Frequently asked questions
Bitcoin is the most popular digital currency in the world. It is an investment, a form of tender and a system of information storage all at once. This system is anonymous and decentralized. Even if a sector of the bitcoin economy were to disappear, the whole will continue to function. The circulation of bitcoins is not controlled by any bank or any state.
It takes a few seconds to open a bitcoin account and it is absolutely free. On top of that, a bitcoin address is much more anonymous than an ordinary bank account. It is not linked to your passport or your name. And transaction fees are much lower than what banks charge for their services.
- Bitcoin transactions are a lot faster than bank transfers. It can take you a few days to transfer money from one bank to another, whether in your own country or internationally. With bitcoin, the same operation takes no more than ten minutes.
- Bitcoin is anonymous. All bitcoin transactions are recorded in a general list of transactions known as the block chain. Everyone can see how many bitcoins were sent to an address and where from. But no one knows who the owner of a bitcoin address is.
- Bitcoin is decentralized. It means that no bank and no state can devalue it.
- Bitcoin transaction fees are minimal. Banks charge significant commission fees to make transfers. Even if an operation appears to be free to the consumer, someone still has to pay for it (for example, the merchant). Bitcoin operations attract only a minimum fee and can even be free of charge.
- The value of bitcoin does not depend on the price of a barrel of oil or an ounce of gold. However, the digital currency is still subject to stock market fluctuations.
You can exchange your money into bitcoins either through regulated trading platforms or by trading directly with individuals who are willing to sell them. There are many ways to purchase bitcoins, from cash to wire transfer and you can choose which is the most convenient for you, depending on your location and the seller's preferences.
Before purchasing bitcoins, you will need to set up a bitcoin wallet which allows you to store them. There are many ways to do so: you can install it on your computer’s hard drive, set it up online, and so on (see below).
Some of the largest exchange platforms where you can buy bitcoins include Bitstamp (USA), BTC-e (location unknown), Kraken (USA), Huobi (China), OKCoin (China) and BTC (China). They sell bitcoins for US dollars, euro, Chinese yuan, and Japanese yens.
If you decide to buy bitcoins from an individual you can find a broker on the Localcoins website. This, however, implies certain risks. There are also bitcoin ATMs, which sell bitcoins. Although they are still very few in number and can only be found in big cities, their number is steadily increasing. These allow you to pay in cash and get printouts of codes to download bitcoins into your wallet.
Bitcoin users usually keep their bitcoins in special “bitcoin wallets”. Typically, a “bitcoin wallet” is a piece of software that allows you to keep your digital currency in safety. There are several popular types of bitcoin wallets:
- A cold storage wallet is a special device that looks like a USB drive. It keeps all information about your bitcoins in encrypted form. You can plug it into any computer that has access to the Web and use your bitcoins
- Online wallets. Instead of buying a “cold storage stick”, you can save money by using an online wallet. You can set it up with just a few clicks on several websites. This is the most popular type of a bitcoin wallet nowadays – there are more than 2 million online wallets in the world. To keep your bitcoins in safety, you need to have two or three passwords for your wallet: this technology is known as Multisig.
- Mobile wallets. Many wallet providers have developed special apps that allow their clients to use bitcoins on any mobile platform. In some cases, you can install an app that allows you to keep your bitcoins on the hard drive of the phone itself. Mobile apps and mobile wallets allow you to use digital currency on the spot and buy goods and services with no hassle.
The list of things that can be purchased with bitcoins is growing daily and already includes almost everything under the sun. As of January 2015, bitcoins could be used to pay for a ranch in Texas, a Dell laptop, a Microsoft Office suite license, fashionable clothes from Paris and even traditional leather shoes from the Islamic Republic of Iran.
If you need to travel, you can pay for your hotel on Expedia or book a direct flight with airBaltic with bitcoin. The next frontier for bitcoin is in education: at least one university in Europe has agreed to receive payment in bitcoins and others may do so soon.
All these companies and vendors use bitcoin in direct sales. Different businesses use bitcoins indirectly: in Europe and in the US, you can buy Amazon gift cards with bitcoins and then use them to pay for the goods you need. You can use your digital currency to buy coffee and beer. You can treat yourself to a “digital pint” at the Pembroke Tavern in London or at the historic Old Fitzroy in Sydney; in Tokyo, your restaurant of choice is Pink Cow. If you are not in the mood to leave the house, you can order takeout on Foodler, which can deliver your pizza or steak from 13,000 restaurants in over 3,000 cities allaround the world. Bitcoin has been embraced by some of the largest charities and non-profits, too: Wikipedia, Greenpeace and the Red Cross are all happy to receive your donations in bitcoins.
You can sell your bitcoins by placing an ad on an exchange service or handing them over to a broker. You will need to register at the service website and to link your account there to a bank account. However, keep in mind that, unlike bitcoin transfers, sending money from the exchange to your bank account can take several days.
If you sell bitcoins through a personal contact with a broker, great caution is recommended during the meeting. A list of brokers can be found at the Localbitcoins website.
To send bitcoins to another person or company you need two things: bitcoin address of this person or company and special code, which you use as a personal signature to gain access to your bitcoin wallet.
You start your transaction when you write down the bitcoin address of your counterpart and the number of bitcoins, which you would like to send. After this your "sign" your transaction with the special code mentioned above and send it. After this special people called miners encrypt your transaction and fix it in a public ledger called Blockchain. Your counterpart will receive the bitcoins you sent in the time of ten minutes (sometimes you need to wait a bit longer due to technical difficulties).
Comission for bitcoin transaction usually depends on the wallet provider. It is very small now, but will probably grow in the next few years. It is always important to remember that you can not "return" your bitcoin transaction.