Bitcoin FAQ(Frequently Asked Questions)
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What is Bitcoin?[modifier]
The main article: Bitcoin Bitcoin is a peer-to-peer digital currency that can be safely and instantly sent to any person in the world. This currency is like electronic money, which you can share with friends or use to pay for your purchases.
What s bitcons?[modifier]
Bitcoin is a currency unit of Bitcoin system. Abbreviation “BTC” is usually used; it means price or number (e.g. “100 BTC”). Physical bitcoins also exist, but, generally, bitcoin is just a number connected to the address. Physical bitcoins are just objects like coins with inbuilt number.
How can I get bitcoins?[modifier]
There are many ways to get btcoins:
- You can take bitcoins for goods or services.
- The most common way to get bitcoins is exchange.
- There are exchange services, which exchange bitcoins for conventional currency.
- You can find people in your country or city, who sell bitcoins for cash.
- Participate in mining pool.
- If you have a lot of equipment for mining, you can do it yourself and try to create a new block (today it brings 25 bitcoins and all commission for translations included in the block).
- Get bitcoins on websites that give them for free.
Does Bitcoin guarantee easy money?[modifier]
Considering Bitcoin is a new technology, at first it can be unclear what it is and how it works. People often see Bitcoin as one of three options:
- Something like Internet scam.
- A loophole in market economy, the use of which guarantees a steady surge in capital inflows.
- Safe investment that is almost certain to bring profit.
In fact, none of these options reflects the truth. Let's dwell on each of them.
Is Bitcoin an Internet scam?[modifier]
If you spend much time online, you, probably, often meet an advertising of different scams. These ads usually promise big benefit for simple work. Such schemes are likely to be financial pyramids/matrices, which simply want to cash in on their employees and don’t offer anything worthwhile. Most often they convince people to buy certain block of shares that will bring ones pots of money. But in fact, customer has to spread more those ads without any gain. Bitcoin has nothing in common with such schemes. Bitcoin does not promise superior returns. Developers can’t cash in on you. The biggest plus is Bitcoin can’t be bought without the owner’s agreement. Bitcoin is an experimental virtual currency, which is going to be a success or fail. None of the developers expects to get rich because of it.
If I install the client, can I earn?[modifier]
The majority of people using Bitcoin does not benefit from this, and client in the form it is distributed does not give you the opportunity to earn. Few people with special highly productive equipment earn Bitcoins by "mining" (creating new Bitcoins), using special software, but Bitcoin should not be considered as a path to wealth. Most users participate in this project, because they consider its concept interesting, but they do not benefit from it. Bitcoin makes its first steps. Maybe great things await it in the future, but now it's just a technology that can be offered to the people interested in conceptual projects or new technologies.
Is Bitcoin a suitable investment?[modifier]
Bitcoin is a new, interesting e-Currency, and its value is not supported by governments or organizations. Like other currencies, it is worth something, because people are willing to exchange it for goods and services. Its exchange rate is constantly fluctuating, sometimes very strong. Bitcoin lacks wide recognition; it is vulnerable to manipulation by persons without large assets. Security incidents, such as hacking a website and leakage of the accounts, can cause serious problems with uncontrolled selling of currency. There are other probable fluctuations that can trigger feedback and cause much larger changes in the exchange rate. Anyone who invests in Bitcoin, should understand the risk he takes, and consider Bitcoin as a currency with a high level of risk. Later, when the Bitcoin becomes more famous and widely recognized, it may stabilize, but at this point everything is unpredictable. Any investment in the Bitcoin must be exercised with a clear risk management plan.
Can I buy Bitcoin via Paypal?[modifier]
You can buy the physical bitcoins with PayPal, but it will be more difficult and expensive with electronic coins, because of the significant risk for the seller. There is a method of buying Bitcoins via PayPal, but it is subject to a large commission. Using VirWoX you can buy Second Life Lindens (SLL) on Paypal, and then convert them into bitcoins. In such a way you lose about 6%, but will be able to get bitcoins pretty quickly, unlike a bank transfer. This method works because you do not buy Bitcoin directly via Paypal, you buy SLL (which is permissible under Paypal’s conditions), and then exchange them for Bitcoin. Despite you may find someone who wants to sell you Bitcoins via Paypal, (perhaps using # bitcoin-otc), most exchanges does not work with PayPal. It is related to the high incidence of fraud: people paid for bitcoins via Paypal, received their bitcoins, and then sent a complaint to Paypal about not getting a purchase at all. In this situation, PayPal often takes the side of the cheating buyer, so sellers have to insure against risks by higher commissions or complete rejection of Paypal. Purchasing Bitcoins from individuals is still possible, but the seller must be sure the buyer will not complain to PayPal, to get his payment back.
How new bitcoins are generated?[modifier]
New bitcoins are generated through the "Mining" process. During the process, which is similar to a permanent lottery, hosts are awarded with Bitcoins every time they find the solution to a mathematical problem (and thus create a new block). Creation of block is a work proof and complexity of the process varies with the growth of network. Award for the creation of the block is adjusted automatically. Thus every four years of the networking half of bitcoins is created, that have been created over the past four years. During the first 4 years (January 2009 - November 2012) 10,499,889.80231183 Bitcoins (approximately) have been generated. Every four years, this amount will be divided in two; it will be equal to 5,250,000 over the next four years, then 2,625,000, and so on. Thus, the total number of Bitcoins will never exceed 20,999,839.77085749. Blocks are mined every 10 minutes on average, and for the first four years (210,000 blocks) each block contained 50 new Bitcoins. Since the amount of processing equipment used in mining increases, the difficulty of creating new Bitcoins is growing. This complexity factor is calculated every 2016 blocks; it is based on the time it took to create the previous 2016 blocks.
How much Bitcoins exist now?[modifier]
Their number is constantly increasing. The number of existing coins = number of blocks, multiplied by the coin value from the block. The coins cost from the block is 50 BTC in each of the first 210,000 blocks, 25 210,000 BTC in the next 210,000 blocks, then 12,5 BTC, 6,25 BTC and so forth. How many parts bitcoins can be divided to? Bitcoin can be divided to 8 decimal places. 0,00000001 BTC is the minimum volume that can be processed in a transaction. It is also called "Satoshi" in honor of the founder of Bitcoin. If necessary, the protocol and software can be modified to work with smaller amounts.
How are called the parts of Bitcoin?[modifier]
There are many disputes how to call units smaller than 1 bitcoin. The most popular options are: 1 BTC = 1 Bitcoin 0,01 BTC = 1 CBTC = 1 santibitcoin (is also mentioned as bitsent) 0.001 BTC = 1 mBTC = 1 millibitcoin (is also mentioned as Mbit or millibit or even bitmill) 0.000 001 BTC = 1 μBTC = 1 microbitcoin (is also mentioned as ubit or microbit) Supra are international SI prefixes for hundredths, thousandths and millionths parts. Most often they argue about a separate designation for 0,01 BTC, because it is unlikely this part will be worth something as the economy of Bitcoin grows (of course, it will not be equivalent to 0,01 USD, GBP or EUR). The use of existing national symbols of money, such as "cent", "nickel", "dime", "pence", "pound", "penny", is not supported, too, because it is a worldwide currency. "Satoshi" is the only exception; this word refers to the smallest existing currency face value. 0.000 000 01 BTC = 1 Satoshi, which is named in honor of Satoshi Nakamoto, Bitcoin’s inventor alias.
How will work the two timed reduced award for block, when numbers become small?[modifier]
In the end reward for block declines from 0.00000001 BTC to zero, Bitcoins will be no longer created. Reward for the block is calculated as the bitwise shift of 64-bit integer to the right, so it is divided by two and rounded down. This integer is equal to BTC * 100000000, because all balances and Bitcoin cost are stored in the client as unsigned integers. If the original award was 50 BTC, then how many 4-year periods bitcoins have to be mined to reach zero? How much time it takes to create all the coins? The last block generating coins will be the block number 6929999, which should be created in 2140. The total circulating number of coins will be 20,999,999.9769 BTC. Even if permitted accuracy increases from current 8 decimal places, the total circulating number of BTC will always be slightly below 21 million (assuming that everything else will remain unchanged). For example, with accuracy of 16 after the decimal point we finally would get 20,999,999.999999999496 BTC.
If the coins are no longer created, will be the new blocks created?[modifier]
Sure! Even before the coins are over, commissions for the transactions included in the blocks will certainly become more rewarding for the creation of new blocks than the coins themselves. When all coins are created, these commissions will support the use of Bitcoin and Bitcoin network itself. The number of blocks that can be created is unlimited.
But if the coins will no longer exist, what happens if bitcoins are lost?[modifier]
Because of a law of supply and demand bitcoins will cost more, provided their number reduces. So if some bitcoins are lost, others will grow in price to compensate. If the value of Bitcoins increases, number needed for purchase will decrease. This is deflationary economic model. If the average transaction size is reduced, the transaction is likely to be held using Bitcoin smaller parts, such as millibitcoins («Millies») or microbitcoins («Mikes»). Bitcoin protocol uses the basic block from one hundred million Bitcoins ("Satoshi"), but unused bits allow you to work with even smaller parts.
If every transaction is transmitted through the network, does not traffic increase from Bitcoin?[modifier]
Bitcoin protocol allows using lightweight clients that can work without downloading on your computer the entire transaction history. As traffic grows and this point is becoming increasingly important, methods are developed to implement such concepts. Major network nodes will become more specialized services. With the help of some changes in the software full Bitcoin nodes will be able to catch up with VISA and MasterCard, but it will require a fairly humble hardware (one high class server by today's standards). It is worth noting that the MasterCard network structure is similar to the Bitcoin - it is also a broadcast peer-to-peer network.