What is Crypto?

Quote: Wizard

What service to they deliver, other than a transfer of imaginary money from one person to another, which all of them do?

I tried to think of a tasty morsel to start this with so here goes:

What is the value of mathematical computation? What value does solving math hold?

Crypto currency value comes from solving complex mathematical problems!

It's going to take a bit of explaining so here goes. And for the record I, too, thought of crypto as an imaginary currency. It took a lot of haranguing by my son before I aquiesced and did what turned into a lot of research so perhaps I am attempting to pay it forward, so to speak.

CRYPTO CURRENCY IS MINED!

We all know what mining is for precious metals. What gives Gold, Silver, Diamonds part of it's value is it has to be mined. Unlike Fiat currency like the US dollar everyone trusts, the government simply can't print more when they wish.

The concept of mining from computers sounds like a foreign concept if you are my age. Technically you don't have to understand how it's mined.

Do you understand how Gold is mined?

If you just said, yes, they dig it from the Earth then you really have no clue. Put another way, if I handed you a pick and shovel and said start digging, you would most likely have no clue what to do. You wouldn't know where, how to detect, how to shore up and construct a mine, what equipment to use, how to sift it, identify it from other materials dug up, etc

Yet you don't go to the jewelry store and proclaim you don't want to purchase any gold watch until you understand the mining process, right?

So you don't need to understand how it's mined but here we go (disclaimer: I am putting it into my own layman's terms so I will link to Investopedia as a source for further reading!

MINERS

MINERS in crypto use computers to create or mine Blocks by solving complex mathematical problems. In the beginning of most crypto currencies individuals self employ to solve these problems but once they get to significant sizes, they pretty much get regulated to "Mining Farms" which handle vast amounts of information with powerful computers.

BLOCKS

A block is basically a packet of information that pertains to the massive database of the crypto. Once a block has been mined and verified it is time-stamped and placed concurrently into the Blockchain.

The Block (packet of information) refers to any usage of crypto coins in existence (that the Blockchain is connected to). For example, a transaction occurs in which a crypto, let's take Bitcoin for example, is used to make a purchase. The Bitcoin is validated as legit by the creation of a complex mathematical problem which is then distributed to all the Miners currently working literally all of them.

This mathematical solution is difficult due to the information supplied and a Nonce which is created randomly (this forum should be well versed in the nuance of random number generator)

Nonce stands for "Number once" and is a unique number that as it's name implies is generated only once and so makes the mathematical problem and solution unique to that transaction.

First computer mathematician (Miner) to solve the Nonce gets paid (and he gets paid in the crypto coins of the solution so a Bitcoin miner gets paid in Bitcoin).

The solution to the mathematical problem is called the Hash and the Hash is time stamped, verified, and a block is created and placed in it's proper linear spot in the Blockchain.

The Block is the newly formed currency coin.

To rehash (pun intended) using Bitcoin as an example:

Any transactional use of Bitcoin has to be verified through a complex mathematical problem solved by Miners which through the very act of solving the problem (thereby validating your purchase) creates a new Bitcoin for distribution.

The Miners are paid in the same currency and so a circular creation, usage, work performed, creation (miners paid and use their proceeds for more transactions) usage, work performed, creation process
Occurs.

This really isn't too much different from credit card transactions or PayPal. You make a transaction on PayPal and they form a Blockchain that has the data of your transaction. Who purchased, the source of the money, where the money went to and the time. PayPal however is a private company and therefore centralized. All it's computational info is kept within it's computer banks and if you need to search it's records you will need a court authorized search warrant.

Crypto is decentralized and the information is public. That doesn't mean someone can see your address and phone number as privacy keys are involved but the transactions are publicly traceable.

This is because the Blockchain contains the current timestamp and the validated transaction information packet from the previous block.

That previous block contains it's own timestamp and information from that one's previous block.

You have heard of United States dollars being counterfeited but never have you seen a counterfeit Bitcoin. That's because to counterfeit a block (coin) you would need the previous blocks info and that one's previous info and pretty much the information of every transaction ever made in the currency to create your counterfeit. It's pretty much fraud proof.

At $50,000+ per Bitcoin, trust me, someone would have counterfeited a few by now if it was possible.

Blockchain exists in the physical world too.

Here is Hollywood typical action adventure. A cache of Nazi Bullion Gold is sought after. It's found and the adventurers realise they can't sell it because the Nazi stamp identifies it. It will be confiscated for Holocaust reparations. What to do? Melt the Gold down and reforge it, correct?

That is a Blockchain example where the chain can be broken. The digital encryption in each Blockchain in crypto cannot be altered without failing to pass validation when making a purchase because the info that traces all the way back will not allow for the Nonce to be solved.

Can Crypto currency be physically handled? No, of course not, it's digital. But WOV is also digital. It's a forum. You can't hold it in your hands.

To answer the Wizards query, would anyone consider WOV to be imaginary just because it's existence is purely digital?

No! And neither can crypto currency be considered imaginary.

That's not to say there aren't scams out there. Like any market there are imitators trying to capitalize. You wouldn't point to a penis growth serum and declare the pharmaceutical market is a scam just because you identified one such drug.

Next post I will start to list some of the crypto that adds even more value by creating their niche of services. Crypto system creators have realized value must continually be added.

And some up and coming crypto currency are doing just that!

Quote: darkoz

Investopedia articles used for the above information as reference

https://www.investopedia.com/terms/b/bitcoin-mining.asp

https://www.investopedia.com/terms/n/nonce.asp

https://www.investopedia.com/terms/c/chain-transactions-cryptocurrency.asp

Investopedia articles used for the above information as reference

https://www.investopedia.com/terms/b/bitcoin-mining.asp

https://www.investopedia.com/terms/n/nonce.asp

https://www.investopedia.com/terms/c/chain-transactions-cryptocurrency.asp

Quote: darkoz

For example, a transaction occurs in which a crypto, let's take Bitcoin for example, is used to make a purchase. The Bitcoin is validated as legit by the creation of a complex mathematical problem which is then distributed to all the Miners currently working literally all of them.

This mathematical solution is difficult due to the information supplied and a Nonce which is created randomly (this forum should be well versed in the nuance of random number generator)

Nonce stands for "Number once" and is a unique number that as it's name implies is generated only once and so makes the mathematical problem and solution unique to that transaction.

First computer mathematician (Miner) to solve the Nonce gets paid (and he gets paid in the crypto coins of the solution so a Bitcoin miner gets paid in Bitcoin).

The solution to the mathematical problem is called the Hash and the Hash is time stamped, verified, and a block is created and placed in it's proper linear spot in the Blockchain.

The Block is the newly formed currency coin.

Thanks for the attempt to dumb it down. Keep dumbing it down further. Most of us have little idea how fiat currency works, and so long as the number on our bank balance is bigger than the price on the pizza, we can make a purchase and nothing else matters. It's all about faith in the issuer.

I never did, and still don't, understand the role of miners in validating transactions.
Yes. they solve complex problems to create new coins, but I thought the transaction validation process was somewhat simpler and separate, where miners match the fee bids made by payers in a sort of auction... keep the ledger tidy.... They validate what is worthwhile for them to validate for their acceptable fee bid..

Maybe drive home some of the practicals of crypto ownership, like hosted or offline wallets, KYC and AML problems, and the risks of losing everything if you don't keep your passphrases secure, or worse still, don't even have one.
Also, not all coins have the same characteristics. BTC mined can only approach an absolute maximum, but dogecoins can just get created more and more forever, by zod knows what process.

Quote: OnceDear

Thanks for the attempt to dumb it down. Keep dumbing it down further. Most of us have little idea how fiat currency works, and so long as the number on our bank balance is bigger than the price on the pizza, we can make a purchase and nothing else matters. It's all about faith in the issuer.

I never did, and still don't, understand the role of miners in validating transactions.
Yes. they solve complex problems to create new coins, but I thought the transaction validation process was somewhat simpler and separate, where miners match the fee bids made by payers in a sort of auction... keep the ledger tidy.... They validate what is worthwhile for them to validate for their acceptable fee bid..

Maybe drive home some of the practicals of crypto ownership, like hosted or offline wallets, KYC and AML problems, and the risks of losing everything if you don't keep your passphrases secure, or worse still, don't even have one.
Also, not all coins have the same characteristics. BTC mined can only approach an absolute maximum, but dogecoins can just get created more and more forever, by zod knows what process.

Yes it's a vast web of information. Anyone who just says it's a scheme or just a fad hasn't done any research into it.

Based on your post I think I will tackle the math calculations of mining next.

I suspect this forum will be mostly interested in those mathematical aspects