I'm not an expert on Bitcoins but I do know that Bitcoin mining is not something just anyone would want to do with an old unused 486 running linux.

It takes lots of electricity and lots of horsepower to mine a bitcoin.

With a fancy wrapper of course.

where does the faux money come from? Who originally own this "$$"?

Its explained like this -

"Who would use this virtual currency?"

“Mostly people who want to remain anonymous. Because no central bank holds the funds the accounts can never be frozen, no one can garnish them, and the IRS can’t confiscate them.”

“So the primary use is for illegal transactions.”


It does sound like a form of money that would be used in shady transactions, and in the underworld.

Only legal tender for me.

when there isn't any real $$ involved?

Bitcoins get their "real" value the same way paper currency gets its value -- having enough other people willing to accept their value as real. Money of any sort is largely a social construct.

It's a virtual currency with no central bank. One of its biggest flaws is that it is deflationary: once there are 21 million in circulation, no more can be mined. This means that the quantity can only go down over time (such as by losing them), which encourages treating them like an investment instead of currency.

so long as someone *believes* it's money.

The explanation below is watered down to be (hopefully) understandable, so some of the details are not exactly right, but basically this is how it works.

A bitcoin is a form of electronic money which is managed peer-to-peer. What does that mean? Well, electronic money means that there are no pieces of paper, just entries in computers. So owning a bitcoin simply means that there is an electronic record somewhere (where? I'll get to that soon) that says, for example "panader0 owns bitcoin number 172365123&quot .

Peer-to-peer means that there's no central database that contains the list of who owns what bitcoins. Instead, copies of the list are maintained on a bunch of computers simultaneously, across the internet. This way, there is no single point of weakness that anyone can hack into and steal all of the bitcoins.

If you want to pay me a bitcoin, you would send out a message saying "panader0 transfers bitcoin 172365123 to DanTex" to other computers on the network, which will then update their ownership lists, and pass on the transaction to more computers, until the whole network is updated to reflect my ownership of the bitcoin.

In order to preserve anonymity, you don't own bitcoins under your real name. Instead you create a "bitcoin address," kind of like an email address. This address has a private cryptographic key that only you know, and so only you can create a valid message to transfer bitcoins from your bitcoin address.

Another issue to overcome is "double spending," meaning what is to prevent you from transferring the bitcoin to two different people. The answer is that a bitcoin transaction is not confirmed until it gets placed in what is called a "block" of transactions. Being placed in a block means (roughly) that a majority of the computers on the network have accepted the transaction and updated the ownership lists accordingly (that's a bit of an oversimplification, but this is the idea). After a bitcoin transaction makes it into a block -- which takes 10 minutes on average -- the new owner can now transfer the bitcoin to another owner if he/she wants to, and so on.

About "bitcoin mining." One question you might have is, why would anyone want to run a computer that keeps track of the bitcoin ownership list? Another question you might have is "who creates the blocks that verify transactions"? This is where bitcoin mining comes into play.

A computer doing bitcoin mining will gather messages about bitcoin transactions since the last block, and then search for a large number (key) such that, in combination with the list of new transactions, the key fits a certain pattern. The math involved is such that the only way to do this is basically brute force: just keep searching for a key that works until you find one. When such a key is found, the computer that found it broadcasts it out, along with the transactions that accompany it, to the other computers on the network. At that point, the other computers verify that the key and the transactions match the specified pattern, and accept this block, and start working on the next one.

In order for the whole bitcoin scheme to work, it is necessary for a bunch of computers to keep track of transactions and try and find keys to create new blocks. If nobody tried to create new blocks, no transactions would be verified, and the whole thing would get stuck. So, in order to reward people for devoting computational resources to this, whoever finds a new block gets ownership of some new bitcoins. The term "bitcoin mining" refers to the process of searching for keys to try and create new blocks, and in so doing taking ownership of the new bitcoins. Bitcoin mining has both a selfish motivation (to get a new bitcoin), as well as a contributing to the overall functioning of the bitcoin network.

Hopefully this helps a bit.

• Why are bitcoins worth anything?
Only because people think they are (which is the same reason any kind of money is worth anything). There is only a finite supply, and some people view it as the currency of the future, so they place value on it.
• How do you get a bitcoin?
Either you can mine one (very hard) or you can get someone to give one to you, in exchange for something else. There are a bunch of electronic exchanges where you can trade cash for bitcoins.
• What's the point?
The idea is to create a form of currency that is not controlled by any governments, doesn't require physical ownership of anything (e.g. gold), and is relatively hacker-proof due to the peer-to-peer protocol.
• Is this actually going to work?
In my opinion, probably not, but who knows. Prices of bitcoins have shot way up recently, which means that so far bitcoin skeptics like me have been wrong. However, they still aren't really used for much except for speculation. You can buy a few things with bitcoins, but basically it's still sort of a novelty. I would think that if it really starts to get big, then governments are going to start to regulate bitcoins, at which point a lot of their appeal is going to be lost. Also, the anonymous nature of bitcoins makes them appealing for criminal enterprises (there's actually a website called http://bitcoinlaundry.com/), and governments probably aren't going to like that either.

Seriously. They are over 1k.

I really regret not buying some btc when they crashed. Hell, not just that one. Ltc as well - They averaged 2.5-5 back then and are now 32 each.