Bit coin...Huh?

Can someone explain how solving complex equations translates into currency?

What is a currency?
It’s a agreed-upon medium of exchange. Typically, currencies have been founded on materials that are “intrinsically” valuable, like gold. But, they could easily be made from something that was “worthless,” like garbage, as long as there was a limited supply of it. So, one wants a the medium to be hard enough to reproduce that it’s not worth the effort to do so (like, dollar bills), or rare enough that the effort to find more is worth just about what the medium itself is worth (like gold).

So, why not a complex equation? So long as the equation takes just about the same amount of effort to solve as the value that is generated, it makes a dandy exchange medium. The Bitcoin system also has other advantages - ownership and traceability.

Of course, if somebody figures out how to crack the Bitcoin-generating equations, the whole system falls apart (just like the discovery of a billion tons of gold would ruin the market for gold).

All that said, I don’t trust Bitcoins, and I don’t intend to purchase any. They are too new, and are not nearly widely-enough accepted to make them useful to me.

I usually recommend the Wikipedia article but in this case it is pretty bad and explains little or nothing about the technical foundation. Bad article.

This wiki has better information:
Bitcoin Wiki
Mining - Bitcoin Wiki
etc

This is not true and is debunked in the wiki I linked to.

I didn’t say that the value of a Bitcoin was proportional to the effort it to to create it.
I was attempting (poorly, I guess) to point out that the value of any currency is going to be reduced if the the effort it takes to duplicate a unit of that currency goes down. So, ignoring the entire counterfeiting aspect, if it only took a millisecond of computer time to create a valid bit coin, and there were unlimited coins to be created, there’s no way that such a unit of exchange could be worth more than say, one cent (equating one medium of exchange to another). If this were not true, anyone could create instant wealth.

As a cite, I give you:

well, yes, one of the requirements for anything to have value is that it be scarce. Nothing which is available in unlimited quantities for free is going to have value.

Unfortunately another requirement is near universal acceptance as a medium of trade. I had this discussion with a young coworker who was going on and on about how Bitcoin was the future of currency. My simple response was “then YOU can go use them to pay the bar tab.”

If you can’t use it to buy stuff and the corner store, it’s not currency. It’s trading virtual Beenie Babies and tulip bulbs.

Well, nobody knows where the bitcoin is headed but it already has value. It may be more or less useful and convenient depending on circumstances. if you want to buy a cup of coffee in France a dollar might be worthless and if you want to buy a cup of coffee in north Korea you may need wangs or wongs or whatever they use there. In both cases you can use dollars or anything else valuable. things of value can be exchanged for each other. and if you want to buy certain things in the virtual world it may be that bitcoins are what you need. just because the corner store does not accept them does not mean they have no value. it all depends on time, place and circumstances. Today in an American or European street a dollar or a euro may be more readily accepted but that does not mean it will always be that way. Just two or three decades ago nobody could have imagined the internet, google, online shopping etc. nobody knows what the next few decades may bring. Nobody imagined the collapse of the Soviet Union before it happened. Nobody knows what might happen. Maybe the bitcoin will remain a minor thing, maybe it will even disappear, or maybe it will grow in value when the next crisis shakes the foundation of the dollar. There was a time when the Spanish dollar ruled the world and the Americans started minting wanabe dollars. And, in the end the American dollars, backed by nothing, conquered the spanish dollar which was backed by gold. In the 18th century nobody could understand or believe such a thing. Now change is happenning faster and faster so i would not discount bitcoins or other similar currencies which may appear. people have already made money and spent moey using bitcoins and they can be bought and sold. That makes them valuable. You may have no use for them the same as i have no use for north korean wongs ut that does not mean they are useless and valueless for everybody.

I think it’s hard to say. Nearly all previous new currencies have been established by governments, which have the ability to dictate their immediate acceptance.

Any new privately created currency is going to start out accepted by almost no one. The question is whether Bitcoin will become a well-accepted currency or not. I can’t pay my bar tab with Mongolian tögrög, either (in the vast majority of cases). But the latter is clearly a currency.

I think bitcoin is a fascinating experiment. It’s so difficult to analyze because it’s so much unlike anything that has come before. Traditional currencies are kept scarce by a single authority. Bitcoin is kept scarce by the agreement of the network. Traditional currencies are established by states and governed by a cadre of elites. Bitcoin was created by one guy who wrote a very clever algorithm and controlled by the majority. Traditional currencies are generally accepted in a particular geographical area. Bitcoin is not. Traditional currencies are physical. Bitcoin is virtual. Traditional currencies are based on trust of banks and governments. Bitcoin is based on mutual distrust of other economic actors.

A new currency that changed just one of those things would be hard to analyze with traditional economic models. I have little confidence that anyone, either bitcoin supporters or detractors, has any idea where this it’s going to end up.

FWIW, I believe one bitcoin is worth just over $900 USD right now.

With it’s highly fluctuating exchange rates and it’s nascent, virtua/crytographic nature, it’ll be a long time before it’ll be a currency you’d invest most of your liquid weatlh into, let alone buy groceries with at Kroger.

Well, you could risk exposure for something like your weekly shopping …

Why won’t Visa or your eftpos people link to another currency ? They could let you link a card to bitcoin, if they felt like it. They just get there 10 cents or % per transaction (which ever is greater), the same ?

Related question.
What exactly are these equations that are getting solved? Are they any use to anyone? Are they someone’s research project or advancing the study of mathematics? If I had some difficult equations that I wanted solved and needed a bunch of computing power, could I submit my equations into a pool and have them solved by bitminers?

Or are they just hard problems devised for their own sake and the sake of the currency?
My fanciful brain hopes that they are finding Reimann Zeta zeros to ultra-high levels of precision in blocks of 1000 at a time but I suspect that I am wrong.

That, by definition, makes Bitcoin a terrible currency.

Money or currency is defined as “a medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold.”

It’s easy to tell what one bitcoin is worth in USD. It’s a lot harder to tell what a bag of groceries is worth in bitcoins. Until people can do that, it’s usefulness as a form of money is limited.

Yep. The problems being solved are not especially useful. Specifically, what’s being solved are hashing problems. A cryptographic hash is a computation that is very easy to perform one way but extremely difficult to perform the other way. For example, squaring a number is easy, but finding the square root (if you don’t already know it) takes a lot more work.

What the bitcoin miners are doing is looking for numbers that, when hashed twice through the SHA-256 algorithm, result in numbers beginning with a bunch of leading zeros. It is very fast to pick a random number and run it through the hash algorithm to see if it works, but would take an extremely long time to start with the wanted answer and work backwards. Bitcoin minsers simply try numbers as fast as they can to see which ones work. When they find one that works, they announce it to the rest of the network, and the other nodes on the network repeat the computation to verify that it works. If it does, then an amount of bitcoins is awarded to the person that found the working number.

There are a limited number of bitcoins that can be created under this system (about 21 million) but they can be transacted in small fractional units.

Meh. How boring.
Still I should be glad that they are not using that computing power to brute-force passwords. (Or are they??)

Brute-forcing passwords is basically the same idea. Take a bunch of words from a dictionary and hash them to see if they match the hashes stored in your stolen password database.

Hence my somewhat tongue-in-cheek comment. It would be very enterprising of bitcoin designers to accumulate something of value such as 21 million cracked passwords. The way you have described the calculations (a double pass through the algorithm searching for leading zeros), I can’t see how that presents a security risk. But then I am not a criminal mastermind.

If it was just a single pass and the target was some kind of centralised database… then I would be concerned.

I think it just makes it a new currency.

Every new idea or technology goes through a period where it’s not predictable whether it will succeed or fail.

And new currencies are terrible currencies. Currency needs to be stable to be useful. Maybe someday it’ll be a good currency, but it isn’t yet.

On the technical side, how does bitcoin deal with hash collisions? For any given hash, there are many different inputs which will produce it. What happens when someone finds a new input that hashes to an already-mined coin?