Know the basics... the FAQ

When starting out with cryptocurrency there are always a lot of questions. Here you will be able to read-up on the most frequently asked questions. We have also compiled a video list of the best videos.
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What is Bitcoin?

What is Bitcoin?

Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

Who created Bitcoin?

Bitcoin is the first implementation of a concept called "cryptocurrency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with many developers working on Bitcoin.

Satoshi's anonymity often raised unjustified concerns, many of which are linked to misunderstanding of the open-source nature of Bitcoin. The Bitcoin protocol and software are published openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. Just like current developers, Satoshi's influence was limited to the changes he made being adopted by others and therefore he did not control Bitcoin. As such, the identity of Bitcoin's inventor is probably as relevant today as the identity of the person who invented paper.

Who controls the Bitcoin network?

Nobody owns the Bitcoin network much like no one owns the technology behind email. Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they can't force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.

 

How does Bitcoin work?

From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users.

Behind the scenes, the Bitcoin network is sharing a public ledger called the "block chain". This ledger 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 sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is often called "mining".

How do I make a payment or receive Money?

Bitcoin payments are easier to make than debit or credit card purchases, and can be received without a merchant account. Payments are made from a wallet application, either on your computer or smartphone, by entering the recipient's address, the payment amount, and pressing send. To make it easier to enter a recipient's address, many wallets can obtain the address by scanning a QR code or touching two phones together with NFC technology.

What are the advantages of Bitcoin?
  • Payment freedom - It is possible to send and receive bitcoins anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to be in full control of their money.
  • Choose your own fees - There is no fee to receive bitcoins, and many wallets let you control how large a fee to pay when spending. Higher fees can encourage faster confirmation of your transactions. Fees are unrelated to the amount transferred, so it's possible to send 100,000 bitcoins for the same fee it costs to send 1 bitcoin. Additionally, merchant processors exist to assist merchants in processing transactions, converting bitcoins to fiat currency and depositing funds directly into merchants' bank accounts daily. As these services are based on Bitcoin, they can be offered for much lower fees than with PayPal or credit card networks.
  • Fewer risks for merchants - Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks, and there is no need for PCI compliance. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs.
  • Security and control - Bitcoin users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption.
  • Transparent and neutral - All information concerning the Bitcoin money supply itself is readily available on the block chain for anybody to verify and use in real-time. No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable.
How can I get Bitcoins?

How does one acquire bitcoins?

  • As payment for goods or services.
  • Purchase bitcoins at a Bitcoin exchange.
  • Exchange bitcoins with someone near you.
  • Earn bitcoins through competitive mining.

While it may be possible to find individuals who wish to sell bitcoins in exchange for a credit card or PayPal payment, most exchanges do not allow funding via these payment methods. This is due to cases where someone buys bitcoins with PayPal, and then reverses their half of the transaction. This is commonly referred to as a chargeback.

What is a Wallet?

A “wallet” is basically the Bitcoin equivalent of a bank account. It allows you to receive bitcoins, store them, and then send them to others. There are two main types of wallets. A software wallet is one that you install on your own computer or mobile device.

What is an exchange?

Bitcoin currency exchanges work in a manner similar to banks. ... "Buy" orders (or "bids") are offers to buy bitcoins in exchange for another currency at a maximum price-per-bitcoin which is set by the offerer. "Sell" orders (or "asks") are offers to sellbitcoins at a minimum price-per-bitcoin

The Value of Bitcoin?

Bitcoin’s value is a perceived regard for its benefits and usefulness. The term value, as used here, is not to be confused with price, which is the monetary cost of a bitcoin. The usefulness and consequent value of Bitcoin is a result of many aspects of its innovation, its network, and its features. This guide discusses the most important factors that lead its users to consider Bitcoin to be valuable.

Scientific Value
To the general field of Science, the Bitcoin innovation is valuable for having solved the long-standing Two Generals Problem (or Byzantine Generals’ Problem). Satoshi Nakamoto’s clever solution to the dilemma of digital double-spending is achieved via a self-organizing and time-based consensus record. The blockchain, a shared public ledger, is maintained by the peer-to-peer nodes that populate the Bitcoin network.

Technological Value
Because Bitcoin is decentralized via a distributed peer-to-peer network, there is no central server that the Bitcoin protocol depends upon for its existence. Like BitTorrent, Bitcoin is, therefore, censorship-resistant – it cannot be shut down. This aspect of Bitcoin is critical since it means that Bitcoin’s continued usage is not subject to any external authority’s approval, opinion or action. Being a censorship-resistant alternative to official currency and payment systems makes Bitcoin an irreversible disruptive technology.

Social Value
Satoshi Nakamoto’s innovations in the field of Computer Science are significant milestones. In addition, a social implication of the way Bitcoin innovates payment and transactions is that it eliminates Trust. A distributed ledger and decentralized network means that no single entity needs to be trusted in order for the Bitcoin protocol to function. Each Bitcoin user owns and controls their own money outright, and is solely responsible for its security and usage. No third party, such as a bank or centralized issuer, needs to be implicitly trusted to hold, disburse or maintain one’s bitcoin holdings. This trust-less dimension of Bitcoin eliminates the risks associated with having to trust external authorities – in fact, the network effect of Bitcoin’s decentralization will be to, over time, eliminate centralized authorities everywhere.

Token of Value
Although a bitcoin can be copied many times, it can only ever be spent once. This design feature can be verified by making a copy of an existing Bitcoin wallet to another computer. The same bitcoins will exist in two physical locations, but only the first spend transaction will succeed. The network will recognize a second attempt to spend the same bitcoins as a double-spend and reject it. This is the critical innovation that sets Bitcoin apart from all previous attempts at creating digital currency.

What is the Blockchain?

A blockchain originally block chain is a distributed database that is used to maintain a continuously growing list of records, called blocks. Each block contains a timestamp and a link to a previous block.A blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. By design, blockchains are inherently resistant to modification of the data. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network. Functionally, a blockchain can serve as "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically."

Blockchains are secure by design and are an example of a distributed computing system with high Byzantine fault tolerance. Decentralized consensus has therefore been achieved with a blockchain. This makes blockchains potentially suitable for the recording of events, medical records, and other records management activities, identity management, transaction processing, and documenting provenance.

The first blockchain was conceptualised by Satoshi Nakamoto in 2008 and implemented the following year as a core component of the digital currency bitcoin, where it serves as the public ledger for all transactions. The invention of the blockchain for bitcoin made it the first digital currency to solve the double spending problem, without the use of a trusted authority or central server. The bitcoin design has been the inspiration for other applications.

What is mining?

Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions or blockchain. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.

What is Cryptocurrency?
ˈkrɪptəʊˌkʌr(ə)nsi/
noun
noun: cryptocurrency; plural noun: cryptocurrencies; noun: crypto-currency; plural noun: crypto-currencies
  1. a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
    "decentralized cryptocurrencies such as bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation"
Ethereum VS Ether

People often use the terms Ethereum and Ether interchangeably, however, they are technically different. Ethereum is the smart contract network, whereas Ether is the token or currency needed to fuel the network. 

With Bitcoin, both the network and the currency are called "Bitcoin".

Ethereum at a glance

Put simply, Ethereum is an open-source platform, based on blockchain technology, that allows software developers to build smart contracts and decentralised applications, or "dapps" for short.

Whereas Bitcoin is mostly a decentralised, blockchain-powered form of money (a storage of wealth and a means of payment), Ethereum is a decentralised, blockchain-powered software platform.

Just like Bitcoin can be bought, sold, traded and stored on Bitcoin platforms (like Luno), Ether can be bought, sold, traded and stored on Ethereum platforms.

With the Ethereum blockchain —instead of mining for Bitcoin—  miners work to earn the currency Ether, which is tradable, just like Bitcoin. However, Ether is also used by developers to pay for transaction fees and services on the Ethereum network when using it to build smart contracts.

When comparing Bitcoin and Ether, it is important to note that Ether is not designed to function as a global digital currency, whereas Bitcoin is. It is designed to fuel the Ethereum network and potential investors should note that supply consistency is not guaranteed in the Ether market, whereas in the Bitcoin market it is.

How many Bitcoins are there?

Bitcoin. 12.5 bitcoins per block (approximately every ten minutes) until mid 2020, and then afterwards 6.25 bitcoins per block for 4 years until next halving. This halving continues until 2110–40, when 21 million bitcoins will have been issued

Who is Satoshi Nakamoto?

Satoshi Nakamoto is the name used by the unknown person or persons who designed bitcoin and created its original reference implementation. As a part of the implementation, he also devised the first blockchain database. In the process he was the first to solve the double spending problem for digital currency. He was active in the development of bitcoin up until December 2010.
Nakamoto has claimed to be a man living in Japan, born on 5 April 1975. However, speculation about the true identity of Nakamoto has mostly focused on a number of cryptography and computer science experts of non-Japanese descent, living in the United States and Europe.
As of 24 May 2017, Nakamoto is believed to own up to roughly one million bitcoins, with a value estimated at over $2 billion USD.