Bitcoin is a consensual network that offers a new payment system and fully digital money. It is the first decentralized peer-to-peer payment system supported by its users without a central authority or intermediaries. From a user's perspective, Bitcoin is largely cash for the Internet. Bitcoin can also be seen as the most prominent triple entry accounting system in existence.
Who created Bitcoin?
Bitcoin is the first implementation of a concept called "crypto-currency", which was first stated in 1998 by Wei Dai in the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control their issuance and transactions. , as opposed to relying on a central authority. The first specifications and validation of the concept were published in 2009 in a mailing list dedicated to cryptography by Satoshi Nakamoto. Satoshi left the project at the end of 2010 without saying much about himself. Since then, the community has grown exponentially, with many programmers working on Bitcoin.
Satoshi's anonymity has often raised unjustified concerns, many of them related to a misunderstanding of the open source nature of Bitcoin. The Bitcoin protocol and software are freely published and any programmer in the world can see the code or make their own modified version of the Bitcoin software. Like current programmers, Satoshi's influence was limited by the fact that the changes he made had to be adopted by others, and because of this he had no control over Bitcoin. As such, the identity of the inventor of Bitcoin is probably as relevant today as the identity of the person who invented the paper.
Who controls the Bitcoin network?
No one controls the Bitcoin network just as no one owns the technology behind email. Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they cannot force a change in the Bitcoin protocol because all users are free to choose which software and which version to use. In order to remain compatible with each other, all users must use software that follows the same rules. Bitcoin can only work properly when there is a consensus among all users. So, all users and programmers have a strong motivation to protect this consensus.
How does Bitcoin work?
From an ordinary user's perspective, Bitcoin is nothing more than a phone application or a computer program that offers a personal Bitcoin wallet and allows a user to send and receive bitcoins through it. This is how Bitcoin works for most users.
Behind the scenes, the Bitcoin network distributes a public register called the "blockchain." This log 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 addresses from which the bitcoins were sent, allowing all users to have full control over the sending of bitcoins from their personal Bitcoin addresses. Additionally, anyone can process transactions using the computing power of specialized hardware and be rewarded with bitcoins for this service. This is often called "mining". To learn more about Bitcoin, you can consult the dedicated page and the original work .
Does the world use Bitcoin?
Yes. It is used by a growing number of businesses and individuals. These include physical businesses such as restaurants, law firms, gyms and popular online services such as Namecheap, WordPress, Reddit and Flattr. While Bitcoin remains a relatively new phenomenon, it is growing rapidly. In March 2014, the valuation of all bitcoins in circulation exceeded $ 8 billion and bitcoins valued at millions of dollars were exchanged daily.
How do we buy bitcoins?
As payment for goods and services.
Buy bitcoins from a Bitcoin exchange .
Exchange bitcoins with someone near you .
Earn bitcoins in a competitive way through mining .
While it is possible to find people who want to sell bitcoins by paying by credit card or PayPal, most exchanges do not offer financing through these means of payment. This is due to cases where someone buys bitcoins using PayPal, only to later recover half of the transaction. This process is generally called chargeback.
How difficult is it to make payments with Bitcoin?
It is easier to make transactions with Bitcoin than to make purchases with a debit or credit card, which can be received without a merchant account. Payments are made directly from a wallet app, either from your computer or mobile, by entering the recipient's address, amount, and pressing the Send button. To make it even easier to enter the recipient's address, many wallets can obtain the address by scanning a QR code or pairing two phones with NFC technology.
What are the advantages of Bitcoin?
Freedom of payment - You can send and receive any amount of money instantly anywhere in the world at any time. No days when banks are closed. No limits imposed. Bitcoin allows its users to have full control over their money.
Very low fees - Bitcoin payments are currently processed either free of charge or with extremely low fees. Users can optionally include a fee to prioritize the transaction processing, resulting in a faster confirmation of transactions by the network. Additionally, there are commercial processors that assist traders in processing transactions, exchanging bitcoins into fiat currency and depositing funds directly into the trader's bank account on a daily basis. As these services are based on Bitcoin, they can be offered at much lower fees than PayPal or credit card networks.
Less risk for traders - Bitcoin transactions are secure, irreversible and do not contain personal customer information. This protects merchants from damage caused by fraud or fraudulent chargebacks and no PCI compliance is required. Merchants can easily expand into new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower taxes, larger markets and lower administrative costs.
Security and control - Bitcoin users have total control over transactions; it is impossible for merchants to force unwanted or hidden taxes or payments as may be the case with other payment methods. Bitcoin payments can be made without personal information being linked to the transaction. This provides increased protection against identity theft. Bitcoin users can also protect their money through backup and encryption.
Transparent and neutral - All information about the Bitcoin money supply is available at any time in the blockchain and can be verified by anyone and used in real time. No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows Bitcoin to be completely neutral, transparent and predictable.
What are the disadvantages of Bitcoin?
Degree of acceptance - Many people have not heard of Bitcoin yet. Every day, more and more companies accept bitcoins because they want the benefits associated with it, but the list is still small and needs to grow to benefit from the network effect .
Volatility - The total value of bitcoin in circulation and the number of companies using Bitcoin is still very small compared to what it could be. So, relatively small events, speculations, or the activities of certain companies can greatly influence the price. In theory, this volatility will diminish as Bitcoin and technology markets mature. There has never been such a coin, so it is quite difficult (and thrilling) to imagine what will happen.
Continuous development - Bitcoin software is still in a beta stage with many still incomplete options under active development. New tools, options and services are being developed to make Bitcoin more secure and accessible to the masses. Some of them are not yet ready for everyone. Most Bitcoin-based businesses are in their infancy and do not yet offer any insurance. In general, Bitcoin is still maturing.
Why do people trust Bitcoin?
Most of the trust that people have in Bitcoin comes from the fact that it does not require trust at all. Bitcoin is entirely open-source and decentralized. This means that everyone has access to the entire source code at any time. So any programmer in the world can check exactly how Bitcoin works. All existing bitcoins and all transactions can be viewed in real time by anyone. All payments can be made without the involvement of a third party and the whole system is protected by very powerful cryptographic algorithms verified by the community similar to those used in online banking. No organization or individual can control Bitcoin, and the network remains secure even if not all users are trustworthy.
Can I make money with Bitcoin?
You should never expect to be enriched by Bitcoin or any emerging technology. It is always important to pay close attention to anything that sounds too good to be true or that does not take into account basic economic rules.
Bitcoin is an ever-expanding ecosystem and there are business opportunities that include risks. There is no guarantee that Bitcoin will continue to grow even though it has grown at a very fast pace so far. Investing time and resources in Bitcoin, however, requires an entrepreneurial inclination. There are various ways to make money with Bitcoin such as mining, speculating or starting a new business. All these methods are competitive and there is no guarantee of profit. It is everyone's duty to assess the costs and risks of such a project.
Is Bitcoin really virtual and immaterial?
Bitcoin is as virtual as credit cards or online banking solutions used by people every day. Bitcoin can be used to make payments online or in stores like any other form of money. Bitcoins can also be traded in physical forms, such as Casascius coins , but paying using a mobile phone is usually more convenient. Bitcoin balances are stored in a huge distributed data network and cannot be fraudulently altered by anyone. In other words, Bitcoin users have exclusive control over their own funds and bitcoins cannot disappear simply because they are virtual.
Is Bitcoin anonymous?
Bitcoin is built to allow its users to send and receive payments with an acceptable level of privacy like any other form of money. However, Bitcoin is not as anonymous and cannot offer the same level of privacy as cash. The use of Bitcoin leaves enough traces in the public register. There are various methods to protect the privacy of users, with several under development. However, there is still a lot of work to be done before these methods can be used correctly by Bitcoin users.
There are controversies about private transactions that could be used for illegal purposes. However, it is worth noting that Bitcoin will eventually be subject to existing regulations in financial systems. Bitcoin cannot be more anonymous than cash and cannot stand in the way of official investigations by the authorities. In addition, Bitcoin is built to prevent a wide range of financial illegalities.
What happens when bitcoins are lost?
When a user loses their wallet, those coins are practically taken out of circulation. The lost bitcoins will remain in the blockchain like any other bitcoin. However, lost bitcoins remain inactive forever because it is impossible for anyone to find the private key (s) that would allow them to be spent again. Due to the law of supply and demand, when few bitcoins are available, the remaining ones will have a higher demand and will have an increased value to compensate.
Can Bitcoin become an important payment network?
The Bitcoin network can already process a much larger number of transactions per second than it does today. On the other hand, it is not yet ready to be compared to major credit card networks. Work is currently underway to lift these limitations and future requirements are already well known. From the very beginning, every aspect of the Bitcoin network has been in a continuous process of maturation, optimization and specialization, and it is expected that the same will happen in the years to come. As traffic increases, more Bitcoin users use light clients, and entire network nodes may become a rather specialized service. For more details, see the Scalability page on the Wiki.
Legal
Is Bitcoin legal?
From the data we have, Bitcoin has not been declared illegal in most laws of different jurisdictions. But some jurisdictions (such as Argentina or Russia) restrict or ban foreign currencies. Other jurisdictions (such as Thailand) may limit the licensing of certain entities such as Bitcoin exchanges.
Regulators in various jurisdictions are taking steps to provide individuals and firms with rules on how they should integrate this new technology with the formal and regular financial system. For example, the Network for Combating Financial Illegals (FinCEN), a US Treasury Department institution, has issued unlawful guidance on the scope of certain activities involving digital currencies.
Is Bitcoin useful for illegal activities?
Bitcoin is money, and money has always been used for legal and illegal purposes. Cash, credit cards and the current banking system far outnumber Bitcoin in its use in financing illegal activities. Bitcoin can bring significant innovation to payment systems and the benefits of such innovation are often seen as far beyond the potential disadvantages.
Bitcoin is made to be a huge step forward in making money safer and can also function as a significant protection against many forms of financial illegality. For example, bitcoins are completely impossible to counterfeit. Users have full control over their transactions and cannot be affected by unauthorized payments as in the case of credit card fraud. Bitcoin transactions are irreversible and immune to fraudulent chargebacks. Bitcoin allows money to be secured against theft or loss using very powerful and useful mechanisms such as backups, encryption and multiple signatures.
There is controversy that Bitcoin can be attractively used by those who do illegal things because it allows for irreversible and private payments. However, cash and wire transfers already have these characteristics, both of which are widely used and already established. The use of Bitcoin will undoubtedly be the subject of similar regulations that already exist within existing financial systems, and Bitcoin is unlikely to prevent the conduct of official investigations. In general, it is common for important findings to be perceived as controversial before their benefits are well understood. The internet is a good example along with many others to illustrate this.
Can Bitcoin be regulated?
The Bitcoin protocol itself cannot be changed without the cooperation of approximately all users, who choose which software to use. Trying to assign special rights to a local authority under the rules of the global Bitcoin network is not a practical possibility. Any organization with enough resources can choose to invest in mining hardware to control half of the computing power of the network and be able to block or reverse recent transactions. However, there is no guarantee that it will be able to hold this power since it means investing almost all the miners in the world together.
On the other hand, it is possible to regulate the use of Bitcoin in a similar way as any other economic instrument. Like the Dollar, Bitcoin can be used for a wide range of purposes, some of which may or may not be considered legitimate depending on the laws of that jurisdiction. In this case, Bitcoin is no different from any other tool or resource and may be subject to different regulations in each country. The use of Bitcoin can be made difficult by restrictive regulations, in which case it is difficult to determine what percentage of users will continue to use this technology. A government that chooses to ban Bitcoin will only prevent businesses and domestic markets from growing, shifting innovation to other countries. The challenge for regulatory institutions is, as usual,
What about Bitcoin and taxes?
Bitcoin is not a fiat currency with legal status in any jurisdiction, but often the financial responsibility for taxes and fees will increase regardless of the medium used. There is a wide range of laws in different jurisdictions that can increase revenue, sales, salaries, sales profits, or any other tax liability with Bitcoin.
What about Bitcoin and consumer protection?
Bitcoin frees people up, allowing them to trade on their own terms. Each user can send and receive payments in a similar way to cash but 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 well-defined group of people agree to sign the transaction. This allows the development of innovative dispute mediation services in the future. Such services may allow a third party to approve or reject a transaction in the event of a dispute between the other parties, but without control over the money. Unlike cash and other payment methods, Bitcoin allows you to leave public proof that the transaction has actually taken place,
It is also worth noting that while merchants usually depend on their public reputation to stay in business and pay their employees, they do not have access to the same level of information when dealing with new customers. The way Bitcoin works allows both customers and companies to be protected against fraudulent chargebacks while offering the customer the choice to ask for more protection when they are not willing to trust a particular trader.
Economy
How are bitcoins created?
New bitcoins are generated through a competitive and decentralized process called "mining". This process also involves a reward for those who provide this service. Bitcoin miners process transactions and secure the network using specialized hardware and collect newly created bitcoins in exchange for the work done.
The Bitcoin protocol is created 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 surprisingly difficult to make a profit, and miners need to become more efficient in reducing their operating costs. No central authority or programmer has the power to control or manipulate the system to increase their personal profit. Every Bitcoin node in the world will reject anything that deviates from the rules that the system expects it to follow.
Bitcoins are created at a declining and predictable rate. The number of new bitcoins created each year is halved periodically until bitcoin generation stops completely when there are 21 million bitcoins. At this point, Bitcoin miners will probably be rewarded exclusively by the many 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 a penny (durability, portability, fungibility, rarity, divisibility and is easily recognizable) based more on mathematical properties than on physical properties (like gold and silver) or trust in central authorities (like ordinary fiat currencies). In short, Bitcoin is backed by math. With these attributes, all that is needed is a form of money to have value is trust and adoption. In the case of Bitcoin, this can be measured by the growing number of users, traders and companies. As with all currencies, the value of a bitcoin comes only from people willing to accept it as a payment.
What determines the price of a bitcoin?
The price of a Bitcoin is dictated by supply and demand. When the demand for bitcoins increases, so does the price, and when the demand decreases, so does the price. There are a limited number of bitcoins in circulation and new bitcoins are being created at a steady and declining pace, which means that demand must follow this inflation pattern to keep the price stable. Because Bitcoin is still a relatively small market compared to what it could become, it does not take huge amounts of money to move the market price in one direction or another, the price of a bitcoin is still very volatile.
Can bitcoins lose their value?
Yes. History is full of currencies that have failed and are no longer used, such as the German Mark during the Weimar Republic and, more recently, the Zimbabwean dollar . Although in the past currency failures were generally due to the hyperinflation that Bitcoin cannot have, there is always the potential for technical failures, competing currencies, legal issues and so on. As an unwritten law, no currency should be considered immune to failure or times of upheaval. Bitcoin has proven to be secure from the start and there is a huge potential for Bitcoin to grow further. On the other hand, no one is able to predict what the future holds for Bitcoin.
Is Bitcoin a speculative bubble?
A rapid rise in price does not necessarily mean a bubble. An artificial overestimation that leads to a sudden correction of the price is a bubble. Choices based on the individual human action of hundreds of thousands of market participants is the cause of bitcoin price fluctuations as the market seeks price discovery. Reasons for a change in sentiment may include a loss of confidence in Bitcoin, a large difference in value and price that is not based on the fundamentals of the Bitcoin economy, media coverage that stimulates speculative demand, fear of uncertainty and the usual irrational exuberance and greed.
Is Bitcoin a Ponzi scheme?
A Ponzi scheme is a fraudulent investment operation that returns the money of its investors from their own money, or from the money of previous investors, instead of from the profit generated by the people who run the business. Ponzi schemes are meant to collapse at the expense of the latest investors when there are not enough new entrants.
Bitcoin is a free program without a central authority. As a result, no one is able to make fraudulent promises about return on investment. As with other major currencies such as gold, the US dollar, the euro, the yen, etc. there is no guaranteed purchasing power and the price is free. This leads to volatility, a situation in which bitcoin holders can earn or lose money in an unpredictable way. Beyond speculation, Bitcoin is also a useful payment system with competitive properties that is used by thousands of users and companies.
Doesn't Bitcoin favor those who invested in the beginning?
Some early investors have a large number of bitcoins because they risked more and invested time and resources in a new technology that was not yet used by anyone and that was much harder to secure properly. Many early investors spent large sums of bitcoin several times before they became valuable or bought only small sums of bitcoin and did not make a huge profit. There is no guarantee that the price of a bitcoin will rise or fall. This is very similar to investing in a start-up company that may or may not later grow in value and popularity. Bitcoin is still in its infancy and was designed to be a long-term project;
Isn't the finite number of bicoins a limitation?
Bitcoin is unique in that only 21 million bitcoins will ever be created. However, this will never be a limitation because bitcoins can be divided into subunits of a bitcoin, such as bits - there are 1,000,000 bits in 1 bitcoin. Bitcoins can be divided to 8 decimal places (0.000 000 01) and even into smaller units if they are ever needed in the future as the average size of a transaction decreases.
Will Bitcoin not fall into a deflationary spiral?
The deflationary spiral theory says that if prices are expected to fall, people will postpone payments for a while to benefit from lower prices. That drop in demand will cause traders to lower prices to try to stimulate demand, making the problem even bigger and leading to an economic depression.
Although this theory is a popular way to justify inflation among central banks, it is apparently not always true and is considered controversial among economists. Electronics is an example of a market where prices are constantly falling but which is not in an economic depression. Similarly, the value of bitcoins has increased over time and also the size of the Bitcoin economy has grown dramatically alongside it. Since both the value of the currency and the size of the economy associated with it started at 0 in 2009, Bitcoin is a counterexample to this theory showing that there may be exceptions to the rule.
However, Bitcoin is not made to be a deflationary currency. It is more accurate to say that Bitcoin is built to allow inflation in the early years, then becoming stable in the years to come. The only time the amount of bitcoin in circulation could decrease would be if the world starts losing its Bitcoin wallets without backing up. 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 situation similar to who came first, the egg or the hen. For the price of a bitcoin to stabilize, a large economy of scale must be developed with more companies and users. For a large economy of scale to develop, companies and users will want the price to stabilize.
Fortunately, volatility does not affect the main benefits of Bitcoin as a payment system for transferring money from point A to point B. It is possible for companies to change Bitcoin payments in their local currency instantly, allowing them to take advantage of Bitcoin without be subject to price fluctuations. Because Bitcoin offers many useful and unique options and properties, many choose to use Bitcoin. With such solutions and motivations, it is possible for Bitcoin to mature and grow to the point where price volatility becomes limited.
What if someone buys all the existing bitcoins?
Only a fraction of the bitcoins in circulation so far are available for sale on exchange sites. Bitcoin markets are competitive, meaning that the price of a bitcoin will increase or decrease depending on supply and demand. Additionally, new bitcoins will continue to be issued in the coming decades. So not even the most determined buyer could buy all the existing bitcoins. This does not mean, however, that foreign exchange markets are not vulnerable to price manipulation; Significant amounts of money are still not needed to move the price up or down, so Bitcoin still remains a volatile asset.
If someone creates a better digital currency?
This can happen. For now, Bitcoin is by far the most popular decentralized digital currency, but there is no guarantee that it will maintain its position forever. There are already a number of alternative currencies inspired by Bitcoin. However, it is fair to assume that significant improvements are needed for a new currency to overtake Bitcoin in the market, although this is unpredictable. Bitcoin can also adopt improvements made by another currency as long as it does not change fundamental parts of the protocol.
transactions
Why do I have to wait 10 minutes?
Receiving a payment is almost instant using Bitcoin. However, there is an average wait of 10 minutes before the network starts confirming the transaction by including it in a block and before you can spend the received bitcoins. A confirmation means that there is an agreement across the network that the bitcoins you received were not sent to anyone else and are now considered yours. Once the transaction has been included in a block, it will continue to be buried under each block after that, which will exponentially strengthen this agreement and decrease the risk of a reverse transaction. Each user is free to determine when to consider a confirmed transaction, but generally 6 confirmations are often considered as secure as you would expect 6 months after a credit card transaction.
How much will the transaction fee cost?
Most transactions can be processed free of charge, but users are encouraged to pay a small voluntary fee for faster transaction confirmation and to remunerate miners. When fees are required, they generally do not exceed a few cents. Your Bitcoin customer will usually try to estimate an approximate fee when needed.
Transaction fees are used as a protection against users sending transactions in an attempt to overload the network. The exact way taxes work is still in the works and will change over time. Because the fee is not related to the amount of bitcoins sent, it may seem either extremely low (0.0005 BTC for a transfer of 1,000 BTC) or unfairly high (0.004 BTC for a payment of 0.02 BTC). The fee is defined by attributes such as transaction data and transaction recurrence. For example, if you receive a large number of small value transactions, then the fees to send will be higher. Such payments are comparable to paying the restaurant bill in 50 bani coins. Quickly spending small amounts of bitcoin may also require a fee.
What happens if I receive bitcoin when the computer is turned off?
Everything will be fine. Bitcoins will appear when you open your wallet application. Bitcoins are not actually received by the wallet on your computer, they are attached in a public register that is distributed by all computers connected to the network. If you receive bitcoins when your wallet client is turned off and you start it later, it will start downloading blocks and catching up on any transactions you didn't know about before, and your bitcoins will eventually appear as if you just received them. . Your wallet is only needed when you want to spend bitcoin.
What does "synchronization" mean and why does it take so long?
A long sync time is only required when using full node clients such as Bitcoin Core. Technically speaking, synchronization is the process of downloading and verifying all previous transactions in the Bitcoin network. In order for some Bitcoin customers to calculate the balance of your Bitcoin wallet and allow new transactions, they need to know all the previous transactions ever made. This step can be computationally intensive and requires enough bandwidth and enough disk space to accommodate the entire block chain size. For Bitcoin to remain secure, enough people must continue to use full node clients because they have the task of validating and issuing transactions.
Mining
What is Bitcoin mining?
Mining is the process by which computing power is consumed to process transactions, secure the network, but also to keep everyone on the network synchronized. It can be seen as a kind of Bitcoin data center except that it is built to be completely decentralized, the miners operating in all countries and no individual has control over the network. This process is called "mining" as an analogy to gold mining because it is also a temporary mechanism used to issue new bitcoins. Unlike gold mining, Bitcoin mining offers a reward in exchange for useful services needed to operate a secure payment network. Mining will be necessary even after the last bitcoin is issued.
How does Bitcoin mining work?
Anyone can become a Bitcoin miner by running a mining program using specialized hardware. Mining software listens for transactions issued through the peer-to-peer network and makes necessary calculations to process and confirm these transactions. Bitcoin miners do this work because they are rewarded by transaction fees paid by users for faster transaction processing, plus newly created bitcoins at a fixed rate.
For new transactions to be confirmed, they must be included in a block along with a mathematical proof of the work submitted. This evidence is very difficult to generate because there is no way to generate it except by trying to perform billions of calculations per second. This evidence is calculated by miners before their blocks are accepted by the network and before they are rewarded. With as many people mining as possible, the difficulty of finding valid blocks is automatically increased by the network to ensure that the average time it takes to find a block is 10 minutes. As a result, mining is a very competitive business where no individual miner has control over what is included in the blockchain.
The proof of the work submitted is also made in such a way that it depends on the previous block to force a chronological order in the block chain. This makes reversing previous transactions exponentially more difficult because it requires recalculation of work evidence for all subsequent blocks. When two blocks are found at the same time, the miners work in the first block they receive and move on to the longest block chain as soon as the next block is found. This makes mining safe and maintains a global consensus based on processing power.
Bitcoin miners are not able to cheat by increasing their own reward or by processing fraudulent transactions that could corrupt the Bitcoin network because all Bitcoin nodes will reject any block that contains invalid data according to the rules of the Bitcoin protocol. As a result, the network remains secure even if not all Bitcoin miners are trusted.
Isn't Bitcoin mining a waste of energy?
Consuming energy to secure and operate a payment system cannot be called waste. Like any other payment service, the use of Bitcoin requires processing costs. Services needed to operate the most used monetary systems today, such as banks, credit cards and armored vehicles used to transport money, also consume a lot of energy. Although unlike Bitcoin, the total energy they consume is not transparent and cannot be easily measured.
Bitcoin mining is becoming more and more optimized over time through specialized hardware that consumes less and less energy, and the operating costs of mining should continue to be commensurate with demand. When Bitcoin mining becomes too competitive and less profitable, some miners choose to shut down. Moreover, all the energy consumed by mining is eventually transformed into heat, and the most profitable miners will be those who turn that heat into something useful. An optimally efficient mining network is one that does not consume any extra energy. Although this is an ideal, the economic science behind mining makes every individual miner strive for it.
How does mining help make Bitcoin secure?
Mining creates the equivalent of a competitive lottery in which it is extremely difficult for someone to add new blocks of transactions consecutively to the blockchain. This protects net neutrality by preventing an individual from having enough power to block certain transactions. It also prevents someone from trying to replace parts of the blockchain to reverse their own expenses, which could be used to defraud others. Mining makes reversing a previous transaction exponentially harder by requiring the rewriting of all blocks that follow that transaction.
What do I need to start mining?
In the early days of Bitcoin, anyone could find a new block using their personal computer processor. As more and more people started mining, the difficulty of finding new blocks increased greatly to the point where today the only effective method of mining is using specialized hardware. You can visit BitcoinMining.com for more information.
Security
Is Bitcoin secure?
Bitcoin technology - protocol and cryptography - have an impressive security record, and the Bitcoin network is probably the largest distributed computing project in the world. The most common vulnerability of Bitcoin is human error on the part of the user. Bitcoin wallet files that hold the necessary private keys can be accidentally deleted, lost or stolen. This is similar to cash kept in digital form. Fortunately, users can follow security practices to protect their money or use service providers that offer good levels of security and insurance against theft or loss.
Has Bitcoin not been hacked in the past?
The rules of protocol and cryptography used by Bitcoin have been around for years, indicating a well-designed and built concept. But, 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 how quickly problems are found and resolved. The more such problems are discovered, the closer Bitcoin is to maturity.
There are often misconceptions about thefts and security breaches that have occurred on various exchanges and companies dealing with Bitcoin. Although these events are unfortunate, none of them involve Bitcoin itself being hacked, nor do they involve mistakes in the way Bitcoin is built; just as breaking a bank does not mean that the Romanian leu is compromised. On the other hand, it is fair to say that a complete set of best practices and intuitive security solutions are needed to provide users with better protection of their money and to reduce the overall risk of theft or loss. In recent years, such security attributes have been rapidly developed, such as wallet encryption, offline wallets, hardware wallets and multi-signature transactions.
Can users plot against Bitcoin?
The Bitcoin protocol is so easy to change. Any Bitcoin customer who does not follow the same rules cannot impose his own rules in front of other users. According to current specifications, double spending is not possible on the same blockchain, nor is spending bitcoin without a valid signature. So, it is not possible to simply create uncontrolled amounts of bitcoin, to spend another person's bitcoins, to corrupt the network, or something similar.
On the other hand, a majority of miners may arbitrarily choose to block or reverse recent transactions. A majority of users can also push for some changes to be made. Because Bitcoin only works properly when there is full consensus among all users, changing the protocol can be very difficult and requires an overwhelming majority of users to adopt the changes so that the rest of the users have no choice but to join. As a general rule, it's hard to imagine why a Bitcoin user would choose to adopt any change that could compromise their own money.
Is Bitcoin vulnerable to quantum computers?
Yes, most cryptography-based systems are generally vulnerable, including traditional banking systems. But, quantum computers do not exist yet and probably will not exist for a long time. Should quantum computers become an imminent threat to Bitcoin, the protocol can be updated to use post-quantum algorithms. Given the importance of this change, it can certainly be assumed that it will be thoroughly reviewed by programmers and adopted by all Bitcoin users.