100 Questions newbies keep asking about Bitcoin 1.
What the hell is it? In the most general sense, bitcoin is software that forms a decentralized, peer-to-peer payment system with no central authority like the Federal Reserve or U.S. Treasury. It’s fair to call it a digital currency or cryptocurrency, but at the moment, most investors aren’t really using it as currency to pay for things. Instead, they’re using it as a speculative investment to buy in the hope of turning a profit. Maybe a big profit. (And maybe a big loss).
2.
What is Bitcoin? A bitcoin is a type of digital currency which can be bought, sold, and transfer between the two parties securely over the internet. It cannot be touched and seen, but it can be traded electronically. We can store it in our mobiles, computers or any other storage media as a virtual currency. Bitcoin can store values much like fine gold, silver, and some other type of investments. It can be used to buy products and services as well as make payments and exchange values electronically. It is the most popular cryptocurrency in the world.
3.
What do you mean by Bitcoin Mining?Bitcoin mining is performed by bitcoin miners(a group of people). The procedure of bitcoin mining is done by specialized computers equipped for solving algorithmic equations. Miners achieve bitcoin mining by solving a computational problem which makes the chain of blocks of transactions. These specialized computers help miners to authenticate the block of transaction held within each bitcoin network. Whenever a new block added into the blockchain, immediately miners get rewards for this new block. The miners get rewards in bitcoin along with transaction fees.
4.
Who developed Bitcoin? Bitcoin was invented by an unknown person Satoshi Nakamoto in the year 2008. But there is no valid proof for this because the person behind bitcoin has never given an interview. It was released as open-source software in 2009. It was the first successful virtual currency designed with faith and equivalent to authorized currency of centralized government. It is a digital currency that uses rules of cryptography for regulation and generation of units of currency. It is commonly called decentralized digital currency.
5.
Who governs Bitcoin? Bitcoin is not a company, so no one can govern the Bitcoin. Bitcoin is decentralized digital money that is issued and managed without any centralized authority. It is created as a reward in a competition in which miners who own the specialized computer offer their computing power to verify and generate new Bitcoins. They are also responsible for maintaining the security of the network into the blockchain. The activity of creating a bitcoin is known as mining, and every successful miner gets a reward with newly created bitcoins and transaction fees.
6.
What is a Bitcoin wallet? A Bitcoin wallet(digital wallet) is a software program where Bitcoins are stored. Technically, a Bitcoin wallet is stored a private key(secret number) for every Bitcoin address. The owner of the wallet can send, receive, and exchange bitcoins. The Bitcoin wallet is of many forms, and some of them are a desktop wallet, mobile wallet, web wallet, and hardware wallet.
7.
What backs or supports it? Bitcoin runs on something called blockchain, which is a software system often described as an immutable digital “ledger.” It resides on thousands of computers, all over the world, maintained by a mix of ordinary people and more sophisticated computer experts, known collectively as miners. Yahoo Finance’s Jared Blikre dabbles as a bitcoin miner, running mining software in the background on his laptop. Here’s how much bitcoin he has generated so far: 0.000000071589. At the current rate, it would take him about 1,200 years to mine one complete bitcoin. That gives you a sense of how complex it is to mine bitcoin, and how much processing power it takes: These computerized mining rigs throw off so much energy that they can heat your home.
All bitcoin transactions are permanently recorded by miners, who upload bundles of transactions, or “blocks,” to the chain, maintained on all those computers. Blockchain as a technology has become popular among banks and other big financial institutions, who want to use it to settle payments on their back-end systems. But they’re mostly interested in blockchain without bitcoin.
8.
Who’s running the show? Bitcoin is decentralized, which means there isn’t one arbiter, central party or institution in charge. Blocks of transactions are validated on the blockchain network through computing “consensus,” which is a feature of the software. Bitcoin was created by someone in 2009 using the pseudonym Satoshi Nakamoto, but it isn’t known who that was, and that person or group doesn’t have control over bitcoin today.
9.
What is there to value? The price of bitcoin fluctuates based on buying and selling, just like a stock, but there’s a ton of debate over what the price represents. In theory, the value of bitcoin should reflect investors’ faith in bitcoin as a technology. But in reality, investors mostly see bitcoin as a commodity because of its finite supply. Under Satoshi’s blueprint, the total supply of bitcoin will eventually be capped at 21 million coins. At the moment, 16.7 million bitcoins have been created. A fractional amount of new coins gets created every time a miner uploads a block to the blockchain, which is a reward for mining.
10.
Is this a scam? It’s not a scam, in the sense of somebody marketing a bogus product. Bitcoin is a legitimate technology. The question is how useful and valuable it will become.
11.
Is there actually a physical coin called bitcoin? No. You can’t touch a bitcoin because it’s essentially software. You may have seen images of gold coins with a “
BTC” on them. Those are souvenirs that can’t be converted into actual bitcoin. But they’re better for illustrating news stories than the streams of numbers and letters that resemble the actual blockchain.
12.
Is it tangible like gold? Bitcoin has one big similarity to gold, in that some investors consider it a good store of value for financial wealth. You can take possession of your bitcoins — as some people do with gold — by downloading the string of digital codes that represents your holdings onto a gizmo that looks like a flash drive. But you can’t run your fingers through your bitcoin the way you might with a pile of gold doubloons, and bitcoin certainly isn’t pleasingly shiny.
13.
Is value completely determined by the free market? For the most part, yes. There’s a known and limited supply of bitcoin, so when demand goes up, so does the price. Technical innovation also contributes to bitcoin’s value. It was a novelty when first created in 2009, and the market has determined (for now) that it’s an invention that’s worth something.
14.
How can something that does not exist in the material world have a monetary value? Bitcoin does actually exist in the material world, the same way an operating system for your phone or computer exists in the material world. Remember, it’s essentially software, and it’s very clear that certain types of software have value because of what they allow us to do.
15.
If it’s virtual, can’t people make duplicates? Yes, but that’s not a problem. All bitcoin transactions are stored on that public ledger, the blockchain. You can copy the blockchain, but it’s just a record. So you wouldn’t be changing the distribution of bitcoin. To process new transactions in bitcoin, miners with powerful computers solve complex problems that add the transactions in a block to the blockchain. This is called “proof of work” and is one of the core features of most cryptocurrencies. Multiple miners verify the work, which prevents fraud.
16.
Is this a legal tender? Not officially yet in some countries. “Legal tender” means the laws of a state or nation require any creditor to accept the currency toward payment of a debt. In the United States, for instance, merchants must accept the U.S. dollar, which makes it legal tender. The U.S. government allows transactions in bitcoin, but doesn’t require every nail salon, car dealership or restaurant to accept it. They do have to accept dollars. Meanwhile, Japan and Australia, among other countries, have officially recognized bitcoin as legal currency.
17.
What is the collateral behind bitcoin? Nothing! The bitcoin blockchain records the entire transaction history of all bitcoin, which is validated through proof of work. That’s not collateral, however. There’s no other tangible asset backing bitcoin, the way a car serves as collateral for a car loan or a building serves as collateral for a commercial property loan.
18.
Who keeps track of each bitcoin? All of the miners who maintain the system.
19.
How do you buy and sell it? There are a number of easy-to-use exchanges now where you can buy bitcoin using money transferred from a bank account, and in some cases by charging a credit card. One of the most popular mainstream option is Binance, Coinbase, Kraken etc.
20.
What are you actually buying? You’re buying a digital “key,” which is a string of numbers and letters that gives you a unique claim on the blockchain supporting bitcoin. You can transfer this asset to others for whatever the market price of bitcoin is, minus transaction fees.
21.
How can you choose a Bitcoin wallet? Choosing the best bitcoin wallet is the most important step in becoming a Bitcoin user. There are two initial steps to finding a Bitcoin wallet given below:
Decide what sort of crypto wallet you needand consider specific wallets to find the best one for you.
Bitcoin wallets differ in many ways, such as security, convenience, level of privacy, coin support, and anonymity, customer support, user interface, fees, built-in services, and other variables.
The most common distinction in choosing Bitcoin wallets is whether they are a cold wallet or hot wallet.
Cold: The cold wallets refer to offline storage of bitcoins. These type of wallets are less convenient for frequent use, but they are more secure.
Hot: The hot wallets are connected to the internet most of the time. These type of wallets are suitable for daily use, but they are not secure.
Here, I will take an example of a page called bitcoin.org to choose a wallet. Bitcoin.org is a very good starting point to explain how to choose your wallet because there is a lot of options available. In this page, we will go to an option called Choose your wallet and decides the wallet type which you wants. These wallets are a desktop wallet, mobile wallet, web wallet, and hardware wallet.
22.
What is a Bitcoin address?[A bitcoin address is a unique identifier which consists of 26-35 alphanumeric characters. The identifier begins with the number 1 or 3, which represents a location where the cryptocurrencies can be sent. The bitcoin user can generate a bitcoin address without any cost. However, the bitcoin address is not permanent, that means it may change for every new transaction.
There are currently three standard address formats in use:
P2PKH: It always begins with the number 1, e.g., 1BvBMSEYvtWesqTFn5Au4n4GFg7xJaNVN2.
P2SH: It always begins with the number 3, e.g., 3J78t1WpEZ72CMnQviedrnyiWrnqRhWMLy.
Bech32: It always begins with bc1, e.g., bc1qat0srrr7xdkvy5l643lxcnw9re59gtzxwf5ndq.
23.
Is Bitcoin Anonymous? No, bitcoin is not completely anonymous; instead, it is pseudonymous, i.e. every identity is tied with the fake name. It is because each user has a public address, and whenever there are financial transactions occur, the fraudsters will survive to trace that addresses.
24.
Who sets the Bitcoin price? The price of bitcoin is determined by the market in which it trades. It is determined by how much someone is willing to pay for that bitcoin. The market sets the price of bitcoin as same as Gold, Oil, Sugar, Grains, etc. is determined. Bitcoin, like any other market, is subject to the rules of supply and demand. i.e.,
More Demand, Less Supply = Price Goes Up
More Supply, Less Demand = Price Goes Down
No one, in particular, sets the bitcoin's price nor we can trade it in one place. Each market/exchange determines its price based on supply and demand.
25.
Why are Bitcoin prices fluctuating? The price of bitcoin is fluctuating because it is very volatile in nature. Since the number of bitcoins is limited in circulation, new bitcoins are created at a decreasing rate. It means that demand must follow this level of inflation to keep the price stable. The bitcoin market is still relatively small as compared to other industries. Therefore it does not take significant amounts of money to move the market price up or down.
26.
Can they be purchased in a regular brokerage account? Traditional brokerages such as Vanguard, Fidelity and Schwab don’t yet offer the ability to purchase bitcoin directly. But there are securities linked to the value of bitcoin, such Bitcoin Investment Trust (GBTC), which you can buy through a traditional brokerage. That doesn’t make them a safer investment than bitcoin. Most, in fact, are highly volatile, just like the coin, and they don’t necessarily track the price of bitcoin perfectly.
27.
How much money do you need to get started? Not much. Coinbase lets you purchase as little as $1 of bitcoin, ethereum or litecoin, for instance.
28.
Can bitcoin be purchased in fractions? Yep. One bitcoin is divisible down to 8 decimal points, or 0.00000001 bitcoin. That’s the equivalent of one one-hundred-millionth of a coin. That unit is known as a satoshi, in honor of the pseudonymous founder of bitcoin. If one bitcoin is worth $15,000, the value of a satoshi would be .015 cents.
29.
Can it be traced back to you? Yes. Anyone who buys or sells bitcoin on an exchange such as Coinbase must provide their personal information to that exchange. If law-enforcement agencies or the IRS need to know something about you, the exchange will have to provide the info under the same laws that govern banks or brokerages. But your personal info does not become part of the blockchain and is not visible to miners maintaining the blockchain.
If you trade bitcoin privately with someone else in a peer-to-peer transaction, that person may know something about you, but nobody else would see the transaction. And if you’re a shady character aiming to launder bitcoin, there’s a way, called “bitcoin mixing.” Multiple bitcoin owners send their bitcoins to a service known as a mixer, which pools bitcoin from multiple sources, mixes them up, and redistributes them to the original owners in the amount they contributed (minus a fee, needless to say). This is risky and assumes the mixer doesn’t run off with your coin.
30.
Where is my money going when I buy a crypto? When you buy bitcoin or any other cryptocurrency, somebody is selling it to you — so most of the money goes to the seller. Exchanges also charge fees for conducting transactions, which can get very high. Bitcoin miners also earn transaction fees for their role in maintaining the network. Those tend to be tiny.
31.
How is Bitcoin purchased? We can purchase the bitcoin from many sources. Some of them are given below.
It can be purchased from online with the help of credit cards or other e-wallets like PayPal etc.
It can also be purchased with the help of LocalBitcoins and from Bitcoin Teller Machines, which is equivalent to Cash vending ATMs.
Bitcoin.com provides a list of authenticated online exchanges centres where you can sell and purchase Bitcoins.
32.
How can you sell Bitcoins? We can sell Bitcoins in many ways. We can sell it online to an exchange or some other people who live nearby. It can be sold in the same way as it can be purchased. The price of bitcoin fluctuates regularly as per the demand and supply. It can also be sold through bitcoin ATMs, which allow selling and buying of Bitcoins. The transaction fees of bitcoin are the lowest amongst all bank charges applied globally.
33.
Can stores accept Bitcoins? As we know, anyone can accept Bitcoin. Many B2B services and hardware installation are available for the convenience of the storeowners. All these business organizations give invoicing and accounting with their services. All third party services are not compulsory. Individuals can also transact and invoice on their own.
34.
How can you convert Bitcoin into Fiat currencies? It is very important to know how to cash out bitcoin or withdraw from bitcoins into fiat currency (USD, EUR, INR), which will be acceptable in their native countries. There are some easy ways listed below which convert BTC into USD, INR, EUR or GBP. Before picking any of the listed methods, you need to find out how you want to receive your fiat currency. You can sell Bitcoins in person for cash or can sell it on exchanges and get the money directly into your bank account.
Cryptocurrency Exchange
Bitcoin Debit card
Selling bitcoins
Bitcoin ATMs
To read more information, Click Here...
35.
Can I mine Bitcoins? Bitcoin mining is not an easy process. It requires specialized computers which can perform the calculation of large mathematical algorithm. These specialized computers are very costly, and power consumption has gone extremely high. For installation of one such computer or machine, you have to check for a cost-effective environment which is not easy these days. Today, Bitcoin mining machines are constantly being upgraded, and the moment becomes obsolete. Therefore, it will be very difficult to mine any more Bitcoin.
36.
Can I trade bitcoin without selling at an exchange? Yes, it is possible to trade bitcoins directly without selling at an exchange. Many people prefer this because of their security and trust. Many exchanges were hacked in recent time, and the result of this, their bitcoins vanished without any explanation.
Another reason is its privacy. These days exchanges have similar KYC requirements as like banks needs. The KYC information is at risk of theft if the security of the exchange up to date.
37.
What can I buy with Bitcoins? We can purchase anything with bitcoins that are legally sold in the world like clothing, electronics, food and art to handmade crafts. Bitcoin can also be used to buy large items like cars, real estate, and investment vehicles such as precious metals. If you buy anything from Amazon through bitcoin, you can get up to 20% discount. Some others also give a discount to people who pay with the digital currency. Bitcoin has its own stores where you can buy T-shirts, bag, hoodie, accessories, etc.
38.
Is Bitcoin legal? Bitcoin is legal in many countries in the world, but some countries state that they have banned its use, such as India, China, and Ecuador. The cryptocurrencies regulations can vary from country to country so you should have to do a proper search before the initiation of bitcoin transaction in any organization. Wikipedia and many other online services have a great guide on how Bitcoin is treated in all the countries around the world with its regulatory policies.
39.
How does Bitcoin work? Each Bitcoin is a computer file which is stored as a digital wallet in smartphones or computer and functions similar to any e-wallet app. Bitcoins use his currency in a digitalized form which has its limits of production and limited to 21 million Bitcoins only. You can send Bitcoins to your digital wallet and then can send Bitcoins to other people. Every single bitcoin transaction is recorded in a public ledger called the blockchain. The blockchain makes it possible to trace the history of Bitcoins to stop people from spending bitcoins they do not own. It also restricts to make copies or undoing transactions.
40.
What are the advantages of bitcoin? Following are the benefits of Bitcoins:
It is accepted worldwide at the same rates, and there is no risk of depreciation or appreciation.
It has the lowest transactional fees in the world.
It has fewer risks and irreversible transaction benefitting merchants.
It is fully Secured and control by the cryptographic encryption algorithm.
It is the transparent & neutral mode of administration as anyone can check data in real-time.
41.
Are bitcoins real money? And can I cash them in whenever I want? Bitcoin has value that can be converted into ordinary currency, or used to make purchases from sellers that accept bitcoin. So in that sense, it’s real money, and it will remain real money as long as there’s a market with people willing to buy it. To “cash in” bitcoin, you need to sell it to somebody, in exchange for dollars or some other currency. Exchanges that handle such transactions have experienced frequent outages that prevent some people from accessing their accounts or executing a trade for a period of time, especially when are there large movements in the price of bitcoin. So don’t assume you’ll be able to sell any time you want.
42.
What is the value based on, besides scarcity? What buyers and sellers think bitcoin is worth. In other words, a lot of psychology.
43.
How are they stolen? The bitcoin blockchain itself is very secure, but bitcoins can be stolen from an account if thieves are able to log into your account and send the bitcoin to another account they control. Once bitcoin is transferred, it can’t be recovered. Thieves typically break into other people’s accounts by stealing logon and password info. That makes it extremely important to use all possible measures to safeguard a bitcoin account, including two-factor authentication with a mobile phone. You also have a “private key,” which is a third layer of security that you might need at some point, if there are questions about who’s logging into your account. This key is typically a string of keyboard characters that should be stored where it can’t be lost or stolen or accessed through the internet.
44.
How does bitcoin generate revenue? Miners earn money–paid in bitcoin–for creating bitcoin, which helps cover the cost of time and computer power that the process requires. They also earn small transaction fees from bitcoin users. Bitcoin itself doesn’t generate revenue. It’s best thought of as a commodity, similar to gold, that has a market price but doesn’t generate economic activity, the way a business does. When the value goes up, bitcoin can create profits. But when the value goes down, it can also create losses.
45.
Is there value in this currency outside of black market transactions and ransoms? Yes. Since bitcoin transfers can’t be traced, bitcoin is often used to purchase drugs or stolen gods or finance other types of criminal activity. But it also has legitimate uses, and can be used as a form of payment with anybody who accepts it. Some investors consider bitcoin to be a store of value–an asset that has a long shelf life and whose value generally goes up over time. While that may be the trend of the last several years, however, we still can’t be sure bitcoin will hold its value long-term.
46.
What’s the difference between bitcoin and other cryptocurrencies? That depends which currency you want to know about, and there are hundreds of them now. Yahoo Finance, for instance, added full data and charts for 105 cryptocurrencies. Some coins, like bitcoin cash, bitcoin gold or litecoin, resulted from forks of the main bitcoin code. Then there are coins that run on their own blockchain, like ether (the token of the ethereum network) or XRP (the token of the ripple network).
47.
Why does the price fluctuate so much? There’s a lot of money pouring into a relatively small market, with the added complexity that it’s harder to trade bitcoin than typical securities or commodities on a regulated market. Big price swings happen sometimes when there are relatively few buyers and sellers in the market, which makes it easy to push the price around.
48.
How much of the volatility of bitcoin is due to whales influencing the market price versus new or outside investors? While we don’t know how many people are trading bitcoin at any given time, the blockchain, which is the transaction log, is public. The blockchain does show large trades taking place every day, but they’re typically not big enough to generate the huge price swings we’ve seen. Also keep in mind that in the stock market, large institutions typically break up their orders into much smaller orders, to hide their size. Big buyers or sellers of bitcoin could easily do the same.
49.
Is it a bubble? Nobody knows for sure. It’s worth recalling that the creation of the Internet led to the dot-com boom in the late 1990s, and the painful crash that followed. But the Internet is still here, and some tech companies that crashed in the early 2000s are now among the most valuable companies in the world.
50.
If the bitcoin bubble does burst, would all of the cryptocurrencies tank or just bitcoin? The universe of cryptocurrencies tends to move in the same general direction over time. But they’re not all as closely correlated as they used to be. On the Yahoo Finance cryptocurrency index, for instance, you’ll see the daily price movements are quite different for the 100+ coins we track. Still, an outsized move in bitcoin typically has ripple effects throughout the crypto-verse. If bitcoin were to tank by 90%, it seems quite likely other cryptos would follow suit. The real test would be which cryptos are able to survive a crash, the way Amazon, eBay, and Priceline survived the dot-com bust that wiped out hundreds of other companies.
51.
What are the disadvantages of Bitcoin? Following are the disadvantages: of bitcoins.
Degree of Acceptance: In Bitcoin, the Degree of Acceptance is very low because many people are still unaware of its benefits.
Volatile: Total number of Bitcoins in circulation is very small, so even a small change can make the price of the Bitcoin volatile.
Ongoing Development: Bitcoins software is still in beta form, and many incomplete features are in active development
52.
What is mean by Unconfirmed Transaction? An unconfirmed transaction is that transaction that has not been included in a block, and not completed also. Every transaction requires at least one confirmation to complete the transaction.
The common reasons for unconfirmed transactions are:
You have made the transfer. The Bitcoin network needs at least 10 minutes to include the transaction in a block.
The blockchain fee is very low. Thus, the lower the transaction fee, the lower your transaction's priority in the Bitcoin network. Therefore, it takes longer confirmation to be a valid transaction.
53.
Who controls the Bitcoin network? Bitcoin network is the term used to describe all the servers which are mining the various transactions undertaken with bitcoin. No one particularly can control the Bitcoin network. All Bitcoin users around the world control it. To be compatible with each other, all bitcoin users need to use software that is complying with the same rules. Bitcoin mining can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.
54.
What is the price of one Bitcoin? Can I buy a part of one Bitcoin?[/b] The buying rate for one Bitcoin as of April 2019 is approximately 3,67,569.51 Indian Rupees. The price of bitcoin would be changed every second. If you do not want to buy one bitcoin whole, you can buy a fraction of a Bitcoin also. It is because each bitcoin can be divided up to 8 decimals(0.00000001). For instance, you can buy Bitcoin for Rs 1000 or Rs 5,000.
55.
Is it legal to buy and sell Bitcoin from India? It is not illegal to buy and sell bitcoins in India. There is no law in India which declares it illegal. In India, the cusp of a digital revolution is yet to recognize the cryptocurrency officially. The Reserve bank of India(RBI), which regulates Indian rupee, had earlier cautioned users, holders and traders of Virtual currencies including Bitcoins.
Any central bank or monetary authority do not authorize the creation, trading or usage of Bitcoins as a medium for payment. There are no regulatory approvals, registration or authorization is stated to have been obtained by the entities concerned for carrying on such activities. However, the central bank has not unequivocally banned Bitcoins in the country.
56.
How do bitcoin transactions work? A transaction is a transfer of value between Bitcoin wallets of sender and receiver in the blockchain network. Each bitcoin transaction is composed of an amount. The amount is the input (sending address), an output (receiver's address), and the private keys that allow spending of Bitcoins from an individual's account. The blockchain is a database which maintains the transaction history since bitcoin's inception.
57.
What steps should you take to safeguard themselves from Bitcoin fraud? The basic advice is that you should not invest in anything that you does not understand. There are many schemes and scams available around bitcoin mining. A blockchain is a high-risk technology, it has potential, but we never guarantee anything. There is no way as a guaranteed return in the Bitcoin world. On the Zebpay home page, there is a section that lists about frauds and schemes and advises users on how to protect themselves.
58.
What is the difference between Bitcoin and Blockchain? Blockchain1. Blockchain is a ledger with cryptographic integrity.
2. Blockchain can easily transfer anything from currencies to property rights of stocks.
3. It has a broad scope because of open-source.
4. It provides a low cost safe and secure environment for a peer-to-peer transaction.
5. It is transparent as it must comply with KYC for every business.
Bitcoin1. Bitcoin is a cryptocurrency.
2. Bitcoin is limited to trading as currency.
3. It has a limited scope and is less flexible.
4. To simplify and increase the speed of transaction without much of government restrictions.
5. It can be termed as anonymous because there are no regulatory framework and standards that have been followed by bitcoin.
59.
I hear wild speculations that bitcoin will reach $1 million or that it will crash and be worthless. What is most likely? Either event is possible, and perhaps both are. Bitcoin could climb all the way to $1 million and then still suffer a huge crash. No one knows how high the price of bitcoin will go, and it’s possible bitcoin has already achieved its all-time high. But bitcoin probably won’t ever become literally worthless, unless something catastrophic happens, such as the discovery of a fatal flaw in its code.
60.
What are the risks? Something could disrupt the demand for bitcoin, sending the price plummeting. It could be a technical problem, regulatory interference, or bad publicity arising from the massive amount of electrical power needed to mine for bitcoin. It could also be something totally unforeseen. Or, some new speculative fad could come along, with interest in bitcoin diminishing.
61.
Should I use a bitcoin “hardware wallet”? That’s an excellent idea. Dan Roberts of Yahoo Finance explains how to do it.
62.
How do we get hold of these companies? They don’t answer emails. Sorry, but that’s kinda the idea. To many of bitcoin’s ardent supporters, one huge benefit is its decentralization—the lack of a central authority and the absence of regulation. Those are the very things, of course, that bring government pressure to bear on financial services companies that underserve or mistreat their customers. Maybe central authority isn’t that bad, after all.
That’s the snarky answer. In reality, it’s in the interest of Coinbase and other intermediaries providing access to bitcoin to do a better job responding to customers who have problems or questions. Keep in mind, most of these companies are startups still getting their footing. Keep pressuring them. They ought to get better.
63.
Will there ever be customer service via phone? You mean, like Vanguard or Fidelity? What a novel idea. We’ll see, but for now you’re only likely to hear from Coinbase if there’s a security issue with your account.
64.
Will the government keep their nose out of it? Probably not. Governments have already stepped in, to some extent, with Washington, for instance, allowing the trading of bitcoin futures, which is regulated by the Commodity Futures Trading Commission. For bitcoin to become a more established part of the financial system, it will be subject to more regulation. But that’s not necessarily bad. Some bitcoin investors think that if governments regulate bitcoin more, that will actually legitimize the currency and broaden its adoption.
65.
Are cryptocurrencies going to take over the U.S. dollar and other currencies? It’s hard to see anything dislodging the U.S. dollar, which is the world’s most trusted currency. Cryptocurrencies could gain share in the overall currency market, especially if the U.S. government explicitly authorizes certain cryptocurrencies and allows people to pay taxes with them. But even that probably wouldn’t doom the dollar, which is valued everywhere for the liquidity it provides.
66.
Will cryptocurrency destroy the global market? Nah. Even if bitcoin crashed, it wouldn’t have a significant impact on the broader financial markets, according to an analysis by research firm Capital Economics. For all the attention it gets, bitcoin’s market cap is still small, and the cryptocurrency isn’t woven into the real economy or the banking system. A total wipeout — with the price falling to $0 — would be the equivalent of a 0.6% pullback in stocks, according to the analysis. Spending by a small portion of households might be affected, and some people would suffer million-dollar losses. But many people with large bitcoin holdings were early investors who bought when the price was very low. So they might seem like large losses in terms of bitcoin’s peak valuation, but they’d still represent fairly modest initial investments.
67.
What types of products or services can be bought with cryptocurrencies? Though it’s called a cryptocurrency, it’s not clear the best use of bitcoin will ever be buying stuff with it, since you can purchase things in so many other convenient ways. Investors may eventually regard bitcoin principally as a store of value, similar to commodities.
But if you must, you can spend bitcoin right now on Zynga, Overstock.com, Newegg.com, Expedia.com, and some of Microsoft’s online platforms. If you’re booking a trip, CheapAir.com takes the cryptocurrency as payment. An online outfit called eGifter allows you to buy gift cards from more than 200 brands using bitcoin.
You can buy more expensive things, too, such as a reservation for Virgin Galactic, Richard Branson’s commercial spaceflight company. The Montessori Schools in Flatiron and Soho, an elite pre-school in Manhattan, accepts bitcoin for its nearly $32,000 per year tuition. REEDS Jewelers accepts bitcoin for its rings, watches, and other fine jewelry.
Pro sports is getting in on the craze, with the NBA’s Sacramento Kings and the San Jose Earthquakes soccer team accepting bitcoin for tickets and merchandise. So are political parties, with Libertarians accepting donations through BitPay. The annual maximum is $33,900, which, who knows, might be the equivalent of one bitcoin someday.
68.
Can I spend it at Home Depot? Not directly. But it’s slowly catching on among some retailers, mostly e-commerce: Overstock accepts bitcoin, as does Microsoft’s Xbox store, and PayPal and Square allow merchants to accept bitcoin.
69.
Will it ever be used as currency at regular retailers? It depends on what’s in it for the retailer. If consumers eventually find bitcoin cheaper or easier to use than current methods, then it might be something retailers decide to offer, to gain a competitive edge. They might even encourage customers to pay in bitcoin if it costs them less in transaction fees than credit cards do. But widespread adoption seems unlikely until the price of bitcoin becomes more stable.
70.
Is there any reason why a typical consumer would prefer to use a cryptocurrency instead of a credit card? For now, not really, unless you’re trying to remain anonymous. Cash allows that, obviously. For larger purposes, bitcoin does offer both anonymity and the security of an electronic transaction.
71.
What percentage of global economic activity is conducted in cryptocurrency? Very little. But bitcoin finances a significant portion of criminal activity.
72.
How do you track various cryptocurrencies? Is there a ticker I can follow? Yep. Yahoo Finance now offers full, free tracking tools for more than 100 cryptocurrencies, with a ticker symbol for each. Most people aren’t even aware there are that many cryptocurrencies. We also have a landing page for all cryptocurrency news and our original coverage of it.
73.
Are crypto coins more like stocks or currency, as far as investments? It’s complicated, because bitcoin and other cryptocurrencies have features in common with both. People often compare cryptos to a third category, gold. This labeling confusion is why you’ll sometimes hear cryptocurrencies referred to as “digital assets” or “digital gold.”
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ETF availability? Coming, probably. The U.S. government allowed the trading of bitcoin futures, which may well be a precursor to the establishment of exchange-traded funds that would be listed on a major exchange. The Securities and Exchange Commission would have to approve such an ETF. That could be a year away, more.
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Why are there vast disparities among trading values in cryptocurrencies? First, different cryptocurrencies trade on their own dynamics. There are differences in the number of coins outstanding, different uses for them, and different rules of operation. When bitcoin, the biggest of them all, makes a large move, it tends to have a spillover effect, with other cryptocurrencies moving in tandem. This effect has diminished over time, however, as cryptocurrencies mature and differentiate.
Another issue is the disparity in trading values of a single cryptocurrency across the myriad exchanges — mainly in the markets for bitcoin. This is due to the relatively high cost of arbitrage, or buying the asset on the lower-priced exchange and selling it on the higher-priced exchange, to make a small profit. The catch is it can take time to make each or those transactions, with no guarantee prices will be the same when the trade goes through. These disparities will likely continue as long as there is relatively low liquidity on most exchanges, as well as high transaction fees.
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Do you have to report bitcoins to the IRS? The IRS considers bitcoin to be the equivalent of property, with profits (or losses) taxed more or less the same as the proceeds from a sale of stock. The IRS won a court ruling against Coinbase that requires the exchange to report information on customers who had more than $20,000 in annual transactions from 2013 to 2015. It seems inevitable that the IRS will treat profits and losses from cryptocurrency bets the same as it treats other investment income.
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Should one put retirement savings into cryptocurrencies? Can you afford to lose it all? If you can’t, then stay out of cryptocurrencies—the volatility and risk of a wipeout is exactly the opposite of what ought to be in a strong retirement plan.
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Will I be sorry if I don’t put 5% of my retirement savings into cryptocurrency? If you’re comfortable investing a small portion of your savings in high-risk instruments, then sure, do it. But again, don’t do this unless you can afford to lose all that money .
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How do banks view bitcoin? Friend? Foe? Partner? Nearly all large banks have brokerage arms that are members of the futures exchanges where bitcoin futures are now being traded. These futures contracts finally bring bitcoin to Wall Street. But it’s going to take time to build the trust of Wall Street brokers. Until then, volume and liquidity will be low, with most trading happening among retail traders rather than institutional ones.
Right before bitcoin futures went live, big banks and brokers, represented by the Futures Industry Association, sent an open letter to the CFTC, which regulates U.S. futures trading, warning that bitcoin futures were being rushed to market without transparency or proper risk assessment. That has led many large brokers to avoid the bitcoin futures markets for now, refusing to let clients trade yet. Others are reserving trading rights for select clients.
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Are there any publicly traded companies that make markets in cryptocurrencies? None that are well-known in the United States, although there could be overseas, given that there are hundreds of cryptocurrency exchanges and dozens of public stock markets around the world. (We’re not counting futures trading as market-making, since those exchanges don’t hold actual bitcoin for traders to buy and sell.)
There are however, a growing number of public companies that have “blockchain” in their name, and claim to gain exposure to this new universe by investing in blockchain technology, mining operations, and specific cryptocurrencies. Beware of these. Many have avoided the rigorous IPO process by performing a reverse merger into an existing public company, which is often engaged in an entirely different business. This adds a level of risk to anyone investing in these companies.
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How will it impact countries’ ability to collect income tax? If bitcoin were to become a substantial gray- or black-market sub-economy where people could hide income, governments would have an incentive to crack down and limit the use of new currencies. Of course, there’s already a large underground economy, where cash and other types of assets are exchanged in ways meant to hide transactions. And there are plenty of offshore tax shelters, as well. The IRS’s lawsuit against the Coinbase exchange indicates the U.S. government is paying attention and is willing to be aggressive making sure taxpayers don’t use cryptocurrencies to cheat on their taxes.
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Is there a way for all the money invested to just vanish because of a virus or hack? When it comes to the bitcoin network itself, that’s a possibility, but an unlikely one. The code that runs the bitcoin network is open source. Over 350 people currently work on it, and anyone can inspect it. With so many well-trained eyes on the code, it’s unlikely to succumb to a virus or hack.
Bitcoin’s weakness is at the individual exchange level, since exchanges have been hacked and others, such as Mt. Gox, have been exposed as outright frauds. Even the largest exchanges experience outages on days when volume surges. A disruption at a large exchange can influence the price of bitcoin, but one exchange probably can’t crash the entire network. It’s never happened, but if the world’s largest bitcoin exchanges were all hacked or crashed at once, it could prove catastrophic for bitcoin.
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Can blockchain disappear? If every copy of the blockchain were somehow erased, then the entire blockchain would disappear. But that’s unlikely. It is common, however, for parts of the blockchain to disappear as they become invalidated, because of the way the blockchain is designed. For “proof of work” cryptocurrencies such as bitcoin, miners compete to process transactions that allow them to earn new coin, along with transaction fees. The rules require everyone to follow the longest blockchain. Sometimes, concurrent blockchains evolve in parallel, for various technical reasons. When one chain becomes a single block longer than the other, the shorter one is invalidated, along with all the transactions in it. This is undesirable for the losing parties that have invested time and computing power in the shorter blockchain. In general, this creates an incentive for miners to mind the blockchain and keep its size under control.
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Is bitcoin likely to increase its supply once the 21 million limit happens? It’s possible, if at least 51% of the bitcoin miners agree to change the rules. One concern is that miners who maintain the network will drop out after the last bitcoin is mined, because they’d only earn money from transaction fees, which might not be lucrative enough. Buyers and sellers have a say, too, since it’s up to them to decide if they’re willing to pay the fees. In a way, the bitcoin market will evolve like any other market involving producers, consumers, buyers, sellers and middlemen who continually negotiate over price and terms.
There’s no hurry to decide. Miners aren’t expected to generate the last bitcoin until around 2140, 123 years from now. By then, computing power will be exponentially higher and humans may mate with robots, for all we know. It’s not hard to imagine bigger concerns than whether to lift the bitcoin cap.
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How easy is it to cash out of cryptocurrencies if I need the money in a hurry? Not as easy as you’d like. Bitcoin is not as liquid as other investments, in part because settlement can take more than a week, under good circumstances. Volatility and surging demand has caused frequent outages on exchanges such as Coinbase and Kraken, and you can’t sell if you can’t access your account. If such outages occur amid panic selling, some bitcoin holders might be unable to sell for a fairly long time, which could make steep losses worse as the price drops and people who want to sell, can’t.
That’s one thing that could harm confidence in the asset.
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Will the banking industry adopt bitcoin into their business practices or is it more likely that they will work together to develop a new type of cryptocurrency? Banks will do what’s in their interest. Right now, there’s not a big, liquid market to trade cryptocurrencies. The new bitcoin futures may become big enough to trade with institutional money. At that point, it’s likely the big banks (which also have brokerage arms) will come to dominate the market for bitcoin, and perhaps other cryptocurrencies.
If the banking industry were to develop its own cryptocurrency, it would make sense for it to be ethereum-like, based on smart contracts. This would allow them to offer and control the process for initial coin offerings (ICOs), which would likely be regulated by the Securities and Exchange Commission at that time. This is speculation and at least several years off.
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How do we get cryptocurrencies into our 401(k) plan? Careful, cowboy. It could be awhile before financial firms that administer 401(k) plans allow access to cryptocurrencies. For one thing, there are no mainstream mutual funds or ETFs that allow this type of investing. And retail brokerages will probably err on the side of caution when it comes to rolling out crypto products for retirement accounts. The first requirement will be the establishment of a bitcoin ETF, which we estimate to be at least a year away.
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Can I short bitcoin without opening a futures account or having to pay a very high fee to locate shares of something like GBTC? No. GBTC is the ticker for Bitcoin Investment Trust, an exchange-traded trust that trades on the over-the-counter market (which means it’s not listed on a major exchange, like the NYSE or Nasdaq). This is why traders who want to bet against the price of bitcoin find it difficult to borrow shares of GBTC to short. Also, while GBTC is designed to track the movement of bitcoin, it doesn’t track the price of bitcoin perfectly. Until a bitcoin ETF is listed on a major exchange, the futures markets offer a much better alternative if you want to short bitcoin (though liquidity is admittedly low at this early stage).
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Could another crypto take over bitcoin? Yes, depending on how you define “take over.” Strains on the bitcoin network, such as persistent outages at some of the exchanges, led some bitcoin miners to take matters into their own hands earlier this year. They banded together to change the bitcoin code in a way that would speed up the network, a change known as a “soft fork.” This created a separate cryptocurrency called bitcoin cash, which is now the third-largest cryptocurrency by market value. And other new cryptocurrencies have been coming to market every month, many through the same soft-fork process. These don’t necessarily amount to a “takeover” of bitcoin, but they do spawn new competition that’s a threat to the dominance of bitcoin.
Bitcoin is the first mover, however, with inherent advantages. It’s the only one with its own futures contracts. And it will probably be the first with a U.S. ETF listed on a major exchange, allowing ordinary people to invest easily. But if the bitcoin network doesn’t catch up with bitcoin mania, users have literally hundreds to choose from, with ethereum, ripple, litecoin and bitcoin cash as leading contenders.
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How many people are trading bitcoin and when is the market “open?” Bitcoin never sleeps — it trades 365, 24/7. But there’s really no way to determine how many people are trading at any given time on the hundreds of exchanges worldwide. We do know this: Initially, most bitcoin trading was done in the west. Large price swings often happen when it’s dark in America. As bitcoin popularity surges, however, so do the number of U.S. dollar-denominated accounts being opened.
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How do you buy other cryptocurrencies with U.S. money, as opposed to buying these with bitcoin? It’s up to the exchanges to decide what cryptocurrencies they’ll trade and what form of payment they’ll accept — whether it’s U.S. dollars, Chinese yuan, or bitcoin itself. Most of the altcoins aren’t popular enough to incentivize exchanges to accept payment for them in traditional currencies. The market decides how cryptocurrencies can be bought.
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How is bitcoin “mined”? By purchasing costly equipment that’s best suited to the job, such as an ASIC machine (which stands for application-specific integrated circuits). You can also download a mining application to a traditional computer, but that has become an extraordinarily slow way to generate coin. Here’s where you can learn the details.
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How does anyone know bitcoin is limited to 21 million units? If it is limited to 21 million units, how do you know when 21 million units have been mined, and there’s no more to mine? The code behind the bitcoin network is available for anyone to inspect, as is the blockchain ledger, which records the entire history of bitcoin transactions. So everyone in the bitcoin community will know when miners produce the 21 millionth coin. The question then becomes, what next?
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Why are graphics cards used in mining? It makes it sound like currency is being made up. When bitcoin was invented in 2009, miners quickly discovered that the processors in graphics cards (GPUs) were much more efficient at mining bitcoin than the CPUs that run computers. Nowadays, miners use ASICs, which are custom-built for different cryptocurrencies. Their architecture is still similar to GPUs.
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How will miners get paid when all the bitcoins have been mined? They will get paid by transaction fees, which are determined by supply and demand — ultimately by the agreement of the person sending the bitcoin and the miners that process the transaction. There is a theoretical upper limit on the transaction fee, and there are legitimate concerns that the bitcoin network will become insecure if miners aren’t properly compensated. This could happen before the last bitcoin is mined, as the bitcoin “birth rate” becomes exponentially smaller over time — meaning the miners might not cover the cost of electricity because it takes increasingly large resources to mine a single coin. But this scenario is likely decades away.
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Does the size of the blockchain grow forever? As long as bitcoin exists, yes. Each transaction adds to the cumulative bitcoin ledger.
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I have a very fast computer and I want to mine bitcoin and other currency. How do I do it? You might have a very fast computer, but unless the processor is optimized for mining bitcoin, you probably won’t mine bitcoin at an economical rate that covers the cost of electricity. Very powerful processors called ASICs sell for thousands of dollars apiece and are custom-designed for specific cryptocurrencies. But if you’re hellbent on mining bitcoin on your personal computer, there are several mining applications from which to choose.
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What percentage of total bitcoins are in circulation today? Of the 21 million in bitcoin due to be mined, about 16.74 million, or roughly 80%, are in circulation.
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What will the price of bitcoin be in 10 years? When I learn how to predict the future, I’ll get back to you. Here’s one likelihood, though: The technologies underlying cryptocurrencies will be around in some form for a long time.
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Any need telling people about Bitcoin? We need to inform others about Bitcoin so that the adoption will keep increasing everyday.
