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I cant get around the fact that bitcoins are "created" by "mining", which seems to be software/computation activity.
In the non-bit world, we always convert one form of value into another, like wood, gold, oil, effort to make things out of these ... looks like mining is creating bitcoins, why is a value in hard currency attached to mining which translates to bitcoin ? but if no one wanted the mined bitcoin, wouldnt it become useless

Isnt it like saying , dollars are hidden in a packet , if you can open the packet you get dollars .... but such dollars cant come out of thin air, someone used something to create the dollars that he put inside the packet. What is the source of truth of bitcoin, how did bitcoin come into existence without backing from hard currency ???

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first of all, US dollars and other fiat currencies aren't "hard" either, they have value only because people agree they do. commodities like gold and silver are at least tangible and have industrial uses in addition to their attraction as rare metals.

yes, if nobody wanted the mined bitcoin, it would become valueless, and therefore useless. some altcoins, such as AmericanCoin, have already met this fate, primarily due to problems with launch (pre-mining) or lack of software maintenance as bugs were exposed in the protocol.

Bitcoin didn't achieve any real value for the first 2 years. then in 2011 it started gaining in perceived value. they have intrinsic value in that they offer things fiat currencies cannot: they are immutable, the ledger is open, there are millions of copies and thus cannot be altered, they are created according to a programmed schedule and the rules allow anyone, anywhere, to participate. I assume you already know the process by which they are mined; if not, read the white paper (pdf).

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The purpose of mining is not the creation of new bitcoin, this is the incentive system. Mining secures the bitcoin system and enables the emergence of network wide consensus without a central authority. Miners receive two types of rewards in return for the security provided by mining: new coins created with each new block and transaction fees from all the transactions in the block. There is an exchange of value because in exchange for the security they provide and the computing power they expend, miners get bitcoins which is a valid trade. Similarly in the early days of bitcoin Satoshi Nakomoto sent bitcoin to his peers in exchange for them testing or developing bitcoin core, this again is an exchange of value. Once the darknet got involved in bitcoin they used it because of its anonymity and security, it was valuable to them because of these reasons and this is where demand for bitcoin started and because of this the value of it increased. So the fact the people are willing to exchange valuable things like electricity, computing power, software and testing skills for bitcoin gives it value.

  • Thanks Guys ! Though both answers reply the set of questions I asked. I can only mark one as the answer ... – Raju Solomon Jan 8 '18 at 8:08

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