Topic Wiki

Editor’s note: I know enough about this topic to be dangerous, but I’m not a true expert so please feel free to add to or edit anything in this wiki that will improve it. The FAQs contain many oversimplifications but that is intentional to make the information relatable to the audience. Thanks!

Frequently Asked Questions

What are blockchains and bitcoins and what is the difference?
A blockchain is the fundamental element in a crypto currency system. A blockchain is an accounting ledger. Each block contains a bunch of journal entries (i.e. a chronological record of transactions) that gets encrypted (by miners) but can be downloaded and read by anyone on the network. Why the blockchain ledger is secure and how we can vouch for its integrity is a slightly more advanced topic.

An accounting ledger typically keeps track of money, and a blockchain is no different. But the only type of money that it can accurately track is digital money that lives on the blockchain network. So dollars, euros, etc are out. The digital money that lives on the blockchain is called a crypto currency, and the most well-known one at this time is Bitcoin.

Currently there are a few major blockchain networks: the Bitcoin Network, the Ethereum Network, and the Litecoin Network. Each one has its own currency, which are Bitcoin, Ether, and Litecoin, respectively.

I’m just a simple DDFer and not an accountant + cryptographer + hacker all at the same time. Can you make this a little simpler to understand?
Let’s try an analogy. There is a certain website called Dansdeals.com and it has quite a following. Some of the followers are just users/readers but others are more active and produce value for the website. When they provide value, they earn currency for their work – called “EQP” and “HT”. So we have something we will call the Dansdeals Blockchain Network that is simply a record keeper of various ongoing deals and it issues a native currency that is fractionable (10,000 EQP = 1 HT). This is similar to the Blockchain network recording financial transactions and issuing bitcoins. The ones who work for the network (miners) earn bitcoins and everyone else needs to buy it to participate.

The analogy improves if you imagine that the Dansdeals website visitors have to pay a small amount, let’s say 5 EQP, in order to access a deal or a code that is recorded on the network. If the website has 30,000 followers who love deals, but only 1,000 active members who earn EQP, then you can see that there is a need for a marketplace to be created where you can buy EQP for later use.

Of course, websites are not networks, and this analogy is far from perfect. But useful.

How much is a Bitcoin worth
No one knows. A few people are speculating its worth based on the potential that Bitcoin will one day become a major world currency that people use in their daily lives. Most people though are speculating its worth based on what the next new investor will pay them for it (google “Greater Fool Investing”).

Even if a crypto currency becomes dominant, who says it will be Bitcoin? Maybe it will be Schmitcoin?
This is completely possible. Bitcoin and Ether are the most likely at this point, but their long term survival is not at all guaranteed.

So why all the fuss about Bitcoin? Shouldn’t we wait for Schmitcoin and its cousins to come out?
You could, but you don’t want to ignore how hard it is to start up a network from scratch. It may be that as little as one person can create rival code to compete with the existing digital currencies and blockchains, but one person is not a network. You need a lot of highly technical and motivated people to join you and also to invest their time, energy, and money in making that network run. It’s a highly specialized group of people, and most of the people who would fit that profile are already tied up with an existing network. So it’s not impossible, especially in the long-term, but even if it does happen it would be unlikely to pop up overnight and so Vegas odds for Bitcoin are way shorter.

Let’s go back to the Dansdeals analogy. Imagine that Dansdeals is not the only such website, and there are other websites in existence that provide similar services. For the sake of the analogy let’s call them MMS and OMAAT. They too have big enough followings to survive independently, and even though each one offers a slightly different flavor that differentiates them, anyone on one of the networks could also get their most important needs met on one of the other networks. In this analogy, do you think it’s worth collecting EQP/HT or not? After all, Schmansdeals.com could open up one day and all the business could move there.

The argument for the difficulty of starting up a rival blockchain network is much stronger than in the analogy (especially if we start to include “smart contracts” in the discussion), but the basic idea that you need a critical mass of follows to be successful and compete with existing rivals is the same.

« Last edited by yuneeq on December 25, 2017, 01:05:21 AM »

Author Topic: BitCoin Master Thread  (Read 26208 times)

Offline MarkS

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Re: Whats the story with BitCoins ?
« Reply #90 on: December 04, 2013, 12:14:19 PM »
The article mentioned that there were about 100 donation amounting to 22 bitcoins. Only an average of ~$300 each.
My bad, I misread..

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Re: Whats the story with BitCoins ?
« Reply #91 on: December 04, 2013, 12:22:02 PM »
Yes. But you still can't have higher than 100% Marginal Rate. I going to a meeting, but I'll be back with the math at some point.

Long Term KG has a funny bracket, where it is calculated separately from other income, but then applies its own brackets. It is 0% if you make less than like 37k, and then 15% on income in excess of 37k (and then 20% higher up the line but lets ignore that for now).

Some examples:
Ordinary income: 10k; KG 10k= no tax on the KG.
Ordinary income: 30k; KG 10k= 15% tax on the 3k that is above 37k.
Ordinary income: 50k; KG 10k= 15% tax on all 10k of KG.

So in your example you wanted to know how making more ordinary income will affect what you pay on the KG. As you can see, it will kick you into paying 15% on that KG, but certainly nothing over 100%.

If you meant to ask about the capital gains a dude like this will have when he sells the bitcoin, I don't know why you assume bitcoin generates capital gains tax at all, but if it does, gifts have a carryover basis from the donor so his basis I guess would be whatever theirs was (no way he'll know what their basis was, no idea what he'll do, I suppose that is a complication)
Capital gains with a C?!
I meant to say that there is a general disadvantage to being shifted into a higher bracket because this will trigger higher capital gain tax.
For this guy, the gift would not increase his tax bracket but selling currency at a gain over basis should trigger LT Capital gain tax.
« Last Edit: December 04, 2013, 12:26:28 PM by churnbabychurn »

Offline henche

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Re: Whats the story with BitCoins ?
« Reply #92 on: December 04, 2013, 12:22:54 PM »
I use KG to symbolize Capital Gains. That's what my basic tax professor did, and I like it. I have no idea if it is widely accepted, nor do I care.

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Re: Whats the story with BitCoins ?
« Reply #93 on: December 04, 2013, 12:26:53 PM »
See above

Offline henche

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Re: Whats the story with BitCoins ?
« Reply #94 on: December 04, 2013, 12:28:49 PM »
Capital gains with a C?!
I meant to say that there is a general disadvantage to being shifted into a higher bracket because this will trigger higher capital gain tax.
For this guy, the gift would not increase his tax bracket but selling currency at a gain over basis should trigger LT Capital gain tax.

Agreed. But that article was taking seriously the notion that he might end up with less money in his pocket than he had before.

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Re: Whats the story with BitCoins ?
« Reply #95 on: December 09, 2013, 11:05:37 AM »

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Offline yuneeq

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Re: Whats the story with BitCoins ?
« Reply #97 on: December 19, 2013, 09:02:48 AM »
Catching up on this thread, there are so many misconceptions and lies about bitcoin here, you would figure at least one of us here had access to Google.

A) Bitcoin is splittable to m many decimal points. If someone is gifted 22 Bitcoin, that can be done over thousands or even millions of gifts. Meaning, I can give you .001 of a bitcoin too.

2) There is a cost to mining Bitcoin, thereby making them higher value to those who have use for them. Yes, they are just as fiat as US currency.

3) There is a real, clear value of a decentralized currency. There are many countries where people have money locked up with no easy way of transferring it out. And there is the really practical use of sending money overseas instantly without all the extra charges that western union and banks tack on. Think about the billions that regular working immigrants sent back to their families, and right there you have great, natural and healthy demand, not just based on speculation. My point is that there are many practical uses (many of which I didn't list) of Bitcoin, and if you fail to see any of them, you failed to research Bitcoin for more than five minutes.

4) I waited for the price to bust instead of buying in when I could have, yet now it's trading 10x higher. Don't expect prices to bust unless you really understand what's going on (I surely didn't/don't). As we go along, more and more  financial companies are developing ways to buy, hold or invest in Bitcoin, if there'll be a bust, it'll probably take some time. 
« Last Edit: December 19, 2013, 09:06:05 AM by yuneeq »
Live forever or die trying.

Offline Moshe123

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Re: Whats the story with BitCoins ?
« Reply #98 on: December 19, 2013, 09:08:24 AM »
Catching up on this thread, there are so many misconceptions and lies about bitcoin here, you would figure at least one of us here had access to Google.

A) Bitcoin is splittable to m many decimal points. If someone is gifted 22 Bitcoin, that can be done over thousands or even millions of gifts. Meaning, I can give you .001 of a bitcoin too.

2) There is a cost to mining Bitcoin, thereby making them higher value to those who have use for them. Yes, they are just as fiat as US currency.

3) There is a real, clear value of a decentralized currency. There are many countries where people have money locked up with no easy way of transferring it out. And there is the really practical use of sending money overseas instantly without all the extra charges that western union and banks tack on. Think about the billions that regular working immigrants sent back to their families, and right there you have great, natural and healthy demand, not just based on speculation. My point is that there are many practical uses (many of which I didn't list) of Bitcoin, and if you fail to see any of them, you failed to research Bitcoin for more than five minutes.

4) I waited for the price to bust instead of buying in when I could have, yet now it's trading 10x higher. Don't expect prices to bust unless you really understand what's going on (I surely didn't/don't). As we go along, more and more  financial companies are developing ways to buy, hold or invest in Bitcoin, if there'll be a bust, it'll probably take some time.

Government regulation, like what happened in China this week will bust the balloon.

Offline menachem_m

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Re: Whats the story with BitCoins ?
« Reply #99 on: December 22, 2013, 01:48:30 AM »
http://www.forbes.com/sites/erikamorphy/2013/12/22/get-ready-overstock-here-come-the-bitcoin-bean-counters/

Overstock.com just turned heads with the news that it will start accepting Bitcoin next year.

“You’re getting rid of the interchange fees. We’re paying credit card companies around 2%. For a company whose margin is 1%, picking up 2% on that is quite attractive."

Having nightmares that cc companies will start having to cut down on the points to compete. :'(

Offline henche

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Re: Whats the story with BitCoins ?
« Reply #100 on: December 22, 2013, 08:29:22 AM »
http://www.forbes.com/sites/erikamorphy/2013/12/22/get-ready-overstock-here-come-the-bitcoin-bean-counters/

Overstock.com just turned heads with the news that it will start accepting Bitcoin next year.

“You’re getting rid of the interchange fees. We’re paying credit card companies around 2%. For a company whose margin is 1%, picking up 2% on that is quite attractive."

Having nightmares that cc companies will start having to cut down on the points to compete. :'(

They also get the money immediately isndtead of monthly when the Cc companies pay them.

On the other hand, they need to have a third party servicing them who accepts the bitcoins and gives them cash. Because overstock is in the business of retail, not investing in volatile bitcoin. And I'd like to know what that third party is charging them and how often it pays them...

Online churnbabychurn

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Re: Whats the story with BitCoins ?
« Reply #101 on: December 22, 2013, 08:29:31 AM »
Catching up on this thread, there are so many misconceptions and lies about bitcoin here, you would figure at least one of us here had access to Google.

A) Bitcoin is splittable to m many decimal points. If someone is gifted 22 Bitcoin, that can be done over thousands or even millions of gifts. Meaning, I can give you .001 of a bitcoin too.

2) There is a cost to mining Bitcoin, thereby making them higher value to those who have use for them. Yes, they are just as fiat as US currency.

3) There is a real, clear value of a decentralized currency. There are many countries where people have money locked up with no easy way of transferring it out. And there is the really practical use of sending money overseas instantly without all the extra charges that western union and banks tack on. Think about the billions that regular working immigrants sent back to their families, and right there you have great, natural and healthy demand, not just based on speculation. My point is that there are many practical uses (many of which I didn't list) of Bitcoin, and if you fail to see any of them, you failed to research Bitcoin for more than five minutes.

4) I waited for the price to bust instead of buying in when I could have, yet now it's trading 10x higher. Don't expect prices to bust unless you really understand what's going on (I surely didn't/don't). As we go along, more and more  financial companies are developing ways to buy, hold or invest in Bitcoin, if there'll be a bust, it'll probably take some time.
not sure what you are getting at with 2.
The fact that they are expensive to mine makes them more comparable to gold or a real precious commodity, very unlike US currency that is merely a piece of paper.

Offline YankyDoodle

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Re: Whats the story with BitCoins ?
« Reply #102 on: December 22, 2013, 09:09:15 AM »
not sure what you are getting at with 2.
The fact that they are expensive to mine makes them more comparable to gold or a real precious commodity, very unlike US currency that is merely a piece of paper.

Maybe I don't understand it enough yet, but the entire mining system is arbitrary. The creator decided to allow a certain amount to be mined... What if he decides to allow more mining? Or to create more bitcoins? Either way it is not comparable to gold at all.

Regardless, henche's point is valid since at this moment currently (regardless of what you believe bitcoins longterm stability may be) there is a ton of volatility in the bitcoin market. As overstock is in the retail business they need cash for future purchases and payments. They would also be sunk if they took in a huge number of bitcoins and their value suddenly takes a dive the next day.

For these reasons they must have a buyer who is going to buy their bitcoins from them and likely guarantee the price based on the bitcoins value at the time of sale. This will have some sort of fee that will either be reflected in a worse exchange rate for the buyer or a fee for overstock.

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Re: Whats the story with BitCoins ?
« Reply #103 on: December 22, 2013, 09:20:36 AM »
Maybe I don't understand it enough yet, but the entire mining system is arbitrary. The creator decided to allow a certain amount to be mined... What if he decides to allow more mining? Or to create more bitcoins? Either way it is not comparable to gold at all.

Regardless, henche's point is valid since at this moment currently (regardless of what you believe bitcoins longterm stability may be) there is a ton of volatility in the bitcoin market. As overstock is in the retail business they need cash for future purchases and payments. They would also be sunk if they took in a huge number of bitcoins and their value suddenly takes a dive the next day.

For these reasons they must have a buyer who is going to buy their bitcoins from them and likely guarantee the price based on the bitcoins value at the time of sale. This will have some sort of fee that will either be reflected in a worse exchange rate for the buyer or a fee for overstock.
mathematically impossible to mine more than the limit.

Offline YankyDoodle

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Re: Whats the story with BitCoins ?
« Reply #104 on: December 22, 2013, 06:41:54 PM »
mathematically impossible to mine more than the limit.

That's a statement not an answer. Mathematically impossible according to who? What's to stop mother nature from adding more gold or Satoshi Nakamoto from adding more bitcoins?

Regardless as I mentioned henche's point is valid.