Quote:
Originally Posted by Paul&John
I still can't understand it lol
What does BitCoin has in common with CPU power?  (and by CPU they mean the CPU's in PC's?) |
Okay. Bitcoin mining is always confusing at first. Let me try my best to explain it.
There are a finite amount of Bitcoins (21 million to be exact). There will never be any more of them minted. Ever. So Bitcoin is literally an online analog to gold in the physical world. Each Bitcoin is cryptographically unique and can not be double-spent.
The value of Bitcoins is derived from supply and demand. This is the same way that other currencies get their value. Example: 1 USD = 0.98 CAD. Mtgox.com and BitcoinMarket.com are the two largest Bitcoin forex markets. They literally set the exchange rate between USD and Bitcoins. These rates are based on what users are willing to pay for them.
Bitcoin is literally a floating currency without any government/state control. It is the first currency designed to be specifically for online use and also global.
Okay, back to mining... The problem with a new currency is how to handle the distribution. We can't just give one person all of the coins right off the bat or the currency is worthless. We'd have one super rich guy and everyone else would have to work for him to get any coins. The magic of mining was invented as a clever way to evenly distribute the coins.
Each computer running the Bitcoin software that is participating in mining (you can opt out) is competing to solve the same mathematical problem. The first computer to solve it wins 50 Bitcoins. The mathematical problem slowly gets harder to solve as the network grows. This allows for a nice and steady inflation until all 21 million coins have been distributed.
For those who don't like to read, here is a very short film that describes how Bitcoin works: weusecoins.com