Bitcoin - What does it do?

[Adgerc15]

I've read all of these posts and most of the links, I still have very little understand and even lower confidence in investing my cash money. Terms like nano ledger, quantum computer, hard fork....foreign language to me.

I hope those in the arena make money, I am too green to jump in just yet.

ac

[Burnadell]

When someone sends bitcoin on the network, it sends a flag to the network that says, hey, this address wants to send this amount of BTC to this other address. While this request sits in queue, the "Miners", which is really just computational power, are trying to solve a complicated algorithm set by the network called the "Block".

The first person to get the answer to Block, gets a reward of 6.25 bitcoins + the transaction fees from all the transactions it processed. The network aims to solve a block every 10 Minutes and can adjust how hard it is to solve a block by adjusting the algorithm difficulty. That block reward is what is halving. The next halving it will be 3.125 BTC reward for solving a block.

Simpleton Terms is Halving = bitcoin inflation rate cutting in half.

Cash App and Coinbase are probably the easiest way for you to buy and hold you own satoshi s.

My logical mind cannot decipher that, if I want to send some of my bitcoin/cryptocurrency to someone else, say for payment of a vehicle, a home, or whatever, then a complicated algorithm has to be solved...and there is a competition to solve that algorithm?

How does a person: own the vast amount of computing equipment that it apparently takes to solve? the algorithm needed...just to transfer the bitcoins?

[Shane]

My logical mind cannot decipher that, if I want to send some of my bitcoin/cryptocurrency to someone else, say for payment of a vehicle, a home, or whatever, then a complicated algorithm has to be solved...and there is a competition to solve that algorithm?

How does a person: own the vast amount of computing equipment that it apparently takes to solve? the algorithm needed...just to transfer the bitcoins?

To send bitcoin to someone else, or even to just transfer your bitcoin from one wallet/account to another one that is yours, you enter the wallet address that you want to send it to along with the amount of bitcoin (think number of "shares", not dollars) that you want to send. That is entered in on the bitcoin network of miners' computers - not yours. You don't need to own any special equipment. The network computers are all linked. The information stored in each block of the blockchain is distributed across all of the computers on the network. It's public. it's not held on one centralized computer somewhere. So it can't be hacked. Every computer on the network has the information, so if one computer tried to enter conflicting info, it doesn't work. All the various computers that share the information verify each other.

The miners are compensated when they solve the super complex calculations that verify a new block of information. They receive a set number of Bitcoin when that happens. The system is set up such that every so often the number of Bitcoin paid to a miner for a new block is cut in half. The reasoning is that as Bitcoin becomes more valuable, fewer Bitcoin will be needed to compensate the miners for their work and expense. That's the "halving". It happens about every 4 years. It's tied to the cumulative number of Bitcoin produced/created/"mined", not the calendar. But it takes about 4 years to mine enough to reach the next halving.

You don't have to have the knowledge and equipment to do all the mining calculations. You just need to have a little bit of know-how on how to buy, hold, sell, and/or transfer it on your computer or even from your cell phone. It's similar to transferring cash through ACH or securities over ACAT. Just computer commands.

There are hundreds or maybe thousands by now other cryptos, besides Bitcoin. They all have their own purpose and function. Most are not limited in supply like Bitcoin. Some are open-ended. Some are more centralized in how and who controls them. No one person or entity has control of the Bitcoin network. It was set into motion and then let go, basically.

It's not really a "currency". Bitcoin is more like a commodity than a currency or a stock. It's a store of value. Some people use the analogy of "digital gold". It fluctuates up and down in value, relative to Dollars and other things. It has some utility (if you understand blockchain technology, which is super complex). The average person will never need to understand all of that though if all they want to do is buy, hold, sell it or trade it for something else.

[Burnadell]

I've read all of these posts and most of the links, I still have very little understand and even lower confidence in investing my cash money. Terms like nano ledger, quantum computer, hard fork....foreign language to me.

I hope those in the arena make money, I am too green to jump in just yet.

ac

Don't be embarrassed. I was a banker for 24 years and an investment advisor for 30 years, and I still don't understand the logic. Real estate investors have tangible assets that may or may not generate cash flow, but you KNOW what you own. Stocks represent OWNERSHIP in COMPANIES that may or not generate positive cash flow...and IF that cash flow/earnings continues to grow, that company's value will grow over the long term. Bonds and CD's are debt instruments that pay interest and represent basically that you have loaned your cash for hope that the debtor willl pay your interest earned AND repay the debt at maturity.

No complicated algorithms or mining needed to understand what you own.

Mining = A computer "working" doing calculations to earn bitcoin.

Halving = Mining pays 1/2 the bitcoin it did previously. This way bitcoin will never go past the 21 million max.

Bitcoin is a currency. Blockchain is where the data is stored. I wasn't clear in my first post. Most people mix the two together but they are different.

To buy just open a Robinhood or Coinbase account. Robinhood makes it super easy just like buying a stock. If you can't open a brokerage account buy a Nano Ledger (cold wallet) and find a bitcoin kiosk and buy using cash or credit card.

What causes stocks to fluctuate? Serious question. They sure do not follow any traditional means like PE ratio anymore Most go up or down based on popular demand, FOMO, social media hype etc. Bitcoin moves based on how many people use it. If more Countries adopt it as their currency it will continue up. The more the blockchain grows and is used it's my guess that will cause bitcoin to rise also. Flip side if governments ban all crypto so they can use their own digital currency Bitcoin will fall.

I think you know the answer but you are looking at the short term fluctuations in PRICE; not the VALUE of the companies and longer term factors. I will answer without referring you to links.

Simply put, stocks rise and fall (in the short term) due to supply and demand. If there are more sellers than buyers, the stock PRICE falls; more buyers than sellers, the PRICE increase...in the short term. Short term price fluctuations are due to MARKET SENTIMENT...investor confidence (or lack of) in the overall economy, individual companies, industries, technical analysis of the stock PRICES, etc.

In the longer term, FUNDAMENTALS of companies' earnings and balance sheets and VALUES drive their PRICES. When I worked for Paine Webber, our investment strategist always emphasized that what drives a company's price was EARNINGS, EARNINGS, EARNINGS. Short term prices fluctuate for various reasons but EARNINGS drives their VALUE. When a company's earnings and prospects for future earnings GROWTH are positive, but the stock price is down due to market sentiment, that means the price is selling at a terrific value.

These days of social media like we have here, people buy and sell without a clue of why they own a stock other than hype.

It's complicated...but not.

[Burnadell]

Shane, that makes more sense. Thanks for the simple explanation.

[RiverRat1]

Now that everything is cleared up I'll muddy the waters

Crypto is traded on crypto exchanges. Most of the time (may be changing) one needs to change cash to Bitcoin before buying one of 10's of thousands of micro crypto "coins".

So as more and more smaller "coins" start trading it drives demand for BTC and ETH higher. Think millions of traders. Buy $1,000 in BTC and the use BTC to buy other utility coins or tokens. But they usually leave some in BTC. And when they sell the other tokens they often leave it in BTC instead of going back to cash.

Relate it to having an EJ account. Cash, cash like fund, and an index fund. If it cost fees to move from cash like fund back to cash then when people sell index funds they will sometimes leave it in the cash like fund. So the cash like fund grows bigger as more people get into the markets.

Now for small tokens or coins. I'm far from an expert so hope others chime in.
Relate these to small stocks. Each one claims to do something (making a network faster, smoother, safer etc). Traders try to judge the future market. Then yes pure speculation FOMO kicks in and some run 10,000% and then usually come back down. Just because traders run a stock from 10 cents to 5 dollars and then the stock eventually trades back down to 10 cents does NOT make the stock a scam, it just means traders ran it up to over valued. And yes, many tiny crypto are scams for sure, but many actually have purpose.

[monsterspike]

BTC is scarcity, and several million are reported to have been lost, so 21 million is estimated to be more like 17 million or less when all is said and done.

17 million BTC and 24? million millionaires in the US alone? Just don't lose your keys!!

[RiverRat1]

Don't be embarrassed. I was a banker for 24 years and an investment advisor for 30 years, and I still don't understand the logic. Real estate investors have tangible assets that may or may not generate cash flow, but you KNOW what you own. Stocks represent OWNERSHIP in COMPANIES that may or not generate positive cash flow...and IF that cash flow/earnings continues to grow, that company's value will grow over the long term. Bonds and CD's are debt instruments that pay interest and represent basically that you have loaned your cash for hope that the debtor willl pay your interest earned AND repay the debt at maturity.

No complicated algorithms or mining needed to understand what you own.



I think you know the answer but you are looking at the short term fluctuations in PRICE; not the VALUE of the companies and longer term factors. I will answer without referring you to links.

Simply put, stocks rise and fall (in the short term) due to supply and demand. If there are more sellers than buyers, the stock PRICE falls; more buyers than sellers, the PRICE increase...in the short term. Short term price fluctuations are due to MARKET SENTIMENT...investor confidence (or lack of) in the overall economy, individual companies, industries, technical analysis of the stock PRICES, etc.

In the longer term, FUNDAMENTALS of companies' earnings and balance sheets and VALUES drive their PRICES. When I worked for Paine Webber, our investment strategist always emphasized that what drives a company's price was EARNINGS, EARNINGS, EARNINGS. Short term prices fluctuate for various reasons but EARNINGS drives their VALUE. When a company's earnings and prospects for future earnings GROWTH are positive, but the stock price is down due to market sentiment, that means the price is selling at a terrific value.

These days of social media like we have here, people buy and sell without a clue of why they own a stock other than hype.

It's complicated...but not.

The bolded is what moves crypto. The more it's used to more value it has.

I know you're looking at a bitcoin earning a profit but it's not a company. It's a system network. If less people use the network it's value will decrease and vice versa.

Once you realize how many companies already use crypto networks and believe it will not be going away then you do know what you own. It's just not easy to understand. But it's not really harder than understanding our dollar. Try explaining how our dollar works to someone that never used money. Ask all the questions you are asking us about crypto. Ask about FED policy, banking etc.

[squirrel]

I think you know the answer but you are looking at the short term fluctuations in PRICE; not the VALUE of the companies and longer term factors. I will answer without referring you to links.

I dont think you are looking at the macro picture of price versus value.

Assets can be priced in many things and values can by distorted in many ways. If assets are priced in dollars, but the supply of dollars is growing exponentially then wouldn't the assets be worth less dollars? We can see what the price of a dollar is but what is the inherent value of it? Can the price and value of a dollar be manipulated?

I think there is overall value in black chain technology since it is open sourced and cant be changed or manipulated.

[squirrel]

whooooo boy