Do you use Bitcoin or Litecoin?

Honestly, my gut feeling is in 5 years or so, we'll look back on BitCoin and say:

Remember when we convinced ourselves to spend $thousands on bits of worthless computer code that never had more than a niche use outside bartering for mail-order drugs and helping fund middle-eastern terror cells?

I know someone who was worth over 1 million usd at the peak of bitcoin, now he is worth 400K. This to me is the problem in bitcoin the price volatility.

I'm sure I am not alone in not understanding what a bitcoin is! And how you buy, sell, or pay for things with them. If I have say £100 worth, where do I actually have it (what do I actually have)? How do I prove that I do have it (and not £10 or £1000 worth)?

I've been in electronics and computers for decades, but don't "get" this idea.

G6JPG wrote: »

I'm sure I am not alone in not understanding what a bitcoin is! And how you buy, sell, or pay for things with them. If I have say £100 worth, where do I actually have it (what do I actually have)? How do I prove that I do have it (and not £10 or £1000 worth)?

I've been in electronics and computers for decades, but don't "get" this idea.

Firstly, consider what it means to have £100 in actual Great British Pounds. What do you actually have? Nothing. A promise to pay the bearer. That is all.

Bitcoin is pretty much the same, except that those promises to pay the bearer are stored by everybody who "mines" the network. Basically, there's an online book called the blockchain which keeps track of who owns how many Bitcoins. Thanks to some clever Mathematics, you are able to uniquely prove who owns what. If you have ever sent a signed email, the principle is the same. You have a private key and a public key. You create message which says "Pay Alice X Bitcoin" and sign it with your private key. Then the network can verify that you sent the transaction, by doing some computationally expensive task which rewards the miners with free Bitcoins.

With a Pound you have the taxable assets of the country supporting the promise to pay.

With bitcoin you have middlemen who take a cut from each transaction in fees and call themselves miners to make it appear that they are creating something rather than taxing your transactions. The bitcoins paid to miners decrease the average value per bitcoin, a form of built in inflation just like any government printing more money. But you're not charged at the time of the transaction so it can look free. Since the cost is spread over all bitcoin holders you pay it even if you're not doing any transactions yourself.

Beyond that of course, bitcoin was designed from the ground up to make money for speculators, with a built in shortage of supply that would gradually increase the value per bitcoin over time if it was used or just purchased. It's part of why you see posts here promoting it: just holding them has the potential for designed-in profit if more people can be persuaded to get involved. In that it works like a classic pump and dump email, where just mentioning a share increases liquidity and price by getting people to take a look who wouldn't otherwise have taken a look.

None of this means that cryptocurrencies are all bad. Just watch out for the ones like bitcoin with built in inflation and concealed cuts for middlemen.

And of course none of these concerns necessarily apply to digital currencies in general. A Pound Digital could be a completely viable digital currency with the backing of the UK behind it, issued and maintained officially by the UK government, with a value independent of the Pound Sterling. But also perhaps pointless since most of the value of Pounds is already held digitally.