Answers to The Most Common Bitcoin-related Questions
What is Bitcoin?
Bitcoin (BTC) is the world's first cryptocurrency. It was introduced to the world by an anonymous developer under the pseudonym 'Satoshi Nakamoto.' Bitcoin runs on a decentralised ledger system based on cryptography - a blockchain. Thus, Bitcoin is not controlled by a central bank or authority of any kind. Anyone can be a part of this blockchain and be rewarded with Bitcoin by participating in its "mining" process.
How do I get Bitcoin?
There are two ways you can get Bitcoin: mining or simply buying it from a cryptocurrency exchange.
Mining Bitcoin is a process where participants ("miners") compete to solve a mathematical problem. The winner gets to add the latest block to its blockchain and get the block reward in Bitcoin. Bitcoin's mining difficulty increases with the number of miners in the network. As of today, the most viable way to mine Bitcoin is joining a mining pool with a dedicated (and expensive) mining rig.
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What can Bitcoin do?
Bitcoin was initially designed as a payment method. There are a steadily growing number of merchants and stores that accept Bitcoin. In June 2021, El Salvador became the first country in the world to adopt Bitcoin as a legal tender. This means you can pay for goods, services, and even taxes with Bitcoin in El Salvador.
Bitcoin has also become a financial asset that people can invest in or even speculate on. You can buy and sell Bitcoin (and other cryptocurrencies) on cryptocurrency exchanges on a 24/7 basis. As of now, Bitcoin's daily trading volume is sitting steadily in the tens of billions of dollars.
Is Bitcoin private?
Bitcoin is anonymous but not private. All transactions are recorded in its public ledger and anyone can look it up at any time with blockchain explorers. We'll get to this later.
However, the ledger only records wallet addresses and amounts in transactions. Although it is technically possible to find traces and leads with the help of blockchain forensics, it is rather difficult for an average Joe to discover the owner's true identity of a given wallet address.
What determines the price of Bitcoin?
Like any other financial asset, Bitcoin's price is mostly determined by its supply and demand. Bitcoin has a limited supply of 21 million, as determined in its whitepaper. There are also regular events called halving, where miners' reward is cut by half after a certain number of blocks are added to the blockchain. This means Bitcoin will be harder and harder to produce and get by the minute. Its demand, on the other hand, is primarily affected by its media exposure, regulatory pressure, and competitors. We will get into details in our next question.
Why is Bitcoin price so volatile?
As the world's largest cryptocurrency (for now), Bitcoin also receives the most media exposure. People may be herded into buying Bitcoin by great news one day and persuaded into panic-selling everything by bad news the other. Also, cryptocurrency is still much of an uncharted territory for regulations. The regulatory framework is in its infancy, and each new regulation will have different effects on Bitcoin's price. To make matters more complicated, Bitcoin has an ever-growing club of competitors. These competitors (also known as altcoins) will fight to dethrone Bitcoin, and although none has succeeded yet, big altcoins can still put a dent in Bitcoin's price.
Imagine Bitcoin as a sandbag taking punches from all sides and each punch may throw its price in an unpredictable direction. This is essentially the root of Bitcoin's volatility.
Who stands to benefit the most from Bitcoin?
There are several classes that may benefit or lose from Bitcoin depending on the market trend.
There are miners who contribute computing power in exchange for mining rewards in Bitcoin. There are investors and speculators who profit from trading Bitcoin. There are also exchanges that make money from commissions and fees.
What if you lose Bitcoin?
Bitcoin is stored in wallets protected by private keys and seed phrases. You can also purchase hardware wallets that look pretty much like thumb drives. Private keys, seed phrases, and hardware wallets should all be carefully preserved since anyone who gets their hands on these takes ownership of your wallet. This means if you lose your wallet to someone else, you may never get it back.
Who governs Bitcoin?
We know now that Bitcoin is not controlled by any central authority. Bitcoin's network consists of nodes from all over the world, and it is these nodes that govern Bitcoin. Lucky for us, anyone is free to become a node, and all nodes are created equal. This means Bitcoin is governed by all its users around the world. When the majority of users or nodes decide something, it will happen. Users or nodes who were against the decision may create a different branch of Bitcoin, commonly known as a fork. Famous forks include Bitcoin Cash, Bitcoin SV, and Bitcoin Gold.
How to look up a Bitcoin transaction?
As mentioned in our fourth question, anyone can look up any transaction on blockchain explorers. Each transaction has its unique Transaction ID. Search this ID in blockchain explorers such as btcscan.org, blockchain.com, or btc.com, and you'll be able to see its status, amount, transaction fees, sender, receiver, and other information. You can also search any wallet address to see all its previous transactions.
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