History/Folklore:

• Bitcoin was created by the anonymous Satoshi Nakamoto, it started in January 2009.
• Satoshi Nakamoto is an incredibly talented software developer although his name is a pseudonym. Nobody has ever verified his identify and he remains completely anonymous.
• Satoshi Nakamoto is said to own one million bitcoins, with a current value of around $4.2 billion. However, he has never converted any of his bitcoins to fiat currency.

Statistics:

• Around $500million USD equivalent of bitcoin is traded every day.
• The market is open 24/7/365.
• There are around 300,000 transactions a day.
• The market cap has grown significantly in the last 6 months from $15billion to $70billion.
• There are over 16 million wallets.
• 16.5 million bitcoins are currently in existence, a total of 21 million will be available by 2140.
• The market capitalisation of bitcoin overtook PayPal in August. This is significant as it’s sometimes seen as a rival to PayPal (albeit fairly loosely).

Trivia

• Bitcoin with a capital B is the protocol (blockchain), bitcoin is the currency.
• Wallet addresses have 32 alphanumeric characters e.g. 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2.
• Miners are rewarded with new bitcoins for maintaining the security of the network. This reward halves every 4 years.
• The energy consumption used in the mining of bitcoin is estimated to be 3GW, around the entire consumption of Ireland, and it’s growing. This estimate may even be on the low side.
• Reward (which can be thought of as inflation) is currently 12.5 bitcoins mined every block, which happens every 10 minutes.
• It costs around $2 to send a bitcoin transaction as of late August. You can set your own fees (the more you pay the faster your transaction will be confirmed).
• Bitcoin is divisible to 8 decimal places. The smallest unit (0.00000001 BTC) is called a satoshi.

Regulation – is it legal?

Some countries have taken a very positive stance such as Japan where bitcoin has been legalised as a form of currency (Q1 2017). Typically, countries want to encourage bitcoin innovation but regulate the Anti Money Laundering (AML) and Know Your Client (KYC) restrictions on buying and selling bitcoin.

However, bitcoin is a new paradigm and this has meant regulators have struggled to understand what bitcoin is. However, most nations do see bitcoin as legal, with many nations reversing on their original decision of making it illegal in 2012-2013 (e.g. Thailand).

Is bitcoin used for illegal activities such as buying drugs and funding terrorism?

As with any form of cash, bitcoin has been used for illicit purposes. However, because every transaction is recorded and publicly available it is easy to trace funds to their entry and exit points. KYC and AML regulations are now much stricter in BTC exchanges.

It is increasingly difficult for criminals to use bitcoin illegally without detection, and many illegal operations have been shut down and their bitcoins confiscated – this is why the second largest global holder of bitcoins is said to be the FBI. As the bitcoin economy matures, the proportion used for illegal activities is decreasing fast.

Isn’t bitcoin used for tax avoidance/money laundering?

Quite the opposite. Bitcoin is the most transparent and easily traced currency in the world. Law enforcement is using blockchain analysis to trace stolen bitcoins to their exit point (bitcoins to fiat). A bitcoin exchange was shut down in August for money laundering. They were caught because of the transparent and traceable nature of blockchain.

Bitcoin can only handle around seven transactions per second how will it scale?

Blockchains are difficult to scale and the bitcoin community has been debating how to increase capacity for the last three years. On the 1st August 2017, bitcoin hard-forked and this has implemented ‘SegWit’ (Segregated Witness) which is an upgrade that will allow the currency to handle more transactions as well as improve its functionality.

Decentralised: Bitcoin is supported by a distributed network, meaning there is no single point of failure.

Immutable: The transactions on the bitcoin blockchain cannot be altered or manipulated.

Trustless: The bitcoin protocol allows users to transact without having to trust any human. Trust is provided by the mathematics and cryptography underpinning the blockchain.

Secure: If 50% of the network is not malicious it is impossible to hack the bitcoin ledger.

Mining (Miners): Providing computing resources to verify transactions and maintain the security of the network in exchange for a bitcoin reward.

Blockchain: Transactions are grouped into blocks, once verified by the miners, blocks are added to the chain. Once a transaction is 6 blocks deep it is considered immutable, click here to find out more about Blockchain. A hacker would have to do more work than was put in to mining those 6 blocks. Considering you would need more computing power than the top 500 supercomputers combined it is not feasible to do so.

Open Source: All of the code that bitcoin is built upon is freely available and anyone can collaborate to improve it, this is partly why there is such a strong community around bitcoin.

Consensus: In order to change any fundamentals of the bitcoin ‘DNA’ (e.g. its total supply of 21 million) the entire network must agree and come to consensus. Essentially, via a decentralised democratic governance model.

Fiat currency: Legal tender whose value is backed by the government that issued it, for example US Dollar, Pound Sterling.

• Is bitcoin anonymous?

Bitcoin offers a similar level of privacy to cash. However, the blockchain records a history of all transactions ever made. The difficulty is matching the wallet addresses to real people, this is getting easier with AML and KYC improvements.

• I thought bitcoin was a physical currency?

Physical bitcoins that you may have seen in the press themselves have no value, the value is attributed to the unique codes printed on them.

These codes function the same as a paper wallet, that is to say it has both the public and private keys printed you need to take the bitcoins out of the wallet.

However once the codes are used, the physical token has no value except, perhaps, novelty value.

• What is the blockchain used for?

The possibilities of blockchain technologies are still being explored. Right now, the most effective use case is as a form of currency (bitcoin). However, there are multiple other potential use cases such as land registry, voting, asset registration etc. Essentially anything that requires a third party to facilitate trust in a transaction of information or value.

Dubai is an exciting place to look at as they aim to be the first ‘blockchain city’ in the world.

Some people equate where we are now with blockchain technologies to the early days of the internet. It holds a lot of promise, it’s now up to our ingenuity to build applications on top of it.

• How do you store bitcoins?

The best way is to use a hardware wallet that is basically an encrypted USB stick, or a paper wallet where you print off your private keys. Alternatively, you can use any of the numerous online wallets, however it is important to pick one where you control the private keys. If you don’t have the private keys, you don’t own the bitcoins.

• How do you spend bitcoins?

It can be as simple as touching your phone against a bitcoin payment terminal, which will debit bitcoins from your account. You can also withdraw fiat currency for your bitcoin at bitcoin ATMs.

• Is it secure, has bitcoin been hacked?

Yes, it is secure and no the bitcoin blockchain has never been hacked or altered. The way it works is more secure than credit cards or bank accounts, there’s no central point of failure. However, bitcoins have been stolen by hackers from incompetent exchanges which themselves have been hacked and private keys stolen. For example, MtGox exchange suffered a hack of around 800,000 bitcoins in 2014. This is why you should keep your own private keys in your possession and not give them to an exchange or wallet provider. If you have control of your private keys then your bitcoins are safe!

• What is the blockchain?

It is essentially a digital ledger where transactions are recorded and displayed publicly. In the case of bitcoin, the transactions represent a form of value, however the transaction could be used to transfer the title deeds of a property or a vote. The key attribute of blockchains is their decentralised nature, this means that anyone can maintain and support the network. Eliminating the single points of failure that are common in centralised systems.

• Why is bitcoin special?

There are two ways to look at why bitcoin is special. It has functional as well as ideological advantages over existing currencies.

From a practical viewpoint, it is fast, cheap, borderless, available 24/7/365. Transactions don’t require an expensive trusted third party to facilitate the transaction.

From an ideological viewpoint, the currency is the first simple way to store wealth outside of government control. Citizens of Venezuela are forced to suffer the consequences of rampant inflation which is a direct result of a failed monetary policy. Bitcoin offers people a way of placing a small proportion of their wealth in an asset that isn’t influenced by the state and is inflation resistant. The inflation rate for bitcoin is hardcoded into the protocol so there can never be more than 21 million bitcoins. The supply of the USD is not so scarce, Quantitative Easing following the 2007 crash has more than tripled the supply of dollars. Devaluing the average person’s wealth unless they can afford to buy a house or some other inflation resistant asset.

• What can you buy with bitcoin?

A lot, Subway and Starbucks accept BTC in the US. Online is your best option with sites such as, WordPress, Overstock, Microsoft and Expedia all accepting bitcoin. Our partner BitPay has helped 75,000 Shopify merchants accept bitcoin.

Japan has legalised bitcoin as a form of currency and it is estimated that 260,000 merchants will start accepting bitcoin by the end of 2017. The largest ticket exchange (Ticket Camp) in Japan that processes $53 million a month has recently started accepting bitcoin.

However, some of the biggest use cases for bitcoin are where the user may never know they have used bitcoin. M-pesa allows users to send and receive money via SMS using bitcoin. As of 2015 almost half of Kenya’s GDP was sent using M-Pesa. Considering there are over 2 billion unbanked could expect to see blockchain based financial solutions leapfrogging the established banking system in areas with inadequate banking facilitates. In the same way that the mobile leapfrogged the landline in many developing nations.

• What other cryptocurrencies are there?

Ethereum is the second largest and it is unique from bitcoin as it offers ‘smart contracts’ otherwise known as programmable money. In total, there are over 1,000 cryptocurrencies with a total market capitalisation of around $150 billion.

• Is bitcoin too volatile to be a useful currency?

Volatility has been trending down and this is expected to continue as the market cap grows. Having said that, it is always advised to only have a small percentage of wealth in any volatile asset such as gold, stocks and in this case bitcoin. When acquiring bitcoin it is recommended to buy a small amount each week or month to create a lower risk average buy price.

• How do you acquire bitcoin?

1. Buy on an exchange using fiat currency (e.g. Coinbase, Bitstamp)
2. Use computing power to ‘mine’ bitcoins
3. Ask to be paid in bitcoin

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