Frequently Asked Questions
Bitcoin is a currency born into the digital age. When using Bitcoin for the first time people should get an idea of how it works. Digital money is different than the traditional finance world is used to. It offers three core values in which many currencies cannot attain: Decentralization, Open Source, and Peer-to-Peer networking. It is important to get an idea of how to use Bitcoin before investing in it or starting wallet. At Bitcoin.com we are very passionate about the protocol and want to help you learn along the way. There is a lot to learn, but it is not beyond your grasp. Bitcoin is a truly beautiful innovation, and it has the capacity to change the world. .
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1Bitcoin: What Is It and why Is It Important?
Bitcoin is a network that allows a new form of monetary payment and medium of exchange. The currency is the first of its class as a decentralized peer-to-peer technology with no central point of issuance. Bitcoin's network uses Proof-of-Work as an economic deterrence against points of failure. Users and miners make up this vast network. They secure and update its blockchain ledger collectively. The Bitcoin protocol contains the longest digital distributed ledger in existence. The importance of Bitcoin is incredible as it brings financial inclusion and a new economy to every region in this world. It also prevents money from being centralized into the hands of an elite few at the expense of the many. Bitcoin eliminates the need for trust in large organizations and governments.
2Who Developed Bitcoin?
The original Bitcoin code was designed by Satoshi Nakamoto under MIT open source credentials. In 2008 Nakamoto outlined the idea behind Bitcoin in his White Paper, which scientifically described how the cryptocurrency would function. Bitcoin is the first successful digital currency designed with trust in cryptography over central authorities. Satoshi left the Bitcoin code in the hands of developers and the community in 2010. Thus far hundreds of developers have added to the core code throughout the years.
3What is the Blockchain?
Bitcoin is dependent on the blockchain that underlies and structures the system. The blockchain is the vertebrae of the protocol and the glue that holds the network together. It is simply a vast, distributed public ledger of account. It keeps track of every transaction ever made in the network, and all transactions are timestamped and verified by network miners. This is how it works: miners with specialized computers compete to solve mathematical puzzles with other computers, and once they solve a puzzle they are awarded with some Bitcoin, but they also add a “block” of completed transactions to the blockchain for future viewing and verifiability. Once a block is added to the chain the cycle repeats itself, and the computers continue to compete to solve these difficult problems. Every transaction on the blockchain is completely transparent and accounted for in its log. Anyone can see the public keys of any transaction they want (although there are no names associated with transactions). One could go all the way back and view the very first transactions ever made on the first block ever created. This block was unironically called the Genesis Block.
4What is Double Spending?
Double-Spending is the act of using the same bitcoins twice. There is only a 21 million set cap on the protocol and no more can be produced. So the network protects against double spend by the verification of each recorded transaction. The blockchains ledger ensures that the transactions are finalized by its inputs confirmed by miners. The confirmations make each unique Bitcoin and its subsequent transactions legitimate. If one tried to duplicate a transaction the original blocks deterministic functions would change showing the network that it is counterfeit and would not to be accepted.
5How is the Blockchain Different from Banking Ledgers?
Banks and accounting systems use ledgers to track and timestamp transactions. The difference is that the blockchain is completely decentralized and open source. This means that people do not have to rely on or trust the central bank to keep track of the transactions. The peer-to-peer blockchain technology can keep track of all the transactions without the fear of having them erased or lost. Furthermore, the blockchain, because of its open source nature, is more versatile and programmable than central banking ledgers. If programmers need new functionality on the blockchain, they can simply innovate on top of already existing software through consensus. This is difficult for central banks because of all of their regulations and central points of failure.
6Why Bother with Bitcoin?
“Bitcoin seems great and all, especially with its distributed nature and open source utility, but current money supplies and credit banking seem to work fine. Why fix the current system?” The most important aspect of Bitcoin in comparison to the world’s banking systems is that it has the capacity to eliminate many forms of fraud, which is a huge problem with the current monetary paradigm. For instance, Bitcoin is a push system, whereas banking is a pull system. This is an important point. A push system refers to a banking or financial apparatus where money can only be pushed out from the account by the end user. Money cannot be withdrawn from the account or “pulled” by outside sources. Bitcoin is the push system, and credit systems are pull systems. The current cartelized banking scheme is not only set up so money can be pulled from accounts from third parties, but the credentials they store can accidentally fall into the hands of fraudsters and other criminals. Bitcoin bypasses this problem by not providing any private details. The only thing that is shared is the public key, which cannot be stolen or hacked easily (if it is taken, the criminal would have to have access to the private key to spend it, which is easily guarded with various forms of encryption). A credit card number with the current system can be stolen, hacked, or otherwise compromised without much of a struggle. Merchants can benefit from using Bitcoin for many reasons, so it is in their interest to accept Bitcoin at point of sale. The number one salvation for merchants is that Bitcoin prevents chargebacks. In today’s centralized accounting systems, if a customer merely makes a complaint about a transaction, regardless of its validity, a bank can reverse the transaction with the merchant. And in most situations, the merchant is responsible for chargebacks, and oftentimes they have to take a loss because of these problems. Bitcoin solves this issue, because transactions on the blockchain are permanent if a user spends coins with his key. There is no chargeback. Any difference of opinion is up to the judgment of the parties involved. The other reason why merchants should jump at the opportunity for accepting Bitcoin is that there are minimal fees with transactions, generally costing pennies or less, whereas the current credit systems could cost dollars for charges, which is why some businesses refuse to do credit/debit transactions of less than $5 dollars.
7What is Bitcoin Mining?
Bitcoin mining is analogous to the mining of gold, but its digital form. The process involves specialized computers solving algorithmic equations or hash functions. These problems help miners to confirm blocks of transactions held within the network. Bitcoin mining provides a reward for miners by paying out in Bitcoin in turn the miners confirm transactions on the blockchain. Miners introduce new Bitcoin into the network and also secure the system with transaction confirmation. They are also rewarded network fees for when they harvest new coin and a time when the last bitcoin is found mining will continue.
8How Can You Buy Bitcoin?
Individuals can purchase Bitcoin in a multitude of ways using fiat conversion to credit cards. The digital currency can be bought from online exchanges, online direct sellers, or in person. Click here to go to our buy bitcoins page. to Most online exchanges keep wallets as a feature of their service, but it must be noted that holding money with a third party is not a recommended behavior here at Bitcoin.com. Always take the necessary precautions on your own by moving your wealth to your own destination and securing your own private keys. People can also meet in public to purchase Bitcoin in any amount. Whether it's a hard cash transaction or trade for a good the currency can be traded with live people and in public. As with any monetary transaction, always be careful.
9Can You Sell Bitcoin?
Bitcoins can be sold in various fashions. The currency can be sold online to an exchange or live in person locally. These same instances work similarly to the buying process. You can sell your Bitcoin to the exchange at the current price it's being sold for. More anonymously you can sell in person or use a localized 2-way ATM. ATMs can be found all over the world and these machines are mostly used for purchasing. 2-way ATMs can allow you to sell the currency. Most ATMs however only allow you to buy Bitcoin. There are also teller machines that require identification as well. Click here to to to see a list of verified exchanges. Bitcoin payments are easy to make with a wallet application and addresses. You can use a standard desktop or smartphone to transact with an individual, merchant and exchange. Addresses can be used in number form, in a QR code and contactless technology. Transacting with Bitcoin offers lower fees than any known remittance provider and credit card service. No bank, no state, no third party can offer this low amount of fees.
10Can stores accept Bitcoin?
Brick and mortar outlets can also accept Bitcoin. Services like Coinbase, CoinKite, and BitPay offer applications and hardware for the convenience of the store owner. Most of these businesses offer invoicing and accounting with their services. However, third party services are not required by physical merchants to accept the currency. Individual users can also accept Bitcoin directly and handle the transactions and accounting themselves. Bitcoins can be sold in various fashions. The currency can be sold online to an exchange or live in person locally. These same instances work similarly to the buying process. You can sell your Bitcoin to the exchange at the current price it's being sold for. More anonymously you can sell in person or use a localized 2-way ATM. ATMs can be found all over the world and these machines are mostly used for purchasing. 2-way ATMs can allow you to sell the currency. Most ATMs however only allow you to buy Bitcoin. There are also teller machines that require identification as well. Click here to to to see a list of verified exchanges. Bitcoin payments are easy to make with a wallet application and addresses. You can use a standard desktop or smartphone to transact with an individual, merchant and exchange. Addresses can be used in number form, in a QR code and contactless technology. Transacting with Bitcoin offers lower fees than any known remittance provider and credit card service. No bank, no state, no third party can offer this low amount of fees.
11Why Trust Bitcoin?
Bitcoin is a network operating by the three foundational principles of technological freedom: Decentralization, Open Source code, and true Peer-to-Peer technology. Bitcoin’s trust is based on the subjective valuations of human faith in mathematical algorithms, encryption and numbers. With the three pillars of technological principles Bitcoin’s blockchain is a peer-reviewed system of integrity.
12Is Bitcoin anonymous?
Bitcoins system allows users to take their own level of anonymity. Bitcoin is therefore pseudo-anonymous. Bitcoin does not contain the privacy of hard cash transactions. However, the protocol’s design allows users to have more privacy than the digits held within the current banking system and credit card operations. Bitcoin offers a variance of both highly functional transparency as well as privacy. Its up to the individual or organization to choose which level it prefers more. There are various ways people can use applications and protocols with Bitcoin to promote privacy. Also there are various blockchain technologies applicable to Bitcoin which guards against financial corruption and voting systems.
13What Can Bitcoin Do?
The Bitcoin protocol can change the financial landscape we see today. The protocol can act as a currency, voting mechanism, global identification and reputation application, a micro-tipper, crowdfunding platform, initiate trusts, wills and contracts, decentralized domain names, future markets, and basically everything the financial system of today can handle plus so much more. The currency application is just the beginning of this evolution of world's finances.
14What Happens if I lose my Bitcoins?
Unfortunately, since unique private keys are associated with individual Bitcoin wallets, if the keys are lost, there is ultimately no way to retrieve that key without a passcode seed or other retrieval system; and that key is required to spend those coins. However, most modern wallets, like Mycelium, have wallet and key backups that you can build prior to storing money. This will allow you to create a new private key so that you may restore your private key on a new wallet if lost.