this post was submitted on 18 Mar 2025
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But what you said there is literally the end of my understanding of what crypto is. It has something to do with computers solving math problems, and somehow that’s worth money.
What?
I'm gunna try to explain the basics of just Bitcoin here, its probably the easiest to understand out of all of them. It's all based on a mathematical function called the hash function. Basically the hash function can take in any input and produce a unique number between zero and a bazillion that represents it. Statistically speaking, the outputs of the hash function are random, and if you only have the output its impossible to find the corisponding input - it cant be reversed. When a transaction happens with a cryptocurrency its broadcast to the whole network, and made very public. All the information about it, the sender, the receiver, the amount, the time, and a few other things too, all that is sent around the network. That bundle of information is basically all a transaction is. But the process of validating it is what makes it real. Some people have computer programs that collect all of these transactions broadcast across the network, and they combine them into large chunks, known as blocks. Each block, along with all the financial data inside it, has an extra number attached to it known as a nonce. These people who listen for new transactions and later store them, take the block, and apply the hash function to it. If the output of the hash function is in a very small range - with is unlikely - a new special transaction happens, from no one, to the person who calculated the hash, minting new bitcoins (rn I think this amount is 3.125 Bitcoin but that might be outdated). (This is what Bitcoin mining is). If the output of the hash isn't in the range, they try again. The network automatically changes the size of this range to make sure that over a given amount of time the same number of bitcoins are minted, making Bitcoin free from spikes in inflation. Additionally, the network halfs the reward from mining a block about every 4 years, causing the inflation rate to drop over time. As this happens the network with settle on a fixed number of usable bitcoins, slightly less than 21 million. And that part of it makes its a viable alternative to gold, because while new gold is always being mined, its not much so overall gold has very low monetary inflation. But a large amount of bitcoins value stems from the fact that eventually Bitcoin wont have any at all.
I'd be more than happy to further explain how this stuff works, I'm no expert but I'm really interested in the math and economics behind it all. I really recommend reading the original Bitcoin paper, https://bitcoin.org/en/bitcoin-paper , its not a light read but it explains it all a lot better than I can. Have a nice day!
I’m not religious, but God bless you.
I still barely understand, but I understand more than I did five minutes ago, and that is worth something.
Why is this math problem worth monetary value to anyone if it’s just a randomly generated number? I don’t care if something generated a number somewhere. Like, good for them I guess? Why is that valuable?
Thank you! Well its really not that useful by itself, just like little green papers aren't that useful. But its just more practical for the world to imagine that the paper is worth something its not, because this makes trade a lot easier to do. Same thing with Bitcoin