Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a constant influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise phat profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most coax one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do fine things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes insanely. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or reject to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets truly puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins completes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation completes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses brainy contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the diversity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electrical play required to generate them. Cost doesn’t equal value – hiring 1,000 guys to shovel a big fuckhole in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, quick, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone entirely out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is strapped to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, stable, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the visible consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a plain and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more sophisticated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more elaborate hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A good deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the arm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately rigidly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually contesting against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we dreamed collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t scare! There are a number of reasons why your bitcoins might not demonstrate up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will demonstrate in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how prompt you want the transaction to be confirmed, and also on current network conditions. As such, paying a motionless fee, or even a motionless fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an suitable fee for you, tho’ some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions challenge with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other forearm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a flawless set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually show up as if they were just received in the wallet. That is to say, when the client program is embarked it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the uncommon property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and entirely distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is fully unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A total explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be utterly hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get firmer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to woo every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively ordinary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin assure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a stable influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise hefty profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the holder’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do excellent things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or reject to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets truly petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation completes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses wise contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electro-stimulation required to generate them. Cost doesn’t equal value – hiring 1,000 guys to shovel a big crevice in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, quick, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone downright out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is roped to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, stable, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the evident consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could abruptly buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a ordinary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is tho’, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more complicated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A good deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the forearm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably tightly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually contesting against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we desired collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t funk! There are a number of reasons why your bitcoins might not display up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will showcase in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too puny of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how swift you want the transaction to be confirmed, and also on current network conditions. As such, paying a stationary fee, or even a immobilized fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an adequate fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enlargening the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions challenge with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other palm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a ideal set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the uncommon property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software liquidated?

The option wasn’t liquidated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or puny – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make geysers of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and totally distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is fully unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be enormously difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get stiffer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to persuade every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively elementary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multitude of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a sustained influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise large profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed response to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do fine things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes insanely. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or deny to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation completes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses wise contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the diversity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electro-therapy required to generate them. Cost doesn’t equal value – hiring 1,000 dudes to shovel a big slot in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, swift, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone totally out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is strapped to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, sustained, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the visible consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could abruptly buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a plain and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more sophisticated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A fine deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the arm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately rigidly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually challenging against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we desired collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t funk! There are a number of reasons why your bitcoins might not display up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will display in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too puny of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The adequate fee varies depending on how large (in bytes) your transaction is, how prompt you want the transaction to be confirmed, and also on current network conditions. As such, paying a stationary fee, or even a motionless fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an suitable fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enlargening the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions rival with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other arm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a ideal set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is embarked it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software liquidated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to idiot.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and totally distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is totally unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be utterly hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get tighter with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to persuade every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively elementary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a diversity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin assure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a constant influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise ample profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most woo one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the proprietor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do fine things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes insanely. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or turn down to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation completes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses wise contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the diversity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of tens unit required to generate them. Cost doesn’t equal value – hiring 1,000 boys to shovel a big fuckhole in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, quick, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch forearms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone entirely out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is corded to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, sustained, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the visible consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a elementary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency resumes to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more sophisticated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A excellent deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the arm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately rigidly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually challenging against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t scare! There are a number of reasons why your bitcoins might not demonstrate up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will showcase in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The adequate fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a immobile fee, or even a immobilized fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an suitable fee for you, tho’ some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many puny coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions challenge with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other palm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a flawless set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is embarked it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software liquidated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and downright distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is fully unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be enormously difficult and require massive amounts of processing power. A total explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get stiffer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to persuade every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively elementary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a sustained influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise meaty profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the holder’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do good things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or reject to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins completes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses brainy contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multiplicity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of violet wand required to generate them. Cost doesn’t equal value – hiring 1,000 studs to shovel a big crevice in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, rapid, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch mitts dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone entirely out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is trussed to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, constant, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the evident consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a elementary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more complicated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more complicated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A excellent deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the palm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately rigidly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually challenging against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t fright! There are a number of reasons why your bitcoins might not display up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will display in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The adequate fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a stationary fee, or even a motionless fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an suitable fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of little coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other forearm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a flawless set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is embarked it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t liquidated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make geysers of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and downright distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is downright unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get tighter with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to persuade every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively ordinary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a diversity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a sustained influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise giant profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the proprietor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do good things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or deny to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets truly puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins completes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses clever contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electric current required to generate them. Cost doesn’t equal value – hiring 1,000 guys to shovel a big slot in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, quick, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone downright out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is corded to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, stable, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the demonstrable consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a plain and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more elaborate hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A good deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the arm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately stiffly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually contesting against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t fright! There are a number of reasons why your bitcoins might not showcase up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will showcase in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a immobilized fee, or even a immobilized fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an adequate fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many puny coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions rival with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other palm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a flawless set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is began it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software liquidated?

The option wasn’t liquidated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or puny – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and downright distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is fully unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A total explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get firmer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to coax every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively ordinary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin assure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a sustained influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise gigantic profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the proprietor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do superb things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes insanely. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or deny to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation completes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses brainy contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the diversity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of tens unit required to generate them. Cost doesn’t equal value – hiring 1,000 studs to shovel a big fuckhole in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, quick, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch forearms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone totally out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is roped to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, constant, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the evident consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a ordinary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency resumes to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more sophisticated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more sophisticated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A good deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the forearm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably tightly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually contesting against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t funk! There are a number of reasons why your bitcoins might not demonstrate up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will demonstrate in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how prompt you want the transaction to be confirmed, and also on current network conditions. As such, paying a immobile fee, or even a motionless fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an suitable fee for you, tho’ some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many puny coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other arm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, tho’ this requires a ideal set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the uncommon property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make geysers of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and entirely distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is fully unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be enormously difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be utterly hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get stiffer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to persuade every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively plain, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a stable influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise fat profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do superb things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or reject to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses wise contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of tens unit required to generate them. Cost doesn’t equal value – hiring 1,000 fellows to shovel a big crevice in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, rapid, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch arms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone entirely out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is tied to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, constant, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the visible consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could abruptly buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a plain and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is tho’, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more sophisticated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A fine deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the mitt of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately stiffly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually contesting against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t scare! There are a number of reasons why your bitcoins might not demonstrate up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will showcase in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too puny of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The adequate fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a stationary fee, or even a motionless fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an suitable fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enlargening the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many puny coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions rival with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other arm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, tho’ this requires a ideal set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually show up as if they were just received in the wallet. That is to say, when the client program is began it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to idiot.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and downright distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is fully unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get tighter with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to coax every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively ordinary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a sustained influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise meaty profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do excellent things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or reject to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses wise contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the diversity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electro-stimulation required to generate them. Cost doesn’t equal value – hiring 1,000 studs to shovel a big slot in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, prompt, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone fully out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is trussed to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, constant, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the demonstrable consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could abruptly buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a elementary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more complicated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is tho’, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more complicated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A good deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the forearm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably tightly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually contesting against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we dreamed collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t scare! There are a number of reasons why your bitcoins might not showcase up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will demonstrate in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how swift you want the transaction to be confirmed, and also on current network conditions. As such, paying a stationary fee, or even a motionless fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an suitable fee for you, tho’ some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions challenge with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other mitt, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, tho’ this requires a flawless set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually show up as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t liquidated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or puny – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and entirely distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is downright unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A total explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be utterly hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get stiffer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to coax every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively plain, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin assure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a sustained influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise fat profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most coax one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed response to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do superb things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or deny to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets truly puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses clever contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multiplicity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electro-stimulation required to generate them. Cost doesn’t equal value – hiring 1,000 dudes to shovel a big fuckhole in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, quick, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone totally out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is corded to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, constant, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the visible consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could abruptly buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a elementary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency resumes to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more elaborate hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A fine deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the forearm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately rigidly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually challenging against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t funk! There are a number of reasons why your bitcoins might not demonstrate up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will demonstrate in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too puny of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how swift you want the transaction to be confirmed, and also on current network conditions. As such, paying a immovable fee, or even a immobilized fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an adequate fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of little coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other arm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a ideal set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is began it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to idiot.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and fully distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is downright unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get tighter with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to persuade every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively plain, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a diversity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a stable influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise thick profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the proprietor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do excellent things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or reject to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses brainy contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electro-therapy required to generate them. Cost doesn’t equal value – hiring 1,000 dudes to shovel a big crevice in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, prompt, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch arms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone totally out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is strapped to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, stable, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the demonstrable consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a ordinary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more complicated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more sophisticated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A superb deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the forearm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately rigidly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually contesting against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we desired collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t scare! There are a number of reasons why your bitcoins might not showcase up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will display in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too puny of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a immobilized fee, or even a immobile fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an suitable fee for you, tho’ some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many puny coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other palm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, tho’ this requires a ideal set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is began it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the uncommon property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make explosions of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and downright distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is fully unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be enormously difficult and require massive amounts of processing power. A total explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get firmer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to coax every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively ordinary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multitude of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin assure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a constant influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise giant profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed response to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do superb things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or deny to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets truly petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses brainy contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electro-therapy required to generate them. Cost doesn’t equal value – hiring 1,000 studs to shovel a big crevice in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, prompt, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch forearms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone fully out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is strapped to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, constant, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the evident consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could abruptly buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a elementary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more complicated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A excellent deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the forearm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably rigidly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually challenging against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t scare! There are a number of reasons why your bitcoins might not display up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will showcase in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too puny of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The adequate fee varies depending on how large (in bytes) your transaction is, how prompt you want the transaction to be confirmed, and also on current network conditions. As such, paying a immovable fee, or even a immobile fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an adequate fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enlargening the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other forearm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, tho’ this requires a ideal set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the uncommon property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software liquidated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or puny – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make explosions of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and downright distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is downright unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be utterly hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get firmer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to coax every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively elementary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a stable influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise ample profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most woo one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed response to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do good things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes insanely. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or turn down to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins completes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses brainy contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of violet wand required to generate them. Cost doesn’t equal value – hiring 1,000 fellows to shovel a big slot in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, swift, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch forearms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone downright out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is corded to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, sustained, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the visible consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a plain and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more sophisticated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is tho’, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more complicated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A good deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the mitt of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately stiffly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually rivaling against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t funk! There are a number of reasons why your bitcoins might not display up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will demonstrate in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too puny of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The adequate fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a stationary fee, or even a motionless fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an suitable fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of little coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many puny coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other mitt, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a ideal set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually show up as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t liquidated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or puny – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make geysers of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and fully distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is entirely unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get firmer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to coax every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively ordinary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a stable influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise fat profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most woo one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do good things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes insanely. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or deny to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses clever contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of violet wand required to generate them. Cost doesn’t equal value – hiring 1,000 studs to shovel a big slot in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, prompt, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch mitts dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone fully out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is tied to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, stable, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the demonstrable consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a plain and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more complicated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is tho’, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more elaborate hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A excellent deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the mitt of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably rigidly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually rivaling against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we desired collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t fright! There are a number of reasons why your bitcoins might not display up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will display in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how prompt you want the transaction to be confirmed, and also on current network conditions. As such, paying a immovable fee, or even a immovable fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an adequate fee for you, tho’ some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of little coins, so your transaction will need to take very many coins as inputs, enlargening the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions challenge with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other palm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, tho’ this requires a flawless set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually show up as if they were just received in the wallet. That is to say, when the client program is began it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the uncommon property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to idiot.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make geysers of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and entirely distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is entirely unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be utterly hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get firmer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to woo every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively ordinary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be primarily unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a constant influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise phat profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most coax one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the possessor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed response to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do superb things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or turn down to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets truly puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins completes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation completes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses wise contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multiplicity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of tens unit required to generate them. Cost doesn’t equal value – hiring 1,000 guys to shovel a big crevice in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, prompt, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone downright out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is trussed to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, stable, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the demonstrable consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a plain and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency resumes to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more sophisticated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is tho’, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more sophisticated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A fine deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the arm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately tightly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually challenging against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we dreamed collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t scare! There are a number of reasons why your bitcoins might not demonstrate up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will display in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how rapid you want the transaction to be confirmed, and also on current network conditions. As such, paying a stationary fee, or even a immovable fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an adequate fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many puny coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other arm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, tho’ this requires a flawless set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is began it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make explosions of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and entirely distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is downright unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get tighter with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to coax every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively plain, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multitude of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a sustained influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise gigantic profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the holder’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed response to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do excellent things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes insanely. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or turn down to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins completes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses wise contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the diversity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of tens unit required to generate them. Cost doesn’t equal value – hiring 1,000 boys to shovel a big slot in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, prompt, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will most likely switch forearms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being demolished by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone downright out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already puny number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will very likely continually rise.

Thus Bitcoin is tied to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a infrequent phenomenon, sustained, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the demonstrable consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a ordinary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more sophisticated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A good deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the mitt of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably tightly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually challenging against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we dreamed collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t funk! There are a number of reasons why your bitcoins might not demonstrate up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will showcase in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a immovable fee, or even a immovable fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an adequate fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of little coins, so your transaction will need to take very many coins as inputs, enlargening the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions challenge with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other palm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a flawless set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the uncommon property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software liquidated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have finish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to loser.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and entirely distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is totally unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A total explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get firmer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to coax every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively elementary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multitude of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a stable influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise massive profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most coax one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the holder’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed response to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do good things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or reject to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation completes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses wise contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the diversity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electric current required to generate them. Cost doesn’t equal value – hiring 1,000 dudes to shovel a big fuckhole in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not ensure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone abruptly stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a ensure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, quick, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch mitts dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a petite amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone totally out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is tied to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, constant, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the evident consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could abruptly buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a ordinary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of lumps as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even tho’ technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency resumes to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more sophisticated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is tho’, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more elaborate hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A good deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the arm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably stiffly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually rivaling against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instant payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t scare! There are a number of reasons why your bitcoins might not demonstrate up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will showcase in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The adequate fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a stationary fee, or even a stationary fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an suitable fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other palm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a flawless set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is embarked it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, tho’ these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the uncommon property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software liquidated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or puny – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to idiot.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make explosions of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and downright distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is downright unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be enormously difficult and require massive amounts of processing power. A total explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get tighter with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to woo every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively ordinary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a diversity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin assure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a constant influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve most likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise hefty profits for a petite amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most persuade one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the holder’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do superb things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or deny to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch sides the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, however it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets truly petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins finishes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses clever contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of tens unit required to generate them. Cost doesn’t equal value – hiring 1,000 fellows to shovel a big fuckhole in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enlargened, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, prompt, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone fully out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is corded to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, sustained, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the visible consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could abruptly buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a elementary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency resumes to be issued daily and will proceed to do so for decades; however over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more sophisticated hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is tho’, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more sophisticated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A superb deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no ensures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the mitt of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself adequately stiffly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually contesting against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we dreamed collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t fright! There are a number of reasons why your bitcoins might not showcase up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will demonstrate in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enlargening number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how quick you want the transaction to be confirmed, and also on current network conditions. As such, paying a immobilized fee, or even a motionless fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an adequate fee for you, tho’ some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of little coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions challenge with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other forearm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a ideal set of conditions, beyond what is explained here (ie. it very likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually emerge as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software eliminated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to idiot.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first reaction is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make fountains of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is utterly difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and downright distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is entirely unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A utter explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be enormously hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get stiffer with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to persuade every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively plain, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin assure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which ensures a stable influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise thick profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most coax one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the proprietor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A puny minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do excellent things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes insanely. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or deny to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets truly puny?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins completes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will most likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses brainy contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multitude of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of electro-stimulation required to generate them. Cost doesn’t equal value – hiring 1,000 fellows to shovel a big slot in the ground may be costly, but not valuable. Also, even however scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, rapid, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch palms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are petite compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, ruining Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone downright out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is corded to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, constant, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the evident consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a ordinary and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as puny of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to stir the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more elaborate hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A superb deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the forearm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably tightly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who wields what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually rivaling against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we dreamed collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch roles an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantly, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t funk! There are a number of reasons why your bitcoins might not showcase up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will demonstrate in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this activity is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how prompt you want the transaction to be confirmed, and also on current network conditions. As such, paying a immovable fee, or even a stationary fee per kB, is a very bad idea; all good Bitcoin wallets will use several chunks of data to estimate an adequate fee for you, however some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is total of a entire bunch of lil’ coins, so your transaction will need to take very many coins as inputs, enlargening the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many puny coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand lil’ faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other arm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a ideal set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually show up as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “total” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of utter Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enlargening “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And as long as fair miners have more computing power, they can always outpace an attacker.

Why was the “Generate coin” option of the client software liquidated?

The option wasn’t eliminated, but it is now only accessible via the command-line or the configuration file. The reason for this is that many users were complaining after they turned on and expecting to receive coins. Without specialized mining hardware a user is exceptionally unlikely generate a block on their own at the network’s current security level.

Security

Could miners collude to give themselves money or to fundamentally switch the nature of Bitcoin?

There are two questions in here. Let’s look at them separately.

Could miners gang up and give themselves money?

Mining itself is the process of creating fresh blocks in the block chain. Each block contains a list of all the transactions that have taken place across the entire Bitcoin network since the last block was created, as well as a hash of the previous block. Fresh blocks are ‘mined’, or rather, generated, by Bitcoin clients correctly guessing sequences of characters in codes called ‘hashes,’ which are created using information from previous blocks. Bitcoin users may download specialized ‘mining’ software, which permits them to dedicate some amount of their processing power – however large or petite – to guessing at strings within the hash of the previous block. Whoever makes the right guess very first, thus creating a fresh block, receives a prize in Bitcoins.

The block chain is one of the two structures that makes Bitcoin secure, the other being the public-key encryption system on which Bitcoin trade is based. The block chain assures that not only is every single transaction that ever takes place recorded, but that every single transaction is recorded on the computer of anyone who chooses to store the relevant information. Many, many users have accomplish records of every transaction in Bitcoins history readily available to them at any point, and anyone who wants in the information can obtain it with ease. These things make Bitcoin very hard to idiot.

The Bitcoin network takes considerable processing power to run, and since those with the most processing power can make the most guesses, those who put the most power toward to sustaining the network earn the most currency. Each correct guess yields, at present, twenty-five Bitcoins, and as Bitcoins are presently worth something (albeit the value still fluctuates) every miner who earns any number of Bitcoins makes money. Some miners pull in Bitcoins on their own; and some also join or form pools wherein all who contribute earn a share of the profits.

Therefore, very first response is a vehement “yes” – not only can miners collude to get more money, Bitcoin is designed to encourage them to do so. Bitcoin pools are communal affairs, and there is nothing dishonest or underhanded about them.

Of course, the real question is:

Can they do so in ways not sanctioned by Bitcoin network? Is there any way to rip off the network and make explosions of money dishonestly?

Bitcoin isn’t infallible. It can be cheated, but doing so is enormously difficult. Bitcoin was designed to evade some of the central problems with modern currencies – namely, that their trustworthiness hinges upon that of people who might not have users’ best interests in mind. Every currency in the world (other than Bitcoin) is managed by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.

Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable style, and by many different users, so no one can determine to make a entire lot more and lessen their value. In brief, Bitcoin is designed to be inflation-proof, double-spend-proof and entirely distributed.

Nonetheless, there are a few ways that one can acquire Bitcoins dishonestly. Firstly, one can steal private keys. Key theft isn’t something that Bitcoin security has been designed to prevent: it’s up to users to keep their keys safe. But the cryptography is designed so that it is totally unlikely to deduce someone’s private key from their public one. As long as you keep your private key to yourself, you don’t have much to worry about. Furthermore, one could theoretically create a fresh block chain, but due to the way in which the block chain is constructed, this would be utterly difficult and require massive amounts of processing power. A total explanation of the difficulties involved can be found in the block chain article.

Bitcoin can be ripped off – but doing so would be utterly hard and require considerable expertise and a staggering amount of processing power. And it’s only going to get tighter with time. Bitcoin isn’t impenetrable, but it’s close enough to put any real worries in the peripherals.

Could miners fundamentally switch the nature of Bitcoin?

Once again, almost certainly not.

Bitcoin is a distributed network, so any switches implemented to the system must be accepted by all users. Someone attempting to switch the way Bitcoins are generated would have to persuade every user to download and use their software – so the only switches that would go through are those that would be identically benefit all users.

And thus, it is more or less unlikely for anyone to switch the function of Bitcoin to their advantage. If users don’t like the switches, they won’t adopt them, whereas if users do like them, then these will help everyone identically. Of course, one can conceive of a situation where someone manages to get a switch shoved through that provides them with an advantage that no one notices, but given that Bitcoin is structurally relatively elementary, it is unlikely that any major switches will go through without someone noticing very first.

The fact that such switches are so difficult to make testifies to the fully distributed nature of Bitcoin. Any centrally managed currency can be modified by its central agency without the consent of its adherents. Bitcoin has no central authority, so it switches only at the behest of the entire community. Bitcoins development represents a kind of collective evolution; the very first of its kind among currencies.

Help: FAQ – Bitcoin Wiki

Help:FAQ

Here you will find answers to the most commonly asked questions.

Contents

General

What is Bitcoin?

Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely inbetween any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number cautiously embedded inwards. See also an effortless intro to Bitcoin.

How can I get bitcoins?

There are a multiplicity of ways to acquire bitcoins:

  • Accept bitcoins as payment for goods or services.
  • You can buy bitcoins from BititCoinbase, PayBis, Cubits, CoinCorner, BIPS Market, Circle, or Celery.
  • The most common way to buy bitcoins are the Bitcoin Exchanges
  • There are several services where you can trade them for traditional currency.
  • You can also buy bitcoins using Bitcoin ATMs that are locally in your area.
  • Find someone to trade cash for bitcoins in-person through a local directory.
  • Participate in a mining pool.
  • If you have a lot of mining hardware, you can solo mine and attempt to create a fresh block (presently yields 12.Five bitcoins plus transaction fees).
  • Visit sites that provide free samples and offers.

Does Bitcoin ensure an influx of free money?

Since Bitcoin is a fresh technology, what it is and how it works may be originally unclear. Bitcoin is sometimes introduced as being one of three things:

  1. Some sort of online ‘get-rich-quick’ scam.
  2. A loophole in the market economy, the installation of which assures a constant influx of cash.
  3. A sure investment that will almost certainly yield a profit.

In fact, none of the above are true. Let’s look at them independently.

Is Bitcoin a ‘get-rich-quick’ scheme? If you’ve spent much time on the Internet, you’ve very likely seen ads for many ‘get-rich-quick’ schemes. These ads usually promise massive profits for a puny amounts of effortless work. Such schemes are usually pyramid/matrix-style schemes that make money from their own employees and suggest nothing of any real value. Most coax one to buy packages that will make them earn hundreds a day, which in fact have the buyer distribute more such ads, and make minute profits. Bitcoin is in no way similar to these schemes. Bitcoin doesn’t promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. That bitcoins are almost unlikely to acquire without the proprietor’s consent represents one of its greatest strengths. Bitcoin is an experimental, virtual currency that may succeed or may fail. None of its developers expect to get rich off of it. A more detailed reaction to this question can be found here. Will I make money by installing the client? Most people who use Bitcoin don’t earn anything by doing so, and the default client has no built-in way to earn Bitcoins. A petite minority of people with dedicated, high-performance hardware do earn some Bitcoins by “mining” (generating fresh bitcoins, see What is mining?) with special software, but joining Bitcoin shouldn’t be construed as being the road to riches. Most Bitcoin users get involved because they find the project conceptually interesting and don’t earn anything by doing so. This is also why you won’t find much speculation about the political or economic repercussions of Bitcoin anywhere on this site: Bitcoin developers owe their dedication to the project’s intellectual yieldings more than to those of a monetary nature. Bitcoin is still taking its very first baby steps; it may go on to do superb things but right now it only has something to suggest those pursuing conceptually interesting projects or bleeding edge technology. As an investment, is Bitcoin a sure thing? Bitcoin is a fresh and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes frantically. It lacks broad acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done cautiously and with a clear plan to manage the risk.

Can I buy bitcoins with Paypal?

It is possible to buy physical bitcoins with PayPal but it is otherwise difficult and/or expensive to do so for non-physical bitcoins, because of significant risk to the seller.

While it is possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most exchanges do not permit funding through PayPal. This is due to repeated cases where someone pays for bitcoins with Paypal, receives their bitcoins, and then fraudulently complains to Paypal that they never received their purchase. PayPal often sides with the fraudulent buyer in this case, which means any seller needs to cover that risk with higher fees or turn down to accept PayPal altogether.

Buying Bitcoins from individuals this way is still possible, but requires the seller to have some trust that the buyer will not file a claim with PayPal to switch roles the payment.

Also bitbuy.in and PayBis, permits you to buy Bitcoins with PayPal.

Where can I find a forum to discuss Bitcoin?

Please visit the Community Portal for links to Bitcoin-related forums.

How are fresh bitcoins created?

Fresh bitcoins are generated by the network through the process of “mining“. In a process that is similar to a continuous raffle draw, mining knots on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a fresh block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The prize for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior four years are created. A maximum of Ten,499,889.80231183 bitcoins were created in the very first four (approx.) years from January two thousand nine to November 2012. Every four years thereafter this amount halves, so it should be Five,250,000 over years 4-8, Two,625,000 over years 8-12, and so on. Thus the total number of bitcoins in existence can never exceed 20,999,839.77085749 and counting. See Managed Currency Supply.

Blocks are mined every ten minutes, on average and for the very first four years (210,000 blocks) each block included fifty fresh bitcoins. As the amount of processing power directed at mining switches, the difficulty of creating fresh bitcoins switches. This difficulty factor is calculated every two thousand sixteen blocks and is based upon the time taken to generate the previous two thousand sixteen blocks. See Mining.

What’s the current total number of bitcoins in existence?

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is fifty BTC for each of the very first 210,000 blocks, twenty five BTC for the next 210,000 blocks, then 12.Five BTC, 6.25 BTC and so on.

How divisible are bitcoins?

A bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be treated in a transaction. If necessary, the protocol and related software can be modified to treat even smaller amounts.

What do I call the various denominations of bitcoin?

Unlike most currencies, Bitcoin amounts are very divisible. This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving entire bitcoins are no longer fairly so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: one bitcoin = one 000 000.00 bits = one hundred 000 zero satoshi.

The bitcoin (abbreviated BTC or XBT) is the unit that was used in the original Bitcoin wallet software created by Satoshi Nakamoto. There is nothing particularly special about this unit, but it is by far the most common unit due to tradition.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.000 zero 01) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, tho’ it presently has very little value. The unit was named in honor of Bitcoin’s creator after he left — he was not so vain as to name a unit after himself. The plural of satoshi is satoshi: “Send me one hundred satoshi”.

Another common unit is the bit, one millionth (0.000 001) of a bitcoin. This unit is the same as a microbitcoin (μBTC). Bits are seen by some as especially logical because they have two-decimal precision like most fiat currencies. You can send 1.23 bits, but not 1.234 bits due to the network’s limited precision.

It is also fairly common to use SI prefixes:

  • 0.01 BTC = one cBTC = one centibitcoin (also referred to as bitcent)
  • 0.001 BTC = one mBTC = one millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 one BTC = one μBTC = one microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

For an overview of all proposed units of Bitcoin (including less common and niche units), see Units.

Further discussion on this topic can be found on the forums here:

How does the halving work when the number gets indeed petite?

Eventually the prize will go from 0.00000001 BTC to zero and no more bitcoins will be created.

The block prize calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by two and rounded down. The integer is equal to the value in BTC * 100,000,000 since internally in the reference client software, all Bitcoin balances and values are stored as unsigned integers.

With an initial block prize of fifty BTC, it will take many 4-year periods for the block prize to reach zero.

How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140. The total number of coins in circulation will then remain static at 20,999,999.9769 BTC.

Even if the permitted precision is expanded from the current eight decimals, the total BTC in circulation will always be slightly below twenty one million (assuming everything else stays the same). For example, with sixteen decimals of precision, the end total would be 20,999,999.999999999496 BTC.

If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins completes, the use of transaction fees will likely make creating fresh blocks more valuable from the fees than the fresh coins being created. When coin generation finishes, these fees will sustain the capability to use bitcoins and the Bitcoin network. There is no practical limit on the number of blocks that will be mined in the future.

But if no more coins are generated, what happens when Bitcoins are lost? Won’t that be a problem?

Because of the law of supply and request, when fewer bitcoins are available the ones that are left will be in higher request, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will very likely be denominated in sub-units of a bitcoin such as millibitcoins (“Millies”) or microbitcoins (“Mikes”).

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin (“a Satoshi”), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

If every transaction is broadcast via the network, does Bitcoin scale?

The blockchain base layer is not very scalable but layer-2 technologies can be used to greatly increase bitcoin’s scale. Lightning Network is one example which uses brainy contracts to build a network where payments are routed along a path instead of flooded to every peer. These payments can be almost as secure and irreversible as blockchain transactions but have much better scalability (as well support instant payments which are much more private). Other possible layer-2 scalability technologies are sidechains or a bitcoin ecash chaumian bank.

Economy

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there’s a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the multiplicity of merchants that accept them.

It’s a common misconception that Bitcoins build up their value from the cost of violet wand required to generate them. Cost doesn’t equal value – hiring 1,000 fellows to shovel a big crevice in the ground may be costly, but not valuable. Also, even tho’ scarcity is a critical requirement for a useful currency, it alone doesn’t make anything valuable. For example, your fingerprints are scarce, but that doesn’t mean they have any exchange value.

Alternatively it needs to be added that while the law of supply and request applies it does not assure value of Bitcoins in the future. If confidence in Bitcoins is lost then it will not matter that the supply can no longer be enhanced, the request will fall off with all holders attempting to get rid of their coins. An example of this can be seen in cases of state currencies, in cases when the state in question dissolves and so no fresh supply of the currency is available (the central authority managing the supply is gone), however the request for the currency falls sharply because confidence in its purchasing power vanishes. Of-course Bitcoins do not have such central authority managing the supply of the coins, but it does not prevent confidence from eroding due to other situations that are not necessarily predictable.

Is Bitcoin a bubble?

Yes, in the same way as the euro and dollar are. They only have value in exchange and have no inherent value. If everyone all of a sudden stopped accepting your dollars, euros or bitcoins, the “bubble” would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed twenty years ago, Somali shillings are still accepted as payment.

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a assure. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a entire, benefit from the usefulness of a stable, rapid, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Doesn’t Bitcoin unfairly benefit early adopters?

Early adopters in Bitcoin are taking a risk and invested resources in an unproven technology. By so doing, they help Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will very likely switch forearms dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin. Many of the earliest users of Bitcoin have traded their coins at valuations below $1 US, or other amounts which are puny compared to contemporary prices.

Won’t loss of wallets and the finite amount of Bitcoins create excessive deflation, demolishing Bitcoin?

Worries about Bitcoin being ruined by deflation are not entirely unfounded. Unlike most currencies, which practice inflation as their founding institutions create more and more units, Bitcoin will likely practice gradual deflation with the passage of time. Bitcoin is unique in that only a puny amount of units will ever be produced (twenty-one million to be exact), this number has been known since the project’s inception, and the units are created at a predictable rate.

Also, Bitcoin users are faced with a danger that doesn’t menace users of any other currency: if a Bitcoin user loses his wallet, his money is gone forever, unless he finds it again. And not just to him; it’s gone totally out of circulation, rendered utterly inaccessible to anyone. As people will lose their wallets, the total number of Bitcoins will leisurely decrease.

Therefore, Bitcoin seems to be faced with a unique problem. Whereas most currencies inflate over time, Bitcoin will mostly likely do just the opposite. Time will see the irretrievable loss of an ever-increasing number of Bitcoins. An already petite number will be permanently whittled down further and further. And as there become fewer and fewer Bitcoins, the laws of supply and request suggest that their value will most likely continually rise.

Thus Bitcoin is trussed to once again stray into mysterious territory, because no one exactly knows what happens to a currency that grows continually more valuable. Many economists claim that a low level of inflation is a good thing for a currency, but nobody is fairly sure about what might happens to one that continually deflates. Albeit deflation could hardly be called a uncommon phenomenon, stable, constant deflation is unheard of. There may be a lot of speculation, but no one has any hard data to back up their claims.

That being said, there is a mechanism in place to combat the demonstrable consequences. Extreme deflation would render most currencies very impractical: if a single Canadian dollar could all of a sudden buy the holder a car, how would one go about buying bread or candy? Even pennies would fetch more than a person could carry. Bitcoin, however, offers a plain and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as petite of chunks as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.

In fact, infinite divisibility should permit Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should proceed to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect.

For more information, see the Deflationary spiral page.

What if someone bought up all the existing Bitcoins?

Bitcoin markets are competitive — meaning the price of a bitcoin will rise or fall depending on supply and request at certain price levels. Only a fraction of bitcoins issued to date are found on the exchange markets for sale. So even however technically, a buyer with lots of money could buy all the bitcoins suggested for sale, unless those holding the rest of the bitcoins suggest them for sale as well, even the wealthiest, most determined buyer can’t get at them.

Additionally, fresh currency proceeds to be issued daily and will proceed to do so for decades; tho’ over time the rate at which they are issued declines to insignificant levels. Those who are mining aren’t obligated to sell their bitcoins so not all bitcoins will make it to the markets even.

This situation doesn’t suggest, however, that the markets aren’t vulnerable to price manipulation. It doesn’t take significant amounts of money to budge the market price up or down, and thus Bitcoin remains a volatile asset.

What if someone creates a fresh block chain, or a fresh digital currency that renders Bitcoin obsolete?

That the block chain cannot be lightly forked represents one of the central security mechanisms of Bitcoin. Given the choice inbetween two block chains, a Bitcoin miner always chooses the longer one – that is to say, the one with the more elaborate hash. Thusly, it ensures that each user can only spend their bitcoins once, and that no user gets ripped off.

As a consequence of the block chain structure, there may at any time be many different sub-branches, and the possibility always exists of a transaction being over-written by the longest branch, if it has been recorded in a shorter one. The older a transaction is however, the lower its chances of being over-written, and the higher of becoming permanent. Albeit the block chain prevents one from spending more Bitcoins than one has, it means that transactions can be accidentally nullified.

A fresh block chain would leave the network vulnerable to double-spend attacks. However, the creation of a viable fresh chain presents considerable difficulty, and the possibility does not present much of a risk.

Bitcoin will always choose the longer Block Chain and determines the relative length of two branches by the complexities of their hashes. Since the hash of each fresh block is made from that of the block preceding it, to create a block with a more complicated hash, one must be ready to do more computation than has been done by the entire Bitcoin network from the fork point up to the newest of the blocks one is attempting to supersede. Unnecessary to say, such an undertaking would require a very large amount of processing power and since Bitcoin is continually growing and expanding, it will likely only require more with the passage of time.

A much more distinct and real threat to the Bitcoin use is the development of other, superior virtual currencies, which could supplant Bitcoin and render it obsolete and valueless.

A fine deal of careful thought and ingenuity has gone into the development of Bitcoin, but it is the very first of its breed, a prototype, and vulnerable to more highly-evolved competitors. At present, any menacing rivals have yet to rear their goes; Bitcoin remains the very first and foremost private virtual currency, but we can suggest no assures that it will retain that position. It would certainly be in keeping with internet history for a similar system built from the same principles to supersede and cast Bitcoin into obsolescence, after time had exposed its major shortcomings. Friendster and Myspace suffered similar fates at the forearm of Facebook, Napster was ousted by Limeware, Bearshare and torrent applications, and Skype has all but crushed the last few disciples of the Microsoft Messenger army.

This may sound rather foreboding, so bear in mind that the introduction of fresh and possibly better virtual currencies will not necessarily herald Bitcoin’s demise. If Bitcoin establishes itself reasonably tightly before the inception of the next generation of private, online currencies so as to build up widespread acceptance and general stability, future currencies may pose little threat even if they can claim superior design. This is known as the network effect.

Is Bitcoin open to value manipulation?

The current low market cap of Bitcoin means that any investor with deep enough pockets can significantly switch/manipulate the rate. Is this a problem?

This is only a problem if you are investing in Bitcoin for brief period of time. A manipulator can’t switch the fundamentals, and over a period of 5-10 years, the fundamentals will win over any brief term manipulations.

Sending and Receiving Payments

Why do I have to wait ten minutes before I can spend money I received?

Ten minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; ten minutes is simply the average case.

Blocks (shown as “confirmations” in the GUI) are how the Bitcoin achieves consensus on who possesses what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it’s possible that some network knots believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only six blocks or one hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Ten minutes was specifically chosen by Satoshi as a tradeoff inbetween very first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually challenging against the fresh block instead of adding to it. If someone mines another fresh block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. For example, if it takes miners one minute on average to learn about fresh blocks, and fresh blocks come every ten minutes, then the overall network is wasting about 10% of its work. Lengthening the time inbetween blocks reduces this waste.

As a thought experiment, what if the Bitcoin network grew to include Mars? From the farthest points in their orbits, it takes about twenty minutes for a signal to travel from Earth to Mars. With only ten minutes inbetween fresh blocks, miners on Mars would always be two blocks behind the miners on Earth. It would be almost unlikely for them to contribute to the block chain. If we wished collaborate with those kinds of delays, we would need at least a few hours inbetween fresh blocks.

Do you have to wait until my transactions are confirmed in order to buy or sell things with Bitcoin?

YES, you do, IF the transaction is non-recourse. The Bitcoin reference software does not display transactions as confirmed until six blocks have passed (confirmations). As transactions are buried in the chain they become increasingly non-reversible but are very reversible before the very first confirmation. Two to six confirmations are recommended for non-recourse situations depending on the value of the transactions involved.

When people ask this question they are usually thinking about applications like supermarkets. This generally is a recourse situation: if somebody attempts to double-spend on a face-to-face transaction it might work a few times, but probabalistically speaking eventually one of the double-spends will get noticed, and the penalty for shoplifting charges in most localities is calibrated to be several times worse than the proceeds of a single shoplifting event.

Double-spends might be a concern for something like a snack machine in a low-traffic area with no nearby security cameras. Such a machine shouldn’t honor zero-confirmation payments, and should instead use some other mechanism of clearing Bitcoin or validating transactions against reversal, see the wiki article here for alternatives.

Applications that require instantaneous payment processing, like supermarkets or snack machines, need to manage the risks. Here is one way to switch sides an unconfirmed payment:

A Finney attack is where an attacker mines a block containing a movement of some coins back to themselves. Once they find a block solution, they quickly go to a merchant and make a purchase, then broadcast the block, thus taking back the coins. This attack is a risk primarily for goods that are dispatched instantaneously, like song downloads or currency trades. Because the attacker can’t choose the time of the attack, it isn’t a risk for merchants such as supermarkets where you can’t choose exactly when to pay (due to queues, etc). The attack can fail if somebody else finds a block containing the purchasing transaction before you release your own block, therefore, merchants can reduce but not eliminate the risk by making purchasers wait some length of time that’s less than a confirm.

Because pulling off this attack is not trivial, merchants who need to sell things automatically and instantly are most likely to adjust the price to include the cost of reversal fraud, or elect to use special insurance.

I was sent some bitcoins and they haven’t arrived yet! Where are they?

Don’t funk! There are a number of reasons why your bitcoins might not showcase up yet, and a number of ways to diagnose them.

The latest version of the Bitcoin-Qt client tells you how far it has yet to go in downloading the blockchain. Hover over the icon in the bottom right corner of the client to learn your client’s status.

If it has not caught up then it’s possible that your transaction hasn’t been included in a block yet.

You can check pending transactions in the network by going here or here and then searching for your address. If the transaction is listed here then it’s a matter of waiting until it gets included in a block before it will demonstrate in your client.

If the transaction is based on a coin that was in a latest transaction then it could be considered a low priority transaction. Transfers can take longer if the transaction fee paid was not high enough. If there is no fee at all the transfer can get a very low priority and take hours or even days to be included in a block.

I sent too petite of a transaction fee, is my bitcoin lost forever?

If the transaction never gets confirmed into a block – the mempool expiry of all knots will drop it eventually and you will be able to spend your funds again – typically it takes about three days or so for this to happen. If using an [SPV] wallet such as Electrum or Multibit, if after three days the wallet does not see the coin to spend, you need to reindex your wallet’s block headers. After reindexing, your wallet will see that the coin was never confirmed and thus the balance will be spendable again.

NOTE: From Bitcoin 0.14 “transaction reappearance” happens after two weeks.

Why does my Bitcoin address keep switching?

Unlike postal and email addresses, Bitcoin addresses are designed to be used exactly once only, for a single transaction. Originally, wallets would display only a single address at a time, and switch it when a transaction was received, but an enhancing number of wallet implementations now generate an address when you explicitly want to receive a payment.

While it is technically possible to use an address for an arbitrary number of payments, this works by accident and harms both yourself and other unrelated third parties, so it is considered a bad practice. The most significant concerns with such misuse involve loss of privacy and security: both can be put into jeopardy when addresses are used for more than a single transaction only.

How much will the transaction fee be? / Why is the fee so high?

Bitcoin transactions almost always require a transaction fee for them to get confirmed. The transaction fee is received by the very first bitcoin miner who mines a block containing the transaction; this act is also what gives the transaction its very first confirmation. The suitable fee varies depending on how large (in bytes) your transaction is, how prompt you want the transaction to be confirmed, and also on current network conditions. As such, paying a immobilized fee, or even a stationary fee per kB, is a very bad idea; all good Bitcoin wallets will use several lumps of data to estimate an adequate fee for you, tho’ some are better at fee estimation than others.

The fee most strongly depends on the transaction’s data size. Fees do not depend on the BTC amount of the transaction — it’s entirely possible for a 0.01 BTC transaction to require a higher fee than a one thousand BTC transaction.

Basic intro to how Bitcoin transactions work: If you receive BTC in three separate transactions of (say) 1, Five, and ten BTC, then you can think of your wallet as containing three gold coins with sizes 1, Five, and ten BTC. If you then want to send six BTC, you can melt the one & five BTC coins together and recast them as a six BTC coin, or melt the ten BTC coin and recast a six BTC coin for the recipient and a four BTC coin as switch for yourself. In Bitcoin’s technical vocabulary, these objects are literally called input and output coins. (In the rest of this section, when we say “coin” we mean these objects, not the amount of BTC value.)

Transaction data sizes, and therefore fees, are proportional to the number (not value) of input and output coins in a transaction. Input coins are about 5x larger / more expensive than output coins.

If your wallet estimates a very high fee, it is most likely because your wallet is utter of a entire bunch of little coins, so your transaction will need to take very many coins as inputs, enhancing the cost. On the bright side, fees will go down once you make a few transactions, since you will end up “melting down” these many petite coins into a few larger ones. Sometimes you can significantly reduce the fee by sending less BTC: if you have like one thousand little faucet payments totaling 0.Five BTC and then 16.Five BTC from other sources, then you’ll find that sending

16.Five BTC will be massively cheaper than sending a slightly higher value since it avoids including all of those faucet coins.

Fees also fluctuate depending on network conditions. All unconfirmed transactions contest with each other to be picked up by miners. If there are a lot of high-fee transactions being sent right now, then you will need to pay higher fees to out-bid them. On the other forearm, if speed is less significant to you, you can pay a somewhat smaller fee, and your transaction will float around until there is a period of diminished network usage. Sometimes even transactions with zero fee will be confirmed after a very long period of time, however this requires a flawless set of conditions, beyond what is explained here (ie. it most likely won’t work if you attempt it).

Oftentimes wallets will have an “express” fee configuration, but note that confirmation times are naturally random and unreliable. At any given point in time, the probability that no transactions will be confirmed in the next hour is about 0.25% (ie. it happens more than once per week on average). Bitcoin users should avoid getting into situations where their transactions absolutely must get one confirmation in the next duo of hours, even if high-fee transactions usually take less than ten minutes to get one confirmation.

What happens when someone sends me a bitcoin but my computer is powered off?

Bitcoins are not actually “sent” to your wallet; the software only uses that term so that we can use the currency without having to learn fresh concepts. Your wallet is only needed when you wish to spend coins that you’ve received.

If you are sent coins when your wallet client program is not running, and you later launch the wallet client program, the coins will eventually show up as if they were just received in the wallet. That is to say, when the client program is commenced it must download blocks and catch up with any transactions it did not already know about.

How long does “synchronizing” take when the Bitcoin client is very first installed? What’s it doing?

The popular Bitcoin client software from bitcoin.org implements a “utter” Bitcoin knot: It can carry out all the duties of the Bitcoin P2P system, it isn’t simply a “client”. One of the principles behind the operation of total Bitcoin knots is that they don’t assume that the other participants have followed the rules of the Bitcoin system. During synchronization, the software is processing historical Bitcoin transactions and making sure for itself that all of the rules of the system have been correctly followed.

In normal operation, after synchronizing, the software should use a hardly noticeable amount of your computer’s resources.

When the wallet client program is very first installed, its initial validation requires a lot of work from your computer’s hard disk, so the amount of time to synchronize depends on your disk speed and, to a lesser extent, your CPU speed. It can take anywhere from a few hours to a day or so. On a slow computer it could take more than forty hours of continuous synchronization, so check your computer’s power-saving settings to ensure that it does not turn its hard disk off when unattended for a few hours. You can use the Bitcoin software during synchronization, but you may not see latest payments to you until the client program has caught up to the point where those transactions happened.

If you feel that this process takes too long, you can download a pre-synchronized blockchain from http://eu2.bitcoincharts.com/blockchain/. Alternatively, you can attempt an alternative “lite” client such as Multibit or a super-light client like electrum, however these clients have somewhat weaker security, are less mature, and don’t contribute to the health of the P2P network.

Networking

Do I need to configure my firewall to run Bitcoin?

Bitcoin will connect to other knots, usually on TCP port 8333. You will need to permit outgoing TCP connections to port eight thousand three hundred thirty three if you want to permit your Bitcoin client to connect to many knots. Testnet uses TCP port eighteen thousand three hundred thirty three instead of 8333.

If you want to restrict your firewall rules to a few IPs, you can find stable knots in the fallback knots list.

How does the peer finding mechanism work?

Bitcoin finds peers primarily by forwarding peer announcements within its own network and each knot saves a database of peers that it’s aware of, for future use. In order to bootstrap this process Bitcoin needs a list of initial peers, these can be provided by hand but normally it obtains them by querying a set of DNS domain names which have automatically updated lists, if that doesn’t work it falls back to a built-in list which is updated from time to time in fresh versions of the software. In the reference software initial peers can also be specified by hand by adding an addr.txt to the data directory or via the addnode parameter.

Mining

What is mining?

Mining is the process of spending computation power to secure Bitcoin transactions against reversal and introducing fresh Bitcoins to the system [1] .

Technically speaking, mining is the calculation of a hash of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a nonce. If the hash value is found to be less than the current target (which is inversely proportional to the difficulty), a fresh block is formed and the miner gets the freshly generated Bitcoins (25 per block at current levels). If the hash is not less than the current target, a fresh nonce is attempted, and a fresh hash is calculated. This is done millions of times per 2nd by each miner.

Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

Is it not a waste of energy?

Spending energy on creating and securing a free monetary system is hardly a waste. Also, services necessary for the operation of presently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

Why don’t we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

How can we stop miners from creating zero transaction blocks?

The incentive for miners to include transactions is in the fees that come along with them. If we were to implement some minimum number of transactions per block it would be trivial for a miner to create and include transactions merely to surpass that threshold. As the network matures, the block prize drops, and miners become more dependent on transactions fees to pay their costs, the problem of zero transaction blocks should diminish over time.

How does the proof-of-work system help secure Bitcoin?

Bitcoin uses the Hashcash proof of work with a minor adaption. To give a general idea of the mining process, imagine this setup:

The work performed by a miner consists of repeatedly enhancing “nonce” until the hash function yields a value, that has the infrequent property of being below a certain target threshold. (In other words: The hash “starts with a certain number of zeroes”, if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn’t compute anything special. It merely attempts to find a number (also referred to as nonce) which – in combination with the payload – results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very effortless to check a result: Given the payload and a specific nonce, only a single call of the hashing function is needed to verify that the hash has the required properties. Since there is no known way to find these hashes other than brute force, this can be used as a “proof of work” that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to permit the network to come to a consensus on the history of transactions. An attacker that wants to rewrite history will need to do the required proof of work before it will be accepted. And a