Bitcoin was seen as a failure
frequently asked Questions
What is bitcoin
Bitcoin is a consensus-oriented network that makes a new payment system and completely digital money possible. It is the first decentralized peer-to-peer payment network that is operated only by the users and without a central authority or intermediary. From the user's point of view, Bitcoin is more or less cash for the internet. Bitcoin can also be seen as the most prominent example of an already existing triple bookkeeping system.
Who Invented Bitcoin?
Bitcoin is the first implementation of a concept called "cryptocurrency," first described by Wei Dai on the Cypherpunk mailing list in 1998. There he proposed the idea of a new form of money that uses cryptography instead of a central authority to control its creation and transactions. The first Bitcoin specification and proof of concept were published by Satoshi Nakamoto on a cryptography mailing list in 2009. Satoshi left the project at the end of 2010 without revealing much about himself. The community has grown exponentially since then, with many developers working on Bitcoin.
Satoshi's anonymity has often raised unsubstantiated concerns, many of which are related to a misunderstanding of the open source nature of Bitcoin. The Bitcoin protocol and software are generally accessible and any developer around the world can examine the code or create their own modified version of the Bitcoin software. As with current developers, Satoshi's influence was limited to those changes accepted by others and as a result, he did not control Bitcoin. Therefore, the identity of the inventor of Bitcoin is now likely as relevant as the identity of the person who invented the paper.
Who Controls the Bitcoin Network?
Nobody owns the Bitcoin network, just like nobody owns the technology behind the email. Bitcoin is controlled by all Bitcoin users around the world. Although the developers are improving the software, they cannot force a change in the Bitcoin protocol as all users are free to choose which software and version they use. In order to remain compatible with each other, it is necessary that software is used that adheres to the same rules. Bitcoin can only function properly if all users are completely in agreement. Therefore, all users and developers have a strong interest in obtaining this consensus.
How does Bitcoin work?
From a user perspective, Bitcoin is little more than an app or a computer program that provides a personal Bitcoin wallet and enables users to send and receive Bitcoins. This is how Bitcoin works for most users.
Behind the scenes of the Bitcoin network there is a public booking system called the "blockchain". In this booking system, every transaction that has ever been booked over the Bitcoin network is saved. This enables each user's computer to check the validity of each transaction. The authenticity of every transaction is secured by a digital signature and the associated address of the sender; this gives each user full control over payments from their address. In addition, everyone can process transactions themselves using special hardware and receive remuneration in the form of bitcoins. This process is called "mining". To learn more about Bitcoin, you can read the associated website and the original whitepaper (PDF).
Is Bitcoin Really Used By People?
Yes, there are a growing number of companies and individuals using Bitcoin. These include regular businesses like restaurants, room rentals, and lawyers, as well as popular online services like Namecheap and Overstock.com. Although Bitcoin is a relatively new phenomenon, it is growing rapidly. In May 2018, the total value of all bitcoins in existence passed the $ 100 billion mark. Millions of dollars worth of bitcoins are traded on exchanges every day.
How do you get bitcoins?
While it is possible to find individuals selling bitcoins using credit cards or PayPal, most bitcoin exchanges do not allow payments through this route, as in some cases people have bought bitcoins with PayPal and then have their transactions chargebacks. This is commonly referred to as "chargeback" in English.
How difficult is it to make a Bitcoin payment?
Bitcoin payments are easier to make than purchases with debit or credit cards and can be made without a merchant account. Payments are made using a wallet application either on your computer or smartphone. You enter the recipient address and the amount and press Send. To make it easier to enter the recipient's address, many wallets can retrieve the address by scanning a QR code or by connecting two phones using NFC technology.
What are the benefits of Bitcoin?
- Payment freedom - It is possible to send or receive Bitcoins anytime and anywhere in the world. No holidays. No limits. No bureaucracy. Bitcoin gives its users full control over their money.
- Choose the fees yourself - Receiving bitcoins does not cost anything and many wallets allow you to determine the amount of the fee for sending yourself. Higher fees make the transaction more likely to be confirmed faster. Since fees do not depend on the amount sent, 100,000 bitcoins can be sent for the same fee as 1 bitcoin. In addition, there are payment service providers that enable merchants to accept Bitcoin. These convert incoming bitcoins into a fiat currency (e.g. euros) as soon as they are received and transfer the amount directly to the trader's bank account on a daily basis. Because these services are based on Bitcoin, they can be offered at much lower fees than through PayPal or credit card networks.
- Less risks for traders - Bitcoin transactions are secure, irreversible and contain neither sensitive nor personal information of the buyer. This protects merchants from fraud or fraudulent chargebacks, and there is no need for PCI compliance. Merchants can easily expand into new markets where either credit cards are unavailable or fraud rates are unacceptably high. The end result is lower fees, larger markets, and lower administrative costs.
- Security and Control - Bitcoin users have full control over their transactions; It is impossible for merchants to enforce unwanted or unnoticed fees as it can happen with other payment methods. Bitcoin payments can be made without any private information tied to the transaction. This provides strong protection against identity theft. Bitcoin users can also protect their money through backups and encryption.
- Transparency and neutrality - Any information relating to the Bitcoin money supply is available in the blockchain at any time and can be verified and used by anyone in real time. No individual or organization can control or manipulate the Bitcoin protocol as it is cryptographically secured. So you can be confident that the core of Bitcoin is completely neutral, transparent, and predictable.
What are the disadvantages of Bitcoin?
- Degree of acceptance - Bitcoin is still unknown to many people. Every day more companies are accepting bitcoins as they want to take advantage of the benefits, but the list remains small and still needs to grow to take advantage of the network effect.
- volatility - The market capitalization of Bitcoins in circulation and the number of companies using Bitcoin is still very small compared to what might be possible. As a result, even small events, trades or business activities can have a big impact on the price. In theory, this volatility decreases as markets and technology mature. The world has never seen a start-up currency before; so it's really difficult (and exciting) to imagine how it will develop.
- Continuous development - Bitcoin software is still in beta and there are many unfinished features that are still being developed. To make Bitcoin more secure and more accessible to a wider audience, new tools, functions and services are being developed. Some of them are not yet suitable for everyone. Many Bitcoin companies are new and don't yet offer deposit insurance. In general, it can be said that Bitcoin is still in its infancy.
Why do people trust Bitcoin?
Trust in Bitcoin often arises from the fact that it doesn't need trust at all. Bitcoin is completely open-source and decentralized. This means that everyone has access to the entire source code at all times. All transactions and bitcoins that have been generated can be transparently checked by anyone in real time. All payments can be carried out without having to trust third parties and the entire system is protected by intensively examined cryptographic algorithms like those used in online banking. No organization or person can control Bitcoin and the network remains secure, even if not all of its users are trustworthy.
Can I make money with Bitcoin?
You should never expect to get rich with Bitcoin or any new technology. You should be careful with anything that is too good to be true or disregards basic economic rules.
Bitcoin offers growing space for innovation and there are entrepreneurial opportunities, but they also involve risks. There is no guarantee that Bitcoin will continue to grow even though it has grown rapidly so far. Investing time and resources in the Bitcoin economy requires an entrepreneurial spirit. There are several ways to make money with Bitcoin, such as mining, speculating, or building new businesses. All of these methods are competitive and there is no guarantee of profit. Each individual is responsible for assessing the costs and risks that each such project entails.
Is Bitcoin completely virtual and immaterial?
Bitcoin are just as virtual as the credit card and online banking networks we use every day. Bitcoins, like any other form of money, can be used to pay online and in normal stores. Bitcoins are also available in "real" coins, such as Denarium Coins, but paying with a mobile phone is usually more convenient. The Bitcoin account balances are stored in a large distributed network and cannot be falsified by anyone. In other words: Bitcoin users themselves are the only ones in control of their funds and Bitcoins cannot vanish into thin air just because they are "virtual".
Is Bitcoin Anonymous?
Bitcoin is designed to allow its users to send and receive payments with the same level of privacy as other forms of money. However, Bitcoin is not anonymous and cannot offer the same level of privacy as cash. Using Bitcoin leaves an extensive public record. Various mechanisms exist to protect user privacy and others are under development. However, there is still much work to be done before most Bitcoin users use these features correctly.
Some allegations have been made that private transactions involving Bitcoin could be used for illegal purposes. It should be noted, however, that Bitcoin will undoubtedly be subject to similar regulations to those applied to pre-existing financial systems. Bitcoin cannot be more anonymous than cash and it is unlikely to prevent criminal investigations. In addition, Bitcoin is designed to prevent a large part of financial crime.
What happens to lost bitcoins?
If a user loses their wallet, it has the same effect as taking money out of circulation. "Lost" bitcoins remain in the blockchain like all other bitcoins. Apart from that, lost bitcoins remain inactive forever because there is no way to find the private keys with which they could be returned. Due to the principle of supply and demand, when there are fewer bitcoins there will be a higher demand for the rest to compensate and they will increase in value.
Can Bitcoin grow to become a major payment network?
The Bitcoin network can already process a larger number of transactions per second than it currently is. Even so, it has not yet reached the level of large credit card networks. The lifting of current restrictions is already in progress and future requirements are known. Since the introduction, everything in the Bitcoin network has been in a constant process of maturation, improvement and specialization, and it must be assumed that this will continue for a few years. As growth increases, more and more users will use "lightweight" clients and larger network nodes will tend to become specialized services. For more information, see the scalability page on the wiki.
Is Bitcoin Legal?
To the best of our knowledge, Bitcoin is not illegal in any jurisdiction. However, some jurisdictions (such as Argentina and Russia) restrict or completely prohibit foreign currencies. Other jurisdictions (like Thailand) may restrict the licensing of certain companies like Bitcoin exchanges.
Regulators in various countries are taking steps to provide individuals and companies with rules on how to incorporate this new technology into the formal, regulated financial system. For example, the Financial Crimes Enforcement Network (FinCEN), a division of the United States Treasury Department, has issued non-binding guidance on how to characterize certain virtual currency activities.
Is Bitcoin Useful For Illegal Activities?
Bitcoin is money, and money has always been used for legal and illegal purposes. Cash, credit cards and the ordinary banking system far outperform Bitcoin when it comes to financing criminal transactions. Bitcoin could revolutionize payments, and it is often believed that the benefits of such innovations far outweigh their potential drawbacks.
Bitcoin is designed to make money safer in the future and to offer better protection against many types of financial crime. Bitcoins, for example, are absolutely forgery-proof. Users have full control over their payment transactions and cannot be charged with unauthorized costs, as is the case with credit card fraud. Bitcoin transactions are irreversible and are therefore protected against chargeback fraud. Bitcoin makes it possible to secure money against theft and loss by using secure mechanisms such as backups, encryption and multiple signatures.
Some allegations have been made that Bitcoin could be more attractive to criminals because it can be used for private and irreversible payments. However, these options already exist with cash and wire transfers; both are frequently used and are firmly established. The use of Bitcoin will no doubt be subject to similar regulations as existing financial systems, and it is unlikely to prevent criminal investigations. In general, what all great achievements have in common is that they will be perceived as controversial until their utility is recognized. The internet is a good example of this, along with many others.
Can Bitcoin be regulated?
The Bitcoin protocol itself cannot be modified without the cooperation of almost all of its users, as they choose the software used. Trying to assign special rights in the global Bitcoin network to a local instance would be impractical. Any wealthy organization could invest in mining hardware to gain control of half of the network's computing power, enabling them to block or roll back new transactions. However, there is no guarantee that they will retain this power as they would have to invest as much as all the other miners in the world combined.
However, it is possible to regulate the use of Bitcoin in a similar way as with any other financial instrument. Like the dollar, Bitcoin can be used for a variety of purposes, some of which may or may not be viewed as either compliant or non-compliant depending on the jurisdiction of each country. In this regard, Bitcoin is no different from any other instrument and may be subject to different regulations in each country. The use of Bitcoin could also be severely restricted by restrictive regulation, which makes it difficult to predict how many users would continue to use the technology.A government that chooses to ban Bitcoin would prevent domestic businesses and markets from developing and push innovation to other countries. As always, the challenge for the regulator is to find efficient solutions without affecting the growth of new emerging markets and companies.
What about bitcoin and taxes?
Bitcoin is not recognized in any jurisdiction as fiat money, which has the status of recognized legal tender, but tax obligations can often arise regardless of the medium used. There are a wide variety of regulations in many different countries that can result in income, sales, wages, capital gains, or any other form of tax liability from using Bitcoin.
What about bitcoin and consumer protection?
Bitcoin enables individuals to conduct transactions on their own terms. Each user can send and receive payments in a similar way to cash, but one can also participate in more complex contracts. Multi-signatures enable transactions to be accepted by the network only when a certain number of people in a defined group sign the transaction. This enables the development of innovative brokerage services in the future. Such services could allow third parties to approve or decline a transaction without having control over the money in the event of a disagreement between the other parties. Unlike cash or other payment methods, Bitcoin always leaves behind public evidence that a transaction has taken place, which can potentially be used in recourse against companies with fraudulent practices.
Usually, dealers depend on their public reputation to continue their business operations and pay their employees, while dealers do not have access to similarly extensive information from new customers. The way Bitcoin works guarantees protection against chargeback fraud for both individuals and businesses. In addition, a customer has the option of asking for more protection if they don't trust a particular seller.
How are bitcoins created?
New bitcoins are generated through "mining", a competitive and decentralized process. This procedure provides that each individual is rewarded for their services by the network. Bitcoin miners process transactions and secure the network through the use of special hardware. In return, they receive new bitcoins.
The Bitcoin protocol is designed so that new bitcoins are generated at a set rate. That makes bitcoin mining a very competitive proposition. As more miners join the network, it becomes increasingly difficult to make a profit and miners need to increase their efficiency in order to reduce their operating costs. No central authority or developer has the power to control or manipulate the system in order to increase profits. Every Bitcoin node in the world rejects everything that does not follow the expected rules.
Bitcoins are generated at a decreasing and predictable rate. The number of new bitcoins that are generated each year is automatically halved over time, until the generation is completely stopped at a total of 21 million existing bitcoins. At this point in time, the Bitcoin miners are likely to be supported solely by a large number of small transaction fees.
Why do bitcoins have a value?
Bitcoins have value because they are useful as a form of money. Bitcoin has all the characteristics of money (persistence, portability, transferability, scarcity, divisibility, and recognizability), but is based on mathematical instead of physical properties (such as gold or silver) and trust in central entities (as with legal tender). In short, Bitcoin is backed up by math. With these attributes, all that is needed is trust and acceptance for a form of money to retain its value. As with all currencies, Bitcoin's value is created directly and only by the people who accept it as a means of payment.
What Determines the Bitcoin Price?
The price of a bitcoin is determined by supply and demand. If the demand for Bitcoins rises, the price rises; if it falls, the price also falls. There is only a limited number of bitcoins in circulation and new bitcoins are being produced at a predictable and declining rate, which means that demand must follow this rate of inflation in order to keep the price stable. Since Bitcoin is still a relatively small market compared to what it could one day become, it does not need large amounts of money to raise or lower the market price and therefore the price of a Bitcoin is still very volatile.
Bitcoin rate over time:
Can bitcoins become worthless?
Yes. History is full of currencies that have failed and are no longer used, such as the Deutsche Mark from the Weimar Republic or, more recently, the Zimbabwean dollar. Although until now the reason for the decline of currencies was typically due to hyperinflation, which is impossible with Bitcoin, there is always the risk of technical failure, competing currencies, political issues, etc. As a rule of thumb, no currency is considered to be completely safe from failure and crises can be considered. Since its inception, Bitcoin has proven to be reliable for years and there is great potential for growth. Still, nobody is able to predict what to expect from Bitcoin in the future.
Is Bitcoin a Bubble?
A rapid rise in price does not represent a bubble. An artificial overvaluation that leads to a sudden downward correction represents a bubble. Decisions based on the individual human actions of hundreds of thousands of market participants are the reason for the fluctuation in value of Bitcoin because the Market is in a pricing process. Reasons for changes in sentiment can also be the loss of confidence in Bitcoin, a large difference between value and price that is not based on the fundamentals of the Bitcoin economy, increased press interest that fuels speculative demand, and fear of uncertainty or just old-fashioned irrational exuberance and greed.
Is Bitcoin a pyramid scheme?
A pyramid scheme is a fraudulent investment business that pays investors income using their own money or the money of subsequent investors, rather than profits generated by the company. Pyramid schemes always collapse to the detriment of the last investor when there are no more investors.
Bitcoin is a free software project without a central authority. As a result, no one is in a position to make false promises about investment returns. As with major currencies such as gold, US dollars, euros, yen, etc., there is no guaranteed purchasing power and the exchange rate fluctuates freely. This creates volatility that can cause Bitcoin holders to unexpectedly gain or lose money. Beyond speculation, Bitcoin is also a payment system with useful and competitive properties that is used by thousands of users and businesses.
Doesn't Bitcoin unfairly favor early adopters?
Some early adopters own a large amount of bitcoins because they took risks and invested time and resources in an untested technology that was barely used and even more difficult to secure. Many early adopters spent large amounts of bitcoins numerous times before they became valuable, or bought only small amounts and made no big profits. There is no guarantee that the price of a bitcoin will continue to rise or fall. This is similar to investing in a start-up, which either gains in value through its use and awareness or never makes the big breakthrough. Bitcoin is still in its infancy and has been designed with a long-term perspective. It's hard to imagine how early adopters could be more or less favored, and today's users could be tomorrow's early adopters.
Will the limited amount of bitcoins not be a limitation?
Bitcoin is unique in that only a total of 21 million bitcoins can be generated. However, this will never be a restriction, as transactions can be specified in smaller denominations, such as "Bits" - 1,000,000 bits are 1 Bitcoin. Bitcoins can be divided up to the 8th decimal place (0.000 000 01) and (if necessary) into even smaller units if the average transaction size decreases.
Isn't Bitcoin going to fall into a deflationary spiral?
Deflationary spiral theory suggests that people postpone new purchases to take advantage of lower prices. This drop in demand, in turn, forces traders to lower their prices in an attempt to revive demand, which exacerbates the problem and leads to an economic crisis.
While this theory is popular among central bankers for explaining inflation, it does not always seem to hold true and is controversial among economists. Consumer electronics is an example of the market where prices are falling steadily and yet there is no crisis. Similarly, the value of Bitcoins has risen over time and yet the Bitcoin community has also grown dramatically at the same time. Because both the value of the currency and the community started from zero in 2009, Bitcoin is a counterexample for this theory, showing that things sometimes work differently.
Regardless, Bitcoin was not designed as a deflationary currency. It would therefore be more correct to say that Bitcoin should grow in the early years and then become stable. The amount of bitcoins in circulation will only decrease if people recklessly lose their wallets for not making backups. With a stable monetary base and economy, the value of the currency should stay the same.
Is speculation and volatility a problem for Bitcoin?
This is a chicken and egg problem. In order to stabilize the Bitcoin price, a large economy with more companies and users must develop. In order to develop a great economy, companies and users expect price stability.
Fortunately, the fluctuations do not affect the main advantages of Bitcoin as a payment system for transferring money from point A to point B. It is possible for companies to instantly convert Bitcoin payments into their local currencies, which allows them to benefit from the advantages of Bitcoin benefit without being influenced by price fluctuations. Because Bitcoin has numerous useful features and properties, many users have decided to use Bitcoin. With such solutions and incentives, it is possible for Bitcoin to mature and develop to a level where there is limited price fluctuation.
What if someone bought out all of the existing bitcoins?
So far, only a small part of the bitcoins generated to date is traded on stock exchanges. Bitcoin markets are competitive; the price of a bitcoin rises and falls based on supply and demand. In addition, bitcoins are generated for decades, which is why even the most determined buyer cannot buy up all of the existing bitcoins. However, this does not mean that markets are immune to manipulation. At the moment, it still doesn't take a particularly large amount to influence the Bitcoin price, which is why Bitcoin remains a volatile capital investment for the time being.
What if someone invents a better digital currency?
It can happen. For now, Bitcoin remains by far the most popular decentralized virtual currency, but there is no guarantee that it will remain in that position. There are now several other alternative currencies inspired by Bitcoin. However, it is certainly correct to assume that significant improvements would be needed for a new currency to overtake Bitcoin in terms of an established market, although this is unpredictable. Bitcoin could also potentially adopt improvements from a competing currency as long as it does not change fundamental parts of the protocol.
Why do I have to wait for a confirmation?
The notification of a payment is received almost immediately with Bitcoin. However, there is a time delay before the network confirms your transaction by putting it in a block. A confirmation means that there is an agreement on the network that the bitcoins you received have not been sent to anyone else and can therefore be considered your property. Once your transaction is entered into a block, it is continuously "buried" by each subsequent block, which exponentially strengthens the agreement and reduces the risk of a transaction being rolled back. Confirmation takes anywhere from a few seconds to up to 90 minutes, with 10 minutes being the average. If the fee for the transaction is too small or atypical in some other way, it can take much longer to get the initial confirmation. Each user can determine at what point they consider a transaction to be confirmed, but 6 confirmations are often seen as as secure as waiting 6 months for a credit card transaction.
How big will the transaction fee be?
Transactions can be made with no fees, but it can take days or weeks to confirm a free transaction. Even if the fees may increase in the future, they are currently very low. All Bitcoin wallets listed on Bitcoin.org add what they consider to a reasonable fee to a transaction. Most wallets also give you the option to review the fee before the transaction is carried out.
On the one hand, transaction fees protect against users who want to overload the network by sending transactions and, on the other hand, are intended to reward the miners who help secure the network. The exact way fees work is still developing and will change over time. Since the fee does not depend on the amount sent, it can appear either very low or disproportionately high. Rather, the fee is calculated relative to the size of the transaction in bytes, so using multi-signatures or transferring multiple previously received amounts can cost more than a simple transaction. If your activity follows the pattern of normal transactions, you won't have to pay abnormally high fees.
What if I receive a bitcoin while my computer is off?
That works fine. The bitcoins will appear in your wallet the next time you start your wallet application. Bitcoins are not received by the software on your computer, but are recorded in a public booking system that is shared by all devices in the network. If you receive bitcoins while your wallet application is switched off, when you start the program later, it will download all blocks and synchronize them with the bookings that have not yet been recorded. The bitcoins will ultimately appear as if they were received in real time. So you only need your wallet if you want to spend bitcoins.
What does "synchronization" mean and why does it take so long?
Long synchronization times are only necessary for "full node" clients such as Bitcoin Core. From a technical point of view, synchronization is a process in which all previous Bitcoin transactions are downloaded and checked. In order to calculate the account balance and carry out transactions, some Bitcoin clients need to know all previous transactions. This step can be very resource-intensive and requires sufficient bandwidth and hard disk space to store the entire blockchain. In order for Bitcoin to remain secure, enough people must continue to use "Full Node" clients because they take on the task of validating and forwarding transactions.
What is Bitcoin Mining?
Mining is a process in which computing power is made available to process transactions, secure the network and keep all participants in the system synchronized with one another. It can be seen as the Bitcoin data center, with the difference that it is designed to be completely decentralized. The miners are spread all over the world and no individual is in control of the network. This process is called "mining" in analogy to gold prospecting because it is also a mechanism for generating new bitcoins. Unlike gold mining, Bitcoin mining offers a reward for useful services that are necessary to operate a secure payment network. Mining will still be needed after the last bitcoin has been generated.
How does Bitcoin mining work?
Anyone can become a bitcoin miner by running software with specialized hardware.The mining software waits for transactions to be transmitted through the peer-to-peer network and performs appropriate work to process and confirm these transactions. Bitcoin miners do this work because they receive transaction fees paid by users for faster processing of their transactions, as well as newly generated bitcoins that are spent according to a set scheme.
In order for new transactions to be confirmed, they must be added to the blockchain using a mathematical proof of work. This evidence is very difficult to find because there is no other way to do it than trying billions of calculations per second. Because of this, miners need to do these calculations before their blocks are accepted by the network and ultimately rewarded. As soon as more people start mining, the network automatically increases the difficulty level for calculating valid blocks. This ensures that the average time it takes to find a new block remains around 10 minutes. As a result, there is a lot of competition in mining and no single miner can control what is added to the blockchain.
In addition, the proof-of-work is designed in such a way that it is based on the last block found in order to force a chronological order of the blockchain. In this way, it becomes more and more difficult to reverse previous transactions because it requires the recalculation of all subsequent proof-of-work calculations. If two blocks are found at the same time, miners work on the first block they receive and switch to the longer chain of blocks as soon as the next block is found. This enables miners to find and maintain a global consensus based on computing power.
Bitcoin miners are unable to cheat by increasing their own reward, nor can they process fraudulent transactions because all Bitcoin nodes would reject any block that contains data that is invalid according to the rules of the Bitcoin protocol. As a result, the network remains secure, even if not all miners can be trusted.
Isn't Bitcoin mining a waste of energy?
Investing energy in the operation and security of a payment system is not a waste. As with any other payment system, Bitcoin creates a cost in processing. Services that are necessary to operate the current currency system, such as banks, credit cards or armored vehicles, also consume a lot of energy. In contrast to Bitcoin, however, its entire consumption is not transparent and difficult to measure.
Bitcoin mining was designed to optimize energy requirements over time with specialized hardware. The operating costs for mining should remain proportional to demand. When bitcoin mining becomes too competitive and less profitable, some miners will cease operations. In addition, the energy for mining will ultimately be converted into heat and the most profitable miners will be those who use this heat profitably. The most efficient mining network is the one that actually does not require any additional energy. While this is an ideal, the economy of Bitcoin mining is designed so that every miner personally strives for it.
How does mining help protect Bitcoin?
Mining creates the equivalent of a competitive lottery that makes it very difficult for someone to continually add new blocks of transactions to the blockchain. This protects the neutrality of the network, as it ensures that no one is given the power to block certain transactions. It also prevents someone from undoing their own expenses and thus defrauding other users. Mining makes it exponentially more difficult to roll back previous transactions because it would require rewriting all transactions in the following blocks.
What do I need to start mining?
In the past, anyone could generate new blocks themselves with the CPU of their computer. As more and more people started mining bitcoins, the difficulty in finding new blocks has increased. Nowadays, the only profitable way to find new bitcoins is by using specialized hardware. Please visit BitcoinMining.com for more information
Is Bitcoin Safe?
Bitcoin technology - the protocol and cryptography - have a compelling track record of security, and the Bitcoin network is arguably the largest decentralized computing project in the world. Bitcoin's sore point is the user error. Bitcoin wallet files that store the necessary private keys can be accidentally deleted, lost or stolen. This is comparable to cash in digital form. Fortunately, users can take advantage of solid security practices or resort to service providers who offer a high level of protection and security against theft or loss.
Hasn't Bitcoin been hacked in the past?
The rules of the protocol and the encryption used in Bitcoin are still working years after they were first introduced, which is a good sign that the concept has been well designed. However, some security holes have been found and over time, various software changes have corrected them. As with any other type of software, Bitcoin's security depends on the speed at which problems are detected and eliminated. The more such problems are discovered, the faster Bitcoin matures.
There are often misconceptions about theft and security gaps at various stock exchanges or companies. While these incidents are unfortunate, Bitcoin itself is not involved in any hacker attack or vulnerability. A bank robbery doesn't mean that the dollar is at risk either. Still, it is correct to say that a full package of best practices and intuitive security solutions is needed to better protect users' money and reduce the overall risk of theft and loss. Security features such as wallet encryption, offline wallets, hardware wallets and multi-signature transactions have developed rapidly in recent years.
Could users conspire against Bitcoin?
It is not possible to change the Bitcoin protocol. Any Bitcoin client who does not follow the rules cannot simply impose their own rules on other users. According to the current specification, it is neither possible to spend one's assets twice within the same blockchain (English "double spending"), nor can it be spent without a valid signature. Therefore, it is not possible to generate uncontrolled sums of bitcoins out of nowhere, to spend the assets of other users, to corrupt the network or the like.
However, a majority of miners could arbitrarily choose to block or reverse recent transactions. A majority of users could also apply pressure for certain changes to be adopted. Because Bitcoin only works correctly when there is consensus among all users, changing the protocol can be very difficult. It takes an overwhelming majority of users to commit changes and leave the remaining users with next to no choice to follow. Basically, it's hard to imagine a Bitcoin user adopting a change that could endanger their own money.
Is Bitcoin at Risk from Quantum Computing?
Yes, as are most cryptographic-based systems, including traditional banking systems. However, quantum computers don't yet exist and will likely stay that way for a while. In the event that quantum computers pose an immediate threat to Bitcoin, the protocol could be upgraded with post-quantum algorithms. Given the importance that this retrofit would have, one can safely assume that it would be reviewed by a large number of developers and adopted by all Bitcoin users.
I want to know more. Where can I get help?
For more information and help, see the Resource and Community Pages, as well as the Wiki FAQ.
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