CryptoCoinsRevolution.com: Bitcoin F.A.Q

Bitcoin F.A.Q

What is Bitcoin?
Is there a party that controls Bitcoin?
Who is the creator of Bitcoin?
What is the process?
Do people really use Bitcoin?
Where do you get Bitcoins?
Is it easy to make Bitcoin payments?
Is Bitcoins a way to get rich quickly?
Is Bitcoin a good investment option?
How can you create new Bitcoins?
What are the benefits of Bitcoins?
What are the limitations of Bitcoin?
Can you trust Bitcoin?
Is Bitcoin completely virtual?
What happens when Bitcoins are lost?
Is Bitcoin legal?
What about taxes in affiliation with Bitcoins?
Is Bitcoin a fraud?
Is speculation a problem with Bitcoins?


What is Bitcoin?
It is a form of payment system, just like Visa and Paypal, but it involves digital money. Therefore, this is a new kind of system, which involves the use of peer-to-peer payment network, which does not have any kind of middlemen or centralized authority. If a user is using this means, then it is another form of cash on the Internet. It is also considered to be one of the few triple entry systems that exist in today's world.

Is there a party that controls Bitcoin?
Just like there is no party that owns email, there is no party that owns Bitcoin network. In fact, all the users of Bitcoin actually control this network. There are certain developers who improve the software, but without the consent of users, there cannot be any change in the protocol of this system. Users have complete authority on the kind of software and version that they use. However, it is ideal to use the same software because of compatibility. There needs to be complete consensus if the system is to work efficiently.

Who is the creator of Bitcoin?
The concept of crypto-currency on which Bitcoin is based was developed by Wei Daii in 1988. He suggested the idea that a new form of money that makes use of cryptography can be used to control the transactions. Therefore, there would be no central authority However, the first proof of concept and the specification of Bitcoin was published by Satoshi Nakamoto. However, after this time in 2010, there have been many developers working on this system.

However, the protocol and software are published on the Internet quite widely, with any developer having the authority to review the code or make their own version. Therefore, no one really knows who actually created Bictoin completely, just like no one knows the identity of the individual who created paper.

What is the process?
If one looks at Bitcoin from the perspective of users, it is simply like a computer program or a mobile app that has a Bitcoin wallet. This allows individuals to send and receive currency just like in any normal payment system. This is how the process works for much of the systems.

However, the Bitcoin network is also used by many developers all around the world. It works through the sharing of a ledger that is public, known as block chain. This actually has every transaction that has ever been processed. Every user has complete control from their own addresses to send Bitcoins. If someone processes transactions through the use of specialized hardware producing Bitcoins, then they are rewarded in Bitcoins for this particular service. The process is known as "mining".

Do people really use Bitcoin?
You would be surprised that there are many individuals along with businesses that are turning to Bitcoin as the means of payment. This includes mortar businesses such as law firms, apartments, restaurants as well as popular online services. These services include Reddit, Flattr, WordPress and NameCheap. You would be surprised to know the growth rate in the number of users. Statistics from August 2013 reveal that the value of bictoins in circulation was around US$1.5 million. Millions of dollars of bitcoins were in transaction daily.

Where do you get Bitcoins?
There are different ways that you can get your hands on Bitcoins. You can get them in exchange for goods and services. You might also ask someone to exchange bitcoins with you. You can also get them through mining. There is a Bitcoin exchange, which allows you to get this crypto-currency in exchange for dollars, for example.

Is it easy to make Bitcoin payments?
You would be astonished to find out that these payments are actually easier than credit or debit card purchases. You also do not need a merchant account. You can make payments through the wallet application, which you can download on your smart phone or on the computer. You simply need to enter the address of the recipient, the amount that is to be paid and then simply press send. It is also now easier to make payment through the touching of two phones through NFC technology. A QR code also allows you to access the address automatically to make the payments in a much easier way.

Is Bitcoins a way to get rich quickly?
Many people think that it is easy to get rich immediately through Bitcoins. You might have seen that on the Internet where people promise huge profits for small amount of work. However, this is not true in the case of Bitcoins. The system does not promise you any kind of windfall profits. Developers cannot make money if you get involved and there is no way that they can get money from you. Bitcoins are impossible to acquire unless the owner provides consent. In fact, because Bitcoin is an experimental and virtual currency, you may either succeed or lose. There is no way that you are getting rich quickly.

Is Bitcoin a good investment option?
Since this is a new concept, then you need to understand whether the Bitcoin economy would be actually profitable for you. The value of this currency is not backed by any organization or government. It operates in a similar way to other currencies because people are willing to use it as a medium of exchange. Furthermore, the exchange rate also fluctuates and at times, it does so quite drastically. However, it does not have a lot of acceptance. There are some security incidents that may lead to major sell-offs. It is important to understand that a person takes a risk by being into this economy, because it is definitely a high-risk currency. However, when it becomes wider known and accepted, then there would be stability in the exchange rate. For now, it tends to be quite unpredictable. You need to have a clear plan so that the risk can be managed easily.

How can you create new Bitcoins?
You can create new bitcoins through the process of mining discussed previously. This is quite similar to the process of continuous raffle draw. Basically through the mining of nodes on the network, you can get rewarded in Bitcoins, especially when you find answers to complex mathematical problems. This allows you to create new blocks. The blocks symbolize a work that is done with difficulty, which tends to vary according to the overall strength of a certain network. You can mine blocks after every 10 minutes.

What are the benefits of Bitcoins?
There are numerous advantages of using Bitcoins and this includes:

Freedom of payment: You would be surprised how easy it is to simply receive and send money instantly anywhere in the world immediately. You do not have to worry about imposed limits along with no limits when it comes to international boundaries. You do not need to worry about bank holidays either. Therefore, you will have full control of the money

Low cost: The low cost tends to occur because there is no fee involved. There might be very less fee, which is usually applicable when there is priority processing, so that faster confirmation can be received. Sometimes, if merchants are using this, then you might need this to process transactions.

Risks are minimal for merchants: Merchants would find it be quite secure and irreversible because there is no personal information regarding customers. Therefore, there are no problems that consist of fraudulent chargebacks and frauds.

More Control: : People appreciate the fact that they can take full control of their transactions. There is no way that merchants can force unnoticed changes or unwanted changes, which often occur when other payment means are being used. There is no personal information tied when transactions occur, which actually makes the method quite secure. Therefore, you are better protected against identity theft. There is also an option to provide protection for your money through encryption and backup.

Neutral and Transparent: Any information on the block chain can be seen and viewed in real-time. Anyone can verify the information, which means that any organization cannot manipulate the protocol since it is quite secure cryptographically. Therefore, it is predicable and neutral in this way.

What are the limitations of Bitcoin?
There are some disadvantages to using this means of payment, as well.

Acceptance is low: Many people tend to not know about Bitcoins. There are many companies that are increasing their use of Bitcoin as a means of payment because of the benefits involved, but it is still small. If one is to benefit from the network effects, then more people need to accept this.

Developing Stage: This is relatively new software, which means that there are some incomplete features. Therefore, it is still being developed to ensure that it becomes more accessible to the masses and becomes more secure. Therefore, not everyone can use Bitcoin at this point in time. In fact, there is no insurance provided by Bitcoin businesses which are emerging these days. The crux is that it is still maturing at this point in time.

The market is volatile: The exchange rate tends to fluctuate quite rapidly. Since there are small amount of people on the market, any kind of activity tends to affect the price. Once the market matures, this volatility would decrease.

Can you trust Bitcoin?
This is a very valid question. And the answer is quite simple because it is easy to trust this system because it requires no trust at all. This is because it is completely decentralized and open to everyone. Anyone can access to the entire code of the software at any time. Any developer can have an exact idea of the way this system works. All transactions can be viewed by everyone in real-time. There is no reliance on any third party. Just like online banking, it works through cryptographic algorithms which are peer-reviewed. Even if you cannot trust all the users, the network will remain secure. Hence, you can place your trust in it.

Is Bitcoin completely virtual?
Just like online banking and credit cards are virtual, Bitcoin is as virtual as it can get. It can be used in exchange for online goods and services along with physical stores, as well. You can exchange them in physical forms through the use of Casascius coins. However, using the app through the online wallet is a better idea. The balances can be seen by everyone in public, so they cannot be altered by anyone. Users have complete control over their funds and they cannot simply disappear in thin air, even though the funds are virtual.

What happens when Bitcoins are lost?
This will have the same effect as when the money is taken out of circulation. The bitcoins that are lost will remain the block chain, but they will be put to dormant status, because no one can find the private key, which will allow them to be spent again.

Is Bitcoin legal?
There is no organization or country in the world which has deemed this illegal. There are some countries such as Russia and Argentina that severely ban the use of other currencies. Some jurisdictions may put a limit to the use of such Bitcoin exchanges.

However, because bitcoin is a form of money, it can still be used for illegal purposes, but this does not make it illegal. The current banking system along with the credit card system also has a high rate of fraud, so Bitcoins have been reported to be used illegally.

What about taxes in affiliation with Bitcoins?
No matter what the medium of transaction used, some form of tax liability may arise, even though Bitcoin does not have a legal tender status. Some legislation in different jurisdictions may give rise to bitcoins being subjected to different forms of taxes, such as income, capital gains and payroll.

Is Bitcoin a fraud?
No, it is not.

Is speculation a problem with Bitcoins?
Speculation can often cause volatility, so it is one of the major criticisms of Bitcoins.

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