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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.