Litecoin (LTC) is a cryptocurrency that offers speed, security, and technical enhancements over Bitcoin and other major cryptocurrencies.
Established in 2011, Litecoin is fundamentally similar to Bitcoin, but is distinguished by several major technical improvements, including the implementation of Segregated Witness technology (segwit) and the Lightning Network, which allow for much faster transaction speeds and lower fees than Bitcoin. (1) (2)
While not as popular as Bitcoin, Litecoin has become one of the hottest commodities on the cryptocurrency market and has been embraced by an increasing number of vendors and businesses due to its speed and reliability. (3)
Litecoin is a worthwhile investment for anyone looking for rapidity and security improvements over Bitcoin and other major cryptocurrencies.
Litecoin was created and released by ex-Google employee Charlie Lee on October 7, 2011 as an open-source client. (4)
Litecoin was originally designed as a fork of the Bitcoin Core client, distinguished from its parent currency by three major changes. Compared to Bitcoin, Litecoin has a shorter block generation time (only 2.5 minutes, compared to Bitcoin’s ten minutes), a different hashing algorithm (scrypt, as opposed to Bitcoin’s SHA-256), and a higher maximum coin count. (5) (6)
In particular, Litecoin’s scrypt algorithm allows for faster mining, as it is a sequential memory-hard function that processes changes in the Litecoin network very rapidly compared to Bitcoin. (7)
These changes combined mean that Litecoin transaction times are four times faster than Bitcoin, and transaction fees are drastically lower as well, which has become more significant given Bitcoin’s increasingly sluggish transaction speeds. (8) (9)
While initially ignored, Litecoin experienced rapid growth in 2013, reaching a $1 billion market cap in November of that year, and has kept growing since. Litecoin grew so fast that month that it experienced a 100 percent jump in its value within a single day. (10) (11)
In May 2017, Litecoin became the first of the top five cryptocurrencies (according to market cap) to adopt Segregated Witness (SegWit) technology, greatly decreasing transaction times. (12)
SegWit is an attempt to solve the block size limit problem that has increasingly plagued Bitcoin. At only 1 MB per block, Bitcoin’s low block size limit has severely impeded transaction times in recent years, as more and more people begin using the currency. The block size limit has also caused transaction fees to skyrocket. (13)
SegWit technology gets around the block size limitation by splitting transactions into two segments, with one of the segments, the “witness,” containing the unlocking signature. When the transaction reaches its destination, the two segments are rejoined. This allows for faster transactions due to the fact that the individual segments are smaller than the combined transaction. (14)
Additionally, in May of 2017, Litecoin implemented the Lightning Network, another solution to the problem of progressively slower Bitcoin transactions.
The Lightning Network is a technology that allows users to conduct transactions without making them publicly available on the blockchain. To do this, users commit to an amount of Litecoin to be transferred when they open a channel, with additional, unrelated transactions bundled together with that transaction and sent simultaneously. (15)
The combination of SegWit and Lightning Network technology has made Litecoin transactions some of the fastest in the cryptocurrency world. An initial test run of the latter allowed 0.00000001 LTC to be sent from Zurich to San Francisco in less than one second. (16)
Future upgrades to Litecoin will include cross chain atomic swap with Vertcoin, further enhancing its flexibility. (17)
Due to Litecoin’s similarity to Bitcoin combined with massive improvements to Bitcoin technology, many vendors and businesses have begun accepting it, and it has become an increasingly popular cryptocurrency among miners and traders.
Mining Litecoin is similar to Bitcoin and can be just as profitable, albeit with some important differences.
Like Bitcoin, mining Litecoin with a CPU or GPU is no longer profitable. This is due to the fact that the blockchain has grown so large that it will take CPUs or GPUs forever to mine a single coin. Combined with increased electricity costs and wear-and-tear on your computer, CPU or GPU mining is no longer worth it. (18)
Also like Bitcoin, Litecoin miners have a wide variety of customized mining rigs available for purchase. It is also possible for miners to build their own rigs out of custom parts for maximum flexibility. (19)
However, due to Litecoin’s scrypt hashing protocol, Litecoin mining rigs are considerably more expensive than rigs for other cryptocurrencies. This is due to the fact that Litecoin’s sequential memory-hard function consumes more memory than Bitcoin’s, requiring manufacturers to create more powerful machines to compensate. (20)
Litecoin’s scrypt hashing algorithm was originally designed to allow miners to mine Bitcoin and Litecoin simultaneously, as creator Charlie Lee referred to Litecoin as “silver to Bitcoin’s gold.” It was also designed to keep GPUs and mining rigs from having an advantage over CPU miners, though the number of Litecoins now in circulation and the complexity of the blockchain have rendered that moot. (21) (22)
Like with other cryptocurrencies, miners must also take into consideration their electricity costs. Due to the greater complexity and horsepower of Litecoin mining rigs, they also consume a greater amount of electricity, which should be factored into purchasing and mining decisions. (23)
However, mining Litecoin can still be a profitable enterprise with the right hardware, and due to Litecoin’s growing popularity, mining it is a definite growth market.
Litecoin is an increasingly popular alternative to Bitcoin that offers significant upgrades in the realm of speed and safety.
Litecoin’s faster block generation time, use of scrypt hashing algorithms, and larger maximum coin count give it distinct consumer advantages over Bitcoin in terms of speed and transaction cost.
Litecoin’s forward-thinking implementation of Segregated Witness and Lightning Network technology have also helped it become one of the most efficient cryptocurrencies on the market, with transactions often occurring in a matter of seconds.
Finally, Litecoin’s rapidity and security have helped it become popular among vendors and businesses, particularly those that already accept or used to accept Bitcoin.
Due to all these upgrades, Litecoin is a worthy replacement for Bitcoin for users looking for faster transactions and lower fees, and a good investment for those looking to diversify their altcoin portfolios.
Bitcoin Cash, the hard fork of Bitcoin
Bitcoin Cash (BCC) is a cryptocurrency that offers scalability, flexibility, and lower fees compared to Bitcoin, its parent cryptocurrency.
Due to its similarities with Bitcoin and its improved transaction rate, Bitcoin Cash has been embraced by cryptocurrency enthusiasts as a reliable alternative to Bitcoin. Many vendors and business that accept Bitcoin have also begun accepting Bitcoin Cash, spurred by its faster transaction speeds and lower fees. (3)
Bitcoin Cash is an ideal cryptocurrency for users who value speed and efficiency above all else.
Bitcoin Cash was established on August 1, 2017 as the result of a hard fork in Bitcoin’s blockchain.
For years, Bitcoin users were divided on the issue of Bitcoin’s scalability and how to make the cryptocurrency accessible to more users.
Bitcoin’s block size limit, at only 1 MB per block, capped the number of transactions per day at 250,000. This design was implemented by Bitcoin’s developers at the beginning of its development with the intent of reducing spam transactions. (4) (5)
This resulted in increasingly long waits for transactions to complete, as more people and businesses began using Bitcoin. The block size limit has also led to a steep increase in the fees that people pay to speed up their transactions. (7) (8)
These problems lead to many vendors and users abandoning Bitcoin and moving to other cryptocurrencies, with Bitcoin’s share of the cryptocurrency market falling from 95 percent to 40 percent. (9)
Many Bitcoin enthusiasts have long advocated that the block size limit be increased, which would allow for more transactions per day and thus faster transactions overall. Supporters of a block size limit increase argued that it would increase Bitcoin’s appeal and make it possible for more businesses and consumers to start using the currency. (10)
However, due to the technical complexity that increasing the block size limit would entail, the change was never implemented, and the Bitcoin community was torn over how to proceed.
Opponents of a block size limit increase argued that increasing the block size limit would hurt miners and independent mining pools, centralizing power in the hands of the largest mining pools, which would go against the spirit of Bitcoin. Additionally, many opponents of the block size increase also argued that Bitcoin was not intended to be a popular currency and should remain a small, underground commodity. (11)
Ultimately, on August 1, 2017, the problem was solved when the ViaBTC Bitcoin mining pool produced a 1.9 MB BCC block that was not compatible on Bitcoin’s network, creating a hard fork that birthed Bitcoin Cash. (12)
Bitcoin Cash features a block size limit of 8 MB, which allows for two million transactions per day, meaning that transactions are much faster than on Bitcoin and fees are also much lower. Bitcoin Cash also features improved protections against replay attacks, a common problem when cryptocurrencies go through a hard fork. (13) (14)
Additionally, unlike Bitcoin, Bitcoin Cash is fully decentralized, with multiple independent teams working to develop and enhance it in the future. (15)
Many businesses and vendors who previously used Bitcoin have now begun using Bitcoin Cash as well, making it one of the most popular cryptocurrencies currently on the market, though it has not yet caught up to Bitcoin’s visibility or popularity. Anyone who owned Bitcoin at the time of the hard fork on August 1, 2017 automatically became owners of Bitcoin Cash as well. (16) (17)
Some Bitcoin purists are opposed to Bitcoin Cash and have begun referring to it as “Bcash” in an attempt to delegitimize it. (18)
Mining Bitcoin Cash is not as popular as mining Bitcoin due to the former’s relative newness.
Despite this, many Bitcoin miners have switched to mining Bitcoin Cash because of its rising popularity and the likelihood that it will become more profitable in the future. The larger block size limit is a major selling point for miners due to the fact that it allows them to earn more transaction fees more quickly compared to Bitcoin. (19) (20)
However, due to the fact that Bitcoin Cash is a fork of Bitcoin, mining it carries many of the same problems that Bitcoin mining does. Mining Bitcoin has increasingly become an expensive and arduous endeavor due to the blockchain’s size and complexity, which precludes people from mining it with CPUs or GPUs, requiring miners to purchase dedicated rigs. (21)
However, because Bitcoin and Bitcoin Cash use much of the same fundamental technology, mining rigs designed for the former are also compatible with the latter. (22)
There are many quality Bitcoin Cash-compatible mining rigs available for a variety of prices, designed for everyone from hobbyists to dedicated miners. For example, Bitmain offers a line of inexpensive mining rigs priced that can reliably mine Bitcoin and Bitcoin Cash. (23)
Keep in mind that mining Bitcoin Cash, like Bitcoin, consumes a lot of electricity, and as the blockchain continues to grow in size and complexity, miners will need more advanced equipment (and more rigs) in order to continue turning a profit on it. (24)
Despite this, mining Bitcoin Cash can be a profitable enterprise, and is likely to gain in popularity as the currency itself becomes more widespread.
1. What is Bitcoin Cash? Bitcoin Cash is a cryptocurrency that is descended from Bitcoin and very similar in operation. The primary difference between the two is that Bitcoin Cash has a larger block size limit than Bitcoin, which allows for considerably faster transaction speeds. This block size difference was created through a hard fork of the Bitcoin blockchain and remains controversial to this day.
2. What is the difference between Bitcoin and Bitcoin Cash? Both cryptocurrencies are largely identical aside from the fact that Bitcoin Cash has a larger block size limit. Bitcoin has a block size limit of 1 MB, while Bitcoin Cash has a block size limit of 8 MB. A larger block size limit allows more transactions to be processed simultaneously, with the end result being that Bitcoin Cash transactions are much faster than Bitcoin transactions. This makes Bitcoin Cash a better choice for users looking to utilize cryptocurrency for financial transactions, at least in theory.
3. Who created Bitcoin Cash? For years, many Bitcoin users had advocated for an increase in the block size limit as a way of dealing with bottlenecks in the blockchain’s operations. The increasing popularity of Bitcoin over the years led to an overall slowdown in the rate in which Bitcoin transactions were processed, leading to higher usage fees and frustrating sluggishness for some users. It also lead to massive loss in Bitcoin’s market share, with many vendors abandoning it due to the slower transaction speeds and higher fees. Many prominent users argued that Bitcoin could ultimately lose all of its value and become useless if the block size limit wasn’t increased. However, Bitcoin’s developers refused to increase the block size limit due to objections over how it would affect the use of the currency and the fact that the 1 MB limit had been created by Satoshi Nakamoto, the pseudonymous creator of Bitcoin. These disagreements reached a fever pitch in July 2017, when a number of investors, miners, and other Bitcoin users revolted over Bitcoin’s skyrocketing user fees and increasingly sluggish transaction times. Bitcoin users were unable to arrive at a consensus as to how to deal with the problem, which paralyzed development and prevented a solution to the problem from being developed. This lead to a hard fork on August 1, 2017, splitting the blockchain into Bitcoin and Bitcoin Cash.
4. Why was increasing the Bitcoin block size limit so controversial? Supporters of increasing the block size limit believe that Bitcoin should function primarily as a means of exchange, catering to business owners and customers who sought an alternative to fiat currency. This was seen as being in line with Satoshi Nakamoto’s original vision for Bitcoin: a peer-to-peer currency that gradually replaced fiat currencies as a means of conducting business. Opponents of increasing the block size believe that Bitcoin should primarily function as an investment and store of value, pointing to the much lower price of Bitcoin Cash compared to Bitcoin. While increasing the block size limit was relatively simple, the lack of consensus from the greater Bitcoin community prevented any changes from being made, with the hard fork ultimately proving to be the only way of resolving the issue. Bitcoin supporters often deride Bitcoin Cash by referring to it as “Bcash” or “Btrash” or by arguing that it is a scam, while Bitcoin Cash users argue that their cryptocurrency has remained truer to Nakamoto’s original conception of Bitcoin.
5. Who controls Bitcoin Cash? Unlike Bitcoin, which is managed by a single team of developers, Bitcoin Cash has a decentralized structure, with many different development teams working to improve the cryptocurrency. While this has democratized Bitcoin Cash and made it easier for the community to implement new ideas, it has also lead to clashes over the future of the cryptocurrency, such as the Bitcoin Cash ABC and Bitcoin SV forks in 2018.
6. Is Bitcoin Cash better than Bitcoin? They ultimately serve different functions. While Bitcoin Cash’s higher block size limit makes it superior to Bitcoin on paper, the wider name recognition of Bitcoin combined with prejudice against Bitcoin Cash means that the latter is unlikely to supplant the former. Both currencies have their uses and are worth looking into depending on your needs and goals. Given the passionate nature of each currency’s communities and their penchant for insulting each other, you should seek out unbiased sources of information so you can better determine if or how you want to use Bitcoin and Bitcoin Cash.
7. What is the difference between Bitcoin Cash, Bitcoin Cash ABC, and Bitcoin SV? Bitcoin Cash ABC and Bitcoin SV are hard forks of Bitcoin Cash that occurred in November 2018 over disagreements as to how big the block size limit of Bitcoin Cash should be. The “ABC” in Bitcoin Cash ABC stands for “Adjustable Blocksize Cap” and refers to the developers’ preference to increase the block size limit to 32 MB, a considerable improvement from Bitcoin Cash’s 8 MB limit. The “SV” in Bitcoin SV stands for “Satoshi’s Vision” and features a block size limit of 128 MB. Both currencies split from Bitcoin Cash in November 2018 in much the same way that Bitcoin Cash itself was forked from Bitcoin in 2017. Both have carved out separate niches in the cryptocurrency world and are entirely separate from Bitcoin Cash.
8. How widely is Bitcoin Cash used? Bitcoin Cash remains less popular than Bitcoin due to a combination of lower name recognition and prejudice against it from Bitcoin enthusiasts. However, a growing number of exchanges and merchants have embraced Bitcoin Cash due to its faster transaction speed and ease of implementation (due to its technology being nearly identical to Bitcoin’s). In general, those who prefer to use cryptocurrency as a means of sending and receiving payment have adopted Bitcoin Cash, while investors favor Bitcoin due to its greater value and higher name recognition.
9. How do I get Bitcoin Cash? Like other cryptocurrencies, Bitcoin Cash can be purchased from exchanges, received as part of financial transactions, or mined using specialized hardware. In addition, if you owned any Bitcoin at the time of the fork (August 1, 2017 at about 13:16 UTC), you automatically received an amount of Bitcoin Cash that was equal to the amount of Bitcoin you owned. Note that if your Bitcoin was held via an exchange, you will need to contact them in order to ensure that you receive your Bitcoin Cash.
10. How do I receive or send Bitcoin Cash? Like with other cryptocurrencies, sending and receiving Bitcoin Cash is done via wallet addresses. Wallet addresses are random strings of numbers and letters that identify users on the blockchain. If you wish to send Bitcoin Cash, you’ll need the wallet address of the person you are sending it to, while if you are receiving Bitcoin Cash, they will need your wallet address. Like with Bitcoin, Bitcoin Cash wallet addresses can be converted to QR codes that can be scanned with a smartphone for ease of use. Note that if you send Bitcoin Cash to a Bitcoin wallet address or vice versa, you will lose all funds sent due to the fact that the currencies are completely separate. Always make sure you have the correct wallet address before you transfer funds.
11. What are the upsides of using Bitcoin Cash? Bitcoin Cash, due to its shared heritage with Bitcoin, shares most of that currency’s advantages, including worldwide payment freedom, automation, low fees, and protection against fraud. In addition to this, Bitcoin Cash’s larger block size limit means that transactions are much, much faster than Bitcoin transactions. This makes Bitcoin Cash an appealing option for merchants or other users who rely on speed when using cryptocurrencies.
12. What are the downsides of using Bitcoin Cash? Like with its upsides, Bitcoin Cash shares many downsides with its parent cryptocurrency, including constantly shifting prices, an uncertain future, and more. Bitcoin Cash is also considerably less known than Bitcoin, and the existing bias against it from Bitcoin users has served as an obstacle to widespread adoption. The Bitcoin Cash ABC and Bitcoin SV forks have also further fragmented the community into smaller and smaller chunks.
13. Can I make money with Bitcoin Cash? Like any investment, there is no guarantee that any user will make a profit off Bitcoin Cash, but you shouldn’t let that deter you from purchasing Bitcoin Cash if you feel it is a good investment. Bitcoin Cash has carved out a niche in the cryptocurrency ecosystem due to its faster transaction speeds, and despite criticism from hardcore Bitcoin supporters, it has only grown in popularity. Indeed, due to Bitcoin Cash’s lower purchase price, it might serve as a good starter investment for those who are new to cryptocurrency in general. However, you should always do your research before you make any big financial decisions.
14. Are my existing Bitcoin wallets compatible with Bitcoin Cash? No. Following the hard fork on August 1, 2017, Bitcoin and Bitcoin Cash are entirely separate entities. While they share much technology and work similarly, they are as functionally separate as Bitcoin is with any other cryptocurrency. Sending Bitcoins to a Bitcoin Cash wallet or vice versa will lead to the funds being irrevocably lost, so if you want to trade in both Bitcoin and Bitcoin Cash, you will need separate wallets for both. Fortunately, many exchanges and wallets offer compatibility with both cryptocurrencies.
15. Is Bitcoin Cash a scam? While supporters of Bitcoin have accused Bitcoin Cash of being a scam, this is simply not true. Like any other currency, Bitcoin Cash retains value based on the usefulness it provides to people. While Bitcoin Cash is not as valuable as Bitcoin, its lower transaction speeds and superior scalability have helped it hold its own in the competitive world of cryptocurrencies. Like Bitcoin, Bitcoin Cash operates on network consensus, meaning that it is virtually impossible for any one entity or user to take control of the blockchain.
16. Is Bitcoin Cash anonymous? No. Bitcoin Cash, like Bitcoin, does not require you to input personal information when making a transaction in the way that credit and debit cards do. However, transactions on the Bitcoin Cash blockchain are publicly viewable, allowing third parties to track and trace them. Anyone who knows your Bitcoin wallet address will be able to see any transactions you have made using it.
17. Can Bitcoin Cash be used for illegal transactions? Any currency can be used to make illegal transactions, and Bitcoin Cash is no different. However, there is nothing about Bitcoin Cash that makes it uniquely suited for making illegal purchases. Indeed, the fact that all Bitcoin Cash transactions are publicly viewable means that illegal transactions can be easily traced. We do not support or advise the use of Bitcoin Cash (or any other cryptocurrency) for illegal purposes.
18. Is Bitcoin Cash mining better than Bitcoin mining? The higher block size of Bitcoin Cash combined with its lower popularity means that Bitcoin Cash mining can be more lucrative than Bitcoin mining. However, mining is still an expensive prospect, requiring specialized ASIC equipment and electricity. Like Bitcoin, the maximum amount of Bitcoin Cash that can exist is capped at 21 million, meaning that mining will become less lucrative as time wears on. One upside is that due to the similarities between the two currencies, equipment that can be used for Bitcoin mining can also be used for Bitcoin Cash mining.
19. How is the price of Bitcoin Cash determined? Like Bitcoin, Bitcoin Cash’s price is determined by the laws of supply and demand. Due to the limited amount of Bitcoin Cash in circulation compared to traditional fiat currencies, the price tends to shift rather rapidly.
Bitcoin Cash is a cryptocurrency ideal for users who are looking for speed, low costs, and reliability.
Its greater transaction speed compared to Bitcoin has made it a viable alternative for vendors and businesses who want to increase their profits.
Additionally, Bitcoin Cash’s lower transaction fees also make using the currency less expensive, making it more accessible to lower-income users.
Bitcoin Cash’s growing popularity among vendors who already use Bitcoin have made it a good cryptocurrency for shopping and other basic business transactions.
Miners will also appreciate Bitcoin Cash’s profit potential, and the fact that Bitcoin Cash is compatible with preexisting Bitcoin mining rigs makes it all the easier to start profiting from mining it.
Ultimately, Bitcoin Cash is a reliable cryptocurrency, one that is certain to grow in popularity and value in the future due to its improvements over Bitcoin.
Ethereum, the platform for decentralized apps
Ethereum (ETH) is a cryptocurrency and a distributed computing platform notable for its use of smart contract technology.
Launched in 2015, Ethereum is distinguished from other cryptocurrencies in part by the Ethereum Virtual Machine (EVM), a Turing-complete system that uses a global network of public nodes to run scripts assigned to it by users. (1)
Ethereum also features a cryptocurrency token called “ether” and an internal transaction pricing mechanism named “gas,” both designed to facilitate transactions on the network and combat spam. (2) (3)
Ethereum’s stability and complexity have made it popular both as a cryptocurrency and as a foundational technology for various apps and financial services, inspiring other cryptocurrencies like NEO and EOS.
Ethereum is a worthwhile investment for those looking for a cryptocurrency with a complex set of features that go beyond anything else on the market.
Ethereum was originally conceived in 2013 by Vitalik Buterin, a Russian-Canadian Bitcoin developer who sought a system for creating decentralized applications. In a white paper, Buterin argued that Bitcoin should incorporate a scripting language to facilitate app development. (4) (5) (6)
Buterin’s suggestions were not implemented, so in 2014, he formed a programming team with the intent of forming a new platform that would embody his ideas. Ethereum development began later that year, under the aegis of Switzerland-based corporation Ethereum Switzerland GmbH and the non-profit Ethereum Foundation, both funded through a Bitcoin-powered crowdfunding drive. (7) (8)
After a year of development, a beta incarnation of Ethereum, codenamed “Olympic,” was released to the public in May 2015. The first complete version of the program, named “Frontier,” was later released in July of that year. Beginning with the release of the “Homestead” edition on March 14, 2016, Ethereum is now regarded as 100 percent stable. (9) (10)
Also in 2016, the DAO, a decentralized autonomous organization, successfully raised $150 million dollars in a crowdfunding campaign to develop a set of smart contracts for Ethereum. In June of that year, the DAO collapsed in chaos after a hacker stole $50 million of the funds. (11) (12)
In response to the theft, the Ethereum community opted to perform a hard fork with the intent of reclaiming the stolen funds. Supporters of the DAO were opposed to this, and as a result, on July 20, 2016, the Ethereum blockchain was divided between Ethereum and Ethereum Classic (ETC), an entirely different cryptocurrency. (13) (14)
Since then, Ethereum has committed two more hard forks with the intent of improving DDoS protection and thwarting spam attacks. (15)
Ethereum is differentiated from other cryptocurrencies due to the Ethereum Virtual Machine (EVM), a runtime environment that governs all transactions within the system, specifically its unique system of smart contracts. The EVM is sandboxed and separated from other aspects of the Ethereum network in order to protect it from cyberattack. (16)
Smart contracts are Ethereum’s method of guaranteeing the integrity and safety of transactions. Smart contracts are responsible for carrying out the transaction of value between untrusted agents and are also capable of combating attempted collusion, censorship, and other forms of fraud on the network. (17)
While smart contracts have made transactions over Ethereum more safe and efficient in certain respects, they also possess some security vulnerabilities. For example, smart contracts make bugs and exploits publicly visible on the blockchain, potentially allowing hackers to take advantage of them before they can be fixed. This was how the DAO was hacked and had a third of its crowdfunded capital stolen. (18)
In addition to these features, Ethereum also has several programming languages built in, including Solidity, LLL, Mutan, and Serpent. This allows for easy app development in comparison to Bitcoin and other cryptocurrencies. (19)
Due to Ethereum’s breadth of features, many developers have created or proposed many different uses for the network, including online gambling, electricity pricing, prediction markets, and social media platforms. J.P. Morgan Chase and the Royal Bank of Scotland have also used Ethereum to develop custom systems based on the cryptocurrency’s smart contract technology. (20) (21) (22)
To facilitate Ethereum’s development and use in mainstream banking, the Ethereum Enterprise Alliance (EEA) was formed in March 2017. The EEA includes a large number of Fortune 500 companies, including Microsoft, MasterCard, Intel, and the National Bank of Canada. (23)
Ethereum’s stability, versatility, and credibility have helped it become one of the most popular cryptocurrencies on the market, second only to Bitcoin.
Unlike Ripple, a cryptocurrency with similar features, Ethereum can be mined, though there are a number of caveats involved.
In contrast to other popular cryptocurrencies such as Bitcoin and Litecoin, it is still possible to mine Ethereum with a GPU and get decent results. Keep in mind that excess heat generated by GPU use may cause wear-and-tear to the computer, so a cooling pad or other cooling solution is recommended if you use GPU mining. (24)
GPU mining is also best attempted with a graphics card that has at least 2 GB of VRAM, as anything lower means that it will take too long relative to electricity and heat costs to generate a single coin. AMD cards are also superior to nVidia cards for the purpose of mining Ethereum. (25)
Like with other cryptocurrencies, Ethereum mining rigs are also available for sale at varying price points, and enterprising miners can also build their own. (26)
Also like other cryptocurrencies, the income generated from mining Ethereum needs to be measured against the cost of electricity in your area. If electricity is too expensive, mining Ethereum is a bad idea because it will never turn a profit. (27)
Despite all this, Ethereum is worth mining because of its popularity and because the overhead for doing so is considerably lower compared to other leading cryptocurrencies.
1. What is Ethereum? Ethereum is a public, blockchain-based financial and computing network noted for its “smart contract” features. While often regarded as a cryptocurrency, Ethereum extends beyond merely serving as a means of exchange and is in fact a fully functioning decentralized computer system that can be used for a myriad of functions, from app development to online banking. The core of Ethereum is “Ether,” a digital token that can be used as a cryptocurrency in its own right or as the basis for any number of computing projects that the user desires. Because of this, Ethereum is considerably more versatile than Bitcoin and has seen widespread adoption in a number of fields.
2. What makes Ethereum different from Bitcoin? There are many differences between Ethereum and Bitcoin, but chief among them is that Ethereum extends the use of blockchain technology in ways that Bitcoin does not. Both Bitcoin and Ethereum are based on the same fundamental technology: a global, decentralized ledger that functions via network consensus. While Bitcoin merely functions as a digital currency, Ethereum functions as a global computer network, allowing programs and computer code to be distributed and executed on a peer-to-peer basis. This enables Ethereum to be used as more than cryptocurrency, with users implementing Ethereum in maintaining medical records, monitoring elections, and managing supply chains.
3. Who invented Ethereum? Ethereum was conceived by Russian-Canadian computer programmer Vitalik Buterin in a white paper published in 2013. Prior to the publication of the white paper, Buterin had been an advocate for incorporating a scripting language into Bitcoin so that the cryptocurrency could be used for software development. The team maintaining Bitcoin rejected this, so Buterin instead proposed a separate platform that would accomplish his goals. Buterin would later announce Ethereum in January of 2014, with the first release of the network coming in May of 2015. The network has since been updated with new features and security enhancements, which are organized into periodic “milestones.”
4. What was the DAO hack? In 2016, the DAO (Decentralized Autonomous Organization), a venture capital fund, raised a record $150 million on the Ethereum network for the purpose of developing a series of smart contract programs. In June of that year, however, an unknown hacker used a security exploit in the network to steal $50 million of the DAO’s funds. This fueled an intense debate over how Buterin and Ethereum should respond to the security exploit and theft. Eventually, Buterin chose to use a hard fork to recover the stolen money, resulting in the Ethereum network being split in two: Ethereum and Ethereum Classic, the latter of which retained the use of the original Ethereum blockchain. This decision was extremely controversial and led to a rivalry between supporters of the hard fork and supporters of the original blockchain.
5. What is Ether? Ether is the cryptocurrency that undergirds the Ethereum network. While Ethereum is often referred to as a cryptocurrency, this is technically incorrect; Ethereum refers to the network as a whole and Ether refers to the network’s currency. Ether can be bought, sold, and traded in a fashion similar to Bitcoin and other cryptocurrencies, but it also has a large number of uses in computer programming and other fields.
6. What makes Ether valuable? Like other cryptocurrencies, Ether’s value is derived in part from the value that users give it. Due to Ethereum’s usefulness as a computing platform and its smart contract functionality, it has rapidly become one of the world’s top cryptocurrency systems.
7. What determines the price of Ether? Like any other currency, Ether’s price is governed by supply and demand. Unlike Bitcoin, Ether is not inherently deflationary, as new Ether tokens are generated at a consistent rate, so the supply of Ether is not artificially constrained.
8. Where does Ether come from? 60 million Ether tokens were created when Ethereum originally launched in 2015. Subsequently, Ether has been produced by miners in much the same fashion as other cryptocurrencies. Miners are high-powered computers connected to the Ethereum network that generate new Ether by solving complex math problems, receiving a share of new Ether created as an incentive for them to mine. In contrast to Bitcoin, Ethereum uses the Ethash algorithm for proof-of-work (the mechanism by which the network determines a miner’s contribution to Ethereum), which makes specialized mining hardware (ASICs) less effective and creates a more equal playing field for miners using less advanced equipment
9. How does one obtain Ether? In the same way as other cryptocurrencies, Ether can be bought and sold via an Ethereum wallet and crypto exchanges. Transactions are conducted in a similar fashion as Bitcoin; if you want to send Ether to another user, you merely obtain their wallet address and send the currency. Like Bitcoin, Ethereum wallet addresses consist of random strings of letters and numbers that are difficult for many to remember, so wallet applications and exchanges allow you to substitute the actual wallet address with a QR code that can be scanned with a smartphone or tablet. Ethereum can also be mined with specialized computer hardware.
10. What is Gas? Gas is a representation of the smallest amount of work that needs to be performed to execute a task on the Ethereum network. Gas is a numerical representation of the amount of work that Ethereum miners must execute in order to process transactions, calculated separately to reflect the greater complexity of the Ethereum network compared to Bitcoin and more traditional cryptocurrencies. Gas is further subdivided into fractional units referred to as “gwei.”
12. How does Gas affect transactions on the Ethereum network? When executing any task involving Ethereum, a Gas cost is calculated. Calculating a higher Gas price will result in the transaction being processed faster. Ethereum wallets typically calculate a Gas Limit automatically, which defines the maximum amount of Gas that can be charged to process a transaction. This also protects users from spending too much on transaction fees. A Gas Limit that is too low can result in the transaction being lost or rejected, and any Gas spent in the process is lost. If the Gas Limit is too high and the transaction is processed before it is reached, any excess Gas is returned to the wallet that initiated the transaction.
13. What are the upsides of using Ethereum? The Ethereum network carries with it the advantages of other cryptocurrencies, including decentralization, payment freedom, worldwide availability, and low fees. However, Ethereum’s smart contract functionality adds an additional layer of security, as they can be programmed for additional verification and trustworthiness in financial transactions. The versatility of the Ethereum network has allowed it to be used for a wide variety of purposes, and web developers have also used it to create DApps (decentralized applications), further adding to Ether’s value. A number of major corporations, including JPMorgan Chase, Microsoft, IBM, Barclays, Credit Suisse, and many more have been exploring the use of the Ethereum network for various purposes, helping make Ether an attractive investment prospect.
14. What are the downsides of using Ethereum? Ethereum shares many of the disadvantages of Bitcoin and other cryptocurrencies, including price volatility, slower transaction speeds compared to credit and debit card transactions, obscurity among the general public, and unpredictability as to how the network will change with future software updates. Ethereum is also considerably more complex than Bitcoin and other cryptocurrencies, which hobbles its adoption as a form of digital payment. Finally, incidents such as the DAO hack have undermined public confidence in Ethereum, as the hack occurred due to conflicts between the smart contract system and the greater Ethereum blockchain. While Ethereum has not suffered any similar incidents since, it is impossible to rule out security breaches in the future, as is the case with any computing system.
15. What is an ERC20 token? An ERC20 token is an Ethereum token that functions similarly to Ether but can be reprogrammed for a wide variety of uses. It is short for Ethereum Request for Comment, with “20” serving as the proposal identifier. ERC20 tokens can be programmed to hold a specific set of rules, which allows them to be turned into ad hoc cryptocurrencies on their own, powered by the Ethereum network but separate from it. This is a popular choice for developers who seek to use blockchain technology in various projects but don’t want to create a separate blockchain of their own, which is time-consuming and expensive. ERC20 tokens expand the use of the Ethereum network in ways that few cryptocurrencies can match.
16. What are smart contracts? Smart contracts are executable computer programs that allow for the creation of agreements between Ethereum users without human intervention. They represent a major innovation in both cryptocurrency and finance technology because they allow fair transactions to be conducted without the intervention of a human mediator. For example, public smart contracts have been used by Ethereum-based online casinos to show their fairness to potential users. Banks, hospitals, and other institutions have also used smart contract technology in areas where accuracy and trust are vital. Smart contracts are executed via the Ethereum Virtual Machine, which is also responsible for managing the blockchain-based consensus system that defines the Ethereum network.
17. What are some other differences between Ethereum and Bitcoin? Ethereum has a considerably faster block time than Bitcoin, processing blocks in 14 to 15 seconds as opposed to ten minutes, which means that Ethereum transactions occur much more quickly than Bitcoin transactions. Ethereum mining also functions consistently, generating new tokens at an even rate, whereas the rate of Bitcoin coin creation continuously slows over time to prevent inflation. Transaction fees are also much lower on Ethereum than on Bitcoin.
18. Is Ethereum safe? No computer system is 100 percent safe, but Ethereum is recognized as one of the most secure cryptocurrency systems in the worldwide, which is why banks and other firms have begun using it for various tasks. While the DAO hack represented a major breach in security, it and other security holes have been fixed through continuous upgrades to the Ethereum network in a series of soft forks. However, due to the varying nature of projects developed on the Ethereum network, individual ERC20 projects may not have the same level of security as the network as a whole. Always exercise sound judgment before you get involved in any kind of financial transaction.
19. Is Ethereum a scam? Absolutely not. Much like Bitcoin, Ethereum is a transparent, consensus-oriented computing platform, meaning that no one person or entity can take control of it and profit at the expense of other users. Indeed, Ethereum’s smart contract functionality gives it an additional layer of security that other cryptocurrencies lack. Ethereum has also been continuously updated to make it more secure, particularly after the DAO hack.
20. If Ethereum is so much more advanced than Bitcoin, why don’t people use it instead of Bitcoin? Bitcoin and Ethereum have two different purposes. Bitcoin was designed purely as a currency, a means of storing value and exchanging it, while Ethereum was designed as a computing platform with a wide variety of functions. While Ethereum is more feature-rich than Bitcoin, this complexity is off-putting to some users, who merely want to use cryptocurrency to invest or make transactions. The simplicity of Bitcoin helps separate it from Ethereum and gives it a role in the economy. Furthermore, Bitcoin, having been around for much longer, has much more name recognition than Ethereum. Considerably more merchants accept Bitcoin compared to Ether, which also gives it staying power. Ultimately, the value of a currency is determined by whether people find it to be valuable, and Bitcoin and Ethereum both have value because people around the world find them useful in their own ways.
Ethereum is likely to remain one of the most popular and recognized cryptocurrencies for a long time to come due to its value, ease of use, and unique suite of features.
More than a cryptocurrency, Ethereum’s virtual machine and smart contract system has given it flexibility and security far beyond what other competing cryptocurrencies can offer.
Additionally, Ethereum’s inclusion of scripting languages is a boon to software developers, who can use the system to design decentralized, open-source apps.
Ultimately, Ethereum is a worthy investment due to its visibility, its truly unique features, and the relative ease in mining it.
Bitcoin, the original blockchain
Bitcoin (BTC) is a cryptocurrency and worldwide payment system, the first cryptocurrency to be invented and released to the public.
Debuting in 2009, Bitcoin has grown to become a powerhouse in world financial markets due to its high value and its decentralized structure, with no controlling authority. (1)
Bitcoin is fully digital currency, utilizing blockchain technology to enable direct, peer-to-peer transactions between users, powered by “miners” who generate new Bitcoins through the use of their computers. (2) (3)
Bitcoin’s increasing popularity has led many vendors and businesses to begin accepting it as legal tender and many investors to adopt it as a means to make money. (4)
While newer cryptocurrencies have improved on Bitcoin’s basic design, Bitcoin remains the world’s leading cryptocurrency and an important part of any investor’s portfolio.
Bitcoin was first proposed in 2008 by Satoshi Nakamoto, an anonymous and possibly fictitious Japanese programmer. In a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” Nakamoto laid out the basis for a worldwide fiat currency accessible to all, cutting out the middlemen of world governments. The name “Bitcoin” is derived from this concept, combining “bit” (the smallest unit of digital storage) with “coin.” (5) (6) (7)
Nakamoto’s concept relied on a technology called the “blockchain,” a public ledger that records all transactions occurring on the network. The blockchain is fueled by “miners,” users who utilize their computers or specialized mining rigs to solve the blockchain’s complex math problems, creating new Bitcoins as a reward for success. Miners are also responsible for processing network transactions, assessing fees for doing so. (8)
There is also a hard limit of 21 million Bitcoins that can be created by miners as a means to combat inflation, though the rate at which new coins are created will naturally slow down as the number of Bitcoins in circulation increases. (9)
Bitcoin transactions take place on a peer-to-peer basis. Transactions are handled by miners, who process them in exchange for fees. Bitcoins are stored in a digital wallet which is identified by an address and can be stored on a computer. (10)
On January 3, 2009, Nakamoto released the Bitcoin client as open source software, though it wasn’t until 2011 that the currency began to gain notoriety. In that year, several major organizations, such as Wikileaks and the Electronic Frontier Foundation, began accepting donations in Bitcoin. The dark web marketplace Silk Road, only accessible through Tor, also became notable for allowing customers to purchase illegal drugs with Bitcoins. (11) (12) (13)
In 2013, Bitcoin saw major expansion, with Bitcoin-based payment processor Coinbase selling over one million dollars worth of Bitcoins in one month. Also, in October that same year, Silk Road was shut down by the FBI and administrator Ross William Ulbrecht (aka “the Dread Pirate Roberts”) was arrested, with 26,000 BTC seized by the government as part of his apprehension. (14) (15)
In 2014, Mt. Gox, one of the oldest and most popular Bitcoin exchanges, was shut down after filing for bankruptcy, with 744,000 Bitcoins going missing. Former CEO Mark Karpelès would later be arrested by Japanese police in 2015 on charges of embezzlement. (16) (17)
Despite these setbacks, Bitcoin has continued to grow as a cryptocurrency. In 2013, growth in Bitcoin spiked after residents of Cyprus began transferring their money to Bitcoin wallets in response to the European Union’s proposed “haircut” of bank accounts in the country due to the financial crisis. (18)
As of 2017, Bitcoin has exploded in popularity, value, and mainstream acceptance. Several countries, including Japan and Russia, have passed legislation legalizing Bitcoin as a form of valid tender. Countless merchants and businesses now accept Bitcoin as payment, and Bitcoin ATMs have become a major presence throughout the world. (19) (20)
However, recent problems with Bitcoin’s scale resulted in a hard fork of the blockchain on August 1, 2017, splitting the currency into two: regular Bitcoin and Bitcoin Cash. Bitcoin Cash is distinguished from Bitcoin by its higher block size limit, a significant bottleneck with Bitcoin because it significantly slows down transactions and has also caused transaction fees to spike. (21) (22)
Additionally, Bitcoin now faces competition from numerous other cryptocurrencies such as Ethereum, Litecoin, and Dash, which have significantly cut into its market share. Many of these altcoins boast improvements over the basic Bitcoin design.
Despite this, Bitcoin’s longevity and reliability have established it as a force in the cryptocurrency markets, and one that is here to stay.
Bitcoin can be “mined,” a process that allows users to make money and also facilitate transactions on the network.
Mining is the term used to refer to using a computer or ASIC mining hardware to solve math problems on the Bitcoin blockchain, which expands the blockchain, makes transactions possible, and also allows the miner to earn Bitcoin passively. (23)
While mining was relatively easy in the early days of Bitcoin, the increasing size of the blockchain has upped the difficulty level considerably. However, it is still possible to turn a profit on the network. (24)
Mining can be done by using a computer’s CPU, its GPU, or a dedicated ASIC mining rig. However, due to the size of Bitcoin’s blockchain, CPU and GPU mining are no longer economical. It can take months, if not years to earn Bitcoin using CPU and GPU mining, and electricity costs could eat away any profits you could make. (25)
Instead, prospective miners should purchase dedicated mining rigs, which possess the horsepower necessary to mine Bitcoin in economical and profitable amounts. (26)
However, mining is costly in terms of electricity. If electricity is expensive where you live, it can significantly eat into or eliminate your profits. To ensure that you can turn a profit mining Bitcoin, make sure that electricity in your area is reasonably priced. (27)
With these caveats out of the way, Bitcoin mining can still be a profitable enterprise.
1. What is Bitcoin? Bitcoin is a digital currency that is powered through a decentralized online system known as the blockchain. In contrast to traditional, physical currencies that are issued by the central bank of a nation, such as the U.S. dollar, Bitcoin is managed through a peer-to-peer network of computers linked together and maintaining a central ledger, ensuring its security and efficacy worldwide.
2. Who invented Bitcoin? Bitcoin is a “cryptocurrency,” a type of currency that exists on the Internet and is not controlled by any singular entity. While first theorized about in the 1990’s, Bitcoin is the first successful cryptocurrency, created according to the specifications in a 2009 white paper authored by Satoshi Nakamoto, a pseudonymous computer programmer. Nakamoto’s identity is unknown and he departed the Bitcoin project in 2010, with other programmers since taking over its maintenance and development.
3. Who controls Bitcoin? No one entity or individual controls Bitcoin. The nature of Bitcoin, along with other cryptocurrencies, is that every computer connected to the blockchain, the central network of Bitcoin, manages them collectively. Each computer is responsible for processing the central ledger of Bitcoin with every transaction that occurs on the network, with a consensus being required for any transaction to be accepted. As such, the only way for a single entity or individual to gain control of Bitcoin would be to acquire control of a majority of machines connected to the blockchain, which is virtually impossible due to the decentralized and worldwide use of the currency. While Bitcoin’s development is guided by a small group of programmers, due to the consensus-oriented nature of the blockchain, the incentive to keep Bitcoin user-friendly and avoid radical changes keeps any one group from exerting monopoly control.
4. How does Bitcoin work? For most users, Bitcoin functions superficially to regular currency. To use Bitcoin, you deposit Bitcoin into a “wallet,” a program that holds your Bitcoin. Wallets come in both software formats, such as mobile apps and website accounts, or they can come in hardware versions, physical devices that can be purchased from manufacturers. When you purchase an item or service with Bitcoin, you do so in a fashion similar to making purchases with a credit or debit card, with Bitcoins transferred from your wallet to the wallet of the merchant. You can acquire Bitcoins through purchasing them from exchanges. On a more technical level, whenever a Bitcoin transaction occurs, it is transmitted through the blockchain, a digital ledger that monitors every Bitcoin transaction and guards against fraud and abuse. Only when the blockchain verifies the integrity of the transaction is the exchange of funds completed. “Miners,” computers that create new Bitcoins through solving complex math problems, process Bitcoin transactions for a small fee.
5. How widely is Bitcoin used? Bitcoin is used very widely. From its launch in 2009, Bitcoin has become an accepted form of payment at tens of thousands of websites across the world, from small mom-and-pop operations to major names like Overstock.com. In addition to this, many physical businesses have begun accepting Bitcoin via mobile apps and hardware wallets, and many large cities around the world now have “Bitcoin ATMs,” where you can access your Bitcoin wallet remotely. As of 2018, there are more than $100 billion of Bitcoins in existence.
6. How can I get Bitcoins? Bitcoins are easiest to obtain by purchasing them through an exchange, such as Coinbase. With an exchange, you pay a certain amount of money and receive Bitcoins in return. There are numerous exchanges on the Internet today with varying degrees of reliability and usefulness. You can also obtain Bitcoins as payment for goods or services or earn them through mining, though the latter requires powerful computer hardware that can cost thousands of dollars.
7. How do I receive or send Bitcoins? It’s easy to send or receive Bitcoins, arguably easier than making a credit/debit card purchase. To send Bitcoins, all you need is a wallet of your own and the wallet address of the person you are sending them to. You enter the recipient’s address and the amount of Bitcoins you want to send them and that’s it. To receive Bitcoins, you merely need to provide your wallet address to the person who is sending them to you. Because wallet addresses can be difficult to remember (due to the fact that they consist of randomized strings of numbers and letters), many wallet applications and vendors simplify the process by allowing you to use QR codes or NFC (near-field communication) to instantly send or receive Bitcoins.
8. What are the upsides of using Bitcoin? Bitcoin offers total payment freedom, as it is not reliant on national governments, central banks, or physical notes. When you make a Bitcoin transaction, it is automatic, not reliant on any human interaction aside from the individual sending the funds. Fees for Bitcoin transactions are much lower than credit card fees or fees from payment processors such as PayPal. From a merchant’s perspective, Bitcoin is far lower risk than traditional payments, as it cannot be used to file fraudulent chargebacks and Bitcoin transactions do not contain personal information. Because a central authority does not control Bitcoin, it is free from arbitrary policy changes or fee hikes, and no one can be banned from using Bitcoin arbitrarily.
9. What are the downsides of using Bitcoin? Bitcoin’s constantly fluctuating price means that vendors and customers must constantly keep their eyes on changing valuations and adjust the prices of goods to compensate. Bitcoin transactions are slower than credit card transactions due to the fact that all transactions must be verified by the blockchain for security. While Bitcoin has become more popular in recent years, it is still not very well known among the general public, so getting some merchants or customers to accept it may be difficult. Finally, because Bitcoin is still a work in progress, it may change in the future in unpredictable ways.
10. How can Bitcoin serve as a trustworthy means of payment? The decentralized nature of Bitcoin means that it doesn’t rely on trust in the way that traditional currencies do. Currencies that are issued by a central government, such as the U.S. dollar or the euro, rely on the economic strength of their nations and the financial decision-making of their politicians. Economic turmoil and/or poor financial planning can lead to unexpected drops in the value of a fiat currency, as seen with the various economic crises of the past decade. In contrast, because all machines connected to the Bitcoin blockchain are responsible for processing and verifying transactions, there is no way for scammers or unscrupulous individuals to hijack the network and defraud people. Additionally, the open nature of Bitcoin—all transactions can be viewed publicly—means that even if there are untrustworthy users on the network, as a whole the network remains trustworthy.
11. Can I get rich with Bitcoin? In general, you should view Bitcoin like you would stocks, bonds, or any other investment: there are risks involved, but you can make money if you play your cards right. Many users have become wealthy by buying and selling Bitcoin, either through day trading or HODLing (holding on for dear life), purchasing when the value of Bitcoin is low and selling when it’s high. Still others have made money through Bitcoin mining, though this is cost-prohibitive for many people now, as mining requires tens of thousands of dollars’ worth of hardware as well as affordable electricity. There are also many business and merchant opportunities that have developed with Bitcoin. In general, if you invest wisely, don’t spend money you can’t afford to lose, and don’t treat Bitcoin as a get-rich-quick scheme, you have a strong chance of making money with it.
12. Is Bitcoin truly 100 percent digital? Yes. While it is possible to use hardware wallets to store Bitcoins and make transactions, your Bitcoins exist purely as files on the Bitcoin network. Because of the decentralized and worldwide blockchain, however, your Bitcoins cannot be fraudulently stolen or modified just because they exist as files. Bitcoin uses cryptographic security measures, the same as online banking and credit card entities, which allow you to maintain control of your funds despite their non-physical nature.
13. Can I make anonymous Bitcoin transactions? While Bitcoin transactions provide a level of privacy that is greater than credit/debit card transactions, they are not truly anonymous. Because of the public nature of the Bitcoin blockchain, all transactions on the network are logged and viewable by anyone. While Bitcoin transactions do not include any of your personal information in the way a credit/debit card transaction does, anyone who knows your wallet address will be able to track any transactions involving that address. If you are interested in a truly anonymous cryptocurrency, you should consider Monero, which functions similarly to Bitcoin but allows for 100 percent private transactions.
14. Is it possible to lose Bitcoins? Yes. If you lose access to a Bitcoin wallet, any Bitcoins within it are removed from public circulation. While they remain in the blockchain, they cannot be accessed, spent, or transferred without access to the wallet containing them. This has the effect of increasing the value of remaining Bitcoins due to the law of supply and demand.
15. Is it legal to use Bitcoin? No country in the world to our knowledge has outlawed Bitcoin or other cryptocurrencies, though many have passed laws governing their use. A common type of Bitcoin regulation is requiring exchanges to be licensed; for example, in the United States, New York requires that Bitcoin exchanges obtain licenses before they can serve residents of that state. Due to Bitcoin’s youth and uncertainty over how it and other cryptocurrencies will develop, many national governments have adopted a hands-off approach when it comes to the technology, though this will likely change in the future as Bitcoin becomes more popular and widespread.
16. Can I use Bitcoin for illegal transactions? Bitcoin is a currency and individuals have found ways to use it for illegal purposes, just like any other currency. However, there is nothing inherent to Bitcoin that makes it easier to use for illegal transactions. Indeed, because Bitcoin transactions are not anonymous, using Bitcoin to commit crimes can make it easy for law enforcement to track you. While we don’t have the power to control how you use Bitcoin, we do not recommend or support its use for illegal activities.
17. How are Bitcoins made? “Miners,” high-powered computers connected to the Bitcoin network, generate new Bitcoins by solving complex math problems. Miners are rewarded with a small share of new Bitcoins created. To prevent inflation, Bitcoin mining will automatically halt when 21 million Bitcoins are created, halving the number of Bitcoins created every year.
18. Where does Bitcoin’s value come from? Bitcoin derives its value from the same place that the U.S. dollar and other currencies derive it: from trust and utility. Millions of people around the world trust the Bitcoin blockchain to safeguard their transactions and allow them to conduct business, which gives the currency its value.
19. How is the price of Bitcoin determined? Bitcoin’s price is determined by supply and demand, like any other currency. Because there are a relatively small number of Bitcoins in circulation compared to traditional currencies, this makes the price of Bitcoin more volatile, with frequent dips and peaks.
20. Could Bitcoin ever become worthless? Yes. No currency has eternal, unfixed value, with numerous currencies over the years becoming valueless for various reasons. While Bitcoin has shown staying power for the past decade, there is no guarantee of what will happen in the future.
21. Is Bitcoin a scam? No. Bitcoin’s decentralized nature and transparent operations mean that it is impossible for any one group or individual to take control of the network and defraud other users. While Bitcoin users can lose money due to price fluctuations and other economic considerations, these are no different from stock price falls or issues in the traditional economy.
As the oldest and most recognized cryptocurrency, Bitcoin played an integral role in shaping the current cryptocurrency scene and revolutionizing money.
While it has its flaws and is not as technologically advanced as some of its newer competitors, Bitcoin’s stability and popularity with traders and businesses make it a strong player on the cryptocurrency markets.
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