Bitcoin FAQ – Wallet, 21 Million Limit, Security & more
The interest amongst people in cryptocurrencies is incomparable to any other form of monetary system in the world. Never in the past such a craziness was seen. And especially bitcoin, the current cryptocurrency leader, the curiosity seems to be never ending as people are interested in knowing more and more about bitcoin.
So listed below are the frequently asked questions about bitcoin.
How does a Bitcoin wallet or wallet work?
The bitcoin client automatically generates a portfolio containing pairs of public addresses and their corresponding private keys. Public addresses are the ones you see – the ones you can report to receive payments. Private keys, on the other hand, are only in your wallet (in the wallet .dat file).
Imagine that your public addresses are unbreakable mailboxes that everyone can see, and in which everyone can deposit bitcoins, but only you can open them with your private keys. Each public address is “opened” with a specific private key that is impossible to reproduce. If you receive 1 bitcoin that was sent to one of your public addresses, the only way to eventually transfer possession of that bitcoin (from “sending” it to someone else) is by using the private key that corresponds to that public address.
While you keep your wallet, you keep the private keys that allow you to dispose of the bitcoins that control that wallet. It is therefore advisable to keep backups of the wallet. dat file.
Why more than 21 million bitcoins can never be produced?
The protocol’s limit of 21,000,000 imposed by the protocol is actually arbitrary; what matters is that, according to the rules implicitly accepted by all those who use the system, this limit cannot be exceeded, nor can the rate at which the monetary mass increases be altered. In this sense, Bitcoin is absolutely foreseeable – something fundamental for a monetary system.
will the bitcoins cease to be produced?
Bitcoins are generated as a reward for the miners’ work, and the reward is cut in half every 4 years. By the year 2030 almost all the bitcoins that will come into existence will have been generated, although the truth is that bitcoins will continue to be generated (increasingly less and less). In the long run, only small fractions of an increasingly smaller bitcoin will enter the economy over the course of several years, but the curve represented by the increase in the monetary supply will continue to approach 21,000,000.
Will 21 million bitcoins be sufficient in the future?
The scarcity of bitcoins is never going to be a problem, because each bitcoin can be divided up to eight decimal places – and potentially even more. So today you can pay someone the amount of 0.00000001 bitcoin. We are talking about a total monetary supply of at least four million units, so a single bitcoin in circulation would suffice to supply sufficient monetary units to the entire planet. In the future, if necessary, the units in use could be renamed microbitcoins, nanobitcoins, etc.
Is Bitcoin a pyramid scheme?
A pyramid scheme is typically based on broken promises. Bitcoin is NOT a company; it does not promise nor can it promise: it is a protocol, a computer tool whose code can be freely examined by anyone, at any time.
What’s so special about Bitcoin?
It is the only system that allows you to transfer any amount of money instantly, to anyone, from and to any place and at any time, without needing to pay abusive fees, without having to worry about fraud or the debasement of the coin, without needing permission from anyone and without being forced to disclose your identity.
What is Bitcoin’s backup?
Everything has its own monetary value. And this applies to bitcoin as well. Bitcoin’s support is its monetary quality, similar to gold which has its own monetary quality. Those who use Bitcoin do not have to rely on the promises of a government, but on the immutable laws of mathematics.
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Does Bitcoin have intrinsic value?
Nothing has intrinsic value; value is assigned to things by the human beings. It can be said that the qualities of gold are intrinsic to gold, or that the qualities of Bitcoin are intrinsic to this cryptocurrency, but the value is not found in gold or Bitcoin: it is humans who value those qualities.
But Bitcoins are intangible: isn’t that a disadvantage?
It’s an advantage. Thanks to this quality (which precious metals do not have), bitcoins can cross borders instantly, and can be accessed from anywhere. At the same time, Bitcoin avoids arbitrary restrictions on value transfer (as opposed to digital money moving through the channels of the traditional financial system).
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But Bitcoin is deflationary: isn’t that a disadvantage?
Unlike what happens with forced money, it is likely that the value of your bitcoins tends to increase relative to the products you could buy with them. This is excellent news for the productive population, and terrible news for those who now control (or benefit from) the monetary system. By preventing discretionary currency devaluation, Bitcoin encourages long-term savings and investment while discouraging irrational consumption and unsustainable indebtedness.
Is Bitcoin safe?
According to experts, a transfer between Bitcoin addresses is several times more secure than a transfer between bank accounts (not counting the risk of forced third-party interference in the banking system). Bitcoin code is open to examination by all interested parties, and its cryptographic architecture is designed in such a way that it has potential to address potential attacks that might take place in the next decade.
More questions along with their answers would be added to the above list. Meanwhile, if anyone has specific queries then to drop in your questions in the comment box.
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Hi, I am Nikesh Mehta owner and writer of this site.
I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business.