1. What is a bitcoin?
Bitcoin ( “bit” – minimum unit of information and “coin” – coin) is a payment system based on P2P-technology (peer-to-peer). It works on the basis of the open data transfer protocol. The system uses the unit of account with the same name “bitcoin” – the first and most well-known cryptocurrency. The main feature of bitcoin is called full decentralization.
2. What does this mean?
Bitcoin operates without any supervisory authority or central bank; the issuing of coins and the processing of transactions are done collectively by the participants of the network. Thus, no one can control bitcoin, block or cancel a transaction. However, anyone can join the network.
3. What is the difference between bitcoin and PayPal, Payoneer, Skrill?
PayPal, Payoneer, Skrill – all these platforms are payment systems through which transactions with different “traditional” currencies – dollars, euros, etc. are conducted. In essence, this is electronic money, equivalent to its face value in one currency or another.
Bitcoin is generated by users themselves at the expense of computer power. Its price is formed by market forces (supply and demand). Bitcoin users do not need to go through the cumbersome and often lengthy authentication process associated with uploading personal documents. In addition, cryptocurrency transactions benefit from low fees.
4. How can I use bitcoins?
Bitcoin is a relatively young phenomenon, nevertheless, there are many opportunities to use it as a means of payment for the purchase of real goods or services today.
These include inexpensive transfers between users, no matter how far apart the sender and the receiver are. Bitcoins can be used to pay for some catering establishments and hotels, to buy airline tickets, digital content, website hosting and domains, to pay for training courses, software, legal services, to shop online and use cab services. There are special services that allow you to use bitcoin to top up your phone account. There is a growing number of online casinos that allow you to make a deposit in cryptocurrency.
You can also find examples when digital currency was used for expensive purchases: houses, cars and yachts.
Finally, many enthusiasts see bitcoin as a long-term investment as well as an attractive asset for trading.
5. Who came up with bitcoin?
The concept of bitcoin was first described in a technical document published on October 31, 2008. Its author was Satoshi Nakamoto, but it is still unknown exactly who is behind the name – whether it was one person or a group of developers. The developer community is now responsible for the further development and coordination of the network. That does not mean, however, that only developers make decisions about the direction in which bitcoin will go. Any significant changes in the protocol can only be made after a majority of the mining pools – associations of owners of computing power, through which the new bitcoins are “born”.
6. And how are new bitcoins “born”?
The emergence of new bitcoins can be compared to the issue of money, only instead of government agencies printing new banknotes, the cryptocurrency is produced by users themselves. The process is called “mining. It is based on computers solving complex mathematical problems. The computers are located all over the world, and the miners are combined into pools to work more efficiently. They get a reward for their work.
7. There is an opinion that bitcoin is a pyramid scheme…
It is not. By promising unrealistically high profit, pyramid scheme supposes that income of its participants is secured by permanent attraction of funds. The income of the first participants of the pyramid is paid at the expense of deposits of the subsequent participants. As soon as the inflow of funds weakens considerably or stops, the whole scheme collapses, leaving a small number of “chosen ones” to profit.
Bitcoin promises no benefits to investors. Its only promise is complete control over one’s own finances. And even if one accepts the assumption that demand for the cryptocurrency from newcomers or professional investors can lead to a rise in the exchange rate, early entrants do not receive any dividends from new entrants. Finally, the very distributed nature of bitcoin suggests that there is no single central structure that could benefit financially.
8. What does the value of bitcoin consist of?
There is a perception that the price of bitcoin is not backed by anything. According to James Rickards, author of the best-selling book Currency Wars, every currency in the history of money is backed by trust, the same is true for cryptocurrencies. In the bitcoin community, this trust is called consensus.
Bitcoin’s value also stems from its network effect: the more participants, the higher the price. While remaining an experimental technology, bitcoin is subject to significant price fluctuations, which traders and common holders take advantage of.
Bitcoin’s value can also be called its limited issuance. In addition, the first cryptocurrency opened the world to blockchain, a rapidly growing distributed ledger technology.
9. How limited is bitcoin issuance?
New bitcoins are generated every time a new transaction block is found. The frequency of creation of such blocks is constant: 6 units/hour. The number of bitcoins in a block decreases periodically – every four years there is a so-called “halving”, i.e. halving the reward for miners. Thus, there is an exact schedule for bitcoin issuance, and the total amount of coins that will ever be issued is also known: 21 million. The last issuance should take place around 2140.
10. Bitcoin is said to be anonymous. Is it?
This is another widespread misconception. Rather, we can speak of pseudo-anonymity. In other words, anyone can see the movement of funds and the current balance of the address, but it is quite difficult to say who exactly they belong to.
However, if you want to, it is possible to trace the IP address of the sender, even if it is not stored in the blockchain. For example, some wallet providers’ server owners have such information. To date, quite effective tools have been developed to analyze transactions. Their functionality allows cryptocurrency companies to instantly find out how reliable their counterparty is and whether it operates funds that were previously used in illegal financial transactions.
11. Where can I buy bitcoin?
There are several quite reliable and fast ways to buy bitcoins. First, it can be done through exchanges that allow you to deposit fiat currencies. First, you need to fund your account with one of the available methods, and then buy the cryptocurrency.
Second, this can be done through various exchange services. At such sites you can buy bitcoin for fiat currencies (dollar, ruble or hryvnia) and using different payment systems: Perfect Money, Advanced Cash, Skrill, Payeer, etc.
Some services offer to buy cryptocurrency with bank cards, mainly in North America and Western Europe. Bitcoin can also be bought in person, having found a party interested in the deal. This method, however, is associated with the risk of encountering fraudsters, so it should be used only as a last resort.