Simple answers to the most common Bitcoin questions
What is Bitcoin?
Bitcoin is a peer to peer network that anyone can participate in. It enables you to securely store value over time and to transfer that value to anyone else at any time without the need for a third party. It has a fixed and transparent inflation schedule that cannot be changed at will like 'regular' money.
It is cash, for the internet.
Why is Bitcoin important?
It enables cryptographically secure, censorship resistant payments across borders. It is the first and only form of absolute digital scarcity and is not controlled by any one person or group. As a result it cannot be interfered with by any world government.
How does it work?
Alice sends a transaction from her wallet which is received by 1000's of network participantswho tell each other that Alice wants to send to Bob. The transaction is seen by a miner who dedicates computing power to group Alice's transaction into a block along with lots of other transactions. Once Alice's transaction is mined into a block, Bob will have the corresponding amount of bitcoin in his wallet.
Who invented Bitcoin?
The world learned of Bitcoin in 2008 when an anonymous online entity called 'Satoshi Nakamoto' shared the Bitcoin White Paperto an online mailing list. Satoshi disappeared in 2011 and has never been seen online since. In the years since, hundreds of developers worldwide have continued to contribute to and improve the Bitcoin protocol.
What gives Bitcoin value?
It is scarce (there will only ever be 21 million) and this can be verified by anyone with a $30 single board computer. It has an immense amount of computational power dedicated to securing its distributed ledger. The network literally pays people to protect its integrity and act in good faith. Bitcoins 'price' in $ or £ terms is determined by simple market supply and demand.
Who controls the network?
Put simply, everyone and no-one. Everyone is in control of their own participation in the network and the network is structured so that bad actors cannot succeed. No single developer can incite any changes to the code. No one miner can censor specific transactions. No single user can cheat the system and spend Bitcoin they don't have or that does not belong to them.
Is Bitcoin anonymous?
At a network level, bitcoins are not 'tagged' to any public identity. The protocol only knows of strings of letters and numbers known as an address. However, businesses built on top of Bitcoin such as KYC exchanges where it's possible to buy bitcoin can link your real world identity to bitcoin purchased through them. The bitcoin ledger is completely public so it can be possible to track known public entities across a network.
What is the blockchain?
The blockchain is a public ledger that contains a copy of every single bitcoin transaction ever completed. Miners compete to produce blocks for transaction fees and a block subsidy. Each successful block is cryptographically linked or 'chained' to its predecessor.
Cant the government stop it?
Governments could absolutely make Bitcoin illegal in their jurisdiction. In fact China has already done so, multiple times yet the ecosystem continues to flourish. Bitcoin's distributed nature means that in reality it would require a monumental co-ordinated attack from many world powers to stem its growth.
Isn't it used by criminals?
Bitcoin is money and any money can be used by criminals. In 2017 the entire drug trafficking market alone was estimated to be worth $500,000,000,000 (500 billion). At current prices that could buy the entire Bitcoin network 11 times over! It's probably fair to say that the overwhelming majority of illicit activities are funded by fiat currencies.
Cant someone just copy it?
At a network level yes, and lots of people have. There are literally hundreds of copies of Bitcoin, each usually with a minor tweak to its code to 'improve' it. Almost always these 'improvements' come with huge tradeoffs that prevent them from gaining any traction on Bitcoin's massive network effects.
Doesn't it waste energy?
It's true that the Bitcoin network consumes a lot of power, but spending energy to secure and operate a global payments network that provides huge amounts of value to millions of people should not be seen as 'wasteful'. Bitcoin mining has already started to push innovation in the use of alternative (often wasted) energy sources such as flared gas or renewables.
How many bitcoins are there?
At the time of writing there are a little over 18 million bitcoins that have been mined. There will only ever be 21 million and the final one will be mined around the year 2140. Each bitcoin can be subdivided into 100 million Satoshis or 'sats' so there are plenty to go around.
How are bitcoins created?
New bitcoins are created as a result of the globally distributed and highly competitive mining process. Each newly mined block rewards the successful miner with a subsidy. At the time of writing, this subsidy has just been halved to 6.25 bitcoins. It will halve again to 3.125 bitcoins after another 210,000 blocks or roughly 4 years.
What is mining?
The process of participants contributing large amounts of computing power to process transactions into blocks. Once they have grouped these transactions a miner performs a repetitive computational task on them to try and find an answer that is below a certain target. If they are successful, the block is mined and the miner receives the transaction fees and block subsidy. The process then starts again and the next batch of transactions.
Where can I buy some?
There are lots of online exchanges that you can buy bitcoin from although you should do your own due diligence when finding somewhere to buy from. The best way to get your first piece of bitcoin is to buy some from a trusted friend or family member. Remember - You can buy a fraction of a bitcoin (there are 100 million sats in each one)! See here for some recommendations.