What is Bitcoin?
Bitcoin is a consensus network that enables a new payment system and a completely
digital money. It is the first decentralized peer-to-peer payment network that is
powered by its users with no central authority or middlemen. From a user perspective,
Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the
most prominent triple entry bookkeeping system in existence.
Who created Bitcoin?
Bitcoin is the first implementation of a concept called "crypto-currency", which
was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting
the idea of a new form of money that uses cryptography to control its creation and
transactions, rather than a central authority. 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 he did not control Bitcoin. As such, the identity of Bitcoin's
inventor is probably as relevant today as the identity of the person who invented
Who controls the Bitcoin network?
Nobody owns the Bitcoin network much like no one owns 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 complying with the same
rules. Bitcoin can only work correctly with a complete consensus among all users.
Therefore, all users and developers have a strong incentive to protect this consensus.
How does Bitcoin work?
From a user perspective, Bitcoin is nothing more than a mobile app or computer program
that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins
with them. This is how Bitcoin works for most users.
Behind the scenes, the Bitcoin network is sharing a public ledger called the "block
chain". This ledger contains every transaction ever processed, allowing a user's
computer to verify the validity of each transaction. The authenticity of each transaction
is protected by digital signatures corresponding to the sending addresses, allowing
all users to have full control over sending bitcoins from their own Bitcoin addresses.
In addition, anyone can process transactions using the computing power of specialized
hardware and earn a reward in bitcoins for this service. This is often called "mining".
To learn more about Bitcoin, you can consult the original whitepaper.
Is Bitcoin really used by people?
Yes. There is a growing number of businesses and individuals using Bitcoin. This
includes brick and mortar businesses like restaurants, apartments, law firms, and
popular online services such as Microsoft, Dell, and Newegg. While Bitcoin remains
a relatively new phenomenon, it is growing fast. At the end of March 2016, the value
of all bitcoins in circulation exceeded US$ 6.5 billion with millions of dollars
worth of bitcoins exchanged daily.
How does one acquire bitcoins?
- As payment for goods or services.
- Purchase bitcoins at a Bitcoin exchange.
- Exchange bitcoins with someone near you.
- Earn bitcoins through competitive bitcoin mining.
While it may be possible to find individuals who wish to sell bitcoins in exchange
for a credit card or PayPal payment, most exchanges do not allow funding via these
payment methods. This is due to cases where someone buys bitcoins with PayPal, and
then reverses their half of the transaction. This is commonly referred to as a chargeback.
How difficult is it to make a Bitcoin payment?
Bitcoin payments are easier to make than debit or credit card purchases, and can
be received without a merchant account. Payments are made from a wallet application,
either on your computer or smartphone, by entering the recipient's address, the
payment amount, and pressing send. To make it easier to enter a recipient's address,
many wallets can obtain the address by scanning a QR code or touching two phones
together with NFC technology.
What are the advantages of Bitcoin?
- Payment freedom - It is possible to send and receive any
amount of money instantly anywhere in the world at any time. No bank holidays. No
borders. No imposed limits. Bitcoin allows its users to be in full control of their
- Very low fees - Bitcoin payments are currently processed
with either no fees or extremely small fees. Users may include fees with transactions
to receive priority processing, which results in faster confirmation of transactions
by the network. Additionally, merchant processors exist to assist merchants in processing
transactions, converting bitcoins to fiat currency and depositing funds directly
into merchants' bank accounts daily. As these services are based on Bitcoin, they
can be offered for much lower fees than with PayPal or credit card networks.
- Fewer risks for merchants - Bitcoin transactions are secure,
irreversible, and do not contain customers’ sensitive or personal information. This
protects merchants from losses caused by fraud or fraudulent chargebacks, and there
is no need for PCI compliance. Merchants can easily expand to new markets where
either credit cards are not available or fraud rates are unacceptably high. The
net results are lower fees, larger markets, and fewer administrative costs.
- Security and control - Bitcoin users are in full control
of their transactions; it is impossible for merchants to force unwanted or unnoticed
charges as can happen with other payment methods. Bitcoin payments can be made without
personal information tied to the transaction. This offers strong protection against
identity theft. Bitcoin users can also protect their money with backup and encryption.
- Transparent and neutral - All information concerning the
Bitcoin money supply itself is readily available on the block chain for anybody
to verify and use in real-time. No individual or organization can control or manipulate
the Bitcoin protocol because it is cryptographically secure. This allows the core
of Bitcoin to be trusted for being completely neutral, transparent and predictable.
What are the disadvantages of Bitcoin?
- Degree of acceptance - Many people are still unaware of
Bitcoin. Every day, more businesses accept bitcoins because they want the advantages
of doing so, but the list remains small and still needs to grow in order to benefit
from network effects.
- Volatility - The total value of bitcoins in circulation
and the number of businesses using Bitcoin are still very small compared to what
they could be. Therefore, relatively small events, trades, or business activities
can significantly affect the price. In theory, this volatility will decrease as
Bitcoin markets, the technology matures and Bitcoin interest rates normalize. Never
before has the world seen a start-up currency, so it is truly difficult (and exciting)
to imagine how it will play out.
- Ongoing development - Bitcoin software is still in beta
with many incomplete features in active development. New tools, features, and services
are being developed to make Bitcoin more secure and accessible to the masses. Some
of these are still not ready for everyone. Most Bitcoin businesses are new and still
offer no insurance. In general, Bitcoin is still in the process of maturing.
Why do people trust Bitcoin?
Much of the trust in Bitcoin comes from the fact that it requires no trust at all.
Bitcoin is fully open-source and decentralized. This means that anyone has access
to the entire source code at any time. Any developer in the world can therefore
verify exactly how Bitcoin works. All transactions and bitcoins issued into existence
can be transparently consulted in real-time by anyone. All payments can be made
without reliance on a third party and the whole system is protected by heavily peer-reviewed
cryptographic algorithms like those used for online banking. No organization or
individual can control Bitcoin, and the network remains secure even if not all of
its users can be trusted.
Is Bitcoin fully virtual and immaterial?
You should never expect to get rich with Bitcoin or any emerging technology. It
is always important to be wary of anything that sounds too good to be true or disobeys
basic economic rules.
Bitcoin is a growing space of innovation and there are business opportunities that
also include risks. There is no guarantee that Bitcoin will continue to grow even
though it has developed at a very fast rate so far. Investing time and resources
on anything related to Bitcoin requires entrepreneurship. There are various ways
to make money with Bitcoin such as mining, speculation or running new businesses.
All of these methods are competitive and there is no guarantee of profit. It is
up to each individual to make a proper evaluation of the costs and the risks involved
in any such project.
Is Bitcoin anonymous?
Bitcoin is designed to allow its users to send and receive payments with an acceptable
level of privacy as well as any other form of money. However, Bitcoin is not anonymous
and cannot offer the same level of privacy as cash. The use of Bitcoin leaves extensive
public records. Various mechanisms exist to protect users' privacy, and more are
in development. However, there is still work to be done before these features are
used correctly by most Bitcoin users.
Some concerns have been raised that private transactions could be used for illegal
purposes with Bitcoin. However, it is worth noting that Bitcoin will undoubtedly
be subjected to similar regulations that are already in place inside existing financial
systems. Bitcoin cannot be more anonymous than cash and it is not likely to prevent
criminal investigations from being conducted. Additionally, Bitcoin is also designed
to prevent a large range of financial crimes.
Bitcoin transactions are pseudo-anonymous. The inputs in every transaction can be
tracked in the blockchain to every previous transaction's outputs. However, there
are Bitcoin privacy technologies being developed.
What happens when bitcoins are lost?
When a user loses his wallet, it has the effect of removing money out of circulation.
Lost bitcoins still remain in the block chain just like any other bitcoins. However,
lost bitcoins remain dormant forever because there is no way for anybody to find
the private key(s) that would allow them to be spent again. Because of the law of
supply and demand, when fewer bitcoins are available, the ones that are left will
be in higher demand and increase in value to compensate.
Can Bitcoin scale to become a major payment network?
The Bitcoin network can already process a much higher number of transactions per
second than it does today. It is, however, not entirely ready to scale to the level
of major credit card networks. Work is underway to lift current limitations, and
future requirements are well known. Since inception, every aspect of the Bitcoin
network has been in a continuous process of maturation, optimization, and specialization,
and it should be expected to remain that way for some years to come. As traffic
grows, more Bitcoin users may use lightweight clients, and full network nodes may
become a more specialized service.