Not wanting to hijack the thread about the stock thread so starting this one.
How does crypto currency work?
Example: When the US government started issuing money it was backed in gold (supposedly). Any government that issues currency has to have the confidence of its citizens somehow for the currency to succeed.
How can we have any confidence in crypto? Some guy start selling imaginary coins/currency and we are suppose to trust them?
How are we suppose to know the crypto guys aren't just trying to destroy the world financial structure?
What backs crypto? No gold, no government, no corporation of value (stocks), no nothing that I can see.

One word describes it - magic. If you really want to know, do some searches on it. I think it is really just gambling.

https://www.cloudwards.net/crypto-for-dummies/

Those are tough questions. When it came out I thought the same thing. One response from a friend said: The US dollar is no longer backed by gold, I give you a dollar because you believe it is worth a dollar. If Enough people believe a Bitcoin is a Bitcoin, it is.

quote:

How are we suppose to know the crypto guys aren't just trying to destroy the world financial structure?
What backs crypto? No gold, no government, no corporation of value (stocks), no nothing that I can see.

The world financial structure is being destroyed by the governments that run it.
Fiat currency has value because we trust the governments that issue it, or because we have no alternative.
If they continue to keep "printing" additional dollars, infinitely, eventually people won't trust that dollars continue to have value.

What Bitcoin has going for it is supposed scarcity. I don't really understand the whole "mining" thing but supposedly there's not an infinite amount of Bitcoin.

It's a medium of exchange, supposedly outside the reach of government. It has no intrinsic value.

Only the belief that someone else will pay you the same or more for it.
Along with confidence that it's a technically secure item as the key allows access.
I'm not that confident in any of them at this point.

I can't add much to the explanations already given. One might as well explain how the First World War got started, or the plot of Where Eagles Dare, or how many licks it takes to get to the Tootsie Roll center of a Tootsie Pop. Or just wing it.



The bottom line for me is that I won't be buying any. Yes, most of our money does only exist as electrons, not far removed from crypto. But as irresponsible stewards of our money as governments have been, for the time being at least, the money is backed by something. Crypto has absolutely nothing backing it.

Yes, the only true value of something is what somebody else is willing to "pay" for it, in terms of tangible goods, work, or something else that has value, actual or perceived.

Some cryptocurrencies are based on "proof of work" (Bitcoin is one). This is the amount of computation it takes to generate validation of blockchain legitimacy (just who owns how many "coins"). "Proof of stake" is another method for doing similar. Cryptography is used to prevent forgery, much as hard-to-copy markers do on paper bank notes.

Underlying it all is a consensus agreement among users that they are worth what they are. This is done through a buyer/seller free and open market where people can make exchanges at whatever prices they agree upon. Not unlike the stock market or currency exchanges, but without any "authority" to regulate things.

It is probably a little harder to perform fraudulent transactions in the crypto world than it is in regular fiat currency-based markets. However, there is not shortage of people who think they can benefit from fraudulent practices in both.

For now, it seems prudent to trust mediums of exchange that have some overseeing authority (e.g. the US Govt.) than a random group of individuals one doesn't even know, although the Govt. seems to be trying its best to lose that elevated position. But, if you bought or mined ₿ (BTC) early on,say at $0.25, you are sitting pretty well today. So, as always, reward rarely, if ever, comes without some risk. In the case of cryptocurrency, there's too much risk for me, no matter how high the potential reward.

It’s nothing more than a pyramid scheme. Worse than the old tulip bulb rush but at least when that collapsed you could still plant tulips.

The value of crypto is essentially that there is a specific, limited supply. Thus it won't get diluted the way physical currencies do. The government prints money, which makes existing dollars worth less. But Bitcoin will only have so many. Yes, a few more will be "mined", but it is exceedingly difficult to find that next prime number because they've found all the easy ones.

Somebody initially placed a dollar exchange value on Bitcoin and other cryptos. But now they've all become speculative investment items, too. Imho, their utility as a private alternative to the dollar is greatly diminished because of the wild swings in dollar value and the apparent ability of governments to find and claw back crypto.

^^^^

quote:

The value of crypto is essentially that there is a specific, limited supply.

I’m not an expert on the matter, but I believe that’s incorrect. I think that there’s an unlimited supply of bitcoins, but it requires computational energy to extract (“mine”) them.

quote:

Originally posted by Pipe Smoker:
I’m not an expert on the matter, but I believe that’s incorrect. I think that there’s an unlimited supply of bitcoins, but it requires computational energy to extract (“mine”) them.

In theory there is an infinite number of prime numbers, but it is exceedingly difficult to find new ones. They've found all of them up to a very very large number, and it takes an unimaginable amount of computation to find the next one. Apparently the cost of electricity to run the needed supercomputers to find a new prime number is close to the value of a bitcoin. They aren't going to be finding a significant percentage of new primes to then "mint" new bitcoins.

In practice, the supply is limited to not many more than already exist.

Wrt other cryptos, I have no idea how they are born or what their initial value is based on.

For all cryptos, afaik, their value at any moment is much more tied to traders gambling on them than any underlying thing of value.

Poof money. It's just another speculation bubble scam.

That monetary theory that has worked for 5000 years.

^ probably why vinyl and CDs are coming back. something tangible with intrinsic value, subjective as it may be, but at least you own it rather than some claim to ownership on a Spotify cloud or some mysterious block chain.

There are crypto currencies like a PAXG, runs on the Ethereum blockchain and for each token there is ounce of gold in storage. Best of both worlds if you ask me.

quote:

Originally posted by Pipe Smoker:
^^^^

quote:

The value of crypto is essentially that there is a specific, limited supply.

I’m not an expert on the matter, but I believe that’s incorrect. I think that there’s an unlimited supply of bitcoins, but it requires computational energy to extract (“mine”) them.

21 million potential Bitcoins. Once that number is reached, no more will be mined and earning transaction fees will be the incentive that keeps the computers on which is required to keep Bitcoin viable.

quote:

21 million potential Bitcoins. Once that number is reached, no more will be mined

Ah so. Thanks.