27 Jan 2017

15 Bitcoin Common Questions & Answers

In 1998, when Wei Dai on the cypherpunks included cryptocurrency in a mailing list, he looked unserious. When he muted the idea of a new form of currency without a central issuing and regulating authority, he seemed like a joker. Since 2010, when Bitcoin became a reality, there has been 1001 questions about it. Here you have only 15 of them addressed.

1.    What is Bitcoin?

Bitcoin is an entirely digital currency operated online. It is the first of its kind, decentralized P2P payment network with the power of control vested in the users. There are no central regulatory authorities or middlemen. A Bitcoin user sees it as a merely the cash online. It can also be described as the most prominent triple entry bookkeeping system ever devised.

Read Also: 30 Bitcoin Terms You Must Understand for Profitable Trading

2.    Who controls the Bitcoin network?

In practice, the users are the controllers of the Bitcoin network. Nobody can claim the ownership of the network just like nobody can claim the ownership of the email system. It’s a fact that some have sat down to develop the software and keep improving it, they don’t control it. They can’t compel a change in the Bitcoin protocol because every user is at liberty to choose what software or version he will use.
In order to stay compatible with each other, however, all users need to use software that comply with the same. All users and developers thus have a compelling reason to use software complying with the same rule to stay compatible with each other and maintain this consensus.

3.    How can I acquire Bitcoins?
You can be paid in Bitcoin for goods or services. You can buy Bitcoins on a Bitcoin exchange. You can also exchange Bitcoins with another user near you. A greater amount of Bitcoins is earned by the competitive mining. You may as well find those who want to trade their Bitcoins in for a credit card or PayPal payment.
4.    Are businesses really using Bitcoin?
Yes. More and more businesses and individuals are using Bitcoin. Offline industries like food, property, legal, manufacturing and finances are accepting it as a means of transferring funds. Too numerous to be counted are the online businesses and services who not only use, but also prefer Bitcoin as a mode of payment. These include internationals like Namecheap, WordPress, and Reddit.
Though, still in its infancy, it is notwithstanding a fast growing currency. Statistics has it that as of August 2013, there was $1.5 billion worth of Bitcoin in circulation and millions of dollars worth of Bitcoin being spent daily. What about now?

5.    Why is Bitcoin a trusted currency?

All features of Bitcoin themselves have earned it the trust it deserves. Bitcoin as a currency has a fully open source and is decentralized with nothing to hide. Every user has access to all its source code at any time he or she is trading. Knowledge of Bitcoin workability is not vague to any who really wants to key into it.
The entire transactions and Bitcoins ever issued can be openly consulted real time by any interested user. You don’t have to rely on a third party to effect any payment and the entire system is guarded by heavily peer-reviewed cryptographic algorithms with features of those used for online banking. Since no organization or individual that controls the network, Bitcoin is secured and can be trusted.

6.    What if I lose my Bitcoins?
If you lost your Bitcoin wallet, you have in effect, withdrawn the amount of Bitcoin in that wallet from circulation. No one else can use it. It remains dormant forever lying in the blockchain. There is no way for another user to discover the private key that can be used to access and spend the fund in the wallet.

Read Also: How to Secure, Back Up & Recover Your Wallet

7.    Is Bitcoin legal?
While it is not a legal tender, Bitcoin has not been outlawed by any governmental authority anywhere the world over. Though some countries may place restriction on all foreign currencies, the move is not against cryptocurrencies like Bitcoin.

Rather than banning it, some countries are coming up with regulations guiding individuals and businesses on how to incorporate the Bitcoin technology into their formal, regulated financial system.

8.    Can Bitcoin be regulated?
It depends. However, it would take nearly all the users, who decide the software they use to modify the Bitcoin protocol itself. It is impossible for a country to arrogate to itself the right to regulate a worldwide currency. A government can only regulate how it is to be used in its own jurisdiction. And if it makes it difficult in its own country, it is only shifting the technological and financial opportunity elsewhere. 
An indirect control may arise if a wealthy organization chooses to invest in mining hardware to control major computing power of the network and have the capacity to reverse recent transactions. Still, it is in theory rather than in practice because such organisation will have to invest more than all other miners in the world combined.

9.    Will I be required to pay taxes on Bitcoin earnings?
Bitcoin does not have a fiat currency status of legal tender of any nation so its earnings cannot be taxed, However, taxing systems of many lands are capable of taxing any transaction irrespective how the means. So if there is an increase in income, sales, payroll, capital gains, or some other form of tax implication because of Bitcoin transaction, expect it to be taxed. 

10.    Is it easy to make payments with Bitcoin?
Yes. It is even easier to make payments in Bitcoin than it is to make payments in debit or credit card purchases. Bitcoin payments can be received without any merchant account. They are made directly from a Bitcoin wallet, an application that you run on your computer or your smartphone. Once you entered the recipient’s Bitcoin address and the amount to be paid and press send, you are making payments. For ease of obtaining recipients address, you may use a QR code to obtain it or you use NFC by placing the two phone side-by-side.

11.    Is it possible for someone to buy up all the existing Bitcoins?

Since only a fraction of Bitcoins issued can be found on the exchange markets for sale, it is nearly impossible for someone to buy them up. The Bitcoin markets are highly competitive and highly elastic and responsive to the market price. Another basis for this confidence is that new Bitcoins will always be issued. For that reason, even a determined buy will not be able to buy up all the Bitcoins in existence. Even any attempt to manipulate the market will take a significant amount of money.

12.    How is the Bitcoin’s price fixed?
The market forces of demand and supply determine the price of Bitcoin. The higher the demand for Bitcoin, the higher its price, and vice versa. The rate of new Bitcoins creation is predictable, so there is only a limited number of Bitcoins in circulation. This means that for the price to be stable the demand must follow the level of inflation. Because the Bitcoin is still a promising market, its price could be very volatile.

13.    Is Bitcoin another Ponzi scheme?
No. Bitcoin does not operate like a fraudulent Ponzi scheme where investors are paid returned from their own money or the fund paid by subsequent investors. It is rather a free software digital currency with no central authority. No one is therefore empowered to make fraudulent representations about investment returns.
Though a speculative currency, there is a free float of Bitcoin exchange just like gold, dollar, euro, and yen among other currencies. That creates volatility of Bitcoin transactions. Apart from being a speculative tool, it is also an electronic payment system that has useful and competitive attributes that are being used by thousands of users and businesses.

Read Also: How Bitcoin Investments Work+Automated Bitcoin Trading

14.    Is it possible to receive a Bitcoin when I am offline?
Yes. If you are paid when you are offline, the Bitcoin will be displayed the next time you start your Bitcoin wallet application. This is made possible because Bitcoins are actually received into your address and not by your computer software. They are recorded in a public ledger that is shared by all the devices connected to the network.

So if you are paid in Bitcoin when your wallet client programme off, the next time you launch it, will download the blocks and catch up with any transaction that occurred against your address while you were offline.
15.     Why do I always have to wait for confirmation?
This is simply because there is some delay before the network begins to confirm your transaction and add it to a block. Receiving notification of a payment is almost instant with Bitcoin. However, notification of a payment is almost instant with Bitcoin. Yet payment confirmation will require a consensus on the network that the Bitcoins you received haven’t been sent to anyone else.

The answers to this question should give you more confidence in the viability of the Bitcoin. Go ahead and begin your transaction without further delay.

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