Some things you need to know
If you're new and getting started with Bitcoin, these are a few things you should
learn about. Bitcoin lets you exchange money and transact in a different way than
you normally used to. As such, you should take time to educate yourself before
using Bitcoin for any serious purchase or transaction. Bitcoin should be treated with
the same care as your regular wallet, AmEx, Mastercard, bank account, or even
with more scrutiny in some cases!
Securing your wallet
Just as in real life, your wallet must be secure. Bitcoin makes it possible
to transfer value anywhere in a very easy way and it allows you to be in
control of your money. Such great features also come with great security
concerns. At the same time, Bitcoin can provide very high levels of
security if used correctly. Always remember that it is your responsibility
to adopt good practices in order to protect your money. Read more about
securing your wallet.
Bitcoin price is volatile
The price of a bitcoin can unpredictably increase or decrease over a short
period of time due to its young economy, novel nature, and sometimes
illiquid markets. Consequently, keeping your savings with Bitcoin is not
recommended at this point. Bitcoin should be seen like a high risk asset,
and you should never store money that you cannot afford to lose with
Bitcoin. If you receive payments with Bitcoin, many service providers can
convert them to your local currency.
Bitcoin payments are irreversible
A Bitcoin transaction cannot be reversed, it can only be refunded by the
person receiving the funds. This means you should take care to do business
with people and organizations you know and trust, or who have an
established reputation. For their part, businesses need to keep track of
the payment requests they are displaying to their customers. Bitcoin can
detect typos and usually won't let you send money to an invalid address by
mistake, but it's best to have controls in place for additional safety and
redundancy. Additional services might exist in the future to provide more
choice and protection for both businesses and consumers.
Bitcoin is not anonymous
Some effort is required to protect your privacy with Bitcoin. All Bitcoin
transactions are stored publicly and permanently on the network, which
means anyone can see the balance and transactions of any Bitcoin address.
However, the identity of the user behind an address remains unknown until
information is revealed during a purchase or in other circumstances. This
is one reason why Bitcoin addresses should only be used once. Always
remember that it is your responsibility to adopt good practices in order
to protect your privacy. Read more about protecting your privacy.
Unconfirmed transactions aren't secure
Transactions don't start out as irreversible. Instead, they get a
confirmation score that indicates how hard it is to reverse them (see
table). Each confirmation takes between a few seconds and 90 minutes, with
10 minutes being the average. If the transaction pays too low a fee or is
otherwise atypical, getting the first confirmation can take much longer.
Bitcoin is still experimental
Bitcoin is an experimental new currency that is in active development.
Each improvement makes Bitcoin more appealing but also reveals new
challenges as Bitcoin adoption grows. During these growing pains you might
encounter increased fees, slower confirmations, or even more severe
issues. Be prepared for problems and consult a technical expert before
making any major investments, but keep in mind that nobody can predict
Government taxes and regulations
Bitcoin is not an official currency. That said, most jurisdictions still
require you to pay income, sales, payroll, and capital gains taxes on
anything that has value, including bitcoins. It is your responsibility to
ensure that you adhere to tax and other legal or regulatory mandates
issued by your government and/or local municipalities.
Frequently Asked Questions
What is Bitcoin?
Bitcoin is a cryptocurrency and worldwide payment system. It is the first
decentralized digital currency, as the system works without a central bank
or single administrator.
Bitcoin is a consensus network that enables a new payment system and a
completely digital money. It is the first decentralized peer-to-peer
payment network that is powered by its users with no central authority or
middlemen. From a user perspective, Bitcoin is pretty much like cash for
the Internet. Bitcoin can also be seen as the most prominent triple entry
bookkeeping system in existence.
Who created Bitcoin?
Bitcoin is the first implementation of a concept called "cryptocurrency",
which was first described in 1998 by Wei Dai on the cypherpunks mailing
list, suggesting the idea of a new form of money that uses cryptography to
control its creation and transactions, rather than a central authority.
The first Bitcoin specification and proof of concept was published in 2009
in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the
project in late 2010 without revealing much about himself. The community
has since grown exponentially with many developers working on Bitcoin.
Satoshi's anonymity often raised unjustified concerns, many of which are
linked to misunderstanding of the open-source nature of Bitcoin. The
Bitcoin protocol and software are published openly and any developer
around the world can review the code or make their own modified version of
the Bitcoin software. Just like current developers, Satoshi's influence
was limited to the changes he made being adopted by others and therefore
he did not control Bitcoin. As such, the identity of Bitcoin's inventor is
probably as relevant today as the identity of the person who invented
Who controls the Bitcoin network?
Nobody owns the Bitcoin network much like no one owns the technology
behind email. Bitcoin is controlled by all Bitcoin users around the world.
While developers are improving the software, they can't force a change in
the Bitcoin protocol because all users are free to choose what software
and version they use. In order to stay compatible with each other, all
users need to use software complying with the same rules. Bitcoin can only
work correctly with a complete consensus among all users. Therefore, all
users and developers have a strong incentive to protect this consensus.
How does Bitcoin work?
From a user perspective, Bitcoin is nothing more than a mobile app or
computer program that provides a personal Bitcoin wallet and allows a user
to send and receive bitcoins with them. This is how Bitcoin works for most
Behind the scenes, the Bitcoin network is sharing a public ledger called
the "block chain". This ledger contains every transaction ever processed,
allowing a user's computer to verify the validity of each transaction. The
authenticity of each transaction is protected by digital signatures
corresponding to the sending addresses, allowing all users to have full
control over sending bitcoins from their own Bitcoin addresses. In
addition, anyone can process transactions using the computing power of
specialized hardware and earn a reward in bitcoins for this service. This
is often called "mining". To learn more about Bitcoin, you can consult the
dedicated page and the original paper.
Is Bitcoin really used by people?
Yes. There are a growing number of businesses and individuals using
Bitcoin. This includes brick-and-mortar businesses like restaurants,
apartments, and law firms, as well as popular online services such as
Namecheap, Overstock.com, and Reddit. While Bitcoin remains a relatively
new phenomenon, it is growing fast. As of May 2018, the total value of all
existing bitcoins exceeded 100 billion US dollars, with millions of
dollars worth of bitcoins exchanged daily.
How does one acquire bitcoins? >
As payment for goods or services.
Purchase bitcoins at a Bitcoin exchange. >
Exchange bitcoins with someone near you.
Earn bitcoins through competitive mining. >
While it may be possible to find individuals who wish to sell bitcoins in
exchange for a credit card or PayPal payment, most exchanges do not allow
funding via these payment methods. This is due to cases where someone buys
bitcoins with PayPal, and then reverses their half of the transaction.
This is commonly referred to as a chargeback.
How difficult is it to make a Bitcoin payment?
Bitcoin payments are easier to make than debit or credit card purchases,
and can be received without a merchant account. Payments are made from a
wallet application, either on your computer or smartphone, by entering the
recipient's address, the payment amount, and pressing send. To make it
easier to enter a recipient's address, many wallets can obtain the address
by scanning a QR code or touching two phones together with NFC technology.
What are the advantages of Bitcoin?
Payment freedom - It is possible to send and receive bitcoins anywhere in
the world at any time. No bank holidays. No borders. No bureaucracy.
Bitcoin allows its users to be in full control of their money.
Choose your own fees - There is no fee to receive bitcoins, and many
wallets let you control how large a fee to pay when spending. Higher fees
can encourage faster confirmation of your transactions. Fees are unrelated
to the amount transferred, so it's possible to send 100,000 bitcoins for
the same fee it costs to send 1 bitcoin. Additionally, merchant processors
exist to assist merchants in processing transactions, converting bitcoins
to fiat currency and depositing funds directly into merchants' bank
accounts daily. As these services are based on Bitcoin, they can be
offered for much lower fees than with PayPal or credit card networks.
Fewer risks for merchants - Bitcoin transactions are secure, irreversible,
and do not contain customers’ sensitive or personal information. This
protects merchants from losses caused by fraud or fraudulent chargebacks,
and there is no need for PCI compliance. Merchants can easily expand to
new markets where either credit cards are not available or fraud rates are
unacceptably high. The net results are lower fees, larger markets, and
fewer administrative costs.
Security and control - Bitcoin users are in full control of their
transactions; it is impossible for merchants to force unwanted or
unnoticed charges as can happen with other payment methods. Bitcoin
payments can be made without personal information tied to the transaction.
This offers strong protection against identity theft. Bitcoin users can
also protect their money with backup and encryption.
Transparent and neutral - All information concerning the Bitcoin money
supply itself is readily available on the block chain for anybody to
verify and use in real-time. No individual or organization can control or
manipulate the Bitcoin protocol because it is cryptographically secure.
This allows the core of Bitcoin to be trusted for being completely
neutral, transparent and predictable.
What are the disadvantages of Bitcoin?
Degree of acceptance - Many people are still unaware of Bitcoin. Every
day, more businesses accept bitcoins because they want the advantages of
doing so, but the list remains small and still needs to grow in order to
benefit from network effects.
Volatility - The total value of bitcoins in circulation and the number of
businesses using Bitcoin are still very small compared to what they could
be. Therefore, relatively small events, trades, or business activities can
significantly affect the price. In theory, this volatility will decrease
as Bitcoin markets and the technology matures. Never before has the world
seen a start-up currency, so it is truly difficult (and exciting) to
imagine how it will play out.
Ongoing development - Bitcoin software is still in beta with many
incomplete features in active development. New tools, features, and
services are being developed to make Bitcoin more secure and accessible to
the masses. Some of these are still not ready for everyone. Most Bitcoin
businesses are new and still offer no insurance. In general, Bitcoin is
still in the process of maturing.
Why do people trust Bitcoin?
Much of the trust in Bitcoin comes from the fact that it requires no trust
at all. Bitcoin is fully open-source and decentralized. This means that
anyone has access to the entire source code at any time. Any developer in
the world can therefore verify exactly how Bitcoin works. All transactions
and bitcoins issued into existence can be transparently consulted in
real-time by anyone. All payments can be made without reliance on a third
party and the whole system is protected by heavily peer-reviewed
cryptographic algorithms like those used for online banking. No
organization or individual can control Bitcoin, and the network remains
secure even if not all of its users can be trusted.
Can I make money with Bitcoin?
You should never expect to get rich with Bitcoin or any emerging
technology. It is always important to be wary of anything that sounds too
good to be true or disobeys basic economic rules.
Bitcoin is a growing space of innovation and there are business
opportunities that also include risks. There is no guarantee that Bitcoin
will continue to grow even though it has developed at a very fast rate so
far. Investing time and resources on anything related to Bitcoin requires
entrepreneurship. There are various ways to make money with Bitcoin such
as mining, speculation or running new businesses. All of these methods are
competitive and there is no guarantee of profit. It is up to each
individual to make a proper evaluation of the costs and the risks involved
in any such project.
Is Bitcoin fully virtual and immaterial?
Bitcoin is as virtual as the credit cards and online banking networks
people use everyday. Bitcoin can be used to pay online and in physical
stores just like any other form of money. Bitcoins can also be exchanged
in physical form such as the Denarium coins, but paying with a mobile
phone usually remains more convenient. Bitcoin balances are stored in a
large distributed network, and they cannot be fraudulently altered by
anybody. In other words, Bitcoin users have exclusive control over their
funds and bitcoins cannot vanish just because they are virtual.
Is Bitcoin anonymous?
Bitcoin is designed to allow its users to send and receive payments with
an acceptable level of privacy as well as any other form of money.
However, Bitcoin is not anonymous and cannot offer the same level of
privacy as cash. The use of Bitcoin leaves extensive public records.
Various mechanisms exist to protect users' privacy, and more are in
development. However, there is still work to be done before these features
are used correctly by most Bitcoin users.
Some concerns have been raised that private transactions could be used for
illegal purposes with Bitcoin. However, it is worth noting that Bitcoin
will undoubtedly be subjected to similar regulations that are already in
place inside existing financial systems. Bitcoin cannot be more anonymous
than cash and it is not likely to prevent criminal investigations from
being conducted. Additionally, Bitcoin is also designed to prevent a large
range of financial crimes.
What happens when bitcoins are lost?
When a user loses his wallet, it has the effect of removing money out of
circulation. Lost bitcoins still remain in the block chain just like any
other bitcoins. However, lost bitcoins remain dormant forever because
there is no way for anybody to find the private key(s) that would allow
them to be spent again. Because of the law of supply and demand, when
fewer bitcoins are available, the ones that are left will be in higher
demand and increase in value to compensate.
Can Bitcoin scale to become a major payment network?
The Bitcoin network can already process a much higher number of
transactions per second than it does today. It is, however, not entirely
ready to scale to the level of major credit card networks. Work is
underway to lift current limitations, and future requirements are well
known. Since inception, every aspect of the Bitcoin network has been in a
continuous process of maturation, optimization, and specialization, and it
should be expected to remain that way for some years to come. As traffic
grows, more Bitcoin users may use lightweight clients, and full network
nodes may become a more specialized service. For more details, see the
Scalability page on the Wiki.
Is Bitcoin legal?
To the best of our knowledge, Bitcoin has not been made illegal by
legislation in most jurisdictions. However, some jurisdictions (such as
Argentina and Russia) severely restrict or ban foreign currencies. Other
jurisdictions (such as Thailand) may limit the licensing of certain
entities such as Bitcoin exchanges.
Regulators from various jurisdictions are taking steps to provide
individuals and businesses with rules on how to integrate this new
technology with the formal, regulated financial system. For example, the
Financial Crimes Enforcement Network (FinCEN), a bureau in the United
States Treasury Department, issued non-binding guidance on how it
characterizes certain activities involving virtual currencies.
Is Bitcoin useful for illegal activities?
Bitcoin is money, and money has always been used both for legal and
illegal purposes. Cash, credit cards and current banking systems widely
surpass Bitcoin in terms of their use to finance crime. Bitcoin can bring
significant innovation in payment systems and the benefits of such
innovation are often considered to be far beyond their potential
Bitcoin is designed to be a huge step forward in making money more secure
and could also act as a significant protection against many forms of
financial crime. For instance, bitcoins are completely impossible to
counterfeit. Users are in full control of their payments and cannot
receive unapproved charges such as with credit card fraud. Bitcoin
transactions are irreversible and immune to fraudulent chargebacks.
Bitcoin allows money to be secured against theft and loss using very
strong and useful mechanisms such as backups, encryption, and multiple
Some concerns have been raised that Bitcoin could be more attractive to
criminals because it can be used to make private and irreversible
payments. However, these features already exist with cash and wire
transfer, which are widely used and well-established. The use of Bitcoin
will undoubtedly be subjected to similar regulations that are already in
place inside existing financial systems, and Bitcoin is not likely to
prevent criminal investigations from being conducted. In general, it is
common for important breakthroughs to be perceived as being controversial
before their benefits are well understood. The Internet is a good example
among many others to illustrate this.
Can Bitcoin be regulated?
The Bitcoin protocol itself cannot be modified without the cooperation of
nearly all its users, who choose what software they use. Attempting to
assign special rights to a local authority in the rules of the global
Bitcoin network is not a practical possibility. Any rich organization
could choose to invest in mining hardware to control half of the computing
power of the network and become able to block or reverse recent
transactions. However, there is no guarantee that they could retain this
power since this requires to invest as much than all other miners in the
It is however possible to regulate the use of Bitcoin in a similar way to
any other instrument. Just like the dollar, Bitcoin can be used for a wide
variety of purposes, some of which can be considered legitimate or not as
per each jurisdiction's laws. In this regard, Bitcoin is no different than
any other tool or resource and can be subjected to different regulations
in each country. Bitcoin use could also be made difficult by restrictive
regulations, in which case it is hard to determine what percentage of
users would keep using the technology. A government that chooses to ban
Bitcoin would prevent domestic businesses and markets from developing,
shifting innovation to other countries. The challenge for regulators, as
always, is to develop efficient solutions while not impairing the growth
of new emerging markets and businesses.
What about Bitcoin and taxes?
Bitcoin is not a fiat currency with legal tender status in any
jurisdiction, but often tax liability accrues regardless of the medium
used. There is a wide variety of legislation in many different
jurisdictions which could cause income, sales, payroll, capital gains, or
some other form of tax liability to arise with Bitcoin.
What about Bitcoin and consumer protection?
Bitcoin is freeing people to transact on their own terms. Each user can
send and receive payments in a similar way to cash but they can also take
part in more complex contracts. Multiple signatures allow a transaction to
be accepted by the network only if a certain number of a defined group of
persons agree to sign the transaction. This allows innovative dispute
mediation services to be developed in the future. Such services could
allow a third party to approve or reject a transaction in case of
disagreement between the other parties without having control on their
money. As opposed to cash and other payment methods, Bitcoin always leaves
a public proof that a transaction did take place, which can potentially be
used in a recourse against businesses with fraudulent practices.
It is also worth noting that while merchants usually depend on their
public reputation to remain in business and pay their employees, they
don't have access to the same level of information when dealing with new
consumers. The way Bitcoin works allows both individuals and businesses to
be protected against fraudulent chargebacks while giving the choice to the
consumer to ask for more protection when they are not willing to trust a
How are bitcoins created?
New bitcoins are generated by a competitive and decentralized process
called "mining". This process involves that individuals are rewarded by
the network for their services. Bitcoin miners are processing transactions
and securing the network using specialized hardware and are collecting new
bitcoins in exchange.
The Bitcoin protocol is designed in such a way that new bitcoins are
created at a fixed rate. This makes Bitcoin mining a very competitive
business. When more miners join the network, it becomes increasingly
difficult to make a profit and miners must seek efficiency to cut their
operating costs. No central authority or developer has any power to
control or manipulate the system to increase their profits. Every Bitcoin
node in the world will reject anything that does not comply with the rules
it expects the system to follow.
Bitcoins are created at a decreasing and predictable rate. The number of
new bitcoins created each year is automatically halved over time until
bitcoin issuance halts completely with a total of 21 million bitcoins in
existence. At this point, Bitcoin miners will probably be supported
exclusively by numerous small transaction fees.
Why do bitcoins have value?
Bitcoins have value because they are useful as a form of money. Bitcoin
has the characteristics of money (durability, portability, fungibility,
scarcity, divisibility, and recognizability) based on the properties of
mathematics rather than relying on physical properties (like gold and
silver) or trust in central authorities (like fiat currencies). In short,
Bitcoin is backed by mathematics. With these attributes, all that is
required for a form of money to hold value is trust and adoption. In the
case of Bitcoin, this can be measured by its growing base of users,
merchants, and startups. As with all currency, bitcoin's value comes only
and directly from people willing to accept them as payment.
What determines bitcoin’s price?
The price of a bitcoin is determined by supply and demand. When demand for
bitcoins increases, the price increases, and when demand falls, the price
falls. There is only a limited number of bitcoins in circulation and new
bitcoins are created at a predictable and decreasing rate, which means
that demand must follow this level of inflation to keep the price stable.
Because Bitcoin is still a relatively small market compared to what it
could be, it doesn't take significant amounts of money to move the market
price up or down, and thus the price of a bitcoin is still very volatile.
Can bitcoins become worthless?
Yes. History is littered with currencies that failed and are no longer
used, such as the German Mark during the Weimar Republic and, more
recently, the Zimbabwean dollar. Although previous currency failures were
typically due to hyperinflation of a kind that Bitcoin makes impossible,
there is always potential for technical failures, competing currencies,
political issues and so on. As a basic rule of thumb, no currency should
be considered absolutely safe from failures or hard times. Bitcoin has
proven reliable for years since its inception and there is a lot of
potential for Bitcoin to continue to grow. However, no one is in a
position to predict what the future will be for Bitcoin.
Is Bitcoin a bubble?
A fast rise in price does not constitute a bubble. An artificial
over-valuation that will lead to a sudden downward correction constitutes
a bubble. Choices based on individual human action by hundreds of
thousands of market participants is the cause for bitcoin's price to
fluctuate as the market seeks price discovery. Reasons for changes in
sentiment may include a loss of confidence in Bitcoin, a large difference
between value and price not based on the fundamentals of the Bitcoin
economy, increased press coverage stimulating speculative demand, fear of
uncertainty, and old-fashioned irrational exuberance and greed.
Is Bitcoin a Ponzi scheme?
A Ponzi scheme is a fraudulent investment operation that pays returns to
its investors from their own money, or the money paid by subsequent
investors, instead of from profit earned by the individuals running the
business. Ponzi schemes are designed to collapse at the expense of the
last investors when there is not enough new participants.
Bitcoin is a free software project with no central authority.
Consequently, no one is in a position to make fraudulent representations
about investment returns. Like other major currencies such as gold, United
States dollar, euro, yen, etc. there is no guaranteed purchasing power and
the exchange rate floats freely. This leads to volatility where owners of
bitcoins can unpredictably make or lose money. Beyond speculation, Bitcoin
is also a payment system with useful and competitive attributes that are
being used by thousands of users and businesses.
Doesn't Bitcoin unfairly benefit early adopters?
Some early adopters have large numbers of bitcoins because they took risks
and invested time and resources in an unproven technology that was hardly
used by anyone and that was much harder to secure properly. Many early
adopters spent large numbers of bitcoins quite a few times before they
became valuable or bought only small amounts and didn't make huge gains.
There is no guarantee that the price of a bitcoin will increase or drop.
This is very similar to investing in an early startup that can either gain
value through its usefulness and popularity, or just never break through.
Bitcoin is still in its infancy, and it has been designed with a very
long-term view; it is hard to imagine how it could be less biased towards
early adopters, and today's users may or may not be the early adopters of
Won't the finite amount of bitcoins be a limitation?
Bitcoin is unique in that only 21 million bitcoins will ever be created.
However, this will never be a limitation because transactions can be
denominated in smaller sub-units of a bitcoin, such as bits - there are
1,000,000 bits in 1 bitcoin. Bitcoins can be divided up to 8 decimal
places (0.000 000 01) and potentially even smaller units if that is ever
required in the future as the average transaction size decreases.
Won't Bitcoin fall in a deflationary spiral?
The deflationary spiral theory says that if prices are expected to fall,
people will move purchases into the future in order to benefit from the
lower prices. That fall in demand will in turn cause merchants to lower
their prices to try and stimulate demand, making the problem worse and
leading to an economic depression.
Although this theory is a popular way to justify inflation amongst central
bankers, it does not appear to always hold true and is considered
controversial amongst economists. Consumer electronics is one example of a
market where prices constantly fall but which is not in depression.
Similarly, the value of bitcoins has risen over time and yet the size of
the Bitcoin economy has also grown dramatically along with it. Because
both the value of the currency and the size of its economy started at zero
in 2009, Bitcoin is a counterexample to the theory showing that it must
sometimes be wrong.
Notwithstanding this, Bitcoin is not designed to be a deflationary
currency. It is more accurate to say Bitcoin is intended to inflate in its
early years, and become stable in its later years. The only time the
quantity of bitcoins in circulation will drop is if people carelessly lose
their wallets by failing to make backups. With a stable monetary base and
a stable economy, the value of the currency should remain the same.
Isn't speculation and volatility a problem for Bitcoin?
This is a chicken and egg situation. For bitcoin's price to stabilize, a
large scale economy needs to develop with more businesses and users. For a
large scale economy to develop, businesses and users will seek for price
Fortunately, volatility does not affect the main benefits of Bitcoin as a
payment system to transfer money from point A to point B. It is possible
for businesses to convert bitcoin payments to their local currency
instantly, allowing them to profit from the advantages of Bitcoin without
being subjected to price fluctuations. Since Bitcoin offers many useful
and unique features and properties, many users choose to use Bitcoin. With
such solutions and incentives, it is possible that Bitcoin will mature and
develop to a degree where price volatility will become limited.
What if someone bought up all the existing bitcoins?
Only a fraction of bitcoins issued to date are found on the exchange
markets for sale. Bitcoin markets are competitive, meaning the price of a
bitcoin will rise or fall depending on supply and demand. Additionally,
new bitcoins will continue to be issued for decades to come. Therefore
even the most determined buyer could not buy all the bitcoins in
existence. This situation isn't to suggest, however, that the markets
aren't vulnerable to price manipulation; it still doesn't take significant
amounts of money to move the market price up or down, and thus Bitcoin
remains a volatile asset thus far.
What if someone creates a better digital currency?
That can happen. For now, Bitcoin remains by far the most popular
decentralized virtual currency, but there can be no guarantee that it will
retain that position. There is already a set of alternative currencies
inspired by Bitcoin. It is however probably correct to assume that
significant improvements would be required for a new currency to overtake
Bitcoin in terms of established market, even though this remains
unpredictable. Bitcoin could also conceivably adopt improvements of a
competing currency so long as it doesn't change fundamental parts of the
Why do I have to wait for confirmation?
Receiving notification of a payment is almost instant with Bitcoin.
However, there is a delay before the network begins to confirm your
transaction by including it in a block. A confirmation means that there is
a consensus on the network that the bitcoins you received haven't been
sent to anyone else and are considered your property. Once your
transaction has been included in one block, it will continue to be buried
under every block after it, which will exponentially consolidate this
consensus and decrease the risk of a reversed transaction. Each
confirmation takes between a few seconds and 90 minutes, with 10 minutes
being the average. If the transaction pays too low a fee or is otherwise
atypical, getting the first confirmation can take much longer. Every user
is free to determine at what point they consider a transaction
sufficiently confirmed, but 6 confirmations is often considered to be as
safe as waiting 6 months on a credit card transaction.
How much will the transaction fee be?
Transactions can be processed without fees, but trying to send free
transactions can require waiting days or weeks. Although fees may increase
over time, normal fees currently only cost a tiny amount. By default, all
Bitcoin wallets listed on Bitcoin.org add what they think is an
appropriate fee to your transactions; most of those wallets will also give
you chance to review the fee before sending the transaction.
Transaction fees are used as a protection against users sending
transactions to overload the network and as a way to pay miners for their
work helping to secure the network. The precise manner in which fees work
is still being developed and will change over time. Because the fee is not
related to the amount of bitcoins being sent, it may seem extremely low or
unfairly high. Instead, the fee is relative to the number of bytes in the
transaction, so using multisig or spending multiple previously-received
amounts may cost more than simpler transactions. If your activity follows
the pattern of conventional transactions, you won't have to pay unusually
What if I receive a bitcoin when my computer is powered off?
This works fine. The bitcoins will appear next time you start your wallet
application. Bitcoins are not actually received by the software on your
computer, they are appended to a public ledger that is shared between all
the devices on the network. If you are sent bitcoins when your wallet
client program is not running and you later launch it, it will download
blocks and catch up with any transactions it did not already know about,
and the bitcoins will eventually appear as if they were just received in
real time. Your wallet is only needed when you wish to spend bitcoins.
What does "synchronizing" mean and why does it take so long?
Long synchronization time is only required with full node clients like
Bitcoin Core. Technically speaking, synchronizing is the process of
downloading and verifying all previous Bitcoin transactions on the
network. For some Bitcoin clients to calculate the spendable balance of
your Bitcoin wallet and make new transactions, it needs to be aware of all
previous transactions. This step can be resource intensive and requires
sufficient bandwidth and storage to accommodate the full size of the block
chain. For Bitcoin to remain secure, enough people should keep using full
node clients because they perform the task of validating and relaying
What is Bitcoin mining?
Mining is the process of spending computing power to process transactions,
secure the network, and keep everyone in the system synchronized together.
It can be perceived like the Bitcoin data center except that it has been
designed to be fully decentralized with miners operating in all countries
and no individual having control over the network. This process is
referred to as "mining" as an analogy to gold mining because it is also a
temporary mechanism used to issue new bitcoins. Unlike gold mining,
however, Bitcoin mining provides a reward in exchange for useful services
required to operate a secure payment network. Mining will still be
required after the last bitcoin is issued.
How does Bitcoin mining work?
Anybody can become a Bitcoin miner by running software with specialized
hardware. Mining software listens for transactions broadcast through the
peer-to-peer network and performs appropriate tasks to process and confirm
these transactions. Bitcoin miners perform this work because they can earn
transaction fees paid by users for faster transaction processing, and
newly created bitcoins issued into existence according to a fixed formula.
For new transactions to be confirmed, they need to be included in a block
along with a mathematical proof of work. Such proofs are very hard to
generate because there is no way to create them other than by trying
billions of calculations per second. This requires miners to perform these
calculations before their blocks are accepted by the network and before
they are rewarded. As more people start to mine, the difficulty of finding
valid blocks is automatically increased by the network to ensure that the
average time to find a block remains equal to 10 minutes. As a result,
mining is a very competitive business where no individual miner can
control what is included in the block chain.
The proof of work is also designed to depend on the previous block to
force a chronological order in the block chain. This makes it
exponentially difficult to reverse previous transactions because this
requires the recalculation of the proofs of work of all the subsequent
blocks. When two blocks are found at the same time, miners work on the
first block they receive and switch to the longest chain of blocks as soon
as the next block is found. This allows mining to secure and maintain a
global consensus based on processing power.
Bitcoin miners are neither able to cheat by increasing their own reward
nor process fraudulent transactions that could corrupt the Bitcoin network
because all Bitcoin nodes would reject any block that contains invalid
data as per the rules of the Bitcoin protocol. Consequently, the network
remains secure even if not all Bitcoin miners can be trusted.
Isn't Bitcoin mining a waste of energy?
Spending energy to secure and operate a payment system is hardly a waste.
Like any other payment service, the use of Bitcoin entails processing
costs. Services necessary for the operation of currently widespread
monetary systems, such as banks, credit cards, and armored vehicles, also
use a lot of energy. Although unlike Bitcoin, their total energy
consumption is not transparent and cannot be as easily measured.
Bitcoin mining has been designed to become more optimized over time with
specialized hardware consuming less energy, and the operating costs of
mining should continue to be proportional to demand. When Bitcoin mining
becomes too competitive and less profitable, some miners choose to stop
their activities. Furthermore, all energy expended mining is eventually
transformed into heat, and the most profitable miners will be those who
have put this heat to good use. An optimally efficient mining network is
one that isn't actually consuming any extra energy. While this is an
ideal, the economics of mining are such that miners individually strive
How does mining help secure Bitcoin?
Mining creates the equivalent of a competitive lottery that makes it very
difficult for anyone to consecutively add new blocks of transactions into
the block chain. This protects the neutrality of the network by preventing
any individual from gaining the power to block certain transactions. This
also prevents any individual from replacing parts of the block chain to
roll back their own spends, which could be used to defraud other users.
Mining makes it exponentially more difficult to reverse a past transaction
by requiring the rewriting of all blocks following this transaction.
What do I need to start mining?
In the early days of Bitcoin, anyone could find a new block using their
computer's CPU. As more and more people started mining, the difficulty of
finding new blocks increased greatly to the point where the only
cost-effective method of mining today is using specialized hardware. You
can visit BitcoinMining.com for more information.
Is Bitcoin secure?
The Bitcoin technology - the protocol and the cryptography - has a strong
security track record, and the Bitcoin network is probably the biggest
distributed computing project in the world. Bitcoin's most common
vulnerability is in user error. Bitcoin wallet files that store the
necessary private keys can be accidentally deleted, lost or stolen. This
is pretty similar to physical cash stored in a digital form. Fortunately,
users can employ sound security practices to protect their money or use
service providers that offer good levels of security and insurance against
theft or loss.
Hasn't Bitcoin been hacked in the past?
The rules of the protocol and the cryptography used for Bitcoin are still
working years after its inception, which is a good indication that the
concept is well designed. However, security flaws have been found and
fixed over time in various software implementations. Like any other form
of software, the security of Bitcoin software depends on the speed with
which problems are found and fixed. The more such issues are discovered,
the more Bitcoin is gaining maturity.
There are often misconceptions about thefts and security breaches that
happened on diverse exchanges and businesses. Although these events are
unfortunate, none of them involve Bitcoin itself being hacked, nor imply
inherent flaws in Bitcoin; just like a bank robbery doesn't mean that the
dollar is compromised. However, it is accurate to say that a complete set
of good practices and intuitive security solutions is needed to give users
better protection of their money, and to reduce the general risk of theft
and loss. Over the course of the last few years, such security features
have quickly developed, such as wallet encryption, offline wallets,
hardware wallets, and multi-signature transactions.
Could users collude against Bitcoin?
It is not possible to change the Bitcoin protocol that easily. Any Bitcoin
client that doesn't comply with the same rules cannot enforce their own
rules on other users. As per the current specification, double spending is
not possible on the same block chain, and neither is spending bitcoins
without a valid signature. Therefore, it is not possible to generate
uncontrolled amounts of bitcoins out of thin air, spend other users'
funds, corrupt the network, or anything similar.
However, powerful miners could arbitrarily choose to block or reverse
recent transactions. A majority of users can also put pressure for some
changes to be adopted. Because Bitcoin only works correctly with a
complete consensus between all users, changing the protocol can be very
difficult and requires an overwhelming majority of users to adopt the
changes in such a way that remaining users have nearly no choice but to
follow. As a general rule, it is hard to imagine why any Bitcoin user
would choose to adopt any change that could compromise their own money.
Is Bitcoin vulnerable to quantum computing?
Yes, most systems relying on cryptography in general are, including
traditional banking systems. However, quantum computers don't yet exist
and probably won't for a while. In the event that quantum computing could
be an imminent threat to Bitcoin, the protocol could be upgraded to use
post-quantum algorithms. Given the importance that this update would have,
it can be safely expected that it would be highly reviewed by developers
and adopted by all Bitcoin users.