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FAQ – Bitcoins

By admin
Feb 2nd, 2014
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What is Bitcoin?
Bitcoin is an innovative peer-to-peer payment system that presents new type of money. The network is based on strong cryptographic principles. The system enables users to transfer money over the web without the need for bank account or credit card.

What are bitcoins?
“Bitcoin” with the capital “B” refers to the network and technology itself, while lowercase bitcoin is the currency of the system. Bitcoins are also refered to as “BTC” .

Who invented Bitcoin?
In 2009, incognito developer Satoshi Nakamoto published the primary details of the concept in a cryptography mailing list. The developer resigned from the project shortly in 2010.

Who runs and manages Bitcoin?
Bitcoin is an open-source software; there is no central issuer (bank or authority) that powers the network. As a result, it is run collectively by Bitcoin Client users. The majority of the users have to approve an update or change, before it can be implemented. Everyone can take part in the evolution of the network.

What is Bitcoin Client?
Bitcoin transactions are conducted by Bitcoin Client – the base level of technology. They are the ones who store the necessary keys. Multiple flavors are available that can be customized according to the different niches.

How do I use Bitcoin?
Bitcoin is simply a computer program or an app for a mobile device. It provides a personal wallet and allows you to send and receive bitcoins. Users have full control over monitoring and using their bitcoins

Why do I need Bitcoin address?
Bitcoin address allows you to receive bitcoins. It is a unique identifier that should be copied exactly when making a transaction as they are not reversible.

Why do I need a private key?
Every Bitcoin address comes with a matching private key. It is a secret code by which you prove your ownership of the specific bitcoins. Bitcoin address can be calculated from the private key, but the reverse is impossible. Private keys should be kept safe.

How do I get Bitcoins?

There are several ways to earn bitcoins:

  • Bitcoins can be purchased at a Bitcoin exchange, for example #bitcoin-otc or Mt. Gox
  • You can accept bitcoins as a payment for various services or goods.
  • You can yield 50 bitcoins by creating a new “block”.
  • Bitcoins can be earned by mining.
  • Several services trade bitcoins for traditional currency.
  • You can also get bitcoins by visiting sites that offer free samples.

Some individuals may offer you to pay for bitcoins with credit card or PayPal, but this is not allowed by most of the exchanges due to the chargeback (when someone reverses his half of the payment) risk.

How many bitcoins exist nowadays?
Number of current bitcoins in existence can be counted by following formula: the number of blocks x the coin value of a block. The coin values of blocks are as follows:

  • 50 BTC for each of the first 210,000 blocks
  • 25 BTC for the next 210,000 blocks
  • Then – 12.5 BTC
  • 6.25 BTC and so on, 0.00000001 BTC being the smallest amount that can be handled in a transaction.

The number of Bitcoins in existence will never exceed 21 million.

Where do the new bitcoins come from and what is mining?
New bitcoins are generated through “mining”. Every time that network node finds the solution to a specific mathematical problem (and creates a new block)  new coins are generated. A new block is a proof of work. The reward for solving a block is automatically adjusted to create ideal pattern for generating bitcoins: after every 4 years, the amount of bitcoins created should be halved for the next 4 years.Also, there is a system that controls the allocation of the new coins in the blocks, approximately, every 10 minutes. The difficulty for creating new coins changes with the number of people attempting to generate new coins. Mining is the process of using computer power for securing the network, processing transactions and keeping all users in the system synchronized.

Is Bitcoin legal?
So far, Bitcoin has not been made illegal according to any jurisdiction legislation. It can be counted illegal in certain areas due to some jurisdictions, like restricting all foreign currencies.

What is the market price of bitcoin?
There is no exact price for one bitcoin as it is constantly changing based on the supply and demand. The demand and price for the bitcoins are proportional, when the demand increases so does the price and vice versa, when it decreases the value decreases, too.

Can bitcoins completely lose their value?
Yes, just like any other currency that has failed and is no longer in use.

Why does Bitcoin restrict me from spending money that I received immediately?
Confirmation that you have received the money is instant; however, it only means that bitcoins that you received are considered your property. You have to wait 10 minutes before spending money because that is the average time taken to find a block. The delay can be more or less, 10 minutes is simply an average. Blocks are used to decide who owns what. There is less risk of reversing a transaction with more confirmations.

Are there any transaction or other fees?
Majority of the transactions on the Bitcoin are free. That being said, faster confirmation of the transactions can be achieved by paying a small voluntary fee. If there is a fee for a certain transaction, it usually does not exceed few pennies. The fees are not related to the amount of transactions. They are affected by data and recurrence. Some fees may apply if you want to spend small fractions of your bitcoins often.

How secure is Bitcoin?
The Bitcoin technology has proven to have a quite strong security. The greatest vulnerability of the Bitcoin is the user error. Private keys, that are stored in the Bitcoin wallet should not be lost or deleted. For extra safety and insurance, sound security practices can be employed by users to protect their wallets.

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