a pc to mine if no coins are left to be mined. And if no one is mining anymore, how do transactions get verified?
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it will be a hundred years or something before the 21,000,000th coin is mined, and there will still be small transaction fees to fund mining after that.
 
Automaticman said:
Yes, essentially you are being paid to use your computer as a workhorse to verify everyone else's transactions. However, Bitcoin was designed with a finite cap on the number of Bitcoins that could be "discovered" (aka mined). As we approach that limit (it may have already passed), your chances to find new coins go down substantially, which leads us to:


What I don't fully understand is what the incentive is to continue using a pc to mine if no coins are left to be mined. And if no one is mining anymore, how do transactions get verified?
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Wrong. You aren't discovering anything, as the amount of blocks discovered is a fixed amount... and there are plenty left.
 
prava said:
Wrong. You aren't discovering anything, as the amount of blocks discovered is a fixed amount... and there are plenty left.
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Sure but like a pyramid scheme you have to be one of the first ones in on it...
 
maybe that's just the incentive to try and get more people into bitcoining... I dunno, doesn't work on me just yet :p
 
jojo69 said:
it will be a hundred years or something before the 21,000,000th coin is mined, and there will still be small transaction fees to fund mining after that.
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Ok, you're right, I had to go look it up again.

From Wiki:
Unlike fiat currency, Bitcoin has no central issuing authority.[58][59][60] Nodes on the network are programmed to increase the money supply according to a pre-determined schedule until the total number of bitcoins reaches 21 million.[3] These nodes can then sell their earned bitcoins on exchanges or trade them at their discretion.

Currently, 25 bitcoins are generated every 10 minutes. This will be halved to 12.5 bitcoins within the year 2017 and halved periodically every 4 years after until a hard-limit of 21 million bitcoins is reached around the year 2140.[1][9] As of March 2013 over 10.5 million of the total 21 million BTC had been created; the current total number created is available online.[61] In November 2012, half of the total supply was generated, and by end of 2016, three-quarters will have been generated. By around 2140, all bitcoins will have been generated with the years producing only fractional units.
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So now, I though the reason that people are saying it's too late to start mining is that the amount of coins you generate (currently trading at $119 USD ea) is not fast enough anymore to cover the cost of electricity consumed and equipment.

Is this not the true? It seems like bitcoins are still trading pretty high, is there another reason it's not worth it to get started anymore? Is it just that new dedicated server/host/miners can mine so much faster than an individual PC can anymore?

What am I missing here?
 
I could see the argument about the cost-offset of your electricity/whatever .. but if I leave my machine on all the time anyway (or at least, fairly consistently), I'm not "losing" or "wasting" the resources. Would the mining process shorten the lifespan of my CPU/GPU?

And of course the miners don't want competition, obviously. But what's stopping any Joe-shmoe with a decent PC from making a couple bucks by doing essentially nothing? I mean, even if I made, say, $5 a month, what's the harm? Or again, maybe I'm just misunderstanding the process...
 
raen7 said:
I could see the argument about the cost-offset of your electricity/whatever .. but if I leave my machine on all the time anyway (or at least, fairly consistently), I'm not "losing" or "wasting" the resources. Would the mining process shorten the lifespan of my CPU/GPU?
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Big difference in a computer that's on all of the time but idling and a PC at 100% CPU GPU usage all of the time. I expect mining would be very similar to Folding in terms of power draw/heat generation.

raen7 said:
And of course the miners don't want competition, obviously. But what's stopping any Joe-shmoe with a decent PC from making a couple bucks by doing essentially nothing? I mean, even if I made, say, $5 a month, what's the harm? Or again, maybe I'm just misunderstanding the process...
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This is what I'm not getting either, is it that difficult nowadays to mine at a profitable level compared to power costs?
 
raen7 said:
I could see the argument about the cost-offset of your electricity/whatever .. but if I leave my machine on all the time anyway (or at least, fairly consistently), I'm not "losing" or "wasting" the resources. Would the mining process shorten the lifespan of my CPU/GPU?

And of course the miners don't want competition, obviously. But what's stopping any Joe-shmoe with a decent PC from making a couple bucks by doing essentially nothing? I mean, even if I made, say, $5 a month, what's the harm? Or again, maybe I'm just misunderstanding the process...
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You'd lose that in electricity. There's a HUGE difference between simply "leaving your PC one" and leaving it on at a high load.

It used to be that the Radeon cards were worth a lot because they could do the bitcoin mining very efficiently, so miners popped up with quad radeon systems churning bitcoins out for $xxxx per month. Some even rented commercial warehouses to get in on the "commercial" electricity rates (can be significantly cheaper, especially if you're zoned as industrial).
 
Hmm, saw this in the wiki. Thinking this might be the root of the problem for the profitability of mining with a single system:

To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases. The difficulty is adjusted every 2016 blocks which is roughly every two weeks.
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extide said:
If you are thinking of getting into Bitcoin now... don't. You missed the boat by about 2+ years at this point.
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I wouldn't say that its quite true.

Perhaps some of the gains from mining have gone away but its still possible to generate money via trading.
 
Ahh, this is more of a technical overview. I figured the image would be more like:

Person B has something illegal. Person A wants illegal item. Neither party wants their transaction traceable. Person A dicks around forever trying to figure out how to buy a bitcoin to buy illegal item from Person B. After about 3 days of research Person A finally finds somewhere to buy bitcoins with their bank account. Person A pays Person B. Illegal product given to Person A. Person B is already a master of bitcoin dicking around and simply turns the funny money into real money using potions and magic.

At least that's the average transaction in my head. I still don't know why someone hasn't come up with a way to do this AND have something useful come out in the end of the computing cycles.
 
They missed the part where it is in a constant relatively violent boom/bust cycle, the exchanges get hacked, and people get scammed left and right every step of the way
 
Aaahhhh, *now* I get it! Thanks to Spidey329 & AutomaticMan. It makes sense now. Not that I ever had the audacity to think I could make any money with it, I just didn't understand why people wouldn't have tried in the first place. But now it makes sense -- if you missed the boat at the beginning, there's very little of "the pie" left for you to slice.. to the point that it's so miniscule that you're not going to get a return-on-investment.
 
TwiceOver said:
Person B has something illegal. Person A wants illegal item. Neither party wants their transaction traceable. Person A dicks around forever trying to figure out how to buy a bitcoin to buy illegal item from Person B. After about 3 days of research Person A finally finds somewhere to buy bitcoins with their bank account. Person A pays Person B. Illegal product given to Person A. Person B is already a master of bitcoin dicking around and simply turns the funny money into real money using potions and magic.
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LOL'd!

InternationalHat said:
They missed the part where it is in a constant relatively violent boom/bust cycle, the exchanges get hacked, and people get scammed left and right every step of the way
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Good point too.
 
Remember that one time when you handed a merchant some cash and you got a product/service in return?
 
raen7 said:
Aaahhhh, *now* I get it! Thanks to Spidey329 & AutomaticMan. It makes sense now. Not that I ever had the audacity to think I could make any money with it, I just didn't understand why people wouldn't have tried in the first place. But now it makes sense -- if you missed the boat at the beginning, there's very little of "the pie" left for you to slice.. to the point that it's so miniscule that you're not going to get a return-on-investment.
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not really true, if you already own hardware and have reasonable power rates it is still worth doing, building out new hardware is more break even now
 
Sounds like a virtual casino. Still not sure how that creates anything of actual value. Then again, it's not much different from printing money, except who backs this up? Printed money is usually backed by a government. So I'm not sure how this can be anything more than like monopoly money?
 
pcjunkie said:
Sure but like a pyramid scheme you have to be one of the first ones in on it...
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:confused:

no, you still get rewarded, currently the reward is 25 bitcoins per block completed half of what it used to be, as time goes on the reward will be less and less but as posted earlier rewards will be based on a small fee
 
Oh also remember, if people stop mining, difficulty will go down.

So, if difficulty is still going up even if you think it's impossible to make money, then somebody else figured a way to do it profitably.
 
prometheum said:
:confused:

no, you still get rewarded, currently the reward is 25 bitcoins per block completed half of what it used to be, as time goes on the reward will be less and less but as posted earlier rewards will be based on a small fee
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I think he's referring to the "pioneers" who got in early and generated thousands of BTC with a simple CPU just for kicks while there was virtually no difficulty.
 
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