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What is Bitcoin mining?

Started by admin, Oct 15, 2019, 06:14 pm

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What is Bitcoin mining?
Bitcoin mining refers to the process through which new Bitcoins are created and given to computers helping to maintain the network. The computers involved in Bitcoin mining are in a sort of computational race to process new transactions coming onto the network. The winner -- generally the person with the fastest computers -- gets a chunk of new Bitcoins, 12.5 of them right now. (The reward is halved every four years.)
There is generally a new winner about every 10 minutes, and there will be until there are 21 million Bitcoins in the world. At that point, no new Bitcoins will be created. This cap is expected to be reached in 2140. So far, about 16 million Bitcoin have been distributed.
Every Bitcoin in existence was created through this method and initially given to a computer helping to maintain the records. Anyone can set his or her computer to mine Bitcoin, but these days only people with specialized hardware manage to win the race.
Are there Bitcoin competitors?
Plenty. But these other virtual currencies do not have as many followers as Bitcoin, so they are not worth as much. As in the real world, a currency is worth only as much as the number of people willing to accept it for goods and services.
Who is Satoshi Nakamoto?
Bitcoin was introduced in 2008 by an unknown creator going by the name of Satoshi Nakamoto, who communicated only by email and social messaging. While several people have been identified as likely candidates to be Satoshi, as the creator is known in the world of Bitcoin, no one has been confirmed as the real Satoshi, and the search has gone on.
Satoshi created the original rules of the Bitcoin network and then released the software to the world in 2009. Satoshi largely disappeared from view two years later. Anyone can download and use the software, and Satoshi now has no more control over the network than anyone else using the software.

What is Bitcoin? [The Most Comprehensive Step-by-Step Gu >
What is Bitcoin and how does it work?
Definition: Bitcoin is a cryptocurrency, a form of electronic cash. It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin blockchain network without the need for intermediaries.
Updated April 2019.
If you want to know what is Bitcoin, how you can get it and how it can help you, without floundering into technical details, this guide is for you. It will explain how the system works, how you can use it for your profit, which scams to avoid. It will also direct you to resources that will help you store and use your first pieces of digital currency. If you are looking for something even more in detail please check out our blockchain courses on bitcoin.
What is Bitcoin in a nutshell.
Small wonder that Bitcoin emerged in 2008 just after Occupy Wall Street accused big banks of misusing borrowers' money, duping clients, rigging the system, and charging boggling fees. Bitcoin pioneers wanted to put the seller in charge, eliminate the middleman, cancel interest fees, and make transactions transparent, to hack corruption and cut fees . They created a decentralized system, where you could control your funds and know what was going on.
Bitcoin has come far in a relatively short time. All over the world, companies, from REEDS Jewelers , a large jewelry chain in the US, to a private hospital in Wa rsaw, Poland, accept its currency. Billion dollar businesses such as Dell, Expedia, PayPal, and Microsoft do, too. Websites promote it, publications such as Bitcoin Magazine publish its news, forums discuss cryptocurrency and trade its coins. It has its application programming interface (API), price index, and exchange rate.
Problems include thieves hacking accounts, high volatility, and transaction delays. On the other hand, people in third world countries may find Bitcoin their most reliable channel yet for giving or receiving money.
Buy Bitcoin.
Key Metrics:
Key Highlights.
October 31, 2008: Bitcoin whitepaper published. January 3, 2009: The Genesis Block is mined. January 12, 2009: The first Bitcoin transaction. December 16, 2009: Version 0.2 is released. November 6, 2010: Market cap exceeds $1 million USD. October 2011: Bitcoin forks for the first time to create Litecoin. June 3, 2012: Block 181919 created with 1322 transactions. It is the largest block to-date. June 2012: Coinbase launches. September 27, 2012: Bitcoin Foundation is formed. February 7, 2014: Mt. Gox hack. June 2015: BitLicense gets established. This is one of the most significant cryptocurrency regulations. August 1, 2017: Bitcoin forks again to form Bitcoin Cash. August 23, 2017: SegWit gets activated. September 2017: China bans BTC trading. December 2017: First bitcoin futures contracts were launched by CBOE Global Markets (CBOE) and the Chicago Mercantile Exchange (CME). September 2018: Cryptocurrencies collapsed 80% from their peak in January 2018, making the 2018 cryptocurrency crash worse than the Dot-com bubble's 78% collapse. November 15, 2018: Bitcoin's market cap fell below $100 billion for the first time since October 2017. October 31, 2018: 10-year anniversary of Bitcoin.
Understanding Bitcoin - What is Bitcoin in-depth?
Understanding Bitcoin - What is Bitcoin in-depth?
At its simplest, Bitcoin is either virtual currency or reference to the technology. You can make transactions by check, wiring, or cash. You can also use Bitcoin (or BTC), where you refer the purchaser to your signature, which is a long line of security code encrypted with 16 distinct symbols. The purchaser decodes the code with his smartphone to get your cryptocurrency. Put another way; cryptocurrency is an exchange of digital information that allows you to buy or sell goods and services.The transaction gains its security and trust by running on a peer-to-peer computer network that is similar to Skype, or BitTorrent, a file-sharing system.
Bitcoin Transactional properties:
1.) Irreversible : After confirmation, a transaction can't be reversed. By nobody. And nobody means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not your miner. Nobody. If you send money, you send it. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net.
2.) Pseudonymous: Neither transactions or accounts are connected to real-world >
3.) Fast and global: Transaction is propagated nearly instantly in the network and are confirmed in a couple of minutes. Since they happen in a global network of computers they are completely indifferent of your physical location. It doesn't matter if I send Bitcoin to my neighbor or to someone on the other side of the world.
4.) Secure: Bitcoin funds are locked in a public key cryptography system. Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers makes it impossible to break this scheme. A Bitcoin address is more secure than Fort Knox.
5.) Permissionless : You don't have to ask anybody to use cryptocurrency. It's just a software that everybody can download for free. After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper.
The creator of bitcoin figured out a way to let two entities confidently trade directly with one another, without the need to rely on all these intermediaries. The key is mathematics. As long as we both trust in math, we can be confident the exchange to occur as expected.
Bitcoin uses public key cryptography and an innovative approach to bookkeeping to achieve the authorization, balance verification, prohibition on double spending, delivery of assets and record inalterability described above. And it happens in near real time at no cost.
Cryptography ensures authorization. You need a private key to transact. And your key is complex enough that it would take the best computer longer than the earth has existed to crack it. In other words, it's essentially unhackable.
- Director of Communications at Overstock.com and Chief Evangelist at t0.com.
Where can I find Bitcoins?
First, we would recommend you read this in-depth guide for buying Bitcoin.
You can get your first bitcoins from any of these four places.
A cryptocurrency exchange where you can exchange 'regular' coins for bitcoins, or for satoshis, which are like the BTC-type of cents. Resources: Coinbase and Coinsquare in the US & Canada, and BitBargain UK and Bittylici o us in the UK. A Bitcoin ATM (or cryptocurrency exchange) where you can change bitcoins or cash for another cryptocurrency. Resources: Your best bets are BTER and CoinCorner A classified service where you can find a seller who will help you trade bitcoins for cash. Resources: The definitive site is LocalB i tcoins . You could sell a product or service for bitcoins. Resources: Sites like Purse .
Caution! Bitcoin is notorious for scams, so before using any service look for reviews from previous customers or post your questions on the Bitcoin forum .
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admin

How does Bitcoin work?
"Unlike traditional currencies, which are issued by central banks, Bitcoin has no central monetary authority. Instead it is underpinned by a peer-to-peer computer network made up of its users' machines, akin to the networks that underpin BitTorrent, a file-sharing system, and Skype, an audio, v >mathematically generated as the computers in this network execute difficult number-crunching tasks, a procedure known as Bitcoin "mining". The mathematics of the Bitcoin system were set up so that it becomes progressively more difficult to "mine" Bitcoins over time, and the total number that can ever be mined is limited to around 21 million. There is therefore no way for a central bank to issue a flood of new Bitcoins and devalue those already in circulation."
How can I store my bitcoins?
To see how the system works, imagine someone called Alice who's trying out Bitcoins. She'd sign up for a cryptocurrency wallet to put her bitcoins in.
The Bitcoin Wallets.
There are three different applications that Alice could use.
Full client - This is like a standalone email server that handles all aspects of the process without relying on third-party servers. Alice would control her whole transaction from beginning to end by herself. Understandably, this is not for beginners. Lightweight client - This is a standalone email client that connects to a mail server for access to a mailbox. It would store Alice's bitcoins, but it needs a third-party-owned server to access the network and make the transaction. Web client - This is the opposite of "full client" and resembles webmail in that it totally relies on a third-party server. The third party replaces Alice and operates her entire transaction.
You'll find wallets that come in five main types: D esktop, mobile, web, paper and hardware. Each of these has its advantages and disadvantages .
How do I buy and sell stuff with Bitcoins?
Here's the funny thing with Bitcoins: there are no physical traces of them as of dollars. All you have are only records of transactions between different addresses, with balances that increase and decrease in their records that are stored on the blockchain.
To see how the process works, let's return to Alice.
Example of a Bitcoin transaction.
Alice wants to use her Bitcoin to buy pizza from Bob. She'd send him her private "key," a private sequence of letters and numbers, which contains her source transaction of the coins, amount, and Bob's digital wallet address. That "address" would be another, this time, the public sequence of letters and numbers. Bob scans the "key" with his smartphone to decode it. At the same time, Alice's transaction is broadcast to all the other network participants (called "nodes") on her ledger, and, approximately, ten minutes later, is confirmed, through a process of certain technical and business rules called "mining." This "mining" process gives Bob a score to know whether or not to proceed with Alice's transaction.
The transaction between Alice and Bob.
What is Bitcoin Mining?
Mining, or processing, keep the Bitcoin process secure by chronologically adding new transactions (or blocks) to the chain and keeping them in the queue. Blocks are chopped off as each transaction is finalized, codes decoded, and bitcoins passed or exchanged.
Miners can also generate new bitcoins by using special software to solve cryptographic problems . This provides a smart way to issue the currency and also provides an incentive for people to mine.
The reward is agreed-upon by everyone in the network but is generally 12.5 bitcoins as well as the fees paid by users sending transactions. To prevent inflation and to keep the system manageable, there can be no more than a fixed total number of 21 million bitcoins (or BTCs) in circulation by the year 2040, so the "puzzle" gets increasingly harder to solve.
What do I need to know to protect my Bitcoins?
Here are four pieces of advice that will help your bitcoins go further.
As you'd do with a regular wallet, only store small amounts of bitcoins on your computer, mobile, or server for everyday uses, and keep the remaining part of your funds in a safer environment.
Backup your wallet on a regular basis and encrypt your wallet or smartphone with a strong password to protect it from thieves (although, unfortunately, not against keylogging hardware or software). Store some of your bitcoins in an offline wallet disconnected from your network for added security. Think of this as a bank, while you, generally, keep only some of your money in your wallet. Update your software. For added protection, use Bitcoins' multi-signature feature that allows a transaction to require multiple independent approvals to be spent.
Spending some time on these steps can save your money.
We recommend the Nano Ledger S - Hardware Wallet.
Nano Ledger S is just as secure as the other two hardware wallets. It is popular because of its relatively low price of $65 compared to its competitors. Being smaller than KeepKey, it is more portable and easier to carry around. It is a hardware wallet that comes at a very competitive price.
Important Bitcoin Charts.
Bitcoin Performance over the months.
The chart above is a candlestick representation of Bitcoin's price over the months. Pay attention to the last eight candlesticks. From August 2018 to January 2019, Bitcoin has had six consecutive red candlesticks. What this shows is that for those six months, Bitcoin has been in loss. However, the two latest months are green, in other words, they were profitable months.
Total Transaction fees collected in the last ten 10 days.
24th April saw the most transaction fees collected with 131 BTC given away as transaction fees.
Total transactions conducted in the last 10 days.
When it comes to the total number of transactions sent per day, we can make some interesting observations:
Total daily transactions fluctuate between 300,000 - 400,000. 24th April saw the most transactions in our data set with 404,279. 23rd April saw the least amount of transactions in our data set with 311,753. In our data set, 24th April saw the most number of transactions and most transaction fees collected. Interestingly, 23rd April didn't coincide with the least number of transaction fees collected. The least total amount of transaction fees was collected on 21st April, which also saw the second highest number of transactions!
Average daily transaction fees for the last 10 days.
Till now we have total transaction fees collected and the total number transactions executed. Now, we can use these two to find out how much was the average daily transaction fees. The formula is simple:
Average transaction fees = Total transaction fees collected / Total number of transactions.
24th April has the highest daily average transaction fees with 0.00032 BTC. 21st April has the least daily average transaction fees with 0.00012 BTC, despite having the second highest number of transactions in our dataset. Upon further calculation, we discovered that the average transaction fees for the last 10 days was 0.00022 BTC or $1.13.
Total daily transaction value sent over the last 10 days.
Right off the bat, 24th April sticks out yet again. On that day, 279,421 BTC was transferred. 21st April saw the least number Bitcoins transferred with 65,431 BTC. Only on 20th and 21st April were less than 100,000 BTC transferred. Over the last 10 days, the average amount of BTC sent daily was 140,488 BTC.
The average value of each transaction.
We can use a simple formula to calculate the average value of each transaction: Total BTC sent that day/Total number of transactions.
On 24th April, the average value of each transaction sent was the highest at 0.473 BTC. 21st April had the least with 0.167 BTC. 17th and 23rd April also saw high values with 0.473 BTC and 0.477 BTC respectively. If we take an average of all these values, then we get, 0.387 BTC or $2002 . We can infer that for a transaction worth $2002 we only need to send $1.13 in transaction fees. So transaction fees in our data set is 0.56%. For that same transaction, PayPal would have charged you $58.30 (calculated via salecalc ).
The graph above shows how many addresses own a particular range of Bitcoins. There are only five addresses which own more than 100,000 BTC. 98 addresses own 10,000-100,000 Bitcoins. A huge chunk of the addresses (45.5%) either own 0.0001-0.001BTC or 0.001-0.01 BTC.
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What else do I need to know?
Protect your address: Although your user identity behind your address remains anonymous, Bitcoin is the most public form of transaction with anyone on the network seeing your balances and log of transactions. This is one reason why you should change Bitcoin addresses with each transaction and safeguard your address. You can also use multiple wallets for different purposes so that your balance and transaction history remain private from those who send you money.
Your confirmation score: As said, you receive a confirmation score of about 10 minutes before you make your purchase. Different wallets have their own reading.
Government taxes and regulations : Government and local municipalities require you to pay income, sales, payroll, and capital gains taxes on anything that is valuable - and that includes bitcoins. The legal status of Bitcoin varies from country to country, with some still banning its use. Regulations also vary with each state. In fact, as of 2016, New York state is the only state with a bitcoin rule, commonly referred to as a BitLicense . As shown in the Table above, zero is the least with the number 3 being the most reliable for average bitcoin transfers. If you're sending or paying for, something valuable, wait until you, at least, receive a 6.
What are the disadvantages of Bitcoin?
Bitcoin got off on the wrong foot by claiming an apocryphal person (or persons), Satoshi Nakamoto as its founder. Nakamoto has never been found.
Regarding more practical concerns, hacking and scams are the norms. They happen at least once a week and are getting more sophisticated. Bitcoin's software complexity and the volatility of its currency dissuade many people from using it, while its transactions are frustratingly slow. You'll have to wait at least ten minutes for your network to approve the transaction. Recently, some Reddit users reported waiting more than one hour for their transactions to be confirmed.
Scams to watch out for.
The four most typical Bitcoin scams are Ponzi schemes, mining scams, scam wallets and fraudulent exchanges.
Ponzi Scams : Ponzi scams, or high-yield investment programs, hook you with higher interest than the prevailing market rate (e.g. 1-2% interest per day) while redirecting your money to the thief's wallet. They also tend to duck and emerge under different names in order to protect themselves. Keep away from companies that give you Bitcoin addresses for incoming payments rather than the common payment processors such as BitPay or Coinbase. Bitcoin Mining Scams : These companies will offer to mine outrageous amounts of bitcoin for you. You'll have to pay them. That's the last you'll see of your money (with no bitcoins to show for it, either). Bitcoin Exchange Scams : Bitcoin Exchange Scams offer features that the typical bitcoin wallets don't offer, such as PayPal/Credit Card processing, or better exchange rates. Needless to say, these scams leave you in the hang while they siphon your dollars. Bitcoin Wallet Scams : Bitcoin scam wallets are similar to online wallets - with a difference. They'll ask you for your money. If robbers like the amount, that's the last you'll see of your deposit. The address, in other words, leads to them, rather than to you.
Of all of these, wallet scams are the most popular with scammers managing to pinch millions.
What are the advantages of Bitcoin?
The best thing about Bitcoin is that it is decentralized, which means that you can settle international deals without messing around with exchange rates and extra charges. Bitcoin is free from government interference and manipulation, so there's no Federal Reserve System‍ to hike interest rates. It is also transparent, so you know what is happening with your money. You can start accepting bitcoins instantly, without investing money and energy into details, such as setting up a merchant account or buying credit card processing hardware. Bitcoins cannot be forged, nor can your client demand a refund.
It's small wonder that users call Bitcoin "Money 2.0" or that Bill Gates called it "a techno tour de force."
Tyler Winklevoss, co-creator of Facebook, summed it up when he said:
"We have elected to put our money and faith in a mathematical framework that is free of politics and human error."
Rick Falkvinge, Founder of the Swedish Pirate party, predicted that.
"Bitcoin will do to banks what email did to the postal industry."
According to John McAfee, Founder of McAfee,
"You can't stop things like Bitcoin. It will be everywhere and the world will have to readjust."
What is Bitcoin: Conclusion.
Where do I go from here?
Here are various resources that will direct you to best places for finding wallets, stores that accept bitcoins, exchanges for trading Bitcoin, and Bitcoin news, prices, charts, guides and analysis among other information.
Bitcoin has been through several obstacles recently with the Bitcoin Cash fork and SegWit implementation. Bitcoin, over the last 11 years, has truly disrupted the world's economy and financial systems. Having said that, this is just the beginning. The Bitcoin revolution still has a lot of miles to go. It is going to super exciting to see where we are going to go on from here.
99Bitcoins - 99Bitcoins supplies v >Bitcoin.org - Choose your Bitcoin wallet from 12 different mobile, desktop and hardware applications. Coinmap - For bitcoiners who want to spend their BTC at brick-and-mortar locations, Coinmap refers you to hundreds of retailers who accept bitcoin at their physical store locations. Blockchain.info - Blockchain info is the go-to place for checking transactions on the ledger. You can check how much money your wallet contains, or, for that matter, how much BTC is stored at any particular wallet address. Bitnodes - Run by the Bitcoin Foundation, Bitnodes estimates and visualizes the size of the bitcoin network. Wizbit - Wizbit shows all transactions and newly mined blocks in real time on an eye-catching spinning globe. We Use Coins - Weusecoins.com is a list of credible exchanges for trading Bitcoins worldwide or in the U.S. Buy Bitcoin Worldwide - Get help finding a Bitcoin exchange.
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1) Q: What is Bitcoin?
2) Q: Who created Bitcoin?
3) Q: Is Bitcoin real money?
4) Q: How old is Bitcoin?
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Rohit Duggal @cryptonooob.
Rohit Duggal @cryptonooob.
Shall be submitting your tutorial here - https://hackr.io/tutorials/learn-bitcoin Thank You.
paul retrop @superaffiliemrugmail-com.
paul retrop @superaffiliemrugmail-com.
very good beginner guide. thanks.
Anastasia Steel @madeinusagraygmail-com.
Anastasia Steel @madeinusagraygmail-com.
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What is Bitcoin?
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The value of digital currency Bitcoin is making headlines again.
Amid volatile trade in November and December, it hit a peak of more than $17,000 at one point - a staggering rise, given that it started the year at $1,000.
So what exactly is Bitcoin, and what's behind the buying frenzy?
What is Bitcoin?
There are two key traits of Bitcoin: it is digital and it is seen as an alternative currency.
Unlike the notes or coins in your pocket, it largely exists online. Although there are some specialist ATMs which issue bitcoins, it may be best to think of them as being more like virtual tokens.
And secondly, Bitcoin is not printed by governments or traditional banks.
That means it is "not legal tender, you can't pay your taxes or use it to settle debts", says Dr Garrick Hileman of the Judge Business School at University of Cambridge.
Bitcoins are created through a complex process known as "mining", and then monitored by a network of computers across the world.
There's a steady stream of about 3,600 new bitcoins a day - with about 16.5 million now in circulation.
However, like all currencies its value is determined by how much people are willing to buy and sell it for.
Why has it gone up so much this year?
No one is entirely sure. Some say it's a classic economic bubble: frenzied investors paying far more for an asset than it's worth for fear of missing out.
They put it in the same bracket as the mania for Dutch tulip bulbs in the 1630s or internet companies in the dot.com boom.
Others point to the growing prospect of Bitcoin crossing over into the financial mainstream.
"Speculation is a big part of this, but there are signs of growing use," says Dr Hileman.
He says there were between three and six million people around the world actively using crypto-currency in April.
"Today it's probably closer to 10 to 20 million, so it's a very quickly growing user base," he says. That's the equivalent of a population the size of the Netherlands or Chile.
There has also been a boost by some large financial institutions, like the owner of the Chicago Mercantile Exchange, getting into the space, he adds.
How do people buy Bitcoin?
There are now thousands of different crypto-currencies, but Bitcoin is still the best-known. To receive a bitcoin a user must have a Bitcoin address - a string of 27 to 34 letters and numbers.
This acts as a kind of virtual postbox to and from which the bitcoins are sent.
There is no registry linking real names to addresses, which helps some Bitcoin users to protect their anonymity. Bitcoin wallets store the addresses and are used to manage savings.
They operate like privately-run bank accounts - with the proviso that if the data is lost, so are the bitcoins owned. Increasingly, users are often asked for ID to open a wallet.
The rules underpinning Bitcoin say that only 21 million bitcoins can be created - and that figure is getting ever nearer. It is unclear what will happen to the value of bitcoins when that limit is reached.
Can they use bitcoins to buy things?
The anonymity afforded by digital currencies has attracted people wanting to make illegal purchases on the internet.
However, a small but growing number of recognised businesses now allow customers to buy goods and services with Bitcoin.
They range from multinational firms like Microsoft and travel booking site Expedia, through to small businesses using it as something of a novelty, such as a sushi restaurant in Cambridge or an art gallery in London.
It is not the same as established currencies, like the US dollar, which can be used across the world to buy a coffee or pay for a hotel room.
A 900% rise in one year for a traditional currency would have major repercussions for consumers' spending power and the businesses that accept it.
But many Bitcoin owners don't use it to buy things.
"The vast majority of users - I would estimate upwards of 80% or 90% - get into the space for investment reasons," says Dr Hileman.
"So you see the term 'crypto-asset' being used to describe Bitcoin more than 'crypto-currency' these days."
What concerns do regulators have?
At the moment Bitcoin is largely unregulated, says Bradley Rice, an expert in financial regulation at the law firm Ashurst.
It has been widely used on the dark web, which cannot be accessed via a normal internet browser without using a workaround.
There are also concerns about its volatility. The chart below compares Bitcoin to the pound and euro. All the values start at 100 to compare the currencies more clearly.
Because of Bitcoin's much faster growth, the chart uses a different approach on the y-axis where the smaller the gap, the faster the increase.
China and South Korea have serious worries. They have banned the launch of new virtual currencies via so-called "initial coin offerings" - where companies or individuals issue their own digital currencies for investors to buy - and have been shutting down exchanges on which they are traded.
The UK's Financial Conduct Authority warned investors in September they could lose all their money if they buy digital currencies issued by firms, known as "initial coin offerings".
But the underlying technology of Bitcoin is regarded by some major financial institutions as bullet-proof.
"That's potentially why financial regulators [in Europe] are adopting largely a 'wait and see' approach," says Mr Rice.
Is it all a bubble?
There is no shortage of financial journalists or experts saying Bitcoin's surge is a bubble.
"There may be good reasons for buying bitcoin," an article in The Economist said recently. "But the dominant reason at the moment is that it is rising in price."
Bitcoin has doubled in value in the space of a month - which has led some to argue it is too volatile to be seen as a currency, and warned that a crash is inevitable.
However, Bitcoin has been "declared dead" a few times already, says Dr Hileman.
"It's shown some resilience and bounced back from some near-death experiences," he says.
At the same time, many would agree this is "very bubbly", and he predicts we may see a "spectacular crash again in the not-too-distant future".
"So hang on tight if you are a holder of these currencies," he concludes.
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What is Bitcoin?
Many people believe Bitcoin to be very complicated, when in fact it's a lot more simple and intuitive than what most people think. This series aims to help everyone get a grasp of the basics, and over time also present further learning opportunities for those that want to know more.
Bitcoin is often explained by comparing it to something specific people already know, but this is often what creates a lot of confusion. Bitcoin is a new technology that is unlike anything we have seen before, so a better way to think of it is as a combination of a few different things we are already used to:
Firstly, because it allows you to move money so easily, Bitcoin functions as a payment system, similar to bank transfers or credit cards, only a bit better.
Second, Bitcoin is in some sense similar to gold - that is why many people even refer to it as 'digital gold' or 'Gold 2.0'. Think of it as using gold for money, except it also very easy to move.
Third, Bitcoin is like the internet in that no single person or entity controls it, so anyone can pretty much use it as they like. This gives it some very unique characteristics.
These three characteristics also reinforce one another, so they are all interwoven. But more on all of this in the next few sections. For now, just imagine what would happen if you took a big pot and threw in a credit card, a piece of gold, and a hint of 'internet' - mix it all up - and pull out a brand new compound - Bitcoin!
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What is bitcoin.
Where do bitcoins come from? With paper money, a government decides when to print and distribute money. Bitcoin doesn't have a central government.
With Bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine.
Bitcoin is Secure.
Bitcoin miners help keep the Bitcoin network secure by approving transactions. Mining is an important and integral part of Bitcoin that ensures fairness while keeping the Bitcoin network stable, safe and secure.
Links.
We Use Coins - Learn all about crypto-currency. Bitcoin News - Where the Bitcoin community gets news. Bitcoin Knowledge Podcast - Interviews with top people in Bitcoin.
Bitcoin Mining Hardware Comparison.
Currently, based on (1) price per hash and (2) electrical efficiency the best Bitcoin miner options are:
AntMiner S7.
4.73 Th/s 0.25 W/Gh 8.8 pounds Yes N/A 0.1645.
AntMiner S9.
13.5 Th/s 0.098 W/Gh 8.1 pounds Yes N/A 0.3603.
Avalon6.
3.5 Th/s 0.29 W/Gh 9.5 pounds No N/A 0.1232.
Overview - Table of Contents Mining Hardware Comparison What is Bitcoin Mining? What is the Blockchain? What is Proof of Work? What is Bitcoin Mining Difficulty? The Computationally-Difficult Problem The Bitcoin Network Difficulty Metric The Block Reward.
Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions or blockchain . This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.
Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
What is Bitcoin Mining?
What is the Blockchain?
Bitcoin mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function.
The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a "subsidy" of newly created coins.
This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.
Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.
What is Proof of Work?
A proof of work is a piece of data which was difficult (costly, time-consuming) to produce so as to satisfy certain requirements. It must be trivial to check whether data satisfies said requirements.
Producing a proof of work can be a random process with low probability, so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work.
What is Bitcoin Mining Difficulty?
The Computationally-Difficult Problem.
Bitcoin mining a block is difficult because the SHA-256 hash of a block's header must be lower than or equal to the target in order for the block to be accepted by the network.
This problem can be simplified for explanation purposes: The hash of a block must start with a certain number of zeros. The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made. In order to generate a new hash each round, a nonce is incremented. See Proof of work for more information.
The Bitcoin Network Difficulty Metric.
The Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes.
As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.
The Block Reward.
When a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network. Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks. See Controlled Currency Supply.
Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income.
Bitcoin Mining™® © 2011-2018 Hesiod Services LLC | Terms | Privacy.
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What is bitcoin.
I'm a big fan of Bitcoin. Regulation of money supply needs to be depoliticized.
Al Gore.
Bitcoin is a technological tour de force.
Bill Gates.
Every informed person needs to know about Bitcoin because it might be one of the world's most important developments.
Leon Louw.
What is Bitcoin?
With the Bitcoin price so volatile everyone is curious. Bitcoin, the category creator of blockchain technology , is the World Wide Ledger yet extremely complicated and no one definition fully encapsulates it. By analogy it is like being able to send a gold coin via email. It 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. Bitcoin was the first practical implementation and is currently the most prominent triple entry bookkeeping system in existence.
Who created Bitcoin?
The first Bitcoin specification and proof of concept was published in 2009 by an unknown individual under the pseudonym Satoshi Nakamoto who revealed little about himself and left the project in late 2010. The Bitcoin community has since grown exponentially.
Satoshi's anonymity often raises unjustified concerns because of a misunderstanding of Bitcoin's open-source nature. Everyone has access to all of the source code all of the time and any developer can review or modify the software code. As such, the identity of Bitcoin's inventor is probably as relevant today as the identity of the person who invented paper.
Who is involved in Bitcoin?
Over $1B of investment into Bitcoin and blockchain companies has taken place resulting in thousands of companies and hundreds of thousands of individuals involved from around the world.
What is the Blockchain?
Who controls the Bitcoin network?
Nobody owns the Bitcoin network much like no one owns the technology behind email or the Internet. Bitcoin transactions are verified by Bitcoin miners which has an entire industry and Bitcoin cloud mining options. While developers are improving the software they cannot 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 enables a user to send and receive bitcoins.
Behind the scenes, the Bitcoin network is sharing a massive public ledger called the "block chain". This ledger contains every transaction ever processed which enables 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 therefore allowing all users to have full control over sending bitcoins.
Thus, there is no fraud, no chargebacks and no identifying information that could be compromised resulting in identity theft. To learn more about Bitcoin, you can consult the original Bitcoin whitepaper, read through the extremely thorough Frequently Asked Questions, listen to a Bitcoin podcast or read the latest Bitcoin news.
Sponsors for free Bitcoins.
Many people new to Bitcoin are curious about how to get some. Bitcoin faucets, places where bitcoins are given away for free, have been a part of spreading Bitcoin since the earliest days. But one problem is running out of bitcoins to give! That is why we have figured out a sustainable way to give away free bitcoins with sponsors.
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What is Bitcoin? Everything you need to know about the booming 'cryptocurrency' that's all the rage.
The basics of Bitcoin: Here's everything you need to know about how the virtual currency is made, and what keeps it secure.
15:00, 12 JUL 2018 Updated 12:24, 17 AUG 2018.
Bitcoin has been up and down in the last year but is a currency starting to come into the mainstream.
A surge towards the end of 2017 was followed by a crash soon after - but many predict that it has long-term potential.
As a technology though, cryptocurrencies are booming - thanks to their decentralised nature and encrypted security.
If you're still not sure about exactly what it is, we've taken a look at the 21st century currency below and explained everything about it.
What is Bitcoin?
Bitcoin was the first of what have become known as "cryptocurencies".
These are forms of digital money that use encryption to secure transactions and control the creation of new units.
The plan was to make a form of currency not controlled by governments or businesses, that you could trade globally with no cost and without having to reveal your identity.
The popularity of Bitcoin has spawned many copycats - sometimes called "altcoins".
To make things more confusing, there are also "second generation" virtual currencies like Ethereum and Bitcoin Cash.
So they're not like the coins in my purse or wallet?
No. They are essentially a line of numbered "code" - instructions used in computer programming.
However, once purchased they can be exchanged for some goods and services, like normal money.
Where d >
Created by a mysterious developer who uses the pseudonym Satoshi Nakamoto, Bitcoins exploded on to the financial scene in 2013, following enormous increases in their value.
In the original Bitcoin white paper, Nakamoto describes his creation as a "peer-to-peer version of electronic cash", allowing "online payments to be sent directly from one party to another without going through a financial institution".
How does Bitcoin work?
Nakamoto wrote that such a currency uses "cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party".
This sort of stateless, bank-free currency uses a distributed, cryptographically secure "blockchain" to record payment transactions.
Recording of payments onto the blockchain is powered by users, who offer their computer power.
They are rewarded with newly created Bitcoins, and this activity is referred to as mining.
What determines their value?
Like many things, it comes down to supply and demand.
New Bitcoins are released at a rate of about 25 new coins every 10 minutes.
But the flow will dry up as they have been designed to ensure that no more than 21 million will ever exist. Today, around 16 million are in use.
How to get Bitcoin.
Bitcoins can be obtained in a number of different ways. It's possible to accept them as payment for goods or services.
You can also buy them directly from individuals or special websites called 'exchanges', such as Coinbase, that will swap Bitcoins for regular currency.
Free Bitcoin and Bitcoin Faucets.
While 'free bitcoin' may seem like something that lands in your spam folder, there is a legitimate way to get it with a Bitcoin Faucet.
A Bitcoin faucet is a type of award system either on a website or an app. The company running the faucet will send small amounts when you complete tasks such as watching videos or playing games.
Some of the most popular include:
The Cointiply mining game is one of the most popular games in the faucet community and lets you earn in the background, in addition to taking surveys.
Bitcoin wallets.
Bitcoin wallets are simply specially-designed programs that store your Bitcoin, the same way a regular wallet would store your cash.
They can be used either on a desktop computer or a smartphone and can be stored securely on the web so they can be accessed from anywhere.
How to mine.
Mining is a tricky process that involves solving a complex maths problem that takes both time and computing power. The more powerful your computer (and thus, the quicker you can crunch the numbers) means a more difficult problem.
Custom-built Bitcoin mining hardware and software is now available, allowing miners to find Bitcoins even faster.
Each miner also solves a dual function as they process and secure transactions on the block chain. But the more miners that join, the harder it becomes to find Bitcoins.
What is a Bitcoin miner?
A Bitcoin miner can be anyone that simply does it for fun right up to someone with the latest equipment who is attempting to mine for profit.
Bitcoin miners also join into pools that split the workload and gives each of them a share of the profits.
Read More.
The future of cryptocurrencies.
Second-generation cryptocurrencies include altcoins with more advanced functions, that harness the computing power of the blockchain.
An example is Ethereum - the blockchain can execute "smart contracts".
These are pieces of computer code that can interact with other coded contracts and perform work - for instance moving money around and making decisions.
The DAO platform that was hacked is written into the Ethereum blockchain and can autonomously operate without humans to control the organisation.
To decide what investments the DAO makes, its members vote on which proposed contacts will be included in the blockchain.
This could be the start of an autonomous financial future dictated by machines rather than humans.
Why have there been so many warnings about Bitcoin?
Partly because of fears that investors will lose a packet.
Firstly, Bitcoin has no central bank that stands behind it and isn't regulated by any state.
Secondly, experts reckon the bubble could burst.
Earlier this year Ethereum - the second biggest cryptocurrency after Bitcoin - saw its value collapse from $317 a coin to $0.1 a coin in a day. It bounced back, and is now trading at $473 a coin, but the lesson is there.
Some have labelled Bitcoins what traders call a "fool's asset". Unlike investing in a house that can be rented out or a company that makes profits, the only way to make money from them is to find a "greater fool" than you who'll pay an even higher price than you will.
Legendary investor Warren Buffett says of Bitcoin: "Stay away from it. It's a mirage, basically."
Finance expert Martin Lewis said: "Bitcoin is a highly speculative investment. Putting money in it is a form of gambling."
Read More.
What you need to know about Bitcoin.
Why else are people worried?
Because it is being exploited by criminals and hackers.
The fact that transactions are untraceable makes it a dream come true for drug dealers and money laundering, and it is the currency of choice for cyber criminals.
It is telling that online crooks who launched the massive WannaCry ransomware attack earlier this year, which crippled part of the NHS and as well as businesses in 150 countries, demanded Bitcoin payments for organisations to regain access o their systems.
The ill gotten gains can be transferred across borders and withdraw in any currency or spent them on the dark web - a collection of hard to find websites where it is impossible to track the user.
The Treasury this month announced a crackdown on Bitcoin to tackle money laundering and tax dodging.
Under the plans, online platforms where Bitcoins are traded will be required to vet customers and report suspicious activity.
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What Is Bitcoin, and How Does It Work?
If you find the concept of Bitcoin confusing, you are not alone. The virtual currency has been a constant source of controversy, but it is still not well understood.
Are Bitcoins those coins I see in photographs?
No. Those coins are novelty items that newspapers used in photographs because they couldn't find anything else to illustrate their stories about Bitcoin.
A Bitcoin is a digital token -- with no physical backing -- that can be sent electronically from one user to another, anywhere in the world. A Bitcoin can be divided out to eight decimal places, so you can send someone 0.00000001 Bitcoins. This smallest fraction of a Bitcoin -- the penny of the Bitcoin world -- is referred to as a Satoshi, after the anonymous creator of Bitcoin.
This all gets confusing, because Bitcoin is also the name of the payment network on which the Bitcoin digital tokens are stored and moved.
Unlike traditional payment networks like Visa, the Bitcoin network is not run by a single company or person. The system is run by a decentralized network of computers around the world that keep track of all Bitcoin transactions, similar to the way Wikipedia is maintained by a decentralized network of writers and editors.
The record of all Bitcoin transactions that these computers are constantly updating is known as the blockchain.
Why do criminals like Bitcoin?
Criminals have taken to Bitcoin because anyone can open a Bitcoin address and start sending and receiving Bitcoins without giving a name or identity. There is no central authority that could collect this information.
Bitcoin first took off in 2011 after drug dealers began taking payments in Bitcoin on the black-market website known as the Silk Road. Although the Silk Road was shut down in 2013, similar sites have popped up to replace it.
More recently, Bitcoin has become a method for making ransom payments -- for example, when your computer is taken over by so-called ransomware.
Why won't the government just shut it down?
The records of the Bitcoin network, including all balances and transactions, are stored on every computer helping to maintain the network -- about 9,500 computers in late 2017.
If the government made it illegal for Americans to participate in this network, the computers and people keeping the records in other countries would still be able to continue. The decentralized nature of Bitcoin is also one of the qualities that have made it popular with people who are suspicious of government authorities.
Can Bitcoin users give themselves more Bitcoins?
Anyone helping to maintain the database of all Bitcoin transactions -- the blockchain -- could change his or her own copy of the records to add more money. But if someone did that, the other computers maintaining the records would see the discrepancy, and the changes would be ignored.
Are there legal uses?
Only a small percentage of all transactions on the Bitcoin network are explicitly illegal. Most transactions are people buying and selling Bitcoins on exchanges, speculating on future prices. A whole world of high-frequency traders has sprung up around Bitcoin.
People in countries with high inflation, like Argentina and Venezuela, have bought Bitcoin with their local currency to avoid losing their savings to inflation.
One of the most popular business plans is to use Bitcoin to move money over international borders. Large international money transfers can take weeks when they go through banks, while millions of dollars of Bitcoin can be moved in minutes. So far, though, these practical applications of Bitcoin have been slow to take off.
How can I buy a Bitcoin?
There are companies in most countries that will sell you Bitcoins in exchange for the local currency. In the United States, a company called Coinbase will link to your bank account or credit card and then sell you the coins for dollars. Opening an account with Coinbase is similar to opening a traditional bank or stock brokerage account, with lots of identity verification to satisfy the authorities.
For people who do not want to reveal their identities, services like LocalBitcoins will connect people who want to meet in person to buy and sell Bitcoins for cash, generally without any verification of identity required.
Who dec >The price of Bitcoin fluctuates constantly and is determined by open-market bidding on Bitcoin exchanges, similar to the way that stock and gold prices are determined by bidding on exchanges.
What is Bitcoin mining?
Bitcoin mining refers to the process through which new Bitcoins are created and given to computers helping to maintain the network. The computers involved in Bitcoin mining are in a sort of computational race to process new transactions coming onto the network. The winner -- generally the person with the fastest computers -- gets a chunk of new Bitcoins, 12.5 of them right now. (The reward is halved every four years.)
There is generally a new winner about every 10 minutes, and there will be until there are 21 million Bitcoins in the world. At that point, no new Bitcoins will be created. This cap is expected to be reached in 2140. So far, about 16 million Bitcoin have been distributed.
Every Bitcoin in existence was created through this method and initially given to a computer helping to maintain the records. Anyone can set his or her computer to mine Bitcoin, but these days only people with specialized hardware manage to win the race.
Are there Bitcoin competitors?
Plenty. But these other virtual currencies do not have as many followers as Bitcoin, so they are not worth as much. As in the real world, a currency is worth only as much as the number of people willing to accept it for goods and services.
Who is Satoshi Nakamoto?
Bitcoin was introduced in 2008 by an unknown creator going by the name of Satoshi Nakamoto, who communicated only by email and social messaging. While several people have been identified as likely candidates to be Satoshi, as the creator is known in the world of Bitcoin, no one has been confirmed as the real Satoshi, and the search has gone on.
Satoshi created the original rules of the Bitcoin network and then released the software to the world in 2009. Satoshi largely disappeared from view two years later. Anyone can download and use the software, and Satoshi now has no more control over the network than anyone else using the software.
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What is bitcoin? Here's everything you need to know.
Blockchains, bubbles and the future of money.
It's been a wild ride.
You heard about this bitcoin thing?
Every bitcoin story must include an image of a physical bitcoin. Note: Physical bitcoin coins do not really exist.
Science Picture Co.
We're guessing: yes, you have. The first and most famous digital cryptocurrency has been racking up headlines due to a breathtaking rise in value -- cracking the $1,000 threshold for the first time on Jan. 1, 2017, topping $19,000 in December of that year and then shedding about 50 percent of its value during the first part of 2018.
But the Bitcoin story has so much more to it than just headline-grabbing pricing swings. It incorporates technology, currency, math, economics and social dynamics. It's multifaceted, highly technical and still very much evolving. This explainer is meant to clarify some of the fundamental concepts and provide answers to some basic bitcoin questions.
But first: A quick backstory.
Bitcoin was invented in 2009 by a person (or group) who called himself Satoshi Nakamoto. His stated goal was to create "a new electronic cash system" that was "completely decentralized with no server or central authority." After cultivating the concept and technology, in 2011, Nakamoto turned over the source code and domains to others in the bitcoin community, and subsequently vanished. (Check out the New Yorker's great profile of Nakamoto from 2011.)
It's actually a little more complicated than that.
What is bitcoin?
Simply put, bitcoin is a digital currency. No bills to print or coins to mint. It's decentralized -- there's no government, institution (like a bank) or other authority that controls it. Owners are anonymous; instead of using names, tax IDs, or social security numbers, bitcoin connects buyers and sellers through encryption keys. And it isn't issued from the top down like traditional currency; rather, bitcoin is "mined" by powerful computers connected to the internet.
How does one 'mine' bitcoin?
A person (or group, or company) mines bitcoin by doing a combination of advanced math and record-keeping. Here's how it works. When someone sends a bitcoin to someone else, the network records that transaction, and all of the others made over a certain period of time, in a "block." Computers running special software -- the "miners" -- inscribe these transactions in a gigantic digital ledger. These blocks are known, collectively, as the "blockchain" -- an eternal, openly accessible record of all the transactions that have ever been made.
Using specialized software and increasingly powerful (and energy-intensive) hardware, miners convert these blocks into sequences of code, known as a "hash." This is somewhat more dramatic than it sounds; producing a hash requires serious computational power, and thousands of miners compete simultaneously to do it. It's like thousands of chefs feverishly racing to prepare a new, extremely complicated dish -- and only the first one to serve up a perfect version of it ends up getting paid.
When a new hash is generated, it's placed at the end of the blockchain, which is then publicly updated and propagated. For his or her trouble, the miner currently gets 12.5 bitcoins -- which, in February 2018, is worth roughly $100,000. Note that the amount of awarded bitcoins decreases over time.
What determines the value of a bitcoin?
Ultimately, the value of a bitcoin is determined by what people will pay for it. In this way, there's a similarity to how stocks are priced.
The protocol established by Satoshi Nakamoto dictates that only 21 million bitcoins can ever be mined -- about 12 million have been mined so far -- so there is a limited supply, like with gold and other precious metals, but no real intrinsic value. (There are numerous mathematical and economic theories about why Nakamoto chose the number 21 million.) This makes bitcoin different from stocks, which usually have some relationship to a company's actual or potential earnings.
No, they're not bitcoins. They're pistachios.
Pistachios/YouTube screenshot by CNET.
Without a government or central authority at the helm, controlling supply, "value" is totally open to interpretation. This process of "price discovery," the primary driver of volatility in bitcoin's price, also invites speculation (don't mortgage your house to buy bitcoin) and manipulation (hence the recent talk of tulips and bubbles).
Bitcoin has made Satoshi Nakamoto a billionaire many times over, at least on paper. It's minted plenty of millionaires among the technological pioneers, investors and early bitcoin miners. The Winklevoss twins, who parlayed a $65 million Facebook payout into a venture capital fund that made early investments in bitcoin , are now billionaires according to Fortune.
How do I buy bitcoin?
If you're willing to assume the risk associated with owning bitcoin, there is an increasing number of digital currency exchanges like Coinmama, CEX, Kraken and Coinbase -- the largest and most established of them -- where you can buy, sell and store bitcoins.
Getting started is about as complicated as setting up a Paypal account. With Coinbase, for example, you can use your bank (or Paypal account) to make a deposit into a virtual wallet, of which there are many to choose from. Once your account is funded, which usually takes a few days, you can then exchange traditional currency for bitcoin.
What can I do with bitcoin?
You can use bitcoin to buy things from more than 100,000 merchants, though still few major ones. You can sell it. Or you can just hang on to it. Note that there are no inherent transaction fees with bitcoin, although exchanges like Coinbase typically charge a fee when you buy or sell.
Is all of this legal?
The former Silk Road homepage.
Short, qualified answer: Yes, for now, as long as -- like any currency -- you don't do illegal things with it. For instance, bitcoin was the sole currency accepted on Silk Road, the Dark Web marketplace for drugs and other illicit goods and services that was shuttered by the FBI in 2013 .
Since then, bitcoin has largely evaded regulation and law enforcement in the US, although it's under increased scrutiny as it attracts more mainstream attention. Though it's legal to buy and sell bitcoin, miners and exchanges occupy a gray area that could be vulnerable to future regulation and/or law enforcement action.
What are the risks?
Legal and regulatory hazards as >Exhibit A: December 2017. )
Bitcoin transactions cannot be traced back indiv >public and private encryption keys . This anonymity can be appealing, especially with companies and marketers increasingly tracking our every purchase, but it also comes with drawbacks. You can never be certain who is selling you bitcoin or buying them from you. Opportunities for money laundering abound; in 2016, authorities in the Netherlands arrested 10 men for just this.
Theft is also a risk. The bitcoin subreddit is rife with indiv >"lost" 750,000 of its customers' bitcoins in 2014 and hackers took $60 million from NiceHash in December 2017. There are few avenues for pursuing refunds, challenging a transaction or recovering such losses. Once a transaction hits the blockchain, it's final.
Coinbase has been tested by a massive rise in interest in bitcoin.
OK, so what about --- wait, there are more risks?
Because bitcoin is so new and decentralized, there is plenty of murkiness and many unknowns. Even the technical rules for mining are still evolving and up for debate.
The IRS views bitcoins as property, not currency. There are tax implications and a federal judge recently ruled that Coinbase must surrender records to the IRS on transactions of $20,000 or more.
Then there's the fundamental question of whether you should trust a particular exchange. Even Coinbase, the most established of them all has struggled to keep up with demand, plagued by site outages, scaling issues and customer service complaints. Even if it's venture-backed, every bitcoin player today is by definition a startup and comes with all of the associated risks.
Now I sort of understand bitcoin. WTF is Bitcoin Cash?
In August 2017, different sects within the bitcoin mining community had a disagreement about the rules governing the mining process -- specifically, what constitutes the appropriate size (in megabytes) of a block. Unable to form a consensus, there was a fork in the blockchain , with the bitcoin originalists going one way and the group favoring larger blocks going another to start Bitcoin Cash.
Though they share a common digital ancestry, each now has its own individual blockchain with slightly different protocols. (For what it's worth, bitcoin miners are sticking with 1MB blocks, Bitcoin Cash uses 8MB blocks.) Forking is almost assured to happen again in the future.
Are there other cryptocurrencies?
Yes. More than a thousand, with more sprouting up every day. As >in this explainer .
Buying and selling bitcoin : A quick and dirty introduction to trading cryptocurrency.
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What Is Bitcoin? Guide for the Most Popular Cryptocurrency.
You've probably heard the word by now but you might still be wondering -- what is Bitcoin? Well, there are no stupid questions here, so let's start at the very beginning. What is Bitcoin? Who created it and what goes on under the hood?
What Is Bitcoin? A Distributed Peer-to-Peer Digital Currency.
Simply put, Bitcoin is a distributed peer-to-peer digital currency. It can be transferred instantly and securely between any two people in the world who accept Bitcoin. It's like digital cash in that you can send Bitcoin to any other Bitcoin user in the world. It's a transfer of value just like traditional currencies. Unlike traditional currencies, however, Bitcoin only exists in digital form.
The world's first cryptocurrency was released in 2009 as an open-source software, which means that anyone can examine the code and add to the Bitcoin network. Unlike traditional currencies again, Bitcoin is decentralized. You've probably heard that word a lot too, and it basically means that no central authorities (such as banks or political institutions) control the amount of Bitcoin in circulation.
How Does Bitcoin Work?
If that leaves you wondering how Bitcoin works with no one controlling it, we're just getting started. The system at its purest level is simple and organized.
Bitcoin uses public-key cryptography and proof-of-work to process and verify payments. Bitcoins are sent (or signed over) from one Bitcoin address to another with each user potentially having many, many addresses.
Each payment transaction is broadcast to the network and included in the Bitcoin blockchain so that the included bitcoins cannot be spent twice. After an hour or two, each transaction is locked in time (i.e. in a block that is mined roughly every 10 minutes) by the massive amount of processing power that continues to extend the blockchain.
Unlike fiat currencies, with no government to print new currency, the Bitcoin blockchain controls how many Bitcoin are produced. The total supply of Bitcoin to ever be created is capped at 21 million with about 17.3 million in circulation today.
With a hard cap set for the number of bitcoins ever to be mined, many people argue over how Bitcoin can scale for massive use.
However, what makes Bitcoin unique as a cryptocurrency unlike traditional currencies is that it is infinitesimally divisible. If you wanted to transfer just 0.00000001 bitcoins, you could, which makes the number of 21 million Bitcoins pretty much arbitrary.
What Is Blockchain?
At its core, the blockchain is a giant distributed ledger in which every Bitcoin transaction ever made is recorded and immutable. They cannot be changed, tampered with or reversed.
Each block is made up of data that is based on encrypted Merkle Trees which are used to detect any fraudulent transactions or corrupted files and expel them. This way, the blockchain ensures that all Bitcoin transactions are accurate and prevents any corrupt files from damaging the ledger.
The Bitcoin blockchain is a shared record of every transaction ever made on its digital accounting book. When person A sends Bitcoin to person B, this transaction is added to a public ledger. This ledger is stored in multiplicity throughout the network, and to update one is to update them all.
This public ledger contains the history of all past transactions. Meanwhile, Bitcoin miners confirm transactions to the rest of the network by including them in blocks.
Bitcoin nodes, on the other hand, which run Bitcoin software client and contain the entire copy of the blockchain, validate transactions based on the protocol.
How Does Bitcoin Solve the Double-Spending Problem?
Since Bitcoin is digital, it would be fairly easy to spend the same bitcoin twice right? Wrong. Bitcoin's elements including blockchain, mining, proof of work, complexity, etc., exist to ensure that the transaction ledger is computationally impractical to modify. This is also known as "solving the double-spending problem."
Bitcoin users protect themselves from double spending fraud by waiting for confirmations when receiving payments on the blockchain, the transactions become more irreversible as the number of confirmations rises.
Other electronic systems (e.g. PayPal) prevent double-spending by having a master authoritative source that follows business rules for authorizing each transaction.
How Is Bitcoin Decentralized?
As previously mentioned, Bitcoin uses a decentralized system, where a consensus among network nodes following the same protocol and Proof-of-Work is substituted for a central authority. This means that Bitcoin has special properties not shared by centralized systems.
For example, if you keep the private key of a bitcoin secret and the transaction has enough confirmations, then nobody can take the bitcoin from. Possession of bitcoin is not enforced by business rules and policy, but by cryptography and game theory.
Because bitcoin transactions can be final, merchants do not need to hassle customers for extra information like billing address, name, etc. This means that Bitcoin can be used without registering a real name or excluding users based on age, nationality or residency.
This anonymity has lead many naysayers to accuse bitcoin of being the payment method of choice of criminals, as it is impossible to trace the origins of the payment and there is no limit to the amount that can be sent, unlike a bank account which requires a justification of funds.
However, these accusations stand on thin ground based on the fact that all transactions are public on the blockchain and tracing people back through their Bitcoin address has been proven possible by federal agents.
Moreover, there are many more reports to suggest that the US dollar bill is by far the criminal's currency of choice when it comes to money laundering and other nefarious deeds.
What Is Bitcoin Mining?
Bitcoin mining is the process of spending computational power to secure Bitcoin transactions against reversal and introducing new bitcoins to the system.
Bitcoin mining can be done by anyone possessing enough computing power to solve mathematical problems required by the system to confirm transactions while preventing double-spending. For their efforts, these miners are given a fee in the form of newly minted bitcoins.
A reward of 12.5 bitcoin is given to a miner for every block found or about 1,800 bitcoins per day. The number of bitcoins generated per block will decrease over time until a total of 21 million is reached. The next reward halving is expected to take place in May 2020.
Mining is intentionally resource-intensive to set up and to maintain. In this way, a type of self-governance is built into the system that automates some of the governing aspects or traditional monetary systems.
Today, bitcoin mining is largely centralized in behemoth mining farms in countries with cheap power and production costs, using highly specialized equipment and mining rigs. This excludes the bedroom bitcoin miners and enthusiasts from taking part.
However, miners are only rewarded for properly validating transactions and playing a role that fuels the whole system. This incentivizes the ongoing maintenance, accuracy, and growth of the blockchain.
Who Created Bitcoin?
The creator of Bitcoin is still unknown, although it was first introduced in a whitepaper in 2008 by Satoshi Nakamoto, a pseudonym that may represent a person (or a group of people). If you want to read more about the basics of Bitcoin and its original, we suggest that you go ahead and check out the original Bitcoin whitepaper.
Bitcoin was designed to eventually become a deflationary currency to combat the way in which governments use inflation to redistribute wealth and rob people of their life savings.
Indeed, in countries with hyperinflation in which their national currency becomes wildly devalued form one day to the next such as Venezuela and Zimbabwe, many people are adopting Bitcoin as a means of shielding their wealth.
Despite Bitcoin's fame as the first cryptocurrency, there were many pioneers who heralded the idea of decentralization using cryptologic methods before Bitcoin came into existence.
Tim May, former Senior Scientist at Intel and contributor to the Cypherpunk mailing list, wrote the famous 1988 essay titled The Crypto-Anarchist Manifesto. In it was a clear vision of things to come:
"Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions."
Later in 1991, Stuart Haber and W. Scott Stornetta proposed a secure blockchain for storing documents using Merkle Trees. It was not quite known as blockchain then, but rather a 'chain of blocks'.
Other key technologies like David Chaum's DigiCash (1989), Adam Back's Hashcash (1997), and Nick Szabo's Bit Gold (1998), also served as important stepping stones in the progression of Bitcoin technology.
Why Does Bitcoin Have Value?
If Bitcoin does not physically exist, you might be wondering how it can have any value.
First, Bitcoin is a technology just like alternating current or the internet. Like any new technology, it is not yet well-understood by the old guard and general public who are used to government fiat money.
However, Bitcoin has several properties that make it the securest form of money to date. As mentioned, its supply is capped at 21 million bitcoin and every participant in the Bitcoin network tacitly agrees to this rule. This not only makes the monetary policy predictable but also introduces the novel concept of digital scarcity.
Scarcity is an important property for any store of value. But unlike the historic store of value, gold, Bitcoin makes it possible to not only easily store, but also transport value and transact with anyone in the world without a trusted third-party.
This makes Bitcoin a revolutionary technology for three main reasons:
Decentralized money enables indiv > How to Buy Bitcoin?
There are a variety of ways to acquire bitcoin. These include:
Buy bitcoin from a reputable online Bitcoin exchange (the most common) or conversion services. Buy bitcoin using physical Bitcoin ATMs located in your area. Accept bitcoin for goods or services (e.g. salary in bitcoin) straight to your Bitcoin wallet. Trade in-person using online services like LocalBitcoins. Visit sites that prov > How to Store Bitcoin?
You may be wondering if Bitcoin only exists in digital form, what the need for storage is. After all, it's not something that will ever end up in your back pocket. However, where you keep your bitcoin is important as, while the technology has proven to be extremely secure, secondary software, such as bitcoin wallets and exchanges are vulnerable to hacking attacks.
There are various ways to store your bitcoin and useful terms that you need to know about before deciding the best method of storage for you:
Exchange platforms: On an exchange platform, you can buy and sell Bitcoin for fiat currency or for another cryptocurrency such as Ethereum or Litecoin. Many of these exchanges offer storage and Bitcoin wallet services, however, these have not proven to be 100 percent safe. They also often charge high transaction fees to use the platform.
Bitcoin wallet platform: You can think of this as a bank account where your bitcoins are stored, again these have not been without issues.
Hard wallet: This is an offline wallet that is not connected to a network, making it far more hacker-resistant.
Public Cryptographic Key: This is your Bitcoin address or BTC address. Just like when people send money to your bank account number, you use your public cryptographic key to give people when you want to receive bitcoins.
Private Cryptographic Key: This key is for you only and should never be given out to anyone else. This will allow you to access your bitcoins that are sent to your public cryptographic key (or address).
What's the Best Way to Store Bitcoin?
By now, you've probably heard of plenty of cases in which a Bitcoin exchange platform has been hacked, perhaps the most notable of all was the Tokyo-based Mt Gox hack in 2014. A giant total of 850,000 bitcoins disappeared from the platform, wiping out the business pretty much overnight and leaving many bitcoin users out of pocket.
Remember, Bitcoin itself is extremely secure. But exchanges and digital wallet providers are often vulnerable. When you buy and sell Bitcoin online, you must be extremely careful, and this makes hard wallets, without doubt, the safest alternative.
Bitcoin hard wallets are essentially like a flash drive that allows you to store your cryptographic keys offline and well away from exchanges. You're never really storing your "Bitcoin" as such in a hard wallet. What you are storing is your private key that allows you to access your funds when you connect online.
The downside with hard wallets? Just like a regular wallet, if it gets lost or stolen, you can run into headaches, although providers like Trezor and Ledger give you a chance to recuperate your keys by making you write a backup phrase and pin number and keep it in a safe place when you configure your hard wallet in the beginning.
Is Bitcoin Legal?
There is no complete answer to the question of whether bitcoin is legal since the answer depends on various factors, most notably, what part of the world you are in. Most governments around the world have sat on the sidelines and neither declared Bitcoin legal or illegal, however that has also caused a shadow of uncertainty and doubt.
To be sure, Bitcoin does not have the backing of any regulatory agency, government, or central authority since it is a decentralized currency. This in itself makes it hard to be regulated by authorities whose powers change in each jurisdiction.
The price of Bitcoin tends to respond to the latest decisions from the United States' SEC or to other governments' reactions toward it, however.
Countries like Malta, Singapore, and Gibraltar are either incorporating new laws to provide a framework for Bitcoin and blockchain companies or adapting existing laws. Even the United States is beginning to warm to Bitcoin and reportedly both the US government and the Chinese government have invested in Bitcoin.
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What Are the Disadvantages of Bitcoin?
Governments have yet to decide how to regulate Bitcoin as it poses a direct threat to the government-central bank monopoly on money creation.
As such, one of cryptocurrency's biggest hurdles is government regulation. Therefore, it is no surprise that there are clampdowns on fiat-bitcoin onramps, KYC regulations, and other barriers being imposed, all under the guise of anti-money laundering and anti-terrorism.
The bad news for governments, however, is that Bitcoin cannot be theoretically shut down. Since it is a borderless protocol, the most government can do is restrict access to it (just like China with the internet) but the network itself, which currently has 99.98% uptime, will continue running.
There is a saying that is passed around the Bitcoin community and that is, "you can take your country out of Bitcoin but you can't take Bitcoin out of your country." This is particularly true as we have seen that in countries where it has been banned, Bitcoin has continued to be used.
On the technology side, Bitcoin might not yet be ready for mass adoption due to scalability issues. A heavy load on the network today would result in higher fees and longer confirmation times as seen in December 2017.
For example, today Bitcoin can handle only under 10 transactions per second on-chain whereas VISA can handle 24,000. Luckily, Bitcoin is not a static technology and solutions are being developed to solve scaling issues.
Capacity increasing solutions like SegWit have already been implemented, quadrupling block weight. Meanwhile, other scaling solutions such as sidechains and Lightning Network (LN) are being actively developed on top of Bitcoin to make transactions instant at almost zero cost.
There is also the question of usability, transaction fees, and criminal association that is off-putting currently to a wider audience.
What Are the Alternatives to Bitcoin?
10 years on from the Satoshi whitepaper and there are plenty of alternatives to Bitcoin, depending on your beliefs and needs. These alternatives are known as "altcoins" (alternative coins) to Bitcoin.
When we saw a wider public interest in Bitcoin in late 2017, transaction fees and transaction times grew very high. In many ways, Bitcoin looked to evolve from a quick and easy payment method to a speculative asset, as people began to buy expecting the bitcoin price to rise.
Despite the price volatility and periods of higher fees with rising price, the number of merchants that accept bitcoin worldwide has been rising steadily since 2011. (Though, some big-name companies like Expedia and Microsoft have reportedly dropped the option.)
One can find all types of altcoins like Ethereum, Litecoin, Bitcoin Cash, Dash, Monero, Ripple, Stellar Lumens, and more, according to Coinmarketcap, with well over 2,000 cryptocurrencies in existence today.
While each has some benefits over Bitcoin, they also have their own complexities and pitfalls. Bitcoin Cash takes a different approach to scaling from Bitcoin and has increased the block size limit well beyond bitcoin's 4MB 'block weight' limit as a scaling method. This could position Bitcoin Cash as eventually faster to scale, although this approach has yet to be proven.
Monero, NEO, Litecoin, and Ethereum face scaling issues of their own, as well as other problems.
To be sure, the journey into cryptocurrencies involves a steep learning curve, but once you fall down the rabbit hole, you just can't help but want to know more.
Got more questions? Find out about Ethereum versus Bitcoin in our beginner's guide here.
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What Is Bitcoin, and How Does it Work?
@MichaelCrider December 7, 2017, 11:23am EDT.
Bitcoin. the digital currency, has been all over the news for years. But because it's entirely digital and doesn't necessarily correspond to any existing fiat currency, it's not easy to understand for the newcomer. Let's break down the basis of exactly what Bitcoin is, how it works, and its possible future in the global economy.
Editor's Note: we want to make it very clear right up front that we are not recommending that you invest in Bitcoins. Its value fluctuates quite a bit, and it's very likely that you may lose money.
How Bitcoin Works.
In layman's terms : Bitcoin is a digital currency. That's a concept that might be more complex than you realize: it isn't simply an assigned value of money stored in a digital account, like your bank account or credit line. Bitcoin has no corresponding physical element, like coins or paper bills (despite the popular image of an actual coin, above, to illustrate it). The value and verification of individual Bitcoins are provided by a global peer-to-peer network.
Bitcoins are blocks of ultra-secure data that are treated like money. Moving this data from one person or place to another and verifying the transaction, i.e. spending the money, requires computing power. Users called "miners" allow their computers to be used by the system to safely verify the individual transactions. Those users are rewarded with new Bitcoins for their contributions. Those users can then spend their new Bitcoins on goods and services, and the process repeats.
The advanced explanation : Imagine it as BitTorrent, the peer-to-peer network that you definitely didn't use to download thousands of songs in the early 2000s. Except instead of moving files from one place to another, the Bitcoin network generates and verifies blocks of information that are expressed in the form of a proprietary currency.
Bitcoin and its many derivatives are known as cryptocurrencies. The system uses cryptography--extremely advanced cryptography called a blockchain--to generate new "coins" and verify the ones that are transferred from one user to another. The cryptographic sequences serve several purposes: making the transactions virtually impossible to fake, making "banks" or "wallets" of coins easily transferable as data, and authenticating the transfer of Bitcoin value from one person to another.
Before a Bitcoin can be spent, it has to be generated by the system, or "mined." While a conventional currency needs to be minted or printed by a government, the mining aspect of Bitcoin is designed to make the system self-sustaining: people "mine" Bitcoins by providing processing power from their computers to the distributed network, which generates new blocks of data that contain the distributed global record of all transactions. The encoding and decoding process for these blocks requires an enormous amount of processing power, and the user who successfully generates the new block (or more accurately, the user whose system generated the randomized number that the system accepts as the new block) is rewarded with a number of Bitcoins, or with a portion of transaction fees.
In this way, the very process of moving Bitcoins from one user to another creates the demand for more processing power donated to the peer-to-peer network, which generates new Bitcoins that can then be spent. It's a self-scaling, self-replicating system that generates wealth...or at least, generates cryptographic representations of value that correspond to wealth.
How Are Bitcoins Spent?
In layman's terms: Imagine you're buying a Coke at the supermarket with a debit card. The transaction has three elements: your card, corresponding to your bank account and your money, the bank itself that verifies the transaction and the transfer of money, and the store that accepts the money from the bank and finalizes the sale. A Bitcoin transaction has, broadly speaking, the same three components.
Each Bitcoin user stores the data that represents his or her amount of coins in a program called a wallet, consisting of a custom password and a connection to the Bitcoin system. The user sends a transaction request to another user, buying or selling, and both users agree. The peer-to-peer Bitcoin system verifies the transaction via the global network, transferring the value from one user to the next and inserting cryptographic checks and verification at many levels. There is no centralized bank or credit system: the peer-to-peer network completes the encrypted transaction with the help of Bitcoin miners.
The advanced explanation : The technical side of things is a bit more complex. Each new Bitcoin transaction is recorded and verified onto a new block of data in the blockchain. (The two parties in the exchange are represented by randomized numbers that make each transaction essentially anonymous, even as they're being verified.) Each block in the chain includes cryptological code linking it to and verifying it for the previous block.
In the conventional sense, Bitcoin transactions are incredibly secure. Thanks to complex cryptography at every step in the process, which can take quite a lot of time to verify (see below), it's more or less impossible to fake a transaction from one person or organization to another. However, it is possible to "steal" bitcoins by discovering someone's digital wallet and the password that they use to access it. If that information is found, via hacking or social engineering, a digital Bitcoin stash can dispensary without any way to trace the thief. Since Bitcoin isn't regulated or secured in the same way your bank account or credit account is, that money is simply gone.
How Do You Turn Bitcoins Into "Real" Money, and Vice-Versa?
First of all, Bitcoin is real money, in the purely economic sense. It has value and can be traded for goods and services. It's unlikely that you can pay your bills or buy groceries totally in Bitcoin (though those services do exist and they are growing), but you can buy a surprising amount of online goods with your Bitcoin wallet. At the moment, the biggest companies accepting Bitcoin include online computer hardware retailer Newegg, digital video game seller Steam, the social network Reddit, and even more general retailers like Overstock.com or Subway restaurants. Here's a list of companies currently accepting Bitcoin payments directly or through gift cards.
But as interesting as it is and as fast as it's growing, Bitcoin simply can't replace conventional, government-issued currency right now: your landlord probably won't take a Bitcoin payment over a rent check. Even if you happen to have dozens of Bitcoins available and you'd like to spend the profit you've made on them on a new car, the car dealership probably doesn't have the infrastructure to accept them as payment (although a private seller might!). So, if you have Bitcoins and you want cash in your country's currency, or you have currency and you want to convert it to Bitcoin for buying, selling, or investing, you'll need a conversion service.
Broadly, converting Bitcoin into more standard currencies like US Dollars, British Pounds, Japanese Yen or Euro is very much like converting any of those currencies from one to the other when you're traveling. You start with one currency, state your desired amount, give the value of the first currency plus a transaction fee, and receive the value in the converted currency in return. But since Bitcoin has no cash component and isn't available to be accepted by conventional credit or debit transactions, you need to find a dedicated market exchange.
Coinbase is the most popular market and exchange in the United States. (Note: this is not an endorsement.) It offers buying and selling services for Bitcoin and other, similar cryptocurrencies, and will exchange US dollars and other standard fiat currencies for Bitcoins, as well as buying Bitcoins for USD and 31 other national fiat currencies. The company doesn't charge for exchanges between cryptocurrencies, but exchanging Bitcoins for dollars deposited to a US bank account will cost the user a 1.49% transfer fee. So, to move $10,000 worth of Bitcoin from your own wallet to your bank account would cost 1.74 Bitcoins for the actual value, plus either $14.9 USD or .00259 Bitcoin for the transfer fee. This is a fairly standard transfer for most of the verified markets and exchanges.
There are other options for turning Bitcoin into conventional money. Coinbase and other markets can trade Bitcoin for USD and other currencies deposited directly to single-use debit cards or gift cards, or even into more flexible systems like PayPal, generally for a much higher fee. You can trade Bitcoins directly to another person for cash, though this is much more dangerous than going through an established system. (On the same note, be cautious of individuals wanting to trade Bitcoins directly for cash, goods, and services. The untraceable nature of the system makes it susceptible to fraud--see below.)
Bitcoin Mining Has Diminishing Returns.
A few years ago when the Bitcoin system was new, individual users "mined" for new Bitcoins at a rapid pace. Bitcoin mining software used local processors, and even extra processors like a computer's graphics card, to calculate hashes for the next block in the blockchain. While the number of people using and "mining" Bitcoin was low, each user doing the mining would randomly confirm the next block at a higher pace, generating new Bitcoins for his or her account quickly.
But this boom in generation couldn't last. The Bitcoin system is designed to make each new block more difficult to find than the last one, reducing the amount of randomized Bitcoins that are generated and distributed. That means that as time goes on, each individual mining for them has to work harder and harder (in a figurative sense--it's the computer that's working harder and using more electricity, and thus, costing more conventional money). As the number of individual Bitcoins grows, the amount of Bitcoins rewarded for a successfully completed hash is diminished. In fact, "whole" Bitcoins are no longer generated by a single user all at once, they're rewarded with fractions of Bitcoins (which are still quite valuable).
Initially, users created customized "mining rigs" that used relatively cheap clusters of off-the-shelf CPUs and GPUs to increase their chances of generating Bitcoin. Now the system is so popular and so distributed that an individual user can no longer simply buy a screamin' fast GPU and expect to make back enough Bitcoin to cover its value in conventional money. Custom-designed "miners" are now sold for this purpose, with software and hardware designed for the sole purpose of supplying the maximum amount of computational power to the peer-to-peer system, and thus creating better odds of completing blocks. More processing power, more hardware, more chances of getting that payout...but at the same time, you're spending more and more of your actual resources on hardware and electricity.
As a result, those hoping to earn conventional wealth via Bitcoin would be better off trading for it or selling goods and services rather than trying to make a mining system and run it constantly.
A custom-designed Bitcoin miner, sold commercially on Amazon. At the current rate of generation, it takes months of mining runtime to earn back the value of the hardware in Bitcoins generated, plus the cost of the electrical power to run it.
At the moment, there are between twelve and thirteen million Bitcoins in existence. They'll become harder and harder to mine as more are generated. The system has an upper limit: after 21 million Bitcoins are generated, no more can be mined. Based on current trends, the last whole Bitcoin will be mined sometime in the 2040s, with the final portion of fractional coin rewards continuing for about 100 years. Once the upper limit is reached, the value of the currency will fluctuate almost entirely on supply and demand, though "miners" will still be able to earn Bitcoins by lending their processing power to the transaction system and receiving transaction fees.
Bitcoin's Value Fluctuates More Than Standard Money.
If you're reading this guide, it's probably because you've heard that Bitcoin is valuable. And it is. But that value changes rapidly, much more rapidly than any currency from a stable economy or even most stocks and bonds. The shifts in the value of Bitcoin can be huge, too: as a function of its total value, Bitcoin fluctuates more than ten times faster than the US dollar.
In 2010, each whole Bitcoin was worth less than a 25 cents in USD. In late November of 2017, each Bitcoin was valued at over $11,000 (before dramatically spiking downward to $9,000 almost immediately). Obviously that's a huge rate of growth and a massive opportunity for anyone who got on board early--initial Bitcoin miners might be millionaires now if they've held on to their Bitcoins long enough. But those two points of data don't tell the whole story: Bitcoin has gone through various dips and "crashes," initially in a volatile period in late 2013 and early 2014. Each time the value recovered, but there's no assurance that the current climb will continue, or that the entire cryptocurrency market won't collapse.
The value of Bitcoin has grown and fluctuated wildly, much more so than conventional currencies, stocks, or commodities.
This makes Bitcoin a questionable method for investment. While it's true that many people have made huge amounts of conventional wealth by mining and trading in Bitcoin, that wealth is just as volatile as the market itself, unless it's transferred to more stable currencies or investments. The ups and downs of the Bitcoin market appear to be coming much faster and more frequently than fluctuations in major stock markets and exchanges. The current high price of Bitcoin might be just the start before an even larger boom, or it might be a temporary "bubble" with an upcoming crash followed by a recovery...or the entire Bitcoin market could implode tomorrow, leaving millions of people with nothing but worthless cryptographic sequences. There's no way to know.
Bitcoin's Strengths.
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That doesn't mean Bitcoin won't have its place in the future, however. Let's talk about some advantages and disadvantages to Bitcoin over traditional currency.
Anonymity and Privacy.
Bitcoin purchases between individual users are entirely private: it's possible for two people to exchange Bitcoins or fractions of coins between wallets simply by exchanging hashes, with no names, email addresses, or any other information. And because the peer-to-peer network uses a new hash for each transaction, it's more or less impossible to link concurrent purchases to a single user. The nature of the peer-to-peer encrypted network makes it secure from the outside, as well: no one else can see your personal purchases or receipts without first getting access to your wallet.
No Required Transaction Fees (For Now)
Conventional non-cash purchases include transaction fees: pay with a Visa credit card, and Visa will charge the merchant a few cents to verify the transaction. And of course, the cost of that charge is passed on to you in the form of higher prices for goods and services.
At the moment, there are no mandatory transaction fees for Bitcoin. Individual users and merchants can submit their purchases to the peer-to-peer network and simply wait for it to be verified on the next block. However, this process can take time (and it takes more time the more the network is used). So to speed up transactions, many merchants and users add a transaction fee to increase the priority of the transaction in the block, rewarding users on the peer-to-peer network for completing the verification process faster.
As the global supply of Bitcoins reaches its 21 million coin limit, transaction fees will become the primary method for miners to earn Bitcoins. At this point, presumably most transactions will include a small fee simply as a function of completing the purchase quickly.
No Central Governing Authority or Taxes.
Because Bitcoin isn't recognized as an official currency by any country, buying and selling Bitcoins themselves and using them to purchase goods and services isn't regulated. So anything you buy with Bitcoins is not subject to a standard sales tax, or any other tax that's normally applied to that item or service. This can be huge economic boon if you're wealthy enough and interested enough to do a lot of business exclusively in Bitcoin.
Without being subject to most monetary laws, Bitcoin is effectively a barter system. Imagine your current supply of Bitcoins as a gigantic stack of potatoes: if you trade ten thousand potatoes for a new TV, the government won't ask for a sales tax in the form of eight hundred potatoes. It simply isn't equipped to handle any transactions not performed in its own currency.
However, you should be aware that any conventional earnings you receive from dealing in Bitcoin will be treated in the usual way. So if you transfer $10,000 worth of Bitcoins to your bank account via a Bitcoin market, you will need to report it as income on your taxes. Dealing in Bitcoin doesn't nullify other standard requirements for taxation, either: even if you purchase a new car via Bitcoin from a private seller, you'll still have to register that car with the government and pay taxes based on its market value.
Bitcoin Weaknesses.
So if Bitcoin is so great, why isn't everyone using it? Well, obviously, it has some drawbacks too, especially at the current time.
Possible Government Interference.
Any time something new comes around and challenges the status quo, the government is going to get involved to make sure that things remain the way they are supposed to be. The fact is that the US government, and other governments, are looking into Bitcoin for a variety of reasons. Just in the last few days, the US government has started seizing some accounts from the biggest Bitcoin exchange. More is likely to come in the future.
No Monetary Sovereignty.
Perhaps the biggest weakness of bitcoin is that it is not a "recognized" sovereign currency--that is, it is not backed by the full faith of any governing body. While this could be seen as strength, the fact that Bitcoin is a fiat currency which is accepted only on the perceived value of other bitcoin users makes it highly vulnerable to destabilization. Simply put, if one day a large number of merchants who accept bitcoin as a form of payment stop doing so, then the value of bitcoin would fall drastically.
The current high value of Bitcoin is a function of both the relative scarcity of Bitcoins themselves and its popularity as a means of investment and wealth generation. If confidence in the Bitcoin market is suddenly and drastically reduced--for example, if a major government declared Bitcoin use illegal, or one of the largest Bitcoin exchanges was hacked and lost all of its stored value--the value of the currency will crash and investors will lose huge amounts of money.
The United States Treasury does not recognize bitcoin as a conventional currency, but does recognize its status as a commodity, like stocks and bonds. Similarly, the US Internal Revenue Service considers bitcoins property and taxes them as such if they are declared. No other country has declared bitcoin to be a recognized currency, but engagement with bitcoin and other cryptocurrencies varies from place to place. Some countries are investigating bitcoin as a growing commodity market, some take the same stance as the US declaring them assets, and some have explicitly banned their use for transfer of goods or services (though the means of enforcing those bans are limited).
Lack of Protections.
The Bitcoin network has no built-in protection mechanisms when it comes to accidental loss or theft. For instance, if you lose the hard drive where your Bitcoin wallet file is stored (think corruption or drive failure with no backup), the Bitcoins held in that wallet are lost forever to the entire economy. Interestingly, this is an aspect which further exacerbates the limited supply of Bitcoins.
Additionally, if your wallet file is stolen or compromised and the Bitcoins contained within it are spent by the thief before the rightful owner, the double spending protection mechanism built into the network means the rightful owner has no recourse. Unlike if, for example, your credit card is stolen, you can call the bank and cancel the card, bitcoin has no such authority. The Bitcoin network only knows that the bitcoins in the compromised wallet file are valid and processes them accordingly. In fact, there is already malware out there which is designed specifically to steal Bitcoins.
Bitcoin markets are vulnerable to attack or fraud. Major exchanges like GBH and Cryptsy have been shut down with all the Bitcoin entrusted to their care presumably stolen by the operators. Japan-based Mt. Gox, formerly the handler of over half the Bitcoin transactions on the planet, was shuttered after a theft of hundreds of thousands of Bitcoins. The 2014 incident caused a huge (but temporary) drop in the value of Bitcoin worldwide.
Limited Concurrent Transactions.
The Bitcoin block system requires connection and confirmation from the peer-to-peer network to be verified. Because each block contains a limited record of transactions and an upper limit to the amount of new transactions that can be written, there's a limit to how many people can buy and sell with the system at any given time. As more and more vendors and individuals use Bitcoin to do business, the number of transactions per second increase, and the peer-to-peer network is becoming congested, with some operations without transaction fees taking hours to clear. Whereas conventional payment systems like credit cards can simply expand their connections and processing power to speed up processing, the isolated peer-to-peer nature of bitcoin doesn't allow it to scale with the global financial system.
Black Market Appeal.
A central principle to the design of the Bitcoin system is that there is no single transactional processing authority. As a result, no single user can be locked out of the system. Combine this with the inherent anonymity of transactions, and you have an ideal medium of exchange for nefarious purposes.
Bitcoin has become an ideal means for commerce in illicit goods and services. The quintessential case is the Silk Road, a dark web site that allowed users to anonymously trade items like drugs and fake identification, all bought with Bitcoin thanks to its untraceable nature. The story of Silk Road's illegal trade didn't even stop after the US Drug Enforcement Agency and Department of Justice shut down the site and seized its digital holdings in 2013. A Secret Service agent was charged with stealing over $800,000 of bitcoin from the investigators, who had held the seized digital currency to be auctioned off for the benefit of the law enforcement agencies.
While this is not exactly a weakness in Bitcoin (after all, drug dealers using cash doesn't undermine the value of the currency itself), the unintended consequence of its usage for dubious purposes could be considered one. In fact, the US Treasury Department recently applied money laundering rules to bitcoin exchanges.
Subjects of Debate and Controversy.
Lastly, let's indulge a bit of controversy surrounding Bitcoin. While these topics of conversation are interesting, most everything in this section is conjecture and should be taken with a grain of salt--we just think they're worth noting to get a full picture of the Bitcoin story.
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