Questions and answers to some of the most stubborn questions and debunks myths about Bitcoin.
What does Bitcoin mean?
Bitcoin is simply a form of digital currency that is decentralized. That means it is not controlled by the central bank or any one individual administrator or oversight authority. It runs on a peer-to-peer network and cryptography, thus allowing users to transact without needing intermediaries. In other words, think of Bitcoin as synonymous with the internet or virtual cash.
Is Bitcoin a cryptocurrency?
Yes, it is one of the most popular cryptocurrencies in the world. As a cryptocurrency, it is based on blockchain technology effectively making it a valid medium of exchange that is digitally backed by sophisticated encryption techniques.
What supports Bitcoin?
As opposed to other digital assets that are backed by governments, banks, or physical assets, Bitcoin is principally backed by a technology; blockchain. This decentralized Bitcoin backbone is synonymous with a digital ledger that records all user information involving financial transactions.
The blockchain software is hosted on thousands of computer servers all over the world. These servers are maintained by a clever mix of all sorts of people from the ordinary to the experts collectively termed as miners.
Being decentralized, blockchain technology is responsible for making Bitcoin transactions secure and transparent. Furthermore, the record of transactions captured in the software cannot be altered even from the back end.
Where did Bitcoin originate from?
While Bitcoin has no one arbiter or central authority running the show, it traces its origin from a pseudonymous entity or individual called Satoshi Nakamoto. In 2009, Bitcoin implementation began as open-source software.
That meant any developer regardless of their location could edit the source code or modify the Bitcoin software to suit their version. Having taken that route, Bitcoin has remained a peer-to-peer network without a central administrator.
Who is in charge of the Bitcoin network?
The Bitcoin network is not a product of any one entity. Instead, Bitcoin users the world over control the network. This, therefore, limits developers to only enhancing the software but not altering the Bitcoin protocol. That leaves Bitcoin users with the liberty to choose the software and Bitcoin version to use.
Nonetheless, all the users must use software adhering to similar rules of operation to maintain compatibility amongst themselves. In other words, the Bitcoin network can only function properly when there is a full-range consensus among all the users. That essentially affords both users and developers a solid incentive to protect the consensus reached and keep the network functional.
What is Bitcoin mining?
Broadly speaking, this process involves leveraging specialized computer hardware to keep the Bitcoin network secure, process transactions, and synchronize system users. Miners can function from anywhere in the world to cement a decentralized approach.
The term "mining" is also used to refer to a temporary mechanism of issuing new Bitcoins to users that solve a complex computational problem. Through Bitcoin mining, the foundational transactional ledger is sustained.
How does Bitcoin function?
The operation of Bitcoin can be looked at in two perspectives: the user operation and back-end operation. For the user, Bitcoin essentially involves a computer program, website, or mobile app that gives them access to a Bitcoin wallet from which they can send and receive Bitcoins.
From the back-end perspective, Bitcoin involves sharing a public ledger (blockchain) via the Bitcoin network. The ledger principally captures all the transactions processed, thus allowing the user’s computer to verify the authenticity of all transactions.
The validity of every transaction is safeguarded by digital signatures tied to the sending address. That means a user retains full control to send Bitcoins from their address.
Who uses Bitcoin?
Bitcoin is ideal for both personal and business transactions as a digital medium of exchange or cryptocurrency. Interestingly, there are even countries that have entirely adopted Bitcoin as a legal tender.
What’s more, Bitcoin sits well with both online business as well as brick-and-mortar businesses. While it remains a relatively new technology in the world of financial transactions, Bitcoin has consistently shown signs of exponential growth. Daily Bitcoin exchanges are currently in millions of dollars.
How does one get Bitcoins?
Acquiring Bitcoins can happen in one of several ways including:
- Buying the coins at a Bitcoin exchange
- Amassing Bitcoins through Bitcoin mining
- Receiving payment for goods and services in Bitcoin
- Exchanging Bitcoins with someone else
With that in mind, most Bitcoin exchanges involve cash, not credit card or online payments. This helps the sellers to avoid chargeback incidences. This is where a buyer reverses their side of the transaction after buying Bitcoins.
Is Bitcoin payment difficult?
Not exactly. Considerably, making Bitcoin payments is far easier than credit card or debit card payments. What’s more, one can still receive a Bitcoin payment even without a merchant account.
Armed with an internet-enabled smartphone or computer, you can easily complete a payment from a digital or virtual wallet. Once on the wallet application, simply enter the recipient’s address, the amount you wish to pay them, and then click send to complete the transaction. Accessing the recipient’s address is made easier through QR code scanning on the wallet.
How long do Bitcoin payment notifications take?
Getting a Bitcoin payment notification almost happens immediately. That said, a slight delay may be experienced as the network works toward confirming your transaction. Confirmation essentially involves including your transaction in a block.
In other words, the network must first seek a consensus stating the Bitcoins sent to you have not been disbursed to anyone else and are fully your property. As soon as your transaction is housed in a block, other blocks will go on building over it and in the process consolidate the consensus needed.
In effect, this minimizes a transaction’s reversal risk. For all that to happen, the waiting period may range from a few seconds to about 90 minutes.
Is using Bitcoin any beneficial?
Using Bitcoin comes with many benefits, including:
- Transparency: Being a neutral platform, Bitcoin guarantees all-around transparency in the transaction. All the processed transaction information is readily available in the blockchain for all users to assess, verify, and use on the spot. That eliminates the monopoly of control or manipulation of Bitcoin protocol because it is secured cryptographically. This has largely inspired confidence in many Bitcoin users.
- Transaction freedom: The Bitcoin network is ever in operation allowing you to send and receive the coins anywhere at all times. In other words, the elimination of bureaucracies, work holidays, and transactional borders in Bitcoin affords you full control of your money.
- Reduced transaction fees: Transacting with Bitcoins translates to more secure, irreversible, and less intrusive transactions. With no sensitive personal information involved, you can be exempted from fraudulent chargebacks common with credit cards and online payments. This gives you the confidence to venture into fraud-susceptible markets and transact with peace of mind. The overall aftermath is reduced transaction and administrative costs.
- Controllable fees: With a Bitcoin wallet, you can set your fees when transacting. Receiving Bitcoins is free. When sending Bitcoins, however, you control how much you can spend with each transfer. In other words, there is no correlation between the fees you pay and the amount you transfer.
- Transaction security: Bitcoins give you full control over your transactions by adding an extra security layer. That essentially eliminates the shock of hidden charges as is common with other payment methods. Moreover, Bitcoin transactions cannot be traced back to your personal information. In effect, this helps you steer clear of identity theft. For extra protection, Bitcoin also allows you to backup and encrypt your money.
Are there any downsides to using Bitcoin?
Underneath the benefits of using Bitcoin lie a few downsides such as:
- High price volatility: Since the overall Bitcoin market is still relatively small, price volatility is inevitable. This means the value of Bitcoins in circulation and the entities using it are rather insignificant. As a result, any slight change in demand and supply tends to affect the market sharply. However, as the Bitcoin technology and market gain traction, the volatility will neutralize.
- Low acceptance rate: Most people the world over remain in the dark when it comes to Bitcoin knowledge. While many businesses are generally accepting Bitcoin payments, their number is still low.
- Continuous development: The Bitcoin software is constantly undergoing development to incorporate new services, features, and tools. These developments are geared toward making cryptocurrency more secure and more accessible to the public. Because of its many incomplete features, however, many people struggle to grasp the functionality of Bitcoin. Moreover, most emerging Bitcoin platforms cannot afford to insure Bitcoin transactions further slowing down the acceptance of the currency.
Why does Bitcoin inspire trust?
The two chief reasons Bitcoin is widely considered a trustworthy digital currency are its decentralized and open-source nature. That means Bitcoin’s source code is fully accessible by anyone in real-time. Moreover, transactions are free of third-party interference, thus ensuring the network always stays secure.
How can one make money with Bitcoin?
Bitcoin is not a get-rich-quick scheme! Being an emerging financial technology, you should not invest in Bitcoin expecting to get rich. As a growing market, you should also beware of the risks involved. Besides, there is no guarantee that the Bitcoin market will continue growing in the future.
While there are several competitive ways you can earn money with Bitcoin including speculation, mining, and running a Bitcoin platform, they don’t guarantee profit. It, therefore, boils down to cautiously weighing all the costs and benefits involved in each scenario.
Can Bitcoins be lost?
Yes, you can lose your coins when you lose your Bitcoin wallet. The ultimate consequence of lost Bitcoins is a reduction of currency in circulation. While lost Bitcoins remain in the blockchain, they are rendered dormant forever because tracing the private keys that could otherwise reactivate them is virtually impossible.
Is Bitcoin considered legal?
In most jurisdictions, yes. Some jurisdictions consider it a foreign currency, which means that they heavily restrict its use. Other jurisdictions don’t explicitly ban Bitcoin but highly restrict the licensing of Bitcoin-related businesses such as Bitcoin exchanges.
As the world embraces Bitcoin technology, however, most regulatory authorities in many jurisdictions are devising ways for individuals and businesses to integrate Bitcoin into the conventional financial systems that are regulated.
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