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FAQ: Crypto Basics: What is Bitcoin/Altcoin? What is Blockchain? How Safe is it?
This post covers the basic and new questions that most people ask. When you are telling your friends and your family about crypto you can use these resources to help explain that extra $100/month in your childrens college savings, or those nice date nights you can take your sweetheart to now with the extra income from crypto.
We will be going more in depth in this Subcategory, please comment and add your own comments and thoughts and questions, and even answers if you have some.
Here are the questions answered in this post:
- What is cryptocurrency?
- What is Bitcoin?
- Who created Bitcoin?
- What is AltCoin?
- Why use Crypto Currency?
- Who controls Bitcoin Network?
- Why use Bitcoin?
- How does Bitcoin work?
- What is Blockchain?
- How safe is it?
1: What is cryptocurrency?
Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. It is currency associated with the internet that uses cryptography which is the process of converting legible information into an almost uncrackable code, to track purchases and transfers using mathematical .
Cryptography was conceived due to the imperative need for secure communication in the Second World War. It has evolved in the digital era with elements of mathematical theory and computer science to become a way to secure communications, information and money online.
The first cryptocurrency was Bitcoin (released 2009). Now that Bitcoin is becoming widely accepted as a currency, there are now more than 900 currencies in the world.
2: What is a Bitcoin?
Bitcoins are digital money called “cryptocurrency”.
Bitcoin is the world's largest and most respected cryptocurrency and the “Grandfather” of all the various virtual currencies that are available today, which is stored electronically. It is not centrally controlled by any bank or any person, but is created through blockchains (software that solves mathematical problems) by many, many people & businesses.
Bitcoin was created in 2008 and started at less than a cent per Bitcoin and was recently trading at over $3,500 a coin. It is quickly becoming mainstream and more accepted currency in the world. There are currently Bitcoin ATM’s now being dispersed throughout the world where people can invest in Bitcoin with their cash.
One of Bitcoin’s most distinguishing characteristics is that it’s completely decentralized. Essentially its network is not controlled by any one institution (such as Federal Reserve). This makes a lot of people feel more secure due to the reason that banks or institutions won’t be able to control their currency.
3: What is Bitcoin’s history?
Bitcoin is the first implementation of a concept called "cryptocurrency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with all types of developers working on Bitcoin.
Satoshi's anonymity often raised unjustified concerns, many of which are linked to misunderstanding of the open-source nature of Bitcoin. The Bitcoin protocol and software are published openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. Just like current developers, Satoshi's influence was limited to the changes he made being adopted by others and therefore he did not control Bitcoin. As such, the identity of Bitcoin's inventor is probably as relevant today as the identity of the person who invented paper.
4: What is a AltCoin?
AltCoin (Alternative Coin) are the thousands of various cryptocurrencies currently in the world. There is a lot of competition for positioning power (just like stock market shares), but many coins are not created as part of the “struggle for power” as they serve a more humble purpose. Similar to Bitcoin, AltCoins are not regulated by any bank, just the market.
5: Why Use Bitcoin or other Cryptocurrency?
There’s many advantages to using Cryptocurrency:
Quick, Easy and Convenient - You can send and receive cryptocurrency anywhere in the world at any time in a matter of a few minutes.
Low Fees – Normally, the fees for cryptocurrency transactions are very small. Cryptocurrency fees can fluctuate due to the dynamic fee market. In addition, some wallets will also allow you to pay a fee you’re willing to spend. With higher fees, you’ll get faster confirmation of your transactions.
Secure – When using cryptocurrency, users remain in control of their transactions. You’re also protected from identity theft since cryptocurrency payments can be made without personal information associated with the transaction.
Transparent - All cryptocurrency transactions are fully available on the blockchain for anybody to verify and use in real-time.
6: Who controls the Cryptocurrency networks?
Nobody owns any of the cryptocurrency networks in similarity to which nobody owns the technology behind email.
Cryptocurrency is controlled by all cryptocurrency users around the world. While developers are improving the software, they can't force a change in the Bitcoin & cryptocurrency protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin, for instance, can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.
7: Why Use Cryptocurrency?
There’s many advantages to using Cryptocurrency:
Quick, Easy and Convenient - You can send and receive cryptocurrency anywhere in the world at any given time in a matter of a few minutes or less.
Low Fees – Normally, the fees for Cryptocurrency transactions are very minimal. Cryptocurrency fees can fluctuate due to the dynamic fee market. In addition, some wallets will also allow you to pay a fee you’re willing to spend. With higher fees, you’ll get faster confirmation of your transactions.
Secure – When using Cryptocurrency, users remain in control of their transactions. You’re also protected from identity theft since Cryptocurrency payments can be made without personal information associated with the transaction.
Transparent - All Cryptocurrency transactions are fully available on the blockchain for anybody to verify and use in real-time.
8: How does Cryptocurrency work?
Cryptocurrency transactions occur between electronic Cryptocurrency wallets, and are digitally verified and signed for security. In light of the massive public ledger called the “blockchain”, users are aware of all transactions, and its history and when Cryptocurrencies were generated can be tracked.
If you send some Cryptocurrency to a friend for instance, that transaction will have three pieces of information:
The amount of Cryptocurrency you wish to send.
The recipient’s wallet address, generated randomly and consisting of a sequence of letters and numbers – this is where you’ll be sending your funds.
A private key, which is also a unique sequence of numbers and letters exclusively available to you. This key will allow you to access your wallet.
Once a transaction is set up, it makes its way into the Bitcoin network where it awaits verification. Through the process of mining, miners use software to solve mathematical problems. Once completed, the transaction successfully moves into the blockchain.
**(See “Transactions” section of FAQ)
9: What is blockchain?
The blockchain, is a huge, shared public ledger where the entire Cryptocurrency network is situated. All verified transactions ever processed are added to the blockchain, where everyone can see information pertaining to Cryptocurrency wallets and verify their balances.
The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is often called "mining".
10: How safe is it?
Most of the trust in Cryptocurrency comes from the fact that it requires no trust at all. Cryptocurrency is fully open-source and decentralized. This means that anyone has access to the entire source code at any time. Any developer in the world can therefore verify exactly how Cryptocurrency works.
All transactions and Cryptocurrencies issued into existence can be transparently consulted in real-time by anyone. All payments can be made without reliance on a third party and the whole system is protected by heavily peer-reviewed cryptographic algorithms like those used for online banking. No organization or individual can control Cryptocurrency, and the network remains secure even if not all of its users can be trusted.
special thanks to kyle for his contributions
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