India 2024 - Beginner Bitcoin FAQs - Frequently Asked Questions: Basics Explained
If you've stumbled across this page in search of answers around Bitcoin, welcome! There is a lot we can teach you.
For this post, we have collated questions about cryptocurrency and answered the most frequently asked by beginners, to help you get started on your journey. So let's start with the absolute basic fundamentals:
What Is Bitcoin?
Bitcoin is a cryptocurrency, often referred to as a virtual currency or digital currency, used as a method of exchange or store of wealth. On a very basic level, it is a piece of code. There are no physical coins to speak of, rather, there are UTXOs (unspent transaction outputs) that make up the balance in your wallet.
Bitcoin was created following the financial crash of 2008 as a solution to government and central bank manipulation of money and the economy.
Who Created Cryptocurrency?
Over the years there have been several failed attempts at creating a digital currency or cryptocurrency. It started in the late 1980s when an unknown computer scientist wanted to help reduce the amount of late-night robberies at gas stations, and so trialed 'smartcards' in which truck drivers could pre-pay their card and not have to carry any cash. This proved a success!
In 1990 we saw Digicash, however, due to over-rapid expansion, the company filed bankruptcy in 1998, the same year that PayPal was launched as the first digital currency peer-to-peer online payment company. PayPal has since gone from strength to strength.
Who Created Bitcoin?
Satoshi Nakomoto is the name of a pseudonymous developer or group of developers, who released the Bitcoin white paper in 2008 and released the Bitcoin protocol in 2009. Satoshi Nakomoto disappeared a few years after the launch of Bitcoin, and his identity is unknown to this day.
Who Controls Bitcoin?
One of the beautiful things about Bitcoin is that it is decentralized. This means it can not be censored or controlled or manipulated by any single governing or centralized party, and all transactions are mathematically verified by a network of thousands of computers.
Is Bitcoin: FAQs
Is Bitcoin For Illegal Activities?
Bitcoin got a bad reputation between 2010 to 2016 due to use in illegal transactions on the 'dark web'. Bitcoin was not exclusively used for these activities, nor did the people behind these activities exclusively accept Bitcoin, but it makes a good angle in the media. The reputation of cryptocurrency was heavily tarnished, largely due to a small minority of bad actors.
Every single transaction that has ever occurred with every single Bitcoin, is accurately recorded on the blockchain where you can follow the movements of Bitcoin from one wallet to another. Whether or not the illegal users were aware of this is unknown.
Is Bitcoin A Bubble?
Some people think that a 10 million percent increase in the value of an asset within 10 years is a bit excessive, therefor Bitcoin must be a bubble that will soon burst.
Bitcoin's price fluctuates with supply and demand, following a cycle in which the amount of Bitcoin produced is halved approximately every 4 years. This allows Bitcoin's price to increase healthily as the technology is adopted by more users around the world.
Is Bitcoin A Ponzi Scheme?
Bitcoin is not a Ponzi scheme. If you've signed up to a pyramid scheme offering you the chance to earn Bitcoin, get out fast! Bitcoin is a piece of code that cannot be copied or double-spent, can be used as payment with Visa transactions, and 'staked' (held in an account) as a store of wealth - with interest rates you will never see at the banks.
Is Bitcoin Legal?
In most countries, it is legal to buy, trade, and sell Bitcoin. However, the increase in people turning to cryptocurrency intimidates some banks and governments, as it threatens their local currency and economy. In turn, some countries have tried to 'ban' Bitcoin, but this is very difficult as it is a piece of code. A country could make code illegal be it would be practically impossible to enforce.
Is Bitcoin Safe?
Bitcoin as a protocol itself cannot be hacked (well, theoretically it's possible but it would take 100 yrs+ to achieve) and can not be controlled or manipulated by any single-point-of-failure. If you own Bitcoin, you are your own bank, and it is your responsibility to keep your coins safe.
Is Bitcoin Real Money?
To answer this question correctly, we need to define exactly what 'real' money is. Real money is; durable, divisible, portable, fungible, a medium of exchange, and crucially, a store of wealth over a long period of time - similar to gold. Some people confuse 'real money' with 'fiat money' - which is paper money, or currency, that does not hold intrinsic value but individuals and institutions are willing to use for purchases and investments because it is issued by the government.
Bitcoin shares the same properties as gold and is considered by many to be real money due to the properties it possesses.
Is Bitcoin Really Being Used?
Recent crypto partnerships with Visa, Mastercard, and PayPal are making it easier than ever to spend not only Bitcoin but a wide variety of other cryptocurrencies too. People can use their crypto debit cards at over 200 million merchants in over 100 countries around the world.
How Is Cryptocurrency Different From Fiat Currency?
Cryptocurrency is largely borderless and censorship-resistant and can be used by anyone in the world with an internet connection. Fiat currency is issued by a government to be used within a particular geographical location and can be printed in unlimited amounts, whereas cryptocurrencies like Bitcoin are decentralized and have a capped supply.
How Old Is Bitcoin?
The whitepaper for Bitcoin was first released in 2008, with the protocol going live in 2009. In May 2010, Laszlo Hanyecz was the first person to complete a Bitcoin transaction, buying 2 pizzas for 10,000 BTC (worth approximately $120,000,000 today).
How Does Bitcoin Work?
Bitcoin is powered by blockchain technology, a revolutionary, decentralized, electronic database or distributed ledger that stores all transaction details within the Bitcoin Network. This network consists of over a million computers called nodes.
Each node mathematically verifies each transaction, which is then stored in a block. When a block becomes full of transactions it gets appended to the blockchain, an infinitely-long history of all previous transactions.
How Are Bitcoins Created?
Bitcoins are created through a process called mining. Supercomputers in the network called mining nodes are competing to solve an incredibly complex mathematical equation. The equation is so difficult to achieve, the 'logical' way of solving it is through guessing hundreds of different numbers (or nonces) a second. Unable to solve the equation in any other way, it takes approximately 10 minutes for the network of over 1 million computers to guess the correct answer. The miner who guesses the correct answer is rewarded in Bitcoin.
How Does Bitcoin Make Money?
Bitcoin brought back the free market, where the value of assets is determined by supply and demand and market sentiment, free of any artificial or manipulative stimulation which can result in hyper-inflated assets.
The value of Bitcoin itself fluctuates daily and is quite volatile as it is still in the early stages of adoption. While there is Bitcoin to be mined and people on this Earth, the value of Bitcoin is intended to increase to a stable peak - though what that price will be is unknown to anyone.
Bitcoin was designed to eventually be a stable and reliable, decentralized global currency, an alternative to government-controlled and manipulated fiat money.
How Is Bitcoin Broken Down?
Just as the pound can be broken down into 100 pennies, there are 100 million satoshis to 1 Bitcoin (BTC).
How Do You Buy Bitcoin?
It is becoming easier than ever to purchase Bitcoin, with centralized exchanges such as Coinbase and Binance offering simple fiat onramps for new crypto users.
There are now thousands of Bitcoin ATMs around the world that can be found in local convenience shops and supermarkets. This allows anyone to buy Bitcoin using their debit/credit card or cash, receiving a QR code as their paper wallet address.
Can Bitcoin Be Hacked?
Theoretically speaking the Bitcoin blockchain could potentially be taken over through what is known as a 51% attack. This is when a hacker can take control of more than half of the computer hash power of the network, and manipulate data in the blockchain, and allow double spending of coins.
It is extremely unlikely the Bitcoin blockchain could ever be hacked
The Bitcoin computer network is so large and so strong, that it would take a supercomputer longer than a lifetime to do so. This would also be extremely expensive. It would be far more cost-efficient to follow Bitcoin's protocols as a miner.
Can I Make Money With Bitcoin?
It's no secret that Bitcoin has made a few of the early-adopters in the industry incredibly wealthy people. The price of Bitcoin has increased more than 10 million percent in just over 10 years, with some analysts predicting that Bitcoin could one day reach 6 or 7 figures!
Nobody knows for certain, and there is always a chance it could go to 0. Bitcoin's price can be very volatile, but for the skilled market traders out there who know how to time the market, it can be very profitable. However for most, just hodling tight is likely to be more profitable long-term. Hodling Bitcoin has been profitable for 4177 days out of a total of 4236 days at the time of writing.
If you don't know what you're doing with trading and you use leverage without caution, it is a one-way ticket to Rekt City, and you can be liquidated within seconds.
Can BTC Be Converted To Cash?
Some off-ramp exchanges offer the conversion of Bitcoin back to your local fiat currency.
Recently with the new crypto debit cards, users can withdraw cash from ATMs from their Bitcoin or crypto funds.
Why Do People Trust Bitcoin?
Some people trust Bitcoin for it's decentralized, open-source transparency of financial transactions. Some find the immutability of transactional information appealing.
Others favor the strength of the network of nodes mathematically verifying transactions, completely removing the element of trust or human error in transactions.
Why Should I Use Cryptocurrency?
For some people in some countries, using Bitcoin and crypto has become more of a necessity than a desire, as a way of protecting themselves from the hyperinflation of their local currencies. Bitcoin is a deflationary asset, meaning it can purchase more as the value increases.
If you're on board with cryptocurrencies and can see the potential they have to make the world a better place, the only way we can grow this space is to use, buy and spend crypto, to keep the crypto economy circulating and expanding.
What Are The Advantages Of Bitcoin?
There are a LOT of advantages to Bitcoin, however, a popular few would be:
The blockchain technology that created Bitcoin - it's decentralized, open-source, and transparent.
There is a capped amount of 21 million coins that can ever be mined, meaning Bitcoin can not be copied, double-spent or hyper-inflated.
With Bitcoin, you own your digital assets, in your wallet and it is solely your responsibility. Your money is the numbers on the blockchain, not an IOU shown as a balance from the bank.
What Happens When Bitcoins Are Lost?
If you lose your seed phrase or your private keys, unfortunately, there is no back-up or secret back door to retrieve your funds. It is crucial to write down and keep safe all your passwords and seed phrases for your exchange wallets and hard wallets. Some estimates predict there has been over 5 million Bitcoin lost since it's creation, with no way of getting them back.
Examples of Bitcoin addresses and private keys
What If Someone Buys All The Existing Bitcoins?
The price of Bitcoin is determined by the supply and the demand of the market. Therefore it stands to reason that should someone want to buy all the Bitcoins available, the price per Bitcoin would increase astronomically.
Other arguments suggest that, should someone attempt to manipulate the Bitcoin market by hypothetically purchasing all the Bitcoins, the huge fluctuation in price would cause the currency to collapse and the price to crash. In this case, that person would lose all their money, so there's not much point.
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA
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