We have collected the most common questions about investing in cryptocurrencies.

If you can't find your question in the list, email us, info@blockbullreview.com, and we will do our best to answer your question. 

Who pays the miners for their mining-services?
Miners get a small reward for letting their computers run automatic verifications of cryptocurrencies via mathematical processes. Miners are paid a small amount with newly produced bitcoin. In this way, no one ‘pays’ the miners but they are automatically rewarded through the bitcoin system. Anyone can become a miner, you just have to lend your computer’s power to a cloud-mining company such as Hashflare Mining. More about how bitcoin works here.
Why do some people call bitcoin 'digital gold'?

Because the design of the bitcoin system was modeled off gold and the two have several important similarities in the way they work. For example, bitcoin has only a set amount of coins that will ever be produced. When bitcoin started to be mined in 2009 many bitcoins were mined each day, but the number of bitcoins that can be mined is steadily decreasing every year. On May 7th, 2140 the last bitcoin will be mined.

The fact that we know that there is only a certain amount of bitcoin that will ever be produced (21 million) gives credibility to the currency. Bitcoin’s value won’t wither away in the same way that some fiat currencies’ value have due to governments printing new money to cover for government overspending. More about how bitcoin works here.

Who invented bitcoin?
In 2008 an anonymous person or group of people who called him/her/themselves Satoshi Nakamoto invented the bitcoin technology in Japan. When following the news of the 2008 bank crisis, he/she/they were inspired to create the open-source currency bitcoin that removes the dependence on banks and the problems they sometimes cause. More about the bitcoin benefits here.
Is bitcoin anonymous?
Yes and no. The bitcoin blockchain is open for anyone to view. The blockchain holds information about every bitcoin transaction that has ever been made. Because bitcoin is transferred from one wallet to another, also the wallet information is stored on the blockchain. No information about who owns each wallet is stored, or even known by the bitcoin system. However, if your wallet is on an exchange and you have let that exchange know your identity, the exchange does know your bitcoin holdings. For this reason, some people who prefer total anonymity buy bitcoin directly from individuals.
What determines the value of bitcoin?
The value is set by buyers and sellers on the free market, by classic supply and demand. If lots of people want to buy bitcoin but few want to sell, the price goes up. If many want to sell but there are few buyers, the price goes down.
Some people say bitcoin is just for criminals, is that true?
Because bitcoin has been, and still is to a large extent, un-regulated by authorities, criminals see bitcoin as a useful tool for transferring money while at the same time staying under the radar. Media has written a lot about the fact that criminals use bitcoin. Those stories have largely outnumbered and overshadowed stories and explanations of the many lawful benefits of bitcoin. However, the media reporting on bitcoin is shifting fast to the more positive slant. At the same time, many governments are working on regulatory frameworks for bitcoin (this was written in September 2017). Read more about the benefits of bitcoin here.
What is Bitcoin cash?

Bitcoin cash is another crypto currency from bitcoin. The confusingly similar name to bitcoin is due to the fact that it originates from bitcoin. Bitcoin cash was created because the bitcoin community couldn’t agree on how to solve the scaling problem (bitcoin needs to be able to handle a higher number of transactions per second in order to accommodate the rising number of transactions, which you can read more about here).

In August 2017, an exact copy of the bitcoin blockchain was created, and different strategies for how to handle the scaling problem will be implemented on the two versions of the blockchain. The replica of the bitcoin blockchain is the foundation of the new cryptocurrency called bitcoin cash.

Is there a physical version of bitcoin?
The short answer is no. But you might have seen pictures of fancy-looking golden coins with big B’s on them. These are not bitcoin but token representations of bitcoin ownership (like souvenir trinkets). Read what bitcoin really is here.
To what extent is bitcoin used today?
According to researchers at the University of Cambridge there are 2.9 - 5.8 million active users of crypto currency wallets in 2017. However, one person can have several wallets (they are usually free). Bitcoin is currently used in two ways, as a currency for paying for goods and services, and for pure investment purposes (meaning the bitcoin holders just keep their bitcoin on wallets). To our knowledge, no study has been conducted on how many people use bitcoin in the two respective ways. But you can buy most anything with bitcoin today, for example at Dell.com, Overstock.com, Expedia.com, and Webbhallen.com.
What exactly does it mean that everyone can see the blockchain ledger?
The blockchain holds information about all the bitcoin transactions that have ever been made. Because bitcoin is transferred from one wallet to another, also the wallet information is stored on the blockchain. However, no information about who owns each wallet is stored on the blockchain, or even known by the bitcoin system. Read more about how the blockchain works here.
What is a fork?

Bitcoin experienced a fork in August 2017 in which an exact replica of the bitcoin blockchain was created. The fork occurred because the bitcoin community couldn’t agree on how to solve the scaling problem. (Bitcoin needs to be able to handle a higher number of transactions per second in order to accommodate the rising number of transactions, which you can read more about here.) The replica of the bitcoin blockchain is the foundation of a new cryptocurrency called bitcoin cash.

Different strategies for how to handle the scaling problem will be implemented on the two versions of the blockchain. Analysts believe there will be more forks in the future, with bitcoin as well as with other cryptocurrencies, because the first fork ever (the August 2017 bitcoin fork) was a popular solution to disagreements in the leader-less bitcoin community.

What does the name ‘miner’ come from?
The name ‘miner’ comes from an analogy with gold-miners. In a way, bitcoin-miners, like gold-miners, dig out bitcoin from the ground and put the new nuggets on the global market. But of course, the bitcoin miners don’t dig, they just run automatic verification processes via their computers. The verification process produces new bitcoin that act as a reward that the miners get for their services. Anyone can become a miner, you just have to lend your computer’s power to a cloud-mining company such as Hashflare Mining. More about how bitcoin works here.
How can I trade safely with bitcoin?
The bitcoin system is very safe, however the systems around bitcoin (such as exchanges and wallets) still need security improvement. Yet, if investors take some basic security measures, the security can be increased significantly. For instance, you can limit your use of exchange-wallets (some of them have been hacked) and instead take your bitcoin to safe off-line wallets such as Trezor. You can also make sure not to use the same bitcoin address consistently, store your private key(s) in safe places and divide the amount of funds that you want to transfer into several smaller transfers. Read more about how to get into bitcoin safely here.
Who is the boss of bitcoin?
Bitcoin has no leader. There is no central party on which everyone depends, as is the case with our current fiat (government issued) monetary systems where central- and commercial banks have the power. For bitcoin, the power is in the hands of the people or companies who mine it. There is also the Bitcoin Foundation, a nonprofit organization that has some influence. Read more about how bitcoin works here.
Why are some well-known economists skeptical about bitcoin?

Although the number of skeptics appears to be decreasing, there are some economists who are skeptical or straight out against bitcoin. To really understand bitcoin and its consequences, one needs to be very well versed in many complicated areas such as how advanced technology works, economics, politics, human psychology and financial investing. There are so many things that can influence to what degree bitcoin will be used in the future, that making accurate predictions is very difficult, if not impossible.

To analysts like us, it is obvious that many of the bitcoin critics have not done sufficient research. When we conduct research for our BlockBull Review articles, we encounter many false statements about bitcoin. Inform yourself about how bitcoin works here.

Is bitcoin legal or illegal?
Whether bitcoin is legal or not depends on where you are. Bitcoin is legal in most places, and in the Swiss municipality of Chiasso you can even pay your taxes with bitcoin! But the cryptocurrency is illegal in some places such as Bangladesh, Iceland, Ecuador and Kyrgyzstan. The bitcoin-skeptic governments are usually in countries with compromised democracy and many prohibitions in general.
What is blockchain?
The bitcoin blockchain is the security system that safeguards bitcoin and ensures that it can’t be copied, manipulated or in other ways misused. Every bitcoin-transaction is logged on a huge list that is stored in blocks. The blocks are linked to each other and form the blockchain. The bitcoin blockchain is open-source and visible to everyone. Copies of the blockchain, and all the transactions on it, exist on countless computers all over the world. This makes the blockchain very difficult to hack or manipulate. In order for a transaction to be considered valid, it needs to be verified by several miners. The blockchain technology has appealed to many security experts and numerous new blockchains have been created. More about how the blockchain works here, and how blockchain can be used here.
How can I be totally anonymous in regard to my bitcoin holdings?
It is possible to buy and own bitcoin totally anonymously because no personal information is stored, or even known, by the bitcoin system. You can buy bitcoin anonymously through some of the exchanges that offer accounts free of identity verification. You can also buy bitcoin directly from other individuals. As for storing bitcoin anonymously, you can use a so-called paper wallet or a cold wallet (you find a further explanation of what these things are further down on this page).
What is an online wallet?
A wallet is the equivalent of a bank account for bitcoin, it’s where bitcoin is stored. Online bitcoin wallets (also called hot wallets) are wallets that are online, such as the wallets on exchanges. Historically, online wallets have been less safe than off-line wallets (there have been incidences where online wallets have been hacked). Nowadays many bitcoin exchanges offer off-line storage. A good such exchange is Exmo, they store the cryptocurrencies in all their wallets off-line. You can read more about how you can increase your security while investing in bitcoin and other cryptocurrencies here.
What is an off-line wallet?

Off-line wallets (also called cold wallets) are as the name suggests, off-line. They look like some kind of USB-stick that you connect to your computer only for the short duration of the transfer in which you load bitcoin or other crypto currencies onto them. Once the transaction is finished, you disconnect the off-line wallet form your computer and store it in a safe place. The off-line status of these wallets makes them much more difficult to hack.

Trezor is an example of a popular, and often cited as the safest, off-line wallet. You can read more about how you can increase your security while investing in bitcoin and other cryptocurrencies here.

How many bitcoins are in existence?
The system is designed so that only 21 million bitcoins can ever be produced. Bitcoin is modeled off gold in the sense that only a limited amount of bitcoin has been and will ever be produced. Furthermore, the amount of newly produced bitcoin will decrease over time. Satoshi Nakamoto, the founder of bitcoin, was totally transparent about the amount of bitcoin that is in existence and that will be produced, in contrast to most central banks in the world. No one should be able to produce however much bitcoin they please (like central banks do). More about how bitcoin works here.
What is a bitcoin exchange?
Like stock exchanges, bitcoin exchanges are places where buyers and sellers meet to trade bitcoin with each other. Bitcoin exchanges are online and differ in the services and information they provide to their users. In this article, we review some of the best bitcoin exchanges in 2017.
What is mining?
Mining is the process of automatically validating transactions of bitcoin and other crypto currencies. Mining is done by a mathematical process. Sounds complicated? Well it is, but you don’t have to worry about it. If you want to become a miner (for bitcoin, anyone can become one), all you need to do is get some mining hardware or let your computer’s power to a cloud mining company such as Hashflare Mining. Mining is an important process for bitcoin and other crypto currencies. In the case of bitcoin, miners are rewarded for their mining with newly produced bitcoin. Read more about what bitcoin is and how it works here.
What is fiat money/currencies?

Fiat money is the type of money that most governments issue currently. The main characteristic of fiat money is that it’s not tied to any underlying value. For this reason, fiat money is also called representative money. Because fiat currencies are not tied to anything, countries can just go ahead and print more money when they want or need to (for example to cover for government overspending).

Not tying a currency to an underlying value comes with several drawbacks including rising inflation if governments print more money. However, tying a currency to something also comes with problems. These problems are the reason why almost all countries that used the gold standard (in which the currency was tied to the price of gold) abandoned the system in the early 1900’s.

Although a clear majority of economists support our fiat current system, support for the current system appears to be on the decline with ordinary people (probably because people don’t like the fact that many governments print money to cover their own overspending). In all honesty, creating a good currency is an extremely complex and difficult task. You can read more about creating currencies, the gold standard, and all its pros and cons in this book.

How is government-issued money produced?
The money that governments issue is either produced by central banks or by fractional reserve banking. The first method is pretty straightforward, central banks just print a bunch of national heroes and heroines on pieces of paper and distribute the notes to society via the commercial banks. Fractional reserve banking, on the other hand, is not as straightforward. It happens when central banks increase the amount of money in society by issuing new loans. You can read more about how fractional reserve banking works in this article.
What are bitcoin’s largest challenges?
There are a few issues with bitcoin that need improvement. First, there is the issue of scaling; more bitcoin transactions need to be able to be verified each second. Secondly, there is the issue of energy consumption. The verification process consumes a lot of energy, and if bitcoin becomes a world currency, unreasonable amounts of energy would be needed. Third, the legal landscape for bitcoin needs to be set, or rather, some people think so if bitcoin is to take over the world of payments. Forth, the bitcoin price is currently very volatile which sometimes makes it impractical to use as a currency. Fifth, there is the potential future problem of ‘51% attack’ which means that if one miner holds more than 50% of the network’s power, that miner could in theory verify invalid transactions. Read more about bitcoin’s largest challenges here.
Will bitcoin replace big commercial banks?

Bitcoin has a good chance of replacing big banks. But there are many factors that influence bitcoin and its chances of dominating worldwide payments. Many analysts who really understand bitcoin and how it works believe that it will in fact take over the world of payments. Big banks are currently looking at making their own blockchain solutions (the security system that bitcoin is built on), but are way behind in the development process (this was written in 2017). Even if the banks succeed in making their own blockchain, there are good reasons for bitcoin to coexist. After all, why pay big banks if we don’t have to? Bitcoin already exists and is virtually free.

The biggest threat is perhaps government regulation. A bitcoin ban could bring its use to a screeching halt (in all but the criminal world). But again, regulations need to make sense, otherwise people revolt.

The short and clear answer to the question ‘will bitcoin replace big commercial banks?’ is ‘we don’t know’, so read and form your own opinion about it. A good start is this article, and please discuss your thoughts with other readers in our live chat forum.

Is bitcoin safe?

Bitcoin is said to be the world’s largest computer network and has never been hacked (despite the obvious appeal to hackers). Because of how the bitcoin blockchain works, it’s virtually impossible to hack or manipulate it, more about how it works here.

However, the surrounding systems of bitcoin, namely some of the bitcoin exchanges and wallets, are not as safe as many would like. But some of the world’s brightest people are working on improving the security as we speak (this was written in 2017). More about how you can safely get into bitcoin investing here.

What are the primary areas of use for bitcoin?
Bitcoin makes payments cheaper, faster and, in the future, safer than the payment systems we use today. Bitcoin can break our dependence on big banks because it’s system is run by its users, so most of the expensive services that banks provide are not needed. Furthermore, if bitcoin became a world currency, international trade could become easier, less risky and cheaper. Also, individuals and businesses in the developing world would have easier access to financial services, which is a big step in ending poverty. Here is a more in-depth explanation of the main benefits of bitcoin.
What are the primary areas of use for blockchain?
Blockchain is a security system that works automatically to ensure that transactions are correct and valid. Blockchain can be used not only to provide security for monetary transactions, but for virtually any type of transaction that involves a transfer of value (which is anything, right)? Smart contracts have already been developed, and in the future blockchain can be used to register cars, buy real estate and store passwords, just to name a few examples. To understand how blockchain works, click here.
What is a hot wallet?

A hot wallet is another word for an online wallet. Hot bitcoin wallets are wallets that are online, such as the wallets on exchanges. Historically, hot wallets have been less safe than cold wallets; there have been incidences where these wallets have been hacked. Nowadays many bitcoin exchanges offer off-line storage of funds. A good such exchange is Exmo, they keep all cryptocurrencies in their wallets off-line.

You can read more about how you can increase your security while investing in bitcoin and other cryptocurrencies here.

What is a cold wallet?

A cold wallet is another word for an off-line wallet. Cold wallets store bitcoin and/or other crypto currencies off-line. They look like some kind of USB-stick that you connect to your computer only for the short duration of the transfer in which you load crypto currency onto them. Once the transaction is finished, you disconnect the cold wallet form your computer and store it in a safe place. The off-line status of these wallets makes them much more difficult to hack.

Trezor is an example of a popular, and often cited as the safest, off-line wallet. You can read more about how you can increase your security while investing in bitcoin and other crypto currencies here.

What is the bitcoin ledger?
The bitcoin ledger is a long, long, very long list of bitcoin transactions. In fact, every bitcoin transaction ever made is on the bitcoin ledger. The ledger is stored in blocks that are linked to each other forming the blockchain. The blockchain is the fundamental and revolutionary technology that makes bitcoin so special and powerful. Read more about how the bitcoin blockchain works here.
What is an ICO?

ICO stands for Initial Coin Offering and is the action of creating a new crypto currency and offering it to the market. The money that the sale of the new ICO-coins bring in are (or should be) used to fund new IT start-ups, and have proved to be very efficient in doing so. Some coins offered in ICO’s resemble currencies while other coins have a lot in common with traditional stock. Yet other features of ICO-coins resemble nothing and appear to be a totally new phenomenon.

ICO’s have been under scrutiny lately (this was written in 2017) because their legal status needs clarification. Governments are starting to react to the ICO’s that resemble traditional stock, claiming that they need to be taxed as such. Read more about the fascinating world of ICO’s here.

What basic investment guidelines should everyone know about?
All investing comes with risk. If you are not willing to accept that, don’t do it. Figure out your risk-tolerance and match your personal risk profile with the level of risk that you take in your investments. Manage your emotions so you don’t let your feelings, rather than rational thinking, steer your decisions. Don’t spend more than you can afford to lose, and invest in things you know and understand. Oh, and enjoy the ride of investing! More about the basics of investing here.
What is different about investing in crypto currencies compared to investing in stock?
The difference between investing in crypto currencies such as bitcoin and traditional stock is the risk-level. All investments come with risk, but the risk-level for investing in bitcoin and other crypto currencies is extremely high. We like to think about crypto currency investment as the most extreme of all the extreme sports out there. High risk means there is a high chance to win but also a high chance of loss. Read more about risk-taking in investing here.
How can you lower the risk in your investment portfolio?
There are several things you can do to lower the risk in your investments. For example, you can invest in several different securities (don’t put all eggs in the same basket). You can buy securities that hold different amounts of risk, or buy several securities in each security class. You can also buy cyclical and countercyclical securities, or you can buy small amounts of the same security at different points in time. Investing over a long period of time can usually also reduce the risk. More about how to reduce the risk when investing here.
How do bitcoin debit cards work?

Bitcoin debit cards look just like any other debit- or credit cards out there, and when you use them for buying things, they work in the exact same way. The difference between bitcoin debit cards and traditional ones is simply that traditional cards are loaded with fiat money and bitcoin debit cards are loaded with bitcoin.

Many bitcoin cards store funds as fiat money on the cards (you essentially use bitcoin to pay for fiat money that is stored on the cards). This makes Swede’s and American’s lives easier when it’s time to file taxes. Here is a comprehensive comparison of the best bitcoin debit cards for Swedes.

What is altcoin?
Altcoin is short for ‘alternative coin’ and refers to any other cryptocurrency than the original one, bitcoin. Examples of altcoins include Ripple, Monero and ZCash. Here is a comparison of the most popular altcoins right now (this was written in 2017).
What is Ripple?
Ripple is an altcoin, a cryptocurrency similar to bitcoin. The ambition for Ripple and it’s blockchain (which is different from bitcoin’s blockchain) is to transfer both cryptocurrencies and fiat currencies faster, cheaper and safer. Ripple is one of the most famous altcoins (this was written in 207). Here is a comparison between Ripple and other popular altcoins.
What is SegWit?

SegWit stands for Segregated Witness and refers to the technical solution that the majority of the bitcoin community wanted to use to solve the bitcoin scaling problem in 2017. Bitcoin needs to be able to handle a higher number of transactions per second in order to accommodate the rising number of transactions, which you can read more about here.

Segwit was implemented in August 2017. A team of developers had also planned to implement further solutions for the scaling problem called SegWit 2X in the fall of 2017, but canceled their plans in the last minute. The SegWit 2X changes did not have wide support in the bitcoin community and received a lot of criticism. Most people in the community prefer other methods to solve the scaling problem, for example, to complete Lightning.

What is a Hardware Wallet?

Hardware wallets have been developed for one reason only, to keep your bitcoin and other cryptocurrencies as safe as possible. Hardware wallets are small devices that connects to computers or cell-phones and are widely regarded as the safest kind of wallet available.

Although hardware wallets are very safe, there is no guarantee that your funds can’t be stolen. The thieves seem to constantly be one step ahead. So, in addition to buying a hardware wallet, it is advised to take precaution in other ways as well, for example by choosing strong passwords that are not used for multiple devices/sites, and to not tell the entire world about the value of your bitcoin/cryptocurrency assets.

Here is a comparison of the best hardware wallets on the market.

How do Hardware Wallets Protect Cryptocurrencies?

As you can imagine, many hackers have tried to steal people’s bitcoin. There are several ways that bitcoin or other cryptocurrencies/assets can be stolen. One way is to steal the coin’s private keys. Bitcoin (and most other cryptocurrencies/assets) are always on the blockchain, but the ownership of them is determined by who has access to each bitcoin’s private keys. Whoever has access to the private keys has access to the bitcoin and can move/send them as they wish. To protect the private keys form hackers, hardware wallets store the private keys off-line, and the devices should only be connected to Internet-accessed computers or cell-phones for the few moments it takes to send bitcoin/cryptocurrencies to and from them. Hardware wallets are encrypted to also protect the cryptocurrencies during the moments they are connected to the Internet.

Another way hackers have been known to steal people’s bitcoin is by infesting computers with malware that tracks what keyboard keys are stroked. In this way hackers have been able to steal passwords to people’s online wallets. When logged into someone’s accounts the hackers then transfer bitcoin and other cryptocurrencies to their own wallets. For this reason, most hardware wallets use a very smart system where you never strike the same keys on your keyboard when entering the password to log into your wallet.

As in many other fields, the science is not clear in cybersecurity. The experts are not in agreement of which techniques are best and which are redundant in terms of protecting people’s computers and cryptocurrencies. Add to this that cybersecurity is constantly changing as hackers invent new techniques for their criminal pursuits. Hardware wallets are developed by different companies who have slightly different views of what is the best way to safeguard bitcoin and other cryptocurrencies, so they can have quite different safety features, functionality and appearance in general.

There is a lot more to be said about the technical ways that hardware wallets strive to protect people’s bitcoin and other cryptocurrencies, these are just the main ways. Trezor does a great job in explaining cyber-threats and how their company’s hardware wallets protect from them.

Here is a comparison of the best hardware wallets on the market.

2017-10-03

Disclaimer: The information in this article, as all content on BlockBull Review, is not and should not be seen as investment advice. The information is for educational and/or entertainment purposes only, so use it at your own risk. It is possible to lose money when engaging in any investment including cryptocurrencies and past performance does not indicate future performance. Any opinions expressed are those of BlockBull Review's writers who are not broker-dealers or advisors of any kind.


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