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It's not a con, but it *is* a failure. I was messing with it in 2010 or so, and what it's ended up as is something of a laugh.


How to explain? Well, you have building blocks - keys ("accounts"), transactions ("payments") and blocks ("ledger pages", sort of).


A transaction moves bitcoins from one account to another. They're cryptographically signed by the losing key. These signatures can only be *generated* by someone with knowledge of the private component of the key, but can be *verified* by anyone with the public component (which is everyone). So, anyone can verify whether a particular transaction is valid, but only the spender can create one.


Blocks are a collection of transactions, put together by a miner. Transactions are meaningless until they end up in a block, Each block contains a reference to a previous block (hence "blockchain"), along with a "proof of work", which is a signature of the contents of the block (including that reference to the previous block) that costs a lot of electricity to generate, and is basically free to verify. The difficulty of the proof of work is governed by rules that try to keep the rate of generation to an average of one per 7 minutes or so.


Miners get two incentives for trying to create these blocks - transaction fees, and a built-in reward of newly minted bitcoins per block. This decreases over time to ensure that 21 million bitcoins is the limit. This creates competition between miners to generate blocks.


It's a decentralized system, so two miners may both create valid blocks at roughly the same time. The blockchain becomes a blocktree at this point - and your transaction may appear in only one of the branches. When this happens, all clients have a rule that the *longest* chain of blocks wins. More blocks are generated, with miners choosing to  base their new block on top of one branch or another, until one branch gets long enough that all miners are on it. It turns back into a blockchain at that point, and anything in the abandoned branch is treated as though it never happened.


While it's a tree, there's uncertainty about what has actually happened. Did your transaction happen or not? Literally, nobody knows. So a general rule of thumb is that the block containing your transaction should have another 9 blocks added onto it before you can be sure it's happened. Over an hour. Longer, if you're paranoid. This makes using them for run-of-the-mill payments awkward, but it's about OK for online shopping. Very popular with drug dealers, historically.


So why has it failed?


Blocks are created at a finite rate, and have a finite capacity. Bitcoin is full. As a result, transaction fees have soared. You might spend £30 worth of bitcoin in transaction fees while buying £10 worth of pizza.Claimed solutions to this have failed to gain adoption ("bitcoin cash") or are simply theoretical ("lightning"). The consequence of this is that you're now hard pressed to actually buy real goods and services using bitcoin. Vendors can't absorb the transaction fees, buyers are unwilling to pay them, liquidity is affected and the long transaction confirmation time makes payments for many things impractical anyway.


You can buy other cryptocurrencies with it, but even drug dealers are moving to alternatives. What's left is mostly speculation and legacy trade, and it *still* fills up bitcoin.


Oh, and it's worth noting that bitcoins are taxable in the same manner as any other capital gain. When you sell them for pounds, you need to stick it on your self-assessment form and pay tax on it. They *do* make tax evasion a little easier in some respects, but no less immoral.

Edited by lupine
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