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I thought I understood the gist of what "bitcoins" are: electronic currency tokens representing $X USD that could be used to trade, buy or sell online items.
But recently I heard the term "mining for bitcoins" and it piqued my interests...
I read this article and still feel like I'm missing the bigger picture here.
If I understand "mining" bitcoins correctly, then:
- Bitcoin mining is the act of setting up a commodity hardware cluster to try and "crack" some cryptographic puzzle
- When you finally crack such a puzzle, you are rewarded in bitcoins
- You can then, theoretically, sell bitcoins for real money
So to start, if anything I have said so far is off base or needs correction, please begin by clarifying what bitcoins and/or bitcoin mining is!
Assuming I am more or less correct, then I have several questions that (surprisingly) have been nearly impossible to find answers for:
- Who issues these puzzles and validates a correct answer?
- Who brokers the generation and awarding of "mined" bitcoins (after you've cracked the puzzle)?
- Isn't this (really) just a crytpographic game? You play the game, and you win, except you get money. But there's no reason why someone would need you to be cracking these randomly-generated crypto puzzles.
- When new "puzzles" are generated, and new bitcoins are generated and awarded to the people who correctly solve these puzzles, doesn't that dilute the value of each existing bitcoin? Not an economist here, but if you have more of something, it's value usually goes down since it's not as scarce.
- Is it even worth a programmer's time to delve into this stuff or is the bubble already bursting?
To me it seems like bitcoins are just a game that has been disguised to as a pyramid scheme that has been disguised as a legitimate radicalization of e-commerce. Thanks in advance for any help/insight here!