If you do not understand, do not worry: it’s complicated even bitcoin. But you do not need to understand everything to use it safely. For you who still have doubts, here its a “question and answer” format article.
1. Where does the value of bitcoin?
establishing the value of bitcoin is the basic rule of economics: supply and demand. The number of bitcoins in existence is limited and people want to buy bitcoin, whether as a form of savings, with the intention of resale (investment) or for transfers and purchases, local or international. Unlike the common currency, there is no obligation to accept bitcoin as payment or discharge of debts anywhere in the world. For this reason, the bitcoin today has shown great volatility, varying according to the utility, speculation and new regulations in each country. This variation is somewhat similar to the real relative to international currencies and inflation – with the grievance that the bitcoin market is smaller, meaning that small “turbulence” quite rattle the market.
2. If 1 bitcoin (BTC) is worth $ 1,600 I need to use this shell bitcoin?
No. A bitcoin can be divided into several parts, far more than the cents of a dollar. You can buy a small piece of a coin. The lowest part of a bitcoin is called “satoshi”. A single bitcoin is a hundred million satoshis (0.00000001 BTC). The value of a satoshi, with BTC to $1,600, $0.000016 would. Buying satoshis 10,000, you would pay £ 0.16. Even the bitcoin costing £ 1,600 is nothing to prevent you from paying a coffee with bitcoin.
That said, there is a coin operating almost identical to the bitcoin that was made just for smaller transactions: the Litecoin.
3. What Does a miner? It produces money?
The term “mining” is bad enough, the analogy fails with the idea of “gold mine”. In fact, it is only the validation of transactions with bitcoin, following totally arbitrary rules such that a new block of bitcoin is generated every 10 minutes.
In simple terms, mining is a lottery. The miner must find a number that, following the rules of the network, resulting in a “block” accepted.This block contains the transaction (ie the miner validates various transactions at one time).
Each “bet” this lottery has a very high computational cost. That’s why ordinary home computers do not have much chance to compete. Professional miners make use of super machines to achieve the highest number of attempts in the shortest period of time. That is, although, luckily, you can manage to hit the number, in practice there are people who are in great advantage because you can try many times as you – they are doing a sweepstake, and you’re with the minimum bet, so to speak .
It is important to emphasize the detail: all this work of miners is only necessary to give order to the bitcoin.Instead of each transaction be isolated, they are included in these “blocks” that take 10 minutes to be generated through this difficulty imposed. The 10 minute time limit reduces the number of blocs, which leaves more organized network. If each transaction stay isolated, would be difficult to determine which came first, the result is that a person could spend the same money several times, there is a conflict. The amount of data would be very large and the network could not decide an order.
The complexity allows the lightweight block 10 minutes to generate, allowing time for data to be grouped and attempts to spend the same money twice being blocked. Conflicts can also be solved. Out complexity, nothing prevents a new block is generated every 10 seconds, for example. Therefore, this “lottery” is the way that computational network enforces rules for itself and organizes.
By “win” the lottery and help the network to maintain order, the miner can have 25 bitcoins (today) and what was the “return” of the transaction block. As the miner has received 25 bitcoins, it means that transactions of bitcoin today need not leave anything to the miner. In the future (and even distant), the number of generated bitcoins will diminish, until the generation of new bitcoins is eliminated. Right now, the transfers will have to provide some “payback” for the miner to receive reward. Otherwise, he will not have incentive to include them in the block mounted.
4. But 25 bitcoins are worth about £ 40,000. Is that right?
Yes Every 10 minutes are distributed £ 40,000 in bitcoins, the current share price. The miner who solved the block gets everything. You can get your computer working for days and getting nothing, just having electricity costs.
Professional machinery to mine bitcoin may exceed $10 billion (£23 billion) and use over 1000 watts of power (for purposes of comparison, a typical computer uses about 200 W, with a pretty powerful home machine using 600 W) . They use chips specific processing to the type of calculation that bitcoin is, for which a common machine is not ideal. A machine, sold by “Virtual Mining Corp”, can be expanded to use 20,000 watts, at a cost of over $ 50 000 (£ 120 000).
Even with such a machine, it can take a month to get a single block – but it’s still a lottery, then remains can be left with nothing.
5. If I can not mine as I can bitcoins?
There are many services that exchange bitcoins for common currency, as real dollars and euros, and vice versa. Normally, there are fees for making this conversion.
6. If I paid a fee to do the conversion and the person receiving it to convert again, what advantage?
Since the two operations occur in local currency (for example, for real bitcoin, bitcoin and to Yen, a transfer to Japan) rates and bureaucracy may be lower in some occasions. If the number of sites that accept bitcoin increase, it could become an “international currency”, useful anywhere. You can use it as currency for travel or as a temporary reserve not to be subject to foreign exchange on return from international travel.
You need to assess on a case where the use of bitcoin is advantageous. To decrease the risk with volatility, it can be used immediately after purchase.
7. The bitcoin is a pyramid scheme?
No, because bitcoin is not a business to make money.
Pyramid schemes happen when early people who enter it earn money, while those who entered last loses, arguing who first entered. Mining immensely benefited the people who entered the network sooner, because it was much easier and cheaper to participate in the “lottery”. Moreover, rewards bitcoins were higher. But who minerava and spent their coins at the beginning certainly did not get rich because every bitcoin was worth only a few cents.
But bitcoin is not a business pyramid, because the ultimate goal is not mining but the establishment of a free currency government control.
The money that was “paid” to enter the bitcoin no promises return. It’s just a conversion. You still have your money (bitcoin) and you can download it or use it when purchasing products and services.
Invest in bitcoin is like investing in the stock market or exchange: there are great risks and the possibility of losing money. There is nothing guaranteed as savings. However, if you know when to buy and sell, it is indeed possible to earn enough money. And the rule is not the same for everyone, it acquired when the first bitcoin.
8. In practice, how to use bitcoin?
You install a software on your desktop or mobile, follow instructions to create your pair of cryptographic keys.This will give you a “bitcoin address”, like a checking account number. Then you get bitcoins somewhere and provide your address to receive – you will pay for these bitcoins usually using a bill or credit card. Then you already owns bitcoins.
When you pay something, just use the software and provide the bitcoin address of the destination and the value. Your transaction goes to the net to be accommodated in a block. When this block is finalized after the lottery mining, the transfer is completed.
Addresses bitcoins can be represented by barcodes, which is useful for reading and use of bitcoin on mobile.The procedure is the same, with the difference that the camera phone is used to read the bitcoin address. Ie just have the application on your phone, read the barcode, enter the value and wait.
9. What is the risk of bitcoin?
If someone control a large part of the power of the bitcoin mining, what is accepted and what is not accepted in the blocks could be controlled by one person, creating a central point of control – exactly what bitcoin tried to avoid. Moreover, in this scenario, it could be possible that a coin is worn more than once. All of these attacks, however, are hypothetical. There is no record of any attempt to manipulate the bitcoin that way.
The bitcoin also suffers from legal risks, like the ban affecting the usefulness of the coin. This in turn can reduce the demand for bitcoin, which leads to a reduction of the amount and volatility.
10. What is the “malleability transaction” that allowed the theft of 4,400 bitcoins?
Last week, the reincarnation of the sales site for illicit drugs “Silk Road”, notorious for its use of bitcoin, was hacked and lost 4,400 bitcoins – one value that exceeds two million dollars. Hackers did so without any access to the Silk Road servers, instead, used a feature called bitcoin own “malleability transaction.”
The flexibility allows the transaction identifier of a transaction is changed after it has been propagated over the network. As the bitcoin takes about 10 minutes to validate a transaction and there is the possibility that a transaction has to be redone if it gets into a so-called “orphan block” systems that confer withdrawals bitcoin need to somehow identify when a transaction was finally completed. Some systems, including the Silk Road, making it looking just the transaction identifier. The problem is that the transaction ID is not part of the digitally signed content and can be manipulated.
Thus, a hacker may prevent the system serve to confirm that the transaction was successful, propagating the same transaction with a different identifier. The system will not find the original transaction and then attempt to transfer again, each time, the hacker will receive more coins, and your balance will never be discounted because, from the point of view of the system, the transaction is failing at every attempt.
This is not a “flaw” of bitcoin, but somewhat intuitive operation for developers who are creating systems that interact with it. In almost every type of system, an identifier can be trusted, in bitcoin, no. Looting systems can prevent attack by performing a check transaction that does not rely solely on the identifier.
Any more questions?
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