Understanding Bitcoin: Your Questions Answered

Understanding Bitcoin: Your Questions Answered

Even if you have been a follower of the Bitcoin community for a while, you may still have a few questions in mind. After all, Bitcoin is a complex concept, and understandably, it takes a little time, research, and patience to fully understand everything you want to know.

To make this process easier for everyone, we have compiled a list of FAQs and answers so you can leave here having the answers to all the questions you’ve been looking for. Have a scroll through or hit the Ctrl+F to find your personal FAQs quickly.

General Questions About Bitcoin

What Is Bitcoin?

Bitcoin is a digital currency that is completely unregulated by any government or third-party authority. It is the first digital currency ever created, and while many similar options have followed, Bitcoin will always be the original cryptocurrency that had a massive impact on the world.

From the user’s point of view, Bitcoin is like cash but online, a payment and transaction currency that the governments can’t control.

Who Created Bitcoin?

The idea of a decentralized cryptocurrency was floated around the cyberpunk scene during the late 90s. Various known figures in the community wrote blogs and emails speaking about the possible future of crypto.

However, it wasn’t until 2008, when a user going by the (pseudonymous) name of Satoshi Nakamoto published the white paper containing the proof of concept and specifications for Bitcoin that this idea became a reality.

Nakamoto, along with several other developers got to work and within a few months, the network and blockchain had been created and were in use. Nakamoto left the project abruptly a short time later and their true identity has never been revealed.

That doesn't stop the world, however, from speculating who this mystery genius might be.

Who Is the Bitcoin Network Controlled By?

One of the key selling points of Bitcoin and a big factor in its success is that no one person controls the network. Rather, it is controlled by all the users on the network.

Developers can make improvements or fix issues in the software but they can’t force large changes or redevelop the network.

For the network to run and operate as it should, there has to be a consensus among all the users which means it's in the best interests of all users and developers to safeguard this consensus.

How Does Bitcoin Work?

The actual currency itself can be likened to the currency or coins you have within mobile or computer games. You can store coins, send coins, trade coins for goods and services, perhaps do tasks to earn more coins, or sell any valuables you have to other players in exchange for their coins. Bitcoin is like this, except it has real value.

However, while this is how it looks on the surface, processes are happening in the background to keep everything running as it should. Namely the Bitcoin network.

The network shares a public ledger called the blockchain. All transactions are recorded on the ledger and this allows users’ computers to verify and validate each transaction.

This verifying process is essential to the security of the network and prevents double-spending.

Added to this, anyone with access to the correct hardware and computing power can mine for Bitcoin and earn rewards this way.

Is Bitcoin Used By Individuals?

Yes, it is not only businesses that are invested in Bitcoin. It’s not only high-powered individuals either. Users from all over the world are invested in and use Bitcoin. 

While it’s hard to work out an exact number, it’s estimated that more than 300 million people worldwide are invested in crypto with many invested in Bitcoin itself.

How Do Users Get Hold of Bitcoin?

There are various ways that anyone can get Bitcoin, these include:

  • Buying Bitcoin through an exchange
  • Selling goods or services and receiving Bitcoin as the payment method
  • Earn Bitcoin via mining

Is It Difficult to Use Bitcoin As a Payment Method?

The simple answer is No. Payments with Bitcoin are easier than a credit or debit card payment since you only need the recipient’s wallet address to send the crypto. There are no other numbers or pieces of information involved.

Nowadays, the process has been made even easier still with the implementation of QR codes and NFC technology allowing two people to make/receive payments just by touching their phones together.

Can You Make Money with Bitcoin?

You can and people do. Nonetheless, it’s an investment and all investments carry risks. Bitcoin is volatile, flash crashes happen, surges happen, markets change, and unforeseen incidents occur which drastically change crypto’s value.

It’s not a get-rich-quick-scheme and you are not guaranteed to profit. The old adage of only investing what you can afford to lose definitely applies to Bitcoin as it does with all investments you make.

Is Bitcoin Trustworthy?

Yes, as we mentioned previously, much of the appeal of Bitcoin comes from how safe and trusted it is. Since Bitcoin is decentralized and open-source, anyone can access the source code whenever they want.

The system is completely protected by peer-reviewed cryptographic algorithms, and no third party can control users’ assets like a bank can. Even if individual users on the network can’t be trusted, the network is so secure that it doesn’t matter.

Is Bitcoin Anonymous?

Unfortunately, while Bitcoin allows users to have a high level of anonymity, it’s not 100%. For example, using cash in real life can allow people to be completely anonymous as you don’t leave behind a record of transactions.

However, Bitcoin leaves behind a public record that is rather extensive.

Features are currently in development to increase the level of anonymity but there is still a way to go for this to be fully operational.

What Is Double Spending?

Having miners all over the world constantly auditing and verifying Bitcoin transactions is essential to preventing anyone from trying to defraud or scam other investors. It stops anyone from being able to “double-spend” and was put in place by Satoshi Nakamoto, Bitcoin's founder, for this very reason. So what is double-spending? Is it something to worry about?

Double spending is when a BTC owner spends the same bitcoin twice by tampering with the transaction record. As a digital currency, bitcoin has to potentially deal with fraud issues that paper money doesn’t experience.

For example, if you go to your local store to buy some groceries and hand the cashier a $50 bill, you cannot use that bill again. The store now has it and you’re not getting it back. You can’t pop next door and respend the money on something else.

However, double-spending means someone is trying to respend that money except they’re using digital currency to do it instead of a physical paper note.

A BTC owner could make a copy of their digital coin and send the copy to the recipient while keeping hold of the original. (Of course, counterfeiting money is sometimes an issue but it’s not the same as being able to spend the same note twice).

What Happens When People Lose Their Bitcoin?

Just a quick search online will show you story after story of people forgetting or losing their private key or wallet, and therefore, losing their Bitcoin forever.

It’s a mistake that can change someones’ life, for the worse, which is why it’s incredibly important to store your Bitcoin correctly and not write down your seed on a scrap piece of paper that ends up in the bin, for example,

But what happens after people lose their Bitcoin? Where does it go? Well, essentially, it goes nowhere. The crypto is still on the blockchain, it’s just dormant. It’s not here for someone else to mine, it’s already been mined and is in someone else’s possession.

The Bitcoin amount will not be put back into circulation, there will just now be fewer overall that are being spent or traded.

Will Bitcoin Ever Scale to Become a Major Payment Method?

Right now, more businesses than ever accept Bitcoin as a payment method. The faster the interest and value grow, the faster that businesses are adding themselves to the growing list. 

However, it’s not ready yet to join the ranks of major credit cards. Bitcoin is unable to process transactions as quickly as credit cards. In fact, it trails behind miserably in this department. But that doesn’t mean this will always be the case.

Traffic within the network has grown a huge amount in recent years and the technology and features to make the network faster has also improved. Scalability is being worked on so never say never.

What Are the Advantages of Bitcoin?

  1. Transparency and Neutrality - No organization or individual controls Bitcoin or the network. Added to this, all the information regarding Bitcoin’s supply is available for anyone to see.
  2. Security and Control - Users are in total control of their transactions. Unlike banks, your wallet contents can’t be controlled or manipulated, blocked, or restricted.
  3. Users can also use encryption and wallets to keep their assets completely safe.
  4. Payment Freedom - Payments can be made any time on any day to any user in any country. There are no constraints or rules.
  5. Options for Fees - You won’t have to pay any fees to receive Bitcoin but you will when spending your crypto. However, wallets will give you different options for fees depending on the amount sent, and how much is being sent. Likewise, if you’re converting your Bitcoin to fiat currency, you can choose the platform with the best fees that suit your needs.
  6. No Fraud Risk - Everyone becomes a victim of fraud, particularly with their bank or credit card at some point in their life. It seems unavoidable. But Bitcoin transactions don’t contain personal information thus meaning this information can’t be sold or taken advantage of.

What Are the Disadvantages of Bitcoin?

  1. Development Ongoing - Bitcoin and the network are relatively young. It’s only been up and running since 2009 and has many changes, tweaks, and developments that need to be made. But these are often large processes that take a long time to implement, and of course, a consensus is needed also. Bitcoin still needs time to fully develop into the best version of itself.
  2. Lack of Acceptance - Millions and millions of people around the world invest in, trade, mine, and love Bitcoin. But it still has a large lack of acceptance among much of the population, especially, of course, among governments and authorities. This lack of acceptance is off-putting to the majority of businesses thus restricting how people can spend their crypto.
  3. Volatility - Bitcoin could be worth $50,000 one week, then $40,000 the following week. No one can predict what is going to happen to Bitcoin in the coming days, weeks, months, or years. It's a volatile asset that goes up and down, sometimes more drastically than other times. It can be stressful to invest in and can lose people a lot of money. An asset that is this volatile is an asset that people are cautious of.

Transactional Questions About Bitcoin

How Much Do Transaction Fees Cost?

You can send Bitcoin for free but expect to wait weeks for the process to go through. For a faster experience, you can pay a fee for the convenience and are well worth the cost because they are usually so nominal.

The final amount you’ll pay will depend on what wallet you use, the wallet provider will set the price but they also tell you the cost before you confirm your transaction so you can back out of the transaction if you want.

Currently, fees are normally based on how many bytes are used in the transaction, so you may pay a small fee even if you’re sending a relatively large amount.

Why Do You Have to Wait for Confirmation?

You should receive a notification more or less instantly after you have received a payment with Bitcoin. However, there will usually be a delay with the network confirming your transaction and including it in a block.

The confirmation means there has been a consensus on the network that the Bitcoin is now yours and has not been sent elsewhere. A confirmation takes on average ten minutes to come through and is nothing to worry about.

Can You Receive Bitcoin When Your Computer Is Off?

Yes, absolutely! Your computer being off won’t affect the transactional process of receiving Bitcoin. Your Bitcoin will be in your wallet the next time you open it up.

The reason why the process isn’t affected by your computer not having power is that the transaction isn’t happening through software. Rather, it’s happening on the public ledger and therefore, will still work.

Why Does Synchronizing Take So Long?

Synchronizing happens when all the previous Bitcoin transactions on the network are downloaded and verified. This process requires a large amount of bandwidth and computer storage and thus can create a slight delay. Again, this delay is nothing to worry about, it’s a normal process.

Legal Questions About Bitcoin

Is Bitcoin Illegal?

As of January 2022, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and China have all banned cryptocurrency. In other countries, there are extra restrictions of rules such as in Argentina or Thailand.

Nonetheless, this still leaves the vast majority of countries in the world where Bitcoin and altcoins are not illegal.

As Bitcoin and other crypto become more popular and more businesses start accepting it as payment, countries are talking more about the rules they wish to put in place or how they can better track crypto activities. But there is nothing to report as of the time of writing.

On the other end of the scale, El Salvador has accepted Bitcoin as legal tender as of September 2021. Perhaps more countries will follow in the near future.

Can Bitcoin Be Used for Illegal Activities?

No matter the type or form of currency, some people will always use it in the pursuit of illegal activities. And Bitcoin is, unfortunately, no exception to this.

However, the majority of illegal activities involving Bitcoin are all to do with scams. Due to safety processes to prevent double-spending, hacking, and counterfeiting, the risk of being a victim of crime with Bitcoin is incredibly low. The system also means that money laundering is complex and rare. 

Will Bitcoin Ever Be Regulated?

The entire purpose for a digital decentralized currency was that it wouldn’t be regulated. If Bitcoin ever became regulated then it has completely defeated its initial cause.

Do You Have to Pay Tax on Bitcoin?

Even though Bitcoin can’t be monitored by governments and agencies like fiat currency can, many countries still have tax laws in place that now include cryptocurrencies of all kinds.

Since each person’s tax liability would depend on their location, each person has a legal responsibility to find out from their country’s government what the current tax laws are.

Do Users Have Consumer Protection?

The advantage of an unregulated currency brings a huge disadvantage of it not being consumer protected. Unlike your bank account that is protected up to a point by the banking authority, your Bitcoin is not.

If you send coins to the wrong person, for example, you cannot reverse the payment nor claim anything back from a third party. Your assets are your sole responsibility and there is no way to get any kind of consumer protection for transactions or storage.

Security Questions About Bitcoin

Is Bitcoin Secure?

Bitcoin is often regarded as the largest computer project in the world. As such, it has been made incredibly secure and reliable. By far, the most common complaint with Bitcoin’s security comes down to user error.

People losing their wallets or seed, allowing other people to know their private key, or falling victim to a crypto scam has nothing to do with the security of Bitcoin or the network.

For example, if you write your PIN on the back of your bank card, lose your card, then a third party withdraws cash, you wouldn’t blame your bank.

Of course, the network is not 100% secure, but over the years, bugs and issues have been fixed, stronger security processes have been added, and are constantly monitored.

Has Bitcoin Been Hacked Previously?

There have been incidents where companies have been hacked and users’ Bitcoin have been lost. However, this has always been the company itself with the security flaws, not the Bitcoin network.

Is Bitcoin Vulnerable To Quantum Computing?

While this is not an immediate concern since quantum computers don’t exist, it is something that will come up again if this were to change. Bitcoin is vulnerable to quantum computing and changes would have to be made and updates added to the network to reduce this vulnerability.

Mining Questions About Bitcoin

What Is Mining?

For new bitcoin to enter into circulation, they must be mined. Mining also enables new transactions to be confirmed by the network, as well as being a key part of the development and maintenance of the blockchain ledger.

The action of mining is carried out via means of the miner (you) using sophisticated and powerful hardware which can solve incredibly complicated math problems. The first computer to solve the problem validates the block and collects the reward - the bitcoin.

This process then repeats itself over and over again. Roughly 900 bitcoin are currently mined each day, although this will become less as the years go by.

Mining for BTC is slow, expensive, and it isn’t guaranteed to be rewarding for you. For example, if you mine alone rather than as part of a mining pool and you use less powerful hardware, it could take years and years for you to mine just one block. It could even take years and you mine zero blocks.

What Do You Need to Start Mining?

Years ago, when Bitcoin was far less popular than it is now, people would use their computer’s CPU to do the mining work. All it took was an ordinary computer to run the right program and nothing more.

However, as we mentioned earlier, mining is so popular now that a computer’s CPU is no longer good enough. Instead, to mine Bitcoin, users need to purchase mining rigs that have enough computer power to have a chance at finding new blocks. These rigs don’t come cheap as they are specialized hardware.

If someone is looking to keep their costs down, then joining a mining pool is the best solution. Mining pools allow investors to be part of the mining community, reap the rewards, and stick to a budget.

Does Mining Waste Energy?

One negative that comes up often when people talk about mining is the energy needed. While it is true that mining requires a lot of energy to constantly run the miners and provide high computing power, there are companies constantly working on a solution.

Unfortunately, the reality is that mining takes up more electricity than some countries use in a year. Mining can also produce excessive electronic waste, and this sharp increase has been the direct result of tens of thousands of new people joining the community each year.

Using renewable energy to run operations is possible though. And the good news is, this along with plans of finding a way to mine without the waste in the future for everyone means that, hopefully, this waste should be a temporary problem.

Why Is Mining Necessary?

Anything that happens digitally is at greater risk of being copied, altered, stolen, or counterfeited. Mining is there to prevent this from happening, it’s a safety feature that benefits everyone. Since mining is so intensive both in terms of money and resources, it’s cheaper and easier for a potential hacker to legitimately mine bitcoin than try to copy or counterfeit it.

Is Bitcoin Mining Legal?

The answer will depend on your location. Some countries aren’t happy it exists but allow it nonetheless. Others have outright banned ownership. There are no universal laws or agreements as to whether it should be completely legalized or not.

As of September 2021, China announced all crypto transactions are now illegal. Likewise, BTC is also illegal in Bolivia, Indonesia, Turkey, and Egypt. However, previous countries have changed their laws in recent years to make BTC legal in their territories, so this list could become smaller still in the future.

Become Part of the Future with Mining Syndicate

If you would like any more information about starting or expanding your Bitcoin horizon; reach out to us at Mining Syndicate. Our mission is simple: Strengthen the Bitcoin network by enabling small-scale miners to affordably purchase and reliably host miners.

As a small miner, Chris became frustrated by the lack of hosting options available for miners with under 100 units. As luck would have it, he found a 2.5MW mining facility for sale right down the road, and thus, Mining Syndicate was born. Facilities #2 and #3 are already in the works.

Why is Mining Syndicate so successful? Because we have a team of people who are just like you, eager to be a part of the future of mining. If you would like more information about how you can be a part of Mining Syndicate, how our facility works, or the products we sell, you can reach out to us here.

You can also check out our list of miners we currently have in our catalog, as well as our list of best sellers.

We look forward to hearing from you - together we are stronger!