The Best Frequently Asked Questions about Bitcoin, the Blockchain and Cryptocurrencies
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We hear a lot of people ask basic questions about Bitcoin and blockchain technology, so we’ve compiled a list of answers. Understanding cryptocurrencies is a steep learning curve. They introduce a wide range of terms and require the ability to separate truth from opinion.
Whether or not Bitcoin has intrinsic value will depend on people across the entire world. Although there are several major players, like mining pools in China that have a huge impact on Bitcoin, cryptocurrency is not owned or operated by any company, state or country. That’s why it’s messy and unfamiliar. It’s constantly generating a storm of conflicting news reports and editorials.
What is Bitcoin, and what’s so good about it?
Bitcoin is a type of cryptocurrency. It’s also an asset and a payment platform with a digital ledger that spans the world, combining global transactions onto a single system. It introduced the blockchain. It allows people without bank accounts to make transactions. In countries with hyperinflation, Bitcoin has become a viable payment method. Bitcoin can also move fluidly across borders without intermediaries. Unlike fiat currency that needs to get converted from USD to euros to yen, Bitcoin is just Bitcoin. Someone in Kansas City can send Bitcoin to someone in Phuket, like someone in London can email someone in Buenos Aires. If paper money is a CD, Bitcoin is an MP3. Bitcoin is also good at moving huge lump sums for big expensive assets, which is why wealthy investors use it to buy homes, yachts and Lamborghinis.
What is the blockchain?
The blockchain is a new technology with far-reaching applications that can annihilate banking services, if not banks altogether, and redesign transactions across a multitude of businesses and industries. It is a digital ledger that records transactions publicly or privately, and sequentially. It can facilitate peer-to-peer transactions, eliminating or reducing the need for middlemen. Through encryption and decentralization, the blockchain creates trust. With Bitcoin’s blockchain, anyone can see all transactions.
How does the blockchain work?
The blockchain and how it works defines how Bitcoin works. It is a digital ledger that stores every single transaction. If I sell a pair of shoes to you for $10, that transaction can be engraved on the digital ledger that is immutable. The ledger is not owned by a bank or any centralized database. It is decentralized, which means it is hosted by a network of computers across the world. Some of the computers belong to large groups and some of the computers belong to individuals. Transactions on the blockchain occur through and are recorded by addresses. Each sender and recipient requires an address.
Is there only one blockchain?
No, there are several different blockchains. Ethereum is its own blockchain. Other cryptocurrency development teams are working on their own blockchains. IBM has its own blockchain. Bitcoin is the oldest and longest blockchain, containing the greatest number of transactions.
Is Bitcoin money?
Yes. It can be used to buy and sell goods and services. Because of its limited use as money and because of its slow transaction time and high fees, many “experts” and bankers refrain from calling it money and do not consider it a currency. But that doesn’t mean much. People in Venezuela and Zimbabwe have been using Bitcoin as money since their national currencies have collapsed. People in the US have found limited adoption and are able to use it as money on e-commerce platforms like Overstock. Other companies are experimenting with implementing Bitcoin as money.
Was Bitcoin created by criminals to launder money?
No one knows the identity of Bitcoin’s alleged creator, Satoshi Nakamoto, who has claimed authorship of the original Bitcoin white paper, first published in October 2008. Nevertheless, a popular narrative about its creation is that it was made by criminals for criminal activities. Many believe that Bitcoin was in fact created as a response to the financial crisis of 2007-2008, when big banks were bailed out while people lost their homes through foreclosure. It was a time when average citizens become disenchanted with derivates, bank loans and other traditional investment instruments invented by the banking system that led to high inflation, bubbles and epic bursts.
But isn’t Bitcoin used by criminals?
Yes. Bitcoin has been used by criminals for criminal activity. Silk Road is the prime example. But long before Bitcoin and Silk Road, there was Enron, Bernie Madoff, Michael Milken and other high profile corporate criminals. Swiss bank accounts and the Canary Islands, among other destinations, have a long history of helping the rich hide their money or aiding criminal masterminds with their nefarious dealings. Before Bitcoin, there were wars, ransoms, kidnappings, drug epidemics, bank robbers and tax evaders. People are people, and they can do awful things. But they are not the technology or the tool itself, which can be beneficial. Phones, for example, are and have been used by criminals to hatch plans.
Is Bitcoin a good investment?
Bitcoin is a volatile investment with the ability to go to zero, like every other fiat currency. Bitcoin hodlers have seen their holdings soar and then plunge. It’s a wild ride.
But how can I spend it for pizza if the price of it keeps changing?
Right – it doesn’t make sense. But that’s how it works. You may buy a slice of pizza with Bitcoin in 2018, only to discover in 2019 that the price you paid for that pizza was ludicrously expensive. That’s if Bitcoin goes up. It could go down.
Is Bitcoin slow?
Bitcoin transactions can be exceedingly slow. Critics point out that it can process only seven transactions per second. Visa handles about 2,000 transactions per second. To address its slow transaction speeds, developers are working to implement improvements, such as The Lightning Network which is designed to move small amounts of Bitcoin at lightning speed.
Who made Bitcoin?
Some anonymous person or group of people called Satoshi Nakamoto.
Is Bitcoin a cult?
Cults are often defined as entities that attract devout followers who share a belief system and who remain emotionally invested in a mission, concept or idea. Critics often point out that Bitcoin has reached cult status because you can’t hold it. It’s just some fluffy puffy stuff out there in the cloud. Under this definition, we’d find every religion that shares a belief in God. Critics also note that Bitcoin isn’t backed by a nation state. You don’t need a passport to join in the craze. Ditto with the internet.
Is Bitcoin a hedge?
Bitcoin is largely considered to be too volatile to be a reliable hedge against stock-market moves, for example. At the same time, if an economy collapses, and people continue to trade Bitcoin, it could be a hedge against local currency.
Aren’t government-backed currencies better than Bitcoin?
Historians has chronicled the collapse of many currencies. Germans remember when the Deutsche Mark got divorced from the gold standard at the outbreak of World War I, and when their new currency wiped out their old money after World War II at a rate of one new unit per ten old units. The Venezuelans and Zimbabweans have all watched their government-backed currencies nosedive amidst hyperinflation and corruption. These are not the only unstable economies whose policies have drastically altered or hyper-inflated their national currencies. Meanwhile, US financial analysts are sounding the alarm about a looming global catastrophic financial crisis. Where there is money, there are shenanigans, economic wars and complexities. Bitcoin, which has a fixed supply, is an attempt to address money problems through a digital system that cannot be easily manipulated by central banks. At the same time, Bitcoin is still in its infancy with its own set of hiccups like slow transaction speeds, limited adoption and exchanges that have been hacked. In other words, there’s rigorous debate. There’s also a lot of hubris in a statement claiming that money, which is an invention, will continue to outperform any new technology that attempts to replace it.
What’s a Bitcoin address?
A Bitcoin address is a digital string of numbers and letters you need to send and receive Bitcoin. They usually contain 26 characters. Your friend can have a different Bitcoin address. When your friend tells you their Bitcoin address, you can send them Bitcoin.
Do I need a bank to get an address?
No. This is why the banks are afraid of Bitcoin. You don’t need a bank. You just need an address.
How can I get a Bitcoin address?
You can get an address by creating one all by yourself on your computer. You can use BitcoinPaperWallet, VanityGen and several other platforms.
I’m not a techie and I don’t know anyone who will send me Bitcoin. How do I get some Bitcoin?
You can sign up with an exchange like Gemini or Coinbase to purchase Bitcoin with US dollars.
Is Bitcoin anonymous?
Bitcoin addresses are anonymous to the degree that they are not attached to a name or account holder. They contain no identification. At the same time, all addresses are accessible to the public. They are not private. So if you know that a certain address belongs to a particular individual, you can see the amount of Bitcoin belonging to the address that belongs to that individual by searching it on Bitcoin’s blockchain. Recipients of Bitcoin often generate new addresses for each transaction.
Do I have to buy a whole Bitcoin?
No. You can buy, sell and trade fractions of a Bitcoin. Some people call these fractions “Satoshis”.
What’s with the QR codes that accept Bitcoin?
These are addresses. When you scan a QR code, it will reveal a unique address. QR codes are a handy way of transmitting the long string of characters from a physical paper to a device. For example, you may see a QR code on the menu of a restaurant that accepts Bitcoin. When you use a mobile app to scan the QR code, it can instantly generate the address associated with the code. Now you can send a Bitcoin payment to that address without needing to type in the long string of characters.
What are people saying about Bitcoin?
They’re saying a lot of different things. Check out our list of wildly different opinions. Computer scientists will tell you it’s a payment system that’s a public digital ledger that lets people make peer-to-peer transactions safely and securely across borders without the need for intermediaries. That means no bank accounts, no clearing houses, no merchant processing services, no remittance software. Plenty of bankers will tell you it’s a Ponzi scheme.
So what is Bitcoin again?
Bitcoin is a new technology, and it’s unlike anything ever created in the modern world. Trying to define it has led to fierce debate. It has been called many different things: currency, money, a payment solution, a blockchain, gold, an asset, a cryptocurrency, garbage, a Ponzi scheme, a fraud, a brilliant scam. The debate continues. Here’s a list of articles that express very different opinions and definitions of Bitcoin.