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Frequently Asked Questions
What are the steps one should take to buy bitcoin?
STEP #1: Gain an understanding of bitcoin basics. Learn what a virtual currency is, and the risks involved. Get familiar with the legalities surrounding bitcoin, as well as the tax implications of buying, selling or holding crypto assets. Know the advantages and disadvantages of using bitcoin or altcoins.
STEP #2: Understand how bitcoin should be stored, and select the best method to suit your individual objectives for buying cryptocurrency. With that knowledge, create a wallet, the software that will store your asset.
STEP #3: Research and select an exchange, which is the easiest way to buy bitcoin and works like any other currency exchange service. You register an account, complete the required documentation, deposit fiat currency, and convert it into bitcoin or altcoins. Hundreds of exchanges exist, and the best one for you often depends on where you are located.
STEP #4: Move your bitcoin into the storage option you’ve selected. That selection will be determined by what you intend to do with your digital currency. If you plan to hold it long-term, consider a hardware wallet or a paper wallet. If you plan to trade, you’ll want a wallet that is more convenient in order to react to market moves. In any case, do not leave large amounts of funds on an exchange, and don’t leave your funds on only one exchange.
What backs bitcoin?
Bitcoins are not backed by any physical asset, bank, or government. Until the 1970s, currency as we know it was backed by gold or silver, but it is no longer backed by anything physical. In fact, such currencies are backed by the ‘full faith and credit’ of the countries that issue them. Theoretically, this makes bitcoin and other currencies the same. Some argue that what backs bitcoin is the time miners spending mining it to create new bitcoins into existence. While time is a commodity, it is not physical and does not have a cash value.
When you buy bitcoin, you rely on a complicated network that works because of a regulatory algorithm. The algorithm determines that new blocks of bitcoin will be mined approximately every 10 minutes and ensures that nothing can alter the predetermined issuance rate, nor the block size halving rate, of bitcoin. Every 10 minutes, more bitcoin goes in use at a disinflationary rate. Might that be considered a mathematical guarantee and this is what backs the bitcoin system to give it intrinsic value? The dollar has intrinsic value because you need dollars to pay taxes in the U.S. Gold has intrinsic value because it is pretty and can be used for jewelry. One can put in the effort to create bitcoin by mining – which is the processing of bitcoin transactions, thus it does have a use outside of being a medium of exchange.
Is bitcoin legal?
It is worth noting that no matter who says you cannot use bitcoin, its decentralized nature ensures that no one can actually stop you from using it. Bitcoin can be used anywhere with equal access to its network, as long as you have access to the Internet. Thanks to new satellite systems launched, as long as you have only electricity in some areas. The problem with banning bitcoin is that enforcement is nearly impossible. Restrictions can discourage use, but it cannot prevent it. By and large, it is legal to send and receive, mine or use bitcoin in most countries around the world.
Some countries have tried to restrict the use of bitcoin within their own borders, and some have made it illegal only to issue their own cryptocurrencies. Others, like China, have changed their view on bitcoin to ban and un-ban it over the past couple of years. As of October 2018, China has restricted digital currencies to private use only, prohibiting all financial institutions from handling any digital currency transactions at all.
Is bitcoin legal tender?
Money that must be accepted as payment for a debt in the jurisdiction where the payment is being made is how legal tender is defined. Since bitcoin isn’t recognized by any government as legal tender, it can be used as payment only if both parties to the transaction agree to its use. The problem with bitcoin is that it is often not fully understood by regulatory bodies, and it resides in the “gray area” where legal classifications are concerned. Many countries have given it a legal status or regulatory class based on what they believe it to be, and that is subject to change with such a new, emerging technology. The world is not quite ready to agree on exactly what bitcoin is.
In the United States, bitcoin is classified by the Treasury as a “virtual currency.” The Commodity Futures Trading Commission (CFTC) classifies bitcoin as a commodity, and the Internal Revenue Service classifies bitcoin as property.
Is bitcoin a ponzi scheme?
No. While there are many who don’t quite know what it is, it clearly is not a Ponzi scheme. Bitcoin has no “operator” collecting and paying out money to or from investors, nor is there any promise of a gain or return on investment. These are the two key ingredients of a Ponzi scheme which lures new investors to pay profits to earlier investors using funds obtained from the most recent investors.
That said, one must certainly take care not to fall prey to scammers promising unrealistic returns that define such a scheme by investing their Bitcoin into fraudulent ventures or platforms. Investing in the scheme is what makes it a Ponzi – not the fact that you use Bitcoin to invest. There have been numerous Ponzi schemes where cash was taken in the scam.
Isn’t bitcoin only used by criminals?
Well, just as cash is used to buy drugs and fund illegal activities on a daily basis, so is bitcoin. Is cash only used by criminals? No, and neither is bitcoin. The notion is somewhat ridiculous since cash is the form of money most commonly used for illegal activity. Most people who use bitcoin are ordinary citizens around the world – but you hear about the bad apples that make the headlines because they used bitcoin.
Why is bitcoin so complicated?
For some, bitcoin isn’t complicated at all. Tech-savvy individuals and those who grew up with a smartphone in their hand naturally have an easier time understanding how to use bitcoin. Understanding the Bitcoin protocol is something even the tech-savvy finds complicated – but then, how many of us know the underlying technology that makes MasterCard or Visa work? The fact is, we don’t have to and few give it a second thought today. However, that was not always the case. Many remember the day when nobody would accept a credit card for payment, and few trusted them. It took over 20 years for credit cards to become widely accepted, but another 20 years to become widely used – and Bitcoin just turned 10 years old.
Bitcoin is a new thing and there are some barriers to entry that will be worked out in time, just as there were for using email, Skype, and video conferencing. Email lets you send letters for free to anybody anywhere and when first introduced, it was mind-boggling for many. Skype lets you make free phone and video calls with anyone anywhere in the world and it took years for people to even use it. Now Bitcoin lets us send money to anyone located anywhere in the world whenever we want in seconds – without the involvement of any other entity.
How long do you think it will take for that to catch on? The ability to 100% bypass the banker or government standing between you and the person you want to send your money to.
Why is an uppercase “B” or lowercase “b” used to spell bitcoin?
“Bitcoin” with a capital “B” typically refers to the protocol, associated software, or the network – while “bitcoin” with a lowercase “b” refers to the unit of currency.
Who are the Bitcoin Core developers?
The Bitcoin Core project has a large open source developer community with many casual contributors to the codebase. There are many more who contribute research, peer review, testing, documentation, and translation.
Everyone is free to propose code changes and to test, review and comment on open Pull Requests. Anyone who contributes code, review, test, translation or documentation to the Bitcoin Core project is considered a contributor. The release notes for each Bitcoin Core software release contain a credits section to recognize all those who have contributed to the project over the previous release cycle. A list of code contributors for the last year can be found on Github.
Project maintainers are developers that have commit access and are responsible for merging patches from contributors. They perform a janitorial role merging patches that the team agrees should be merged. They also act as a final check to ensure that patches are safe and in line with the project goals. The maintainers’ role is by agreement of project contributors.
Is bitcoin fully virtual?
Bitcoin is as virtual as the credit cards and online banking networks people use every day. Bitcoin can be used to pay online and in physical stores just like any other form of money.
Bitcoin balances are stored in a large distributed network that cannot be fraudulently altered by anybody. In other words, Bitcoin users have exclusive control over their funds. Bitcoins cannot be confiscated and they cannot vanish just because they are virtual.
When a user loses their wallet, it has the effect of removing money out of circulation. Lost bitcoins still remain in the blockchain just like any other bitcoins. However, lost bitcoins remain dormant forever because it is impossible to determine the private key(s) that would allow them to be spent again.