I tried to break it down to someone yesterday. It went like this: BitCoin is a digital Internet currency. Think of it as an counterfeit-proof electronic dollar which is not manipulated by a central authority such as the Federal Reserve. It’s a basis of trade for goods, just as any other currency. Value is based on scarcity, and new BitCoins are only minted at a predictable rate once a Block is solved…
The BitCoin currency is a peer-to-peer solution for the problems which are seen in any system of currency. Every BitCoin transaction is recorded in a public ledger, which is found at Block Explorer. Each transaction is hashed into a block, the specifics of which I don’t want to get into, but are explained in the original paper Bitcoin: A Peer-to-Peer Electronic Cash System by BitCoin creator Satoshi Nakamoto. After the solution to the block is found, it is replicated throughout the peer-to-peer network, and all transactions are then verified by the BitCoin client software, which I might add is open-source. Any attempts at forging a block are rejected by the network as invalid. It is by solving a block which rewards the solver with 50 BitCoins which further propagates the BitCoin economy.
Which brings me to mining. To solve the block, a value must be solved through mathematic computation of the block. I’m not a math guy, so I couldn’t functionally explain this part, except that there are more intelligent folks which set this up. So, we use our processor power to search for the solution. As the complexity of the solution has risen to adjust the fixed rate of BitCoin dispersal, a CPU is no longer sufficient to solve a block in a reasonable amount of time. At the time of this writing, the current difficulty factor is 567385. So, if your CPU could perform at a rate of 4,000,000 hashes per second, it would take you over 19 years to solve a block, not factoring in the eventual rise of the difficulty. This, we use accelerated parallel processing, which involves harnessing the computational power of a graphics processing unit, or GPU (Why?). It’s optimal to hash on AMD cards, which is explained here. So, if I use my computer to generate BitCoins (by further supporting the BitCoin economy by verifying transactions), I am Mining BitCoins.
Take a quick look a BitCoin Part 1, a brief look and its volatile history. I ran through a couple questions that typically come up in BitCoin for the Masses, cause everyone will ask how anonymous BitCoin actually is, or how exactly do bitcoins have any value.
Foreverrising Blog 
What is the use of solving blocks and to whom? I.e. is it just busy work in order to define the value and rate of creation or are the solutions of any use to anybody?
Comment by intp1 — July 20, 2011 @ 6:20 am
The blocks contain the transactions, the solution verifies its validity.
Comment by foreverrising — August 9, 2011 @ 12:12 am
that isnt really any kind of answer. to give something value, it must be of use to someone else. what is the use of mining bitcoins, who is at the top of the pyramid benefitting and why?
Comment by dave lister — October 13, 2011 @ 3:15 pm
There is no head to the pyramid as you suggest. Think of it less as a measure of wealth and more as a means of trade. The mathematically established “rarity” of bitcoins enhances the strength of its value, while it cannot effectively be a store of wealth (if they are not traded they have less and less use).
Comment by foreverrising — January 23, 2012 @ 6:47 pm
Thank you for this explanation.
Comment by Shawn — November 17, 2011 @ 11:10 am
Data Transformation
I too conceive thus, perfectly composed post! Data Transformation
Comment by Data Transformation — December 23, 2011 @ 2:40 pm
I’m still totally baffled by this whole thing. Why is it so damn complicated?
Comment by David — January 29, 2012 @ 2:26 pm
Bitcoin is the solution to two central problems of currency: double spending, and assuring a finite amount. Using cryptography is the best way to accomplish these solutions. Understanding the specifics of blocks is not necessary, but I would recommend learning about them in terms of how they move from one Bitcoin user to the next.
Comment by foreverrising — January 29, 2012 @ 7:57 pm
So what, BitCoin mining is like finding unused BitCoins or something?
Comment by Little Professor — March 11, 2012 @ 3:07 pm
The process of bitcoin mining searches for the correct solution to a block (which verifies its validity through the proof-of-work solution). The miner whom finds the solution is compensated by the bitcoin network who issues the payout + all included transaction fees. The difficulty of the solution varies depending on the rate of block generating (the speed/power of the network), as it optimally should work out to 6 blocks an hour.
Comment by foreverrising — March 11, 2012 @ 11:55 pm
Thanks for not explaining anything with this post. Where are the central servers that issue the so-called “blocks” that need to be mined? Who owns the servers? What are the blocks doing? Due to the fact that I have not been able to find a single straight answer on-line as to what bitcoin mining is, I feel that this is a very sketchy scheme and someone has to be the central authority. Hopefully not Mother Russia trading bit currency for nuclear weapon R&D computations.
Comment by Tony — March 12, 2012 @ 11:41 am
It would be best not to insult Russia. Also, please remember that your feelings are not correlated to facts. Bitcoin has documentation, and this is not it. I could answer your questions, but you should continue looking somewhere else that will answer questions posed like that.
Comment by foreverrising — March 13, 2012 @ 12:33 pm
lets say i have a 3.4 ghz dule core cpu and a gts450 video card that last i checked allowed me to run wow at full settings and still have 30 fps in shat or dar so how much could i make
what gets me asking how is 19 years for a stand alone cpu so with a video card being added still like 5 years and so that is a 50 cent pay out every 5 years per user or did i miss something
Comment by dihydromonoxide — March 27, 2012 @ 5:18 am
A CPU is a generalized computing device, in contrast with a GPU, which was designed to render video and is able to crunch numbers better. Also note that Radeon can process hashes better, as it takes four times as many machine instructions to compute a hash compared to Nvidia.
Comment by foreverrising — August 27, 2012 @ 10:07 pm
It seems that the Mining of Bitcoins is a large waste of computational power. If in reality you are just exercising your GPU in some futile task and the reward is some digital currency… Would it not be much more useful to have the bitcoins be a reward for using your CPU and GPU for PRACTICAL problems such as parallel processing used at SETI@HOME and other projects like that? – I hope I am wrong in my understanding that all this computational power and the electricity used to do it is WASTED…
Comment by Wesley Bauerle (@goldbuddies) — May 4, 2012 @ 12:17 am
Don’t worry, you are wrong. And whether or not SETI is a waste of computational power or time is also another viewpoint. Technically, living is a waste of time, while we know we will one day die.
Why not do something interesting? Paint a picture, mine some bitcoin, learn a language, search for extraterrestrial intelligence, fold@home, pay it forward. The only waste is to do nothing at all.
Comment by foreverrising — August 27, 2012 @ 10:12 pm
In other words Tony he doesn’t full understand the question OR he lacks the proper knowledge to answer it. So far every answer you’ve given is nearly copy paste from every other article on the subject. How about we hear you explain bitcoins in your own words and not just hear you talk around specific questions by giving general answers.
Comment by Andrew — August 16, 2012 @ 12:38 am
If you’ve come to this site you MUST want a general answer. If you have not read the white paper or realize that it is an open source project then you will fail to realize not only how it works, but how it will impact the world.
Comment by foreverrising — August 27, 2012 @ 10:18 pm
A video that explains the origin and functionality of the bit coin for the common human would be very useful.
Comment by Wally — September 18, 2012 @ 10:54 am
I thought it was explained just fine. If you actually read the article (which I’m kind of guessing a lot of you just skimmed over it) you would realize that mining bitcoins isn’t something you just “do”, it takes work and the fact that only 21 million can ever exist, EVER, is what gives the bitcoin its value. As of August 2012, each bitcoin was worth approximately 10 USD. To answer the first question, the value to someone else is that they themselves don’t have to mine the bitcoin. They can offer a service or good, which one would accept, and then get paid in bitcoins (which as we know, is approximately 10 USD). For the most part, it’s really useful to people who trade in “shady” or “sketchy” things, such as users on the Silk Road (i.e. drugs and illegal weapons). However, you CAN trade bitcoins for actual money, so, all your hard work pays off in the end. Since, solo mining is so difficult however, your best bet is to join a “mining pool” and work with others towards solving the algorithm, or “block”, which is worth 50 bitcoins. Once the collective has solved the block, the block is divided amongst them. So, to simplify things, the bitcoin has value because it’s actually worth money and because it isn’t just handed to you on a silver platter. To add icing on the cake, you can BUY material goods or services with them. Really, if that doesn’t answer your questions, you need to be doing something else, like reading a book, walking the dog, or something physical, because that’s the most simplified answer you will ever get and you’ll never understand bitcoins. Also, for those of you wondering, “how do I get use my bitcoins on the Silk Road?” you need a special program (not sure what it is) and then you have to go through some long and ridiculous process to even find it, then more work to actually get in. It’s part of an unregulated part of the internet known as the Deep Web and it isn’t fun for anyone but the people that hack into your computers and clean out your bank account. Its also full of viruses and other crazy shit you don’t want anything to do with. IT ISN’T WORTH IT. Buy your drugs on the street corner and buy your weapons the legal way. If you get caught with an unregistered firearm, you’d better be ready to be fucked by the long dick of the law, and sending drugs through the mail is NEVER a good idea.
Comment by church'schiken — September 27, 2012 @ 12:11 am
I love your level-headed, smooth put downs on these sceptics. Personally, I mine bitcoins, using a AMD7850, run at 350Mh/s making roughly $1.30 /day or 82 pence in a decent currency. Its not huge, would cost thousands of pounds to try and make a living off it, but it means i get a free pint and a free packet of crisps at my local pub every week so who am I to complain? I don’t fully understand bitcoin mining – and never do I think I will – but I dont want to, my brain would explode, I know enough to grasp how it works, how I can make a little bit of money on the side and that probably puts me on the same level as most others.
Comment by Gorgerak — September 27, 2012 @ 9:51 am