- What is Bitcoin?
- Bitcoin is digital money used for secure and instant transfer of value anywhere in the world. It is not controlled or issued by any bank or government - instead it is an open network which is managed by its users. Much in the way email improved communication by making it fast and cheap, bitcoin is an improvement on existing payment methods which were not designed for the internet era.
From a slightly more philosophical perspective, think of it as electronic gold, but different in the way that the number of bitcoins that will ever be produced (or mined to use correct terminology) is final - 21 million bitcoins in total with over 16m already produced by now) and cannot be increased under any circumstance. Unlike gold, it's also very easy to use and transfer and next to impossible to steal from you if you keep the private keys to your wallets safe.
What is also really important is that, with the current level of Bitcoin infrastructure, it is very easy to use even for beginners. All you need to do is a little reading and you will get started in no time at all. We strongly recommend to start with our guides to Bitcoin wallets and Buying bitcoins.
Here you will find a list of 4 must-watch documentaries about Bitcoin for beginners.
- Why is it one of the most promising investment assets?
- We will simply let the numbers do the talking. Since early 2016 Bitcoin's price went up 10 times, from $400 to over $4,000. It's true that Bitcoin's price can dramatically fluctuate, but there's no denying that no other class of investment assets in the world is even getting anywhere near bitcoin in terms of performance.
Most of those in the know call it "digital gold" and forecast steady growth of Bitcoin over the next 3 to 5 years.
- Who created Bitcoin?
- The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with many developers working on Bitcoin.
Satoshi's anonymity often raised unjustified concerns, many of which are linked to misunderstanding of the open-source nature of Bitcoin. The Bitcoin protocol and software are published openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. Just like current developers, Satoshi's influence was limited to the changes he made being adopted by others and therefore it would be totally correct to say that he in no way controlled Bitcoin.
To that end, the true identity of Satoshi Nakamoto is of very little importance and will probably remain an unresolved mystery.
- Who controls the Bitcoin network?
- The answer is very simple and precise - no one. No one owns the Bitcoin just like no one owns or controls the technology behind email. Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they can't force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software that complies with the same rules. Bitcoin can only work correctly with a complete consensus among all users. This forms the incentive for developers and users to maintain this consensus at all times.
- How does Bitcoin work?
- To give you a very condensed idea of how it operates, Bitcoin is a mobile app, computer program and web application that provides a personal Bitcoin wallet and allows users to send and receive bitcoins with its help. This is what 99% of Bitcoin users need to know.
On a more advanced level, the Bitcoin network is keeping a public ledger called 'blockchain'. The blockchain contains records of each and every transaction ever processed within the Bitcoin network. This allows any user to confirm the validity of every transaction. The authenticity is confirmed by means of digital signatures that correspond to the sending addresses, it allows all Bitcoin users to maintain complete control over sending bitcoins from their own Bitcoin addresses.
Apart from that, any bitcoin user can take part in processing of Bitcoin transactions using the computing power of the specialized software installed on their computers and earn rewards in bitcoin for doing so. This activity is called mining.
- Can someone monopolize Bitcoin network?
- That's next to impossible as, once again, the network is fully decentralized, there millions of users and hundreds of thousands of individuals who participate in running the Bitcoin network.
- Is there a chance to make the supply of new bitcoins infinite?
- This is not possible by design.
- Who uses Bitcoin?
- A quickly growing number of businesses and individuals turn to using Bitcoin. They range from online enterprises to traditional businesses like grocery stores, law firms, and various popular services. Despite being around since 2009, Bitcoin is still a relatively new phenomenon and it is growing fast. By mid- 2017, the total value of all bitcoins in circulation was worth over $60 billion and bitcoins worth billions of USD are changing hands every day. Blockchain.info alone, one of the early leaders in the Bitcoin ecosystem, has over 15m+ registered wallets.
- How does one get bitcoins?
- Since Bitcoin is, in essense, a form of digital cash, there are plenty of ways to get it. The most popular are:
- Is it difficult to make a payment in Bitcoin?
- Sending and receiving Bitcoin payments is very easy. As a matter of fact, it is much easier and quicker than making a credit/debit card payment. To make a payment, you simply need to use a wallet application (check our Bitcoin Wallets Guide to help you choose the right wallet), you will only need to enter the recipient's address, enter the amount you want to send and click to send it. Many wallets have built-in QR code readers that can capture a lengthy recipient's Bitcoin address for you. Surely, you always can memorize, write down or copy and paste it.
- Can I make a payment of less than 1 bitcoin, for example?
- Yes, you can send as little as 0.00000001 bitcoins. The amounts lower than 1 bitcoin are called satoshis. Think of it as dollars and cents.
- How much does it cost to make a Bitcoin payment?
- One of the main features of Bitcoin is that you get to choose the fee you want to pay to send the payment. You can even do so without paying a fee. But it's recommended to choose to pay 0.0003 BTC (less than $1 at the time of writing) to have your payment processed by bitcoin processing network within 10 to 30 minutes. It's important to note that Bitcoin payments are not instant, they take 10 minutes on average to be processed.
- How quickly will my Bitcoin payment be processed by the network?
- Normally within just 10 minutes. In rare instances of heavy network load it may take longer, up to an hour.
- Are there any hidden fees in Bitcoin payments?
- As we said, you get to choose the fee you want to pay to have your bitcoins sent. Other than that, there are no other fees.
- Can I reverse a Bitcoin payment?
- No, Bitcoin payments are irreversible.
- Why do people trust Bitcoin?
- We are convinced that most of the trust comes from the fact that Bitcoin is 100% open-source and decentralized. Anyone has access to the source code at any time. So essentially any developer is able to review how Bitcoin works. You can also check all the transactions that have been made in Bitcoin over time at any given moment. As we said, no individual, company or organization can have control over Bitcoin. So the network will remain secure at all times.
- Is Bitcoin fully virtual and immaterial?
- Bitcoin is not any more virtual than the credit cards or online banking we use daily. While it can easily be used for online payments, it is also becoming more and more widely used as a payment means in physical stores. What makes bitcoin totally unique is the fact that it cannot be forged due to a secure protocol that underpins it.
- Is Bitcoin anonymous?
- Bitcoin has been designed to help users send and receive payments privately, but not anonymously as, once again, the use of Bitcoin leaves extensive public records.
- What happens when bitcoins are lost?
- If a user loses his wallet, the value stored is simply taken out of circulation. The lost bitcoins are still stored in the blockchain, but will remain dormant indefinitely.
- Does Bitcoin have the potential of becoming a major payment network?
- Bitcoin already is an efficient and quickly growing payment network. It is capable of handling a much greater volume of transactions than it does today. However, it would be fair to mention that it is not yet ready to take on major credit card systems. Bitcoin is continuously being optimized and work is underway to increase Bitcoin's payment processing capacity.
- Is Bitcoin legitimate?
- It is absolutely legal to use Bitcoin in most of the countries of the world. There are very few countries that have imposed limitations on the use of Bitcoin,. But, to the best of our knowledge, it has not been declared illegal anywhere. In some countries certain companies engaged in Bitcoin operations are required to obtain specialized licenses (for example, Bitcoin exchanges).
- Can Bitcoin be regulated?
- This is impossible as it would require co-operation of almost all of the users participating in the Bitcoin network. Quite the opposite is currently the case, many governments all over the world express genuine interest in Bitcoin (and the blockchain technology it is based on in order to boost innovations in the financial technology sector and stimulate growth.
- What about Bitcoin and taxes?
- Despite the fact that Bitcoin is not a traditional (or fiat) currency, its use can invoke tax liability that may differ from one country to another. Just as can be the case with any traditional financial transaction, operations in Bitcoin may bring about different tax obligations, such as income tax or capital gains tax.
Economy of Bitcoin
- How are bitcoins created?
- New bitcoins are generated through a distributed process called 'mining'. The generation of new bitcoins was designed so that the individuals who take part in this process get rewarded for doing so. Technically, they are processing transactions and get bitcoins in return.
Due to its unique protocol the bitcoins can be generated at a fixed rate that cannot be changed. This is one of the major mechanisms of the checks and balances in the Bitcoin system. No authority, organization or a developer is capable of wielding complete control over the Bitcoin protocol and, therefore, cannot use it to their advantage. Any attempts at altering the code will simply be rejected by the so-called Bitcoin nodes.
Another very important aspect of Bitcoin generation is that the rate at which new bitcoins can be generated is gradually decreasing. Only 21 million bitcoins can be generated.
- Is Bitcoin price tied to the value of a currency, such as USD or Euros?
- The value of bitcoins is not in any way tied to the value of any currency. Bitcoin's value is determined by the supply and demand factors. In this way it's very similar to stocks or traditional currencies. Bitcoin's price is changing all the time as there those who want to sell and those who want to buy it at any given moment.
- Why is Bitcoin's price fluctuating?
- As Bitcoin is traded for dollars, euros and many other currencies 24/7/365, its price is subject to constant change based on the buy/sell ratio. Indeed, Bitcoin's price is still very volatile as compared to more traditional trading instruments such as stocks, bonds or traditional currency pairs. This is exactly what makes Bitcoin one of the most attractive trading instruments in the world.
- Is it similar to a credit card or paypal?
- The only major Bitcoin's similarity with a credit card and Paypal is that it is also widely used for instant online payments. But, unlike Paypal or a credit card network, Bitcoin is not owned by any company or a group of companies. Bitcoin is the first truly open and independent payment network. Anyone with an internet connection can partake in it. The Bitcoin was designed to be used independently of any 3rd party.
- Why do bitcoins have value?
- Simply put, bitcoins possess value for the simple reason that they are useful as a form of digital money, investment asset and store of value.
If we compare bitcoins to regular (fiat) currencies or, for instance, precious metals such as gold, we can see that the bitcoins are based on the incorruptible mathematical principle rather than on physical value or trust in the central banks. Bitcoin enjoys both trust and adoption by users - the attributes required to hold value.
- Why would I use bitcoin?
- Bitcoin's nature is multifaceted. It's a payment method, a means to store value and an investment asset.
As a payment method, Bitcoin allows you to instantly send any amount of money to anyone in the world without needing a bank. It allows you to access your money without needing an ATM or credit card - bitcoin gives you back control over your money. Plus you can pay friends back for dinner, buy your next computer, and donate to charity, all using bitcoin.
As a store of value, it's unique in the way that thanks to its design no one will know that you possess bitcoins.
As an investment asset, it gives you an opportunity to gain from its value appreciation. It's price is up over 1000% in the last 2 years.
- What determines bitcoin's price?
- Based on the very principles of market economy, the price is based on supply and demand. As the number of bitcoins in existence is relatively small, it doesn't take a lot for the price to move up or down. So it would be fair to say that the Bitcoin price is still volatile.
- Won't the finite amount of bitcoins be a limitation?
- Only 21 million bitcoins will be ever created. But that does not impose any limitations as to using bitcoin as a form of digital money. The transactions can be easily broken down into units as small as 1 millionth of a bitcoin. Should it ever be necessary, Bitcoin system can be modified so that it can be denominated in even smaller units.
- Isn't speculation and volatility a problem for Bitcoin?
- We'd rather call it a boon for Bitcoin and a fundamental part of its growth and evolution.
- What if someone bought up all the existing bitcoins?
- A relatively small fraction of all bitcoins issued are available on exchange markets. If anyone tries to buy all of the bitcoins, the price will immediately go up as the market is very competitive. Note that new bitcoins will keep being generated for many years to come. So even if anyone is determined enough to buy all the bitcoins, that would not be possible.
- What if someone creates a better digital currency?
- This will always be a possibility. But over the last several years we have seen several hundred attempts at doing that none of which were a success.
- Why is it necessary to wait for the confirmation of a transaction?
- It is very important to understand how Bitcoin network works. You will receive a notification about an incoming bitcoin payment almost immediately. But the transaction must be verified by the Bitcoin network by including it in the next block. Once the transaction is confirmed by the network, it means that the network has consented that the payment has actually been sent to you and not to anyone else. The block your transaction has been included in is followed by subsequent blocks and that exponentially decreases the risks of the reversal of that transaction. Under normal conditions the confirmation should take not more than 10 minutes. It is also important to mind the transaction fee that the sender sets for each transaction.
- What transaction fee should I set?
- Most of the wallet providers add optimized dynamically-calculated fees based on the transaction size and network load.
- What if I receive a bitcoin when my computer is powered off?
- No problem at all. The bitcoins are not physically sent to your wallet, they are simply recorded in the publicly shared ledger. So once you go online your wallet application will simply synchronize with all the records in the ledger including the new transactions and the bitcoins sent to you will show up in your wallet. In order to send the bitcoins you will need to be online.
- Is Bitcoin safe?
- Bitcoin's core protocol is viewable by anyone, has been vetted by thousands of security researchers around the world, and has proven to be robust and reliable after immense scrutiny. Using bitcoin is similar to using other private applications on the internet, such as email or online banking. Just like these other web services, you must access your bitcoin with a password in order to ensure only you have access to your money.
In terms of protocol and cryptography backing it up, Bitcoin is very secure. What adds to the security is the fact that it is by far the biggest distributed computing project in the history of humanity.
So when using Bitcoin the biggest threat comes from the so-called human error factor. Just like with regular cash, the files that store the wallets can be deleted or lost or even stolen.
To use Bitcoin securely, it is very important to observe the security practices and recommendations that we have outlined on the Security page on our website.
- I've heard about Bitcoin being hacked before.
- It is very important to differentiate between hacking and security breaches on various exchanges and services working with Bitcoin and the security of the Bitcoin protocol itself.
Just like with all things digital, security flaws have been identified and fixed within the Bitcoin software. Thanks to the fact that Bitcoin is one of the most contributed to digital projects in the world, such issues are normally found and fixed without delay.
Apart from that a number of important security features - offline and hardware wallets, wallet encryption, multi-signature transactions, cold storages, etc. - have been developed in the effort to reduce the risks of theft and loss. They are being used by Bitcoin business and individual users alike.