Originally posted by Teallaura
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It makes sense to me by thinking about how I perceive a PayPal transaction ... I check my bank balance online and see how much money I have. Then I head over to PayPal and send some of that virtual money over to someone else. I then see my bank account balance drop. The other person sees the same transaction, only they see their bank balance go up. PayPal, as the person managing the transaction, also sees its balance go up a bit. The difference with the Bitcoin network is that PayPal's balance is going up because I pay a little extra to cover the transaction fee — the person who ends up verifying the transaction on Bitcoin sees her balance go up because the extra Bitcoins are being "mined" or created as a separate deal to my transaction.
In real money terms, it would be like a bank not charging you for online bill pay but just taking a couple cents out of a big storage vault that all the banks draw from to pay for managing transactions. Just how much that banker money is worth depends on how much people who aren't bankers are willing to exchange dollars or euros for it and so the price of the banker money (Bitcoin) fluctuates in value.
—Sam
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