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[cwoodcox]

What, if any, asset is attached to a crypto currency. What are they "mining"?

Crypto is based on cryptography, specifically hashing. A hash algorithm is essentially a very complex math problem where you put one value in, and you get a value of a specific length out. The input and output are completely unrecognizable from each other, no two distinct inputs will ever give identical outputs, and the output will always be the same length. Hash algorithms’ most common use is storing passwords, and how a website knows when your password is right, but doesn’t actually know what the password is. It puts the password you gave it into its hash algorithm, lets it churn a few times, and compares the output with the value stored in the database.

The important thing is that hash algorithms are one-way. There is no way to take the hash output, and figure out the input used to generate it. Were it possible, it ceases to be useful as a hash algorithm. MD5 is an example of this.

Cryptocurrency is based on a blockchain. Each entry in the ledger (a “block”) is a batch of transactions, and to “verify” a transaction, the block must be hashed. Basically, the value of the hash of the transaction must follow a pattern, like ending with 6 zeroes, being below a certain number, etc. Mining is computers stuffing random values into the “padding” of the transaction data and hashing it millions of times per second, until a pad value is found that meets the goal. They guess millions of times, using gigawatts of electricity and burning through chips to try and ”win” this big lottery. The first member of the pool to compute a hash that works and share it with everyone else on the chain gets a reward, and the whole process begins again.

The block’s hash value is also tied to the previous block’s hash value, so it is impossible to change a block once it has been verified, since that would invalidate every block after it.

One could argue the “asset” is the resources (electricity, computer hardware, etc) consumed by this massively wasteful process, and it’s true, but it’s essentially a giant ponzi scheme, only worth something because a (large) group of people have all decided that it is worth something. USD is the same way, but with the backing of a government with the power to regulate currency. Crypto has no such regulation (by design).

Hopefully this isn’t too confusing. I probably got something wrong, too, in my oversimplification. I’m sure someone will correct me. ?

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[guernsej]

Advantages of certain cryptos include smart contracts, non-fungible tokens, decentralized finance, confidentiality, limited supply, etc.

Doge is a hot joke with GME "fuck the system, let's see what we can do" overtones that ballooned into a multi billion dollar bubble for gamblers to play with.

 

[DuckTruck]

Crypto is based on cryptography, specifically hashing. A hash algorithm is essentially a very complex math problem where you put one value in, and you get a value of a specific length out. The input and output are completely unrecognizable from each other, no two distinct inputs will ever give identical outputs, and the output will always be the same length. Hash algorithms’ most common use is storing passwords, and how a website knows when your password is right, but doesn’t actually know what the password is. It puts the password you gave it into its hash algorithm, lets it churn a few times, and compares the output with the value stored in the database.

The important thing is that hash algorithms are one-way. There is no way to take the hash output, and figure out the input used to generate it. Were it possible, it ceases to be useful as a hash algorithm. MD5 is an example of this.

Cryptocurrency is based on a blockchain. Each entry in the ledger (a “block”) is a batch of transactions, and to “verify” a transaction, the block must be hashed. Basically, the value of the hash of the transaction must follow a pattern, like ending with 6 zeroes, being below a certain number, etc. Mining is computers stuffing random values into the “padding” of the transaction data and hashing it millions of times per second, until a pad value is found that meets the goal. They guess millions of times, using gigawatts of electricity and burning through chips to try and ”win” this big lottery. The first member of the pool to compute a hash that works and share it with everyone else on the chain gets a reward, and the whole process begins again.

The block’s hash value is also tied to the previous block’s hash value, so it is impossible to change a block once it has been verified, since that would invalidate every block after it.

One could argue the “asset” is the resources (electricity, computer hardware, etc) consumed by this massively wasteful process, and it’s true, but it’s essentially a giant ponzi scheme, only worth something because a (large) group of people have all decided that it is worth something. USD is the same way, but with the backing of a government with the power to regulate currency. Crypto has no such regulation (by design).

Hopefully this isn’t too confusing. I probably got something wrong, too, in my oversimplification. I’m sure someone will correct me. ?

Well Duh! I knew all of that! I just want to know why anyone would invest anything but funny money in crypto?

 

[DuckTruck]

Well Duh! I knew all of that! I just want to know why anyone would invest anything but funny money in crypto?

Just kidding! That's a great explanation of something that still baffles me as to valuations and the pricing I see every day in the financial news.

I really do appreciate the depth of what you provided. That said, I think I'll stick to playing poker, craps, and juggling chainsaws. Crypto just seems too risky.

Thanks again!

 

[Autolycus]

It's also worth pointing out that there's a growing bit of evidence that crypto-currencies are a greenhouse gas nightmare. Bitcoin probably accounted for more CO2 production as some smaller developed nations in 2016-2018. (EDIT to add: Because of the huge amounts of computer processing involved.)

 

[guernsej]

It's also worth pointing out that there's a growing bit of evidence that crypto-currencies are a greenhouse gas nightmare. Bitcoin probably accounted for more CO2 production as some smaller developed nations in 2016-2018. (EDIT to add: Because of the huge amounts of computer processing involved.)

I hate BTC because of how wasteful it is, but it's not like our current financial infrastructure runs on roses and sunshine.

Either way, proof of stake cryptos will likely overtake proof of work cryptos for this reason.

 

[cwoodcox]

It's also worth pointing out that there's a growing bit of evidence that crypto-currencies are a greenhouse gas nightmare. Bitcoin probably accounted for more CO2 production as some smaller developed nations in 2016-2018. (EDIT to add: Because of the huge amounts of computer processing involved.)

“Growing bit of evidence“ is a funny way to phrase “used dozens of terawatt-hours of electricity probably generated by coal to provide little value besides heating a datacenter” ?

We have existing methods of shuffling money around electronically that use far, far less electricity.

There are lots of companies (mostly the big banks) working on using blockchain technology to track USD transactions and settle ledgers in a decentralized manner, and they don’t require any proof-of-work at all. Blockchain is super cool and finding applications across every industry. Cryptocurrency, I’m unconvinced.

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