Explain like Iím 30: Bitcoin
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BigBallerBrand
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PostPosted: Thu Dec 07, 2017 10:25 pm    Post subject: Explain like Iím 30: Bitcoin

So if I had to explain briefly how stocks are valued, I would just say the enterprise value of the company is based on discounting the cash flows that the enterprise will generate into perpetuity back to today, subtracting out debt, and then dividing that equity value by number of shares outstanding. Now if people believe cash flows will go up or down, thatís what is driving the stock price to fluctuate long term etc....

So now onto Bitcoin specifically (not other alt coins), can someone please explain to me in a simple but an educated way so I understand how the value is derived? Just like how I did with stocks above? Thanks.

Iím trying to get rich here.
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PostPosted: Fri Dec 08, 2017 7:10 am    Post subject:

Not a financial guru, but, the dollar value of bitcoin works exactly like a stock. It's value is whatever someone just paid for it.

In your analogy, feels like you're conflating stock price with company valuation which I think are separate things.

When you buy bitcoin, you're basically buying a stock. You go to an exchange, you use dollars or whatever currency the exchange accepts, you tell them what you want at what price, and if there is a seller willing to do business, then you exchange your dollars for bitcoin (or share of stock).
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PostPosted: Fri Dec 08, 2017 10:55 am    Post subject:

Also there is a finite number of bitcoins that will be circulation. Once all those are generated thats it.
I also think part of the reason why its value has skyrocketed is because the number of merchants that are accepting it as a form of payment.
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PostPosted: Fri Dec 08, 2017 11:36 am    Post subject:

lakersken80 wrote:
Also there is a finite number of bitcoins that will be circulation. Once all those are generated thats it.
I also think part of the reason why its value has skyrocketed is because the number of merchants that are accepting it as a form of payment.


Why would anyone ever pay for anything with Bitcoin since it's so volatile?

Here's an example: I bought a piece of software with bitcoin 3 years ago when bitcoin was like $150/coin. Today, I effectively paid $16000 for a $150 piece of software. Makes no sense (also made me take a deep sigh).

Also bitcoin is slow. Who wants to hang around for 15 minutes at a retail store while the bitcoin transaction goes through? Transactions will only get long the more time goes by.

Finally, IMHO bitcoin is extremely unethical. In a world with global climate change and with so many problems to solve, bitcoin wastes astounding amounts of computing (and real) power that could be used to solve real problems. The amount of fossil fuels burned and CO2 going into the atmosphere just to crunch worthless equations to verify transactions is about as dystopian as it gets. Greed has no ethics and this is the perfect example.
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PostPosted: Fri Dec 08, 2017 12:05 pm    Post subject:

DuncanIdaho wrote:
lakersken80 wrote:
Also there is a finite number of bitcoins that will be circulation. Once all those are generated thats it.
I also think part of the reason why its value has skyrocketed is because the number of merchants that are accepting it as a form of payment.


Why would anyone ever pay for anything with Bitcoin since it's so volatile?

Here's an example: I bought a piece of software with bitcoin 3 years ago when bitcoin was like $150/coin. Today, I effectively paid $16000 for a $150 piece of software. Makes no sense (also made me take a deep sigh).

Also bitcoin is slow. Who wants to hang around for 15 minutes at a retail store while the bitcoin transaction goes through? Transactions will only get long the more time goes by.

Finally, IMHO bitcoin is extremely unethical. In a world with global climate change and with so many problems to solve, bitcoin wastes astounding amounts of computing (and real) power that could be used to solve real problems. The amount of fossil fuels burned and CO2 going into the atmosphere just to crunch worthless equations to verify transactions is about as dystopian as it gets. Greed has no ethics and this is the perfect example.


I hadn't thought about it like that. Strong point.

You strike me as knowledgeable here. Can you ELI5 to me and explain: 1) why does bitcoin require such an expenditure of energy to "verify" the transaction; 2) is this a problem with all crypto-currency or do coins like ethereum, with their contracting software built into the coin-block, mitigate and/or remove this externality
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PostPosted: Fri Dec 08, 2017 12:06 pm    Post subject:

DuncanIdaho wrote:
lakersken80 wrote:
Also there is a finite number of bitcoins that will be circulation. Once all those are generated thats it.
I also think part of the reason why its value has skyrocketed is because the number of merchants that are accepting it as a form of payment.


Why would anyone ever pay for anything with Bitcoin since it's so volatile?

Here's an example: I bought a piece of software with bitcoin 3 years ago when bitcoin was like $150/coin. Today, I effectively paid $16000 for a $150 piece of software. Makes no sense (also made me take a deep sigh).

Also bitcoin is slow. Who wants to hang around for 15 minutes at a retail store while the bitcoin transaction goes through? Transactions will only get long the more time goes by.

Finally, IMHO bitcoin is extremely unethical. In a world with global climate change and with so many problems to solve, bitcoin wastes astounding amounts of computing (and real) power that could be used to solve real problems. The amount of fossil fuels burned and CO2 going into the atmosphere just to crunch worthless equations to verify transactions is about as dystopian as it gets. Greed has no ethics and this is the perfect example.


Well,I can see why a big company can afford to take payments in bitcoin....its an investment that can afford to lose. If Microsoft loses a couple of million from bitcoin transactions sure it'll hurt, but they will do ok. An individual like yourself if they had a bitcoin years ago and traded it for something of value, they definitely overpaid for what it is worth now.
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dont_be_a_wuss
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PostPosted: Fri Dec 08, 2017 12:42 pm    Post subject:

Bitcoin is used a lot for illegal purchases like drugs, guns, gambling and money laundering. There is an escrow service where you pay for your illicit items with Bitcoins, and when the items arrive, you verify that they were as expected and the funds get released. It sounds a lot like eBay for drugs now that I explained it. I read $2M a month in bitcoin are exchanged for drugs and illegal items.
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PostPosted: Fri Dec 08, 2017 2:12 pm    Post subject:

Don't do it! Speculative bubble culminating.
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PostPosted: Fri Dec 08, 2017 3:18 pm    Post subject:

It's big with the Alt Right

https://www.rawstory.com/2017/12/white-supremacists-are-the-big-winners-of-bitcoins-epic-rally/
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PostPosted: Fri Dec 08, 2017 5:37 pm    Post subject:

Janggoon8 wrote:
Don't do it! Speculative bubble culminating.


It's gotten to a point where irrational exuberance has taken over. Much of the recent run up might have something to do with the offering of futures contacts on exchanges CBOE (Dec 10) and CME (Dec 18).

For the most part, I've been trying to avoid news of btc and could really go without any reminders of where it's at right now. A few years back, it was relatively inexpensive at around $120/btc and I bought several hundred in hopes of acquiring an Avalon miner to mine bitcoins. Unfortunately, Mt. Gox (formerly one of the largest bitcoin exchanges of its time) was in trouble and I barely got out before it completely collapsed. A number of people lost everything, I was fortunate to retrieve a good portion of my balance and quickly converted all of it to fiat as soon as I could.

At today's rate, sure it would help to have that amount right now but then again, needed every last satoshi that was recovered from Mt. Gox on a project, so it worked out.

Exchanges such as Bitfinex, BitStamp, CoinBase have supposedly learned from the failure of Mt. Gox, but it's unknown if they're able to deal with large scale liquidity crisis should one arise in the future. Traders with huge bankrolls could manipulate the market with a coordinated effort, so anyone thinking about jumping into this frenzy will need to tread carefully.
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PostPosted: Fri Dec 08, 2017 5:55 pm    Post subject:

lakersken80 wrote:
Also there is a finite number of bitcoins that will be circulation. Once all those are generated thats it.
I also think part of the reason why its value has skyrocketed is because the number of merchants that are accepting it as a form of payment.


True, once the 21,000,000th bitcoin is mined, that will be all she wrote.

A few years ago, when the price was relatively stable it seemed like a good idea to accept bitcoin as a form of payment. However, as DuncanIdaho had alluded to earlier, the transaction confirmation times are unacceptable due to the ever growing size of the blockchain.
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PostPosted: Fri Dec 08, 2017 6:21 pm    Post subject:

dont_be_a_wuss wrote:
Bitcoin is used a lot for illegal purchases like drugs, guns, gambling and money laundering. There is an escrow service where you pay for your illicit items with Bitcoins, and when the items arrive, you verify that they were as expected and the funds get released. It sounds a lot like eBay for drugs now that I explained it. I read $2M a month in bitcoin are exchanged for drugs and illegal items.


Majority of drug dealers still take payments in US dollars....cash only transctions......
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PostPosted: Fri Dec 08, 2017 6:40 pm    Post subject:

Okay, now explain it to me like Iím 25.
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PostPosted: Fri Dec 08, 2017 7:30 pm    Post subject:

Dladi Vidac wrote:
Okay, now explain it to me like Iím 25.


If you purchased 10 bitcoins in 2010 you would be able to quit your job at starbucks and then you could spend a year sending snaps, pretending to be excited about watching Hamilton, catching charmanders, and taking selfies at music festivals across the country.
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PostPosted: Fri Dec 08, 2017 7:51 pm    Post subject:

I'm not going to even attempt to chime in on what Bitcoin is all about, but I do have an interesting anecdote.

I have a buddy who was tempted to buy a bunch several years ago and kept beating himself up with, "if I had just bought when I first that about it, I'd have enough money to retire at this point . . ." Well, just before thanksgiving he bought one coin at $8k something. Yesterday, after doubling his money, he sold half and now he gets to watch that investment roll entirely on the house's money.
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PostPosted: Fri Dec 08, 2017 8:14 pm    Post subject:

All I know is that every guy I know without a college degree has invested in it. Can't say the same about S&P 500 stocks. It strikes me as the "Rich Dad, Poor Dad" flipping houses craze.
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PostPosted: Fri Dec 08, 2017 8:45 pm    Post subject:

vanexelent wrote:
All I know is that every guy I know without a college degree has invested in it. Can't say the same about S&P 500 stocks. It strikes me as the "Rich Dad, Poor Dad" flipping houses craze.


Oh it is definitely a craze. And not just amongst those without a degree.
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PostPosted: Sat Dec 09, 2017 10:44 am    Post subject:

The value is a big question mark. It does not have value in the way that a stock has value. There are no earnings.

I bought some bitcoins at around $250 because I believed in the value of having a global digital currency that could be accepted anywhere in the world without worrying about exchange rates. How great would it be to travel from country to country in Europe without needing to worry about currency. I bought based on the potential of it to revolutionize the way we buy things. Unfortunately for me, I sold at $2500, which wasnít long ago at all. Still a nice run up.

Now we are at a point where my original fascination seems to have changed, where people are no longer viewing it as a currency to be spent, but a store of value to be held. Bitcoins value seems to me kind of like gold at this point. Gold has no real intrinsic value. Itís a rock. People say it has value, so it has value. Same with BTC. Itís a hedge against inflation. It is a finite store of value. It is what people are willing to pay for it. It seems like a gamble at this point. It didnít feel that way to me when it was $250.
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PostPosted: Sat Dec 09, 2017 12:29 pm    Post subject:

Surfitall wrote:
The value is a big question mark. It does not have value in the way that a stock has value. There are no earnings.

I bought some bitcoins at around $250 because I believed in the value of having a global digital currency that could be accepted anywhere in the world without worrying about exchange rates. How great would it be to travel from country to country in Europe without needing to worry about currency. I bought based on the potential of it to revolutionize the way we buy things. Unfortunately for me, I sold at $2500, which wasnít long ago at all. Still a nice run up.

Now we are at a point where my original fascination seems to have changed, where people are no longer viewing it as a currency to be spent, but a store of value to be held. Bitcoins value seems to me kind of like gold at this point. Gold has no real intrinsic value. Itís a rock. People say it has value, so it has value. Same with BTC. Itís a hedge against inflation. It is a finite store of value. It is what people are willing to pay for it. It seems like a gamble at this point. It didnít feel that way to me when it was $250.


Yeah, but wouldnít you say itís the same as a stock? I feel like it is the same. The stock price is not determined by earnings, but rather, the perceived future value of that stock.

The value of something is only relative to something else. Bitcoin to USD, etc.
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PostPosted: Sat Dec 09, 2017 12:57 pm    Post subject:

Surfitall wrote:
The value is a big question mark. It does not have value in the way that a stock has value. There are no earnings.

I bought some bitcoins at around $250 because I believed in the value of having a global digital currency that could be accepted anywhere in the world without worrying about exchange rates. How great would it be to travel from country to country in Europe without needing to worry about currency. I bought based on the potential of it to revolutionize the way we buy things. Unfortunately for me, I sold at $2500, which wasnít long ago at all. Still a nice run up.

Now we are at a point where my original fascination seems to have changed, where people are no longer viewing it as a currency to be spent, but a store of value to be held. Bitcoins value seems to me kind of like gold at this point. Gold has no real intrinsic value. Itís a rock. People say it has value, so it has value. Same with BTC. Itís a hedge against inflation. It is a finite store of value. It is what people are willing to pay for it. It seems like a gamble at this point. It didnít feel that way to me when it was $250.

agreed but its way worse than gold. Yes gold is just a rock but since the beginning of civilization people have valued the status of gold and that would never change in many lifetimes. There will always be someone willing to pay $XXX per ounce of gold. A Bitcoin would truly be a worthless signature of bytes at the end of the day if that currency tanked.
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PostPosted: Sat Dec 09, 2017 2:53 pm    Post subject:

lakersken80 wrote:
dont_be_a_wuss wrote:
Bitcoin is used a lot for illegal purchases like drugs, guns, gambling and money laundering. There is an escrow service where you pay for your illicit items with Bitcoins, and when the items arrive, you verify that they were as expected and the funds get released. It sounds a lot like eBay for drugs now that I explained it. I read $2M a month in bitcoin are exchanged for drugs and illegal items.


Majority of drug dealers still take payments in US dollars....cash only transctions......


I am saying Bitcoin transactions are often for illegal transactions, not that most illegal transactions are bitcoin.
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PostPosted: Sun Dec 10, 2017 9:27 am    Post subject:

^It seems that it is becoming more mainstream nowadays, even Expedia accepts bitcoin and others too: [List]
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PostPosted: Sun Dec 10, 2017 9:48 am    Post subject:

Surfitall wrote:
It is a finite store of value. It is what people are willing to pay for it. It seems like a gamble at this point. It didnít feel that way to me when it was $250.


Same here, it wasn't nearly as volatile as it is now. It had a brief run up of over 1000 a few years back before settling into a range when China cracked down on it. There are some who still see it as a store of value and superior to fiat which is why they got into it the first place. Btw, congrats on the 10x return.
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PostPosted: Sun Dec 10, 2017 9:05 pm    Post subject:

First day for bitcoin futures contract trading at the CBOE:

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Bitcoin futures rise as virtual currency hits major exchange

CHICAGO (AP) -- The first-ever bitcoin future jumped after it began trading Sunday as the increasingly popular virtual currency made its debut on a major U.S. exchange.

The futures contract that expires in January surged more than $3,000 to $18,010 four hours after trading launched on the Chicago Board Options Exchange. The contract opened at $15,000, according to data from the CBOE.

http://hosted.ap.org/dynamic/stories/U/US_BITCOIN_FUTURES_ILOL-

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PostPosted: Fri Dec 15, 2017 11:41 am    Post subject:

Here's a great article that goes into some of the major problems I have with bitcoin

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THE HARD MATH BEHIND BITCOIN'S GLOBAL WARMING PROBLEM

ADAM ROGERS
SCIENCE
12.15.1707:00 AM

LET ME FREAK you out for a second. You know what bitcoin is, right? I mean, no, but quickly, itís a ďcryptocurrencyĒ thatís basically secret computer money. One bitcoin, which doesnít actually have a real, physical form, is worth at this moment upwards of $16,000. But to get one, you either have to buy them from online exchanges or use specialized computing hardware to ďmineĒ it. That last bit is where the freak-out comes in.

In a report last week, the cryptocurrency website Digiconomics said that worldwide bitcoin mining was using more electricity than Serbia. The country. Writing for Grist, Eric Holthaus calculated that by July 2019, the Bitcoin peer-to-peer networkóremember BitTorrent? Like thatówould require more electricity than all of the United States. And by November of 2020, itíd use more electricity than the entire world does today.

Thatís bad. It means Bitcoin emits the equivalent of 17.7 million tons of carbon dioxide every year, a big middle finger to Earthís climate and anyone who enjoys things like coastlines, forests, and not dying of mosquito-borne diseases. Refracted through a different metaphor, the Bitcoin P2P network is essentially a distributed superintelligence utterly dedicated to generating bitcoins, so of course it wants to convert all the energy (and therefore matter) in the universe into bitcoin. That is literally its job. And if it has to recruit greedy nerds by paying them phantom value, well, OK. Unleash the hypnocurrency!

[...]

Proof of work is a problem. So maybe you could get rid of it. Cryptocurrency researchers are thinking about other approaches. One, Resource Efficient Mining, lowers the workload but uses trusted hardware to do it. Another, proof-of-stake, trades computational work for prior value. ďYou just kind of let people create blocks in proportion to the currency they hold, so the big currency holders make most of the blocks,Ē says Bonneau. In other words, instead of making mining computationally expensive, you just make it expensive. ďIt would possibly drive the power consumption down to almost zero, but we havenít reallyóĒ he pauses here ďóthereís a couple of research teams working on this,Ē Bonneau finishes.

Does a bitcoin aristocracy sound good, though? ďItís not clear that itís worse than giving the ability to create a block to whoever is willing to burn the most electricity,Ē Bonneau says, ďwhich is just operators in the Chinese desert getting subsidized power, or wherever else in the world.Ē

All right, then, letís take a different tack. Right now, the hash algorithm is useless work, intentionally. Itís burned. How about making it do something useful? Itís a p2p network doing collaborative computation. What about making it find signals from aliens, or figure out how to make proteins useful to medical science, or solve real-world crypto problems and prime factorization? And but no. ďIíll tell you why that didnít happen, and itís perverse,Ē Sirer says. ďHad bitcoin been mined by doing something useful, then there would be a correspondence between useful work and the number of bitcoins you getÖThat creates a mental anchor point in peopleís mind for how much a bitcoin should cost.Ē

https://www.wired.com/story/bitcoin-global-warming/
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