You asked, and we listened. Today, we will answer ten of the most frequently asked questions about Bitcoin. If you’re a newbie to cryptocurrency and Bitcoin especially, don’t be embarrassed that you have all these questions. How else will you learn?
So, without further delay, let’s dive into the Q and A right away!
1. What is Bitcoin?
Bitcoin is a digital currency that exists on a decentralised network and can be used for payment via peer-to-peer technology. Bitcoin eliminates the need for a third party or mediator between two parties involved in a transaction. It’s also a store of value.
Think of it as digital money you can use to pay or receive payment directly from another party without involving a bank or financial institution. It’s called a cryptocurrency because using it, tracking its use and keeping a record of everyone in use is done through a security technique called cryptography.
Bitcoin was created in 2008 and has since grown exponentially in value. Its price is volatile because its value is not tied to any tangible asset like gold or cash in the federal reserve of a nation.
2. Who Created Bitcoin?
Bitcoin was created by someone or a group of people called Satoshi Nakamoto. To date, nobody knows the true identity of the creator(s) of the cryptocurrency. All the global crypto community knows is that in 2008, a person or persons named Satoshi Nakamoto released a whitepaper about Bitcoin and subsequently began working with developers to mine the first few Bitcoins. The person disappeared from the online space in 2010, though there have been rumours that their messages were dug out online.
3. How much is a Bitcoin worth?
One Bitcoin is worth $38,245.80 (at the time of writing). Over the years, Bitcoin’s price has increased, and according to market experts, the price will continue to rise. According to Investopedia’s piece on Bitcoin Price History, Bitcoin price hit $100 in April 2013. It crossed $1,000in November of the same year!
Bitcoin price kept rising steadily and peaked at its highest price ever in November 2021 at $68,789. It declined to a lowly $16,605 at the beginning of 2023 but has climbed back to $38,000 in November of 2023.
The value of Bitcoin is determined by very arbitrary factors such as market demand and supply, competing cryptocurrencies, availability and investors’ speculations. The intersectionality between these factors can cause a drop or a spike in prices per time.
4. How Many Bitcoins Are There?
Bitcoin has a finite number that can exist. The number of Bitcoins that can exist is 21 million. However, there are already 19,555,431.25 in circulation. So, the remainder has yet to come into existence and will only be in circulation as Bitcoin mining occurs continuously.
5. What is Bitcoin Mining?
Bitcoin mining is the process of solving the cryptographic equations that verify transactions on the blockchain and which add new Bitcoin into circulation while completing a “block”. The new Bitcoin is the miners’ reward for keeping the system running.
There’s a whole system with which Bitcoin mining works. It’s a halving system in which the number of Bitcoins a miner receives as a reward is halved every four years. The creators of the cryptocurrency worked this into its algorithm to maintain a level of scarcity and prevent inflation. But Bitcoin mining is still profitable.
6. What is a Bitcoin Block?
A Bitcoin block is a group of transactions within a time frame stacked together. Each block stems from the preceding one and forms the foundation for the next block. Hence, a chain of blocks forms the blockchain.
A blockchain is a public ledger of sorts where all cryptocurrency transactions are recorded using peer-to-peer technology. New blocks are formed when Bitcoin miners complete and verify the transactions in the previous block.
7. What are the Benefits and Drawbacks of Bitcoin?
This is another frequently asked question about Bitcoin. Owning Bitcoin comes with a plethora of benefits. Some of them are as follows.
- It is decentralised. This means that no one body controls the network and, as such, cannot control its distribution.
- It’s the most secure cryptocurrency. Bitcoin’s network is built in such a way that manoeuvres are impossible. While hackers have devised different means of tricking Bitcoin holders into giving away their coins, they cannot steal them independently.
- It’s a great store of value. Bitcoin is a good long-term investment. If you convert some of your assets to Bitcoin and leave it for several years, it’ll remain as is or even be worth more.
There are other benefits, but there are drawbacks as well, and here are some of them.
- Volatility. Bitcoin is the most volatile cryptocurrency because its value is determined by arbitrary factors, not by a tangible asset. For new owners, it may not be advisable to trade without guidance.
- Bans and regulations in some countries. Bitcoin is banned in countries like China and heavily regulated in others like the US. It has yet to be a universal means of payment for several valid reasons.
Despite these disadvantages, you can buy Bitcoin as a long-term investment and let its value grow over time.
8. Is Bitcoin Anonymous?
No, Bitcoin is not anonymous. Anonymity refers to a complete non-disclosure of identity meaning there’s absolutely nothing that ties a person to something. But Bitcoin owners have wallet addresses with which they send and receive Bitcoin. So these addresses are substitutes and act as PSEUDONYMS. As a Bitcoin holder, a hacker may find ways to tie your identity to a wallet address. For this reason, Satoshi Nakamoto advised that Bitcoin holders change their address for every transaction.
So we can say that Bitcoin transactions are pseudonymous.
9. Is Bitcoin Legal?
Bitcoin is not legal in countries like China and Saudi Arabia However, it is legal and heavily regulated in countries like the US. The reasons for these modalities are that Bitcoin lacks a set of uniform regulations which all countries can use. Also, countries do not want it to be used illicitly for money laundering and other fraudulent purposes. Hence, legislators have enacted strong laws and regulations around the use of Bitcoin in the US.
Investopedia states that Bitcoin is legal in Australia, France, Canada, Denmark, Switzerland, Germany, Japan, the UK and US. Countries that have absolutely banned Bitcoin include China, Saudi Arabia, and Qatar.
10. What is a Bitcoin Wallet?
Bitcoin wallets are digital purses that hold your Bitcoin. Technically, they hold your private keys, which you use to access your Bitcoin on the blockchain. But to simplify the definition, we can say Bitcoin wallets hold Bitcoin.
Your Bitcoin wallet enables you to receive and send Bitcoin to other holders who must also have Bitcoin wallets. It’s similar to a bank account but stores Bitcoin instead of money. Usually, every wallet has an address.
A Bitcoin address is a unique string of numbers and alphabets tagging the destination of all Bitcoin you’ll receive. Think of it like an account number. Usually, it starts with 1 or 3.
In a Nutshell…
Well, these are the most basic and the most frequently asked questions about Bitcoin. We have answered them in the simplest way possible. Of course, you won’t understand everything about Bitcoin in a day – the coin itself wasn’t built in a day!
Take your time to read through the answers, and don’t hesitate to drop other questions you have about Bitcoin. You can also check out our blog, where we publish simple, concise, detailed articles about Bitcoin, cryptocurrency and gift cards.