Bitcoin Wiki - User contributions [en]

How to accept Bitcoin, for small businesses

2011-08-09T17:37:32Z

Mircea popescu:

This guide is intended for small business owners who wish to help promote Bitcoin by accepting it as payment for goods and services. It's written with the assumption that you operate a regular business that sells goods or services for regular national currency such as dollars, and that you wish to accept Bitcoin as another legal way to pay, and that you intend to pay taxes on your Bitcoin income just like any other income.

With Bitcoin being touted as a way to conduct anonymous transactions and as way to compete with government currency, many small business owners wonder what's the right way to accept and account Bitcoin, or if it's legal or ethical, or whether and how they should pay taxes on income received through Bitcoin.

As far as we know, Bitcoin isn't yet formally recognized by governments and authorities as a "currency". But in practice, Bitcoin is likely no different than accepting payment in other forms, such as cash, or gold, or scrip, or gift cards or foreign currency. We think that it is pretty much the same as the local businesses of Great Barrington, Massachusetts choosing to accept their locally-printed [http://www.reuters.com/article/2007/06/19/us-usa-economy-berkshares-idUSN0530157720070619 "Berkshire Bucks"] to support their local economy.

==Starting to accept Bitcoin for transactions==
Accepting Bitcoin at a small business is best started in whichever manner keeps the accounting simple for you. This will vary by the type of business you are operating.

===Start with a sign===
[[{{ns:file}}:WeAcceptBitcoin.png‎]]

If you expect that the number of people interested in using Bitcoin is small, you might simply start by posting a sign or a note: "We Accept Bitcoin", and ask people to contact you directly in order to make a payment. Even if hardly anybody uses Bitcoin as a payment method, you're helping Bitcoin in two ways: one, by increasing awareness, and two, by making your customers more willing to accept Bitcoin as payment from others in the future, because now they know somewhere they can spend it.

===Retail businesses===
Are you a retail business? The easiest way for a customer to make a Bitcoin payment right now is with their mobile phone (for example [[BitPay]]). While applications supporting this are in their infancy and don't exist yet for all platforms, most smartphones can browse the web and initiate Bitcoin transactions from websites like MyBitcoin.com. Since entering a Bitcoin address on a mobile phone is very cumbersome, you might consider using http://ma.eatgold.com/accept to make a sign for near your register, or setting up a webpage with a short URL that they can go directly to, that makes use of MyBitcoin's shopping cart capabilities.

Many mobile phones with cameras can now scan two-dimensional barcodes called "QR Codes" that encode a web address. This sends the user directly to the web page of your choice. Free utilities on the web can generate these barcodes. By conspicuously posting a QR code for your payment page, you can allow many mobile phone users to skip the step of typing your URL.

===Accounting===
When a customer makes a payment, you might simply issue a credit to their account. Ideally, you want to enter it in a way that suggests you received a payment. You could consider entering it as a "discount", but you may want to consider whether this inappropriately disguises the nature of the transaction. If on the other hand, you're giving "discounts" for Bitcoins, but then you are selling the Bitcoins for currency and then counting that as income, then chances are good that your calculation of income is making up for it. Ask your accountant.

===Businesses that offer gift cards===
If your business sells gift cards or gift certificates, you may find that the easiest way to accept Bitcoin is to accept it only for the purchase of gift cards, and then require the gift cards to be used for actual purchases of goods or services. This way, the accounting practices you already have in place for processing gift cards can be put to use. The accounting for Bitcoins would then be minimized to tracking sales of a single SKU.

This method is also ideal for retail food establishments and convenience stores, where the payment of Bitcoins through a mobile phone for a small daily food purchase might be cumbersome or disruptive, especially in front of a line of other customers. Bitcoins in this case would be best used to reload prepaid cards that can then be swiped at point-of-sale.

If you don't accept gift cards, but you already accept credit cards through a swipe terminal, consider the possibility that you could add a retail gift card system through the swipe terminal you already own. Many point-of-sale terminals, including ones from VeriFone®, are designed around the ability to support multiple applications on the same terminal. Gift cards are also highly profitable because of "breakage", or in other words, the fact that a significant percentage of them never get redeemed.

You could consider adding a private label gift card program from a provider who specializes in this, not just as a jumpstart to accepting Bitcoins, but as an extra boost to income. A private label gift card service provider necessarily have to handle your funds - they can simply provide a solution that keeps track of the balance on the cards on your behalf, including features that allow users to check their balances by phone or by web. Such a solution, of course, is also what makes the cards swipeable through the card reader.

===Businesses that mail invoices===
Does your business send out invoices to customers? Adding one line may make a huge impact for the Bitcoin economy. Perhaps you list it as a payment option just after Visa, MasterCard, and American Express, even if that means your customer must call or e-mail to make a payment.

If you have access to the programming expertise such that you can generate Bitcoin addresses programmatically, consider generating a brand new Bitcoin address for each invoice, and print it on the invoice. When a Bitcoin payment arrives, you'll automatically know where it should arrive.

Customers might wonder how much BTC they should pay in order to satisfy an invoice in full. Your invoice might suggest an amount. For example, if your invoice is for $100 and BTC's are currently worth $1.24 each, your invoice might suggest that it can be paid in full ''"with a payment of 80.65 BTC if paid by (date)"''.

You might be able to anticipate the possibility that even though a Bitcoin address can be printed on an invoice or payment stub, that they are very cumbersome for most people to type, especially being a mix of uppercase and lowercase letters. However, you should probably still do it anyway. The customer is probably going to want some paper trail for his payment. Giving him a pre-printed payment stub with a pre-printed address will satisfy that, because the customer can independently and publicly prove through [[Block Explorer]] that the payment took place.

Does your business have a website? On your invoice, consider allowing them to go to a special URL to get the address to make a Bitcoin payment just by typing in their invoice number. For example, ''ht<nowiki>tps://ww</nowiki>w.yoursite.com/paybtc'' with a form they can enter their invoice number, or just ''ht<nowiki>tps://ww</nowiki>w.yoursite.com/paybtc/60365'' for paying invoice #60365. This way, they can see the Bitcoin address, copy and paste it directly into their Bitcoin client.

Use a brand new address for each invoice whenever possible, and use it only once. This benefits the customer as it removes any ambiguity as to which customer is making which payment and for which invoice.

===Avoiding fraud===

You should also consider the possible risk that fraudsters could send counterfeit invoices to your customers, and entice them to make a payment to a Bitcoin address they control, instead of you. While that isn't likely in general - it depends on how well a fraudster could find out who your customers are in the first place - it would certainly be an unpleasant situation if it ever happened. One way you could control that is, whenever possible, never let people try to type Bitcoin addresses off payment stubs - instead, force people to get the full Bitcoin address from your website via secure SSL. But, still print ''most'' of the address on the payment stub (perhaps with four or five characters starred out), so that the customer's need for a paper trail can be satisfied, so they can prove they paid if there is ever a dispute.

==Setting Prices==

When a business accepts bitcoins for payment, there generally is the need to convert them to the currencies used for paying suppliers, employees and shareholders. Some merchants set prices based on the current market rate at the time the price quote is presented to the customer. The exchange rate could change if enough time passes before the sale is booked so it would be prudent for the business to add a time limit to the quotation so that exposure to significant changes to the rates become less likely.

[[Bitcoin Prices]] lists the exchange rate for many currencies on multiple exchanges.

When prices are determined using an automated process, the current market rate can be based on either a current price or on a weighted average basis. [[Bitcoin Charts]] provides a [http://bitcoincharts.com/about/markets-api data feed that provides weighted prices].

When bitcoin funds for purchases are received, some merchants instantly exchange those proceeds into the preferred currency used. Hedging for each transaction can nearly entirely eliminate exchange rate risk that the business is exposed to when accepting bitcoins for payment.

If you are concerned about unfavourable exchange rate fluctuations, you can use [http://polimedia.us/bitcoin/options.php options] to hedge your risk. Put contracts protect you against sudden BTC value depreciation, whereas Call contracts protect you against sudden BTC value appreciation.

==Contract==

A sales contract might be used to ensure that specific terms are met to lessen the chances of a misunderstanding. For instance, the party sending payment is responsible for paying any [[transaction fee]] that might be necessary. A contract might specify that a transaction fee must be paid and what amount, so as to prevent the situation where the transaction is considered a low priority transaction and thus isn't confirmed quickly.

Other items that might be addressed in a contract:

* Requirement and handling of escrow through an [[:Category:Escrow_services|escrow service]].
* Jurisdiction for disputes.
* Refund policy (particularly with the exchange rate being volatile)

==Paying taxes on Bitcoin income==
[[Tax compliance]] is a topic of concern for small businesses. We aren't accountants or lawyers, and can't give legal or accounting advice.

But in many respects, Bitcoin transactions work very much like cash. Just like Bitcoin, cash is anonymous and doesn't leave a paper trail, yet is widely used in commerce every day.

Ask yourself how you would handle a cash transaction. Do you accept cash transactions? Do you normally pay taxes on cash transactions? The answer for Bitcoin should probably be the same.

As for how to decide what a Bitcoin transaction is worth... the IRS, as far as we know, has never issued a guide mentioning how to value Bitcoin transactions. But they probably have rules and guidelines on how to value transactions made in foreign currency or "cash equivalents". We imagine the accounting would be similar.

With Bitcoins, there's likely to be some difference between the value of BTC when you received them as payment, versus when you go to exchange them for another currency like USD, should you decide to do so. This scenario, likewise, would be no different if you accepted foreign currency or gold as payment. Under some scenarios, it might make sense to book the dollar value of BTC income as it is received, and then to book any difference incurred when it is exchanged for fiat currency. Under others, it might make sense to book the whole thing at the time of exchange.

Perhaps you might talk to your accountant. You don't need to get into a discussion with your accountant about block chains and private keys or the philosophy behind a decentralized currency. By comparing the fundamentals of Bitcoins to accounting concepts already well understood by the public, you can probably get all the answers you need. What would you ask your accountant if you decided that you wanted to accept ''Berkshire Bucks'' or 1-ounce gold coins as payment?

== Help this article ==

This article is a stub, please add to it!

==See Also==

* [[Merchant Howto]]
* [[In-store Transactions]]
* [[Tax compliance]]
* [[Bitcoin PayFlow]] automates the process for accepting bitcoins

[[Category:ECommerce]]
[[Category:Local]]

Buying bitcoins

2011-07-31T08:49:48Z

Mircea popescu: added other financials

One issue currently facing a newcomer to bitcoin is, how do I get some? While there is the [[bitcoin faucet]] that can get you started with a small fraction of a coin, when getting larger amounts the user faces an abundance of choice. This page will cut through the clutter, and help direct you to the right exchanger for your needs.

==Major Exchanges==

The least expensive methods for buying bitcoins involve transferring funds using a bank wire, ACH, bank transfer (ACH, EUR / SEPA).

{| class="wikitable"
|-
| Exchange || Type || Adding Funds || Withdrawing Funds || [[eWallet]] || Notes
|-
| [[MtGox]] || Market || BTC USD ([[Dwolla]]) USD (International bank wire) USD (Wire to [[AurumXChange Company|AurumXChange]]) EUR (SEPA bank transfer) AUD (Bank wire) GBP (Bank wire) Liberty Reserve USD || BTC USD ([[Dwolla]]) USD (Wire via [[AurumXChange Company|AurumXChange]]) USD (Check via [[Paxum]]) USD (ATM via [[Paxum]]) USD (wire via [[Paxum]]) EUR (SEPA bank transfer) AUD (Bank wire) Liberty Reserve USD Liberty Reserve USD (via AurumXChange) || {{Table Value Yes}} || Restrictions and limits on withdrawals.
|-
| [[Camp BX]] || Market || BTC USD (Dwolla) || BTC USD (Dwolla) || {{Table Value Yes}} || Atlanta - USA based, security certification from McAfee, provides advanced trading options with AON/FOK/Market, Short Selling coming soon, Trading API available; Dwolla only.
|-
| [[TradeHill]] || Market || BTC USD (Domestic bank wire) USD (International bank wire) USD (Check via [[Paxum]]) USD (wire via [[Paxum]]) EUR (SEPA bank transfer) CLP (Bank transfer) PEN (Bank transfer) INR (Bank transfer) AUD (Bank transfer) Liberty Reserve USD || BTC USD (Dwolla) USD (Domestic bank wire) USD (International bank wire) USD (Direct deposit / ACH) USD (Check via [[Paxum]]) USD (ATM via [[Paxum]]) USD (Prepaid card via [[Paxum]]) EUR (SEPA bank transfer) CLP (Bank transfer) INR (Bank transfer) AUD (Bank transfer) Liberty Reserve USD || {{Table Value Yes}} ||
|-
| [[Bitomat]] || Market || BTC PLN (Bank transfer) || BTC PLN (Bank transfer) || {{Table Value Yes}} ||
|-
| [[Britcoin]] || Market || BTC GBP (bank deposit) || BTC GBP (bank transfer) || {{Table Value Yes}} ||
|-
| [[Intersango]] || Market || BTC EUR (SEPA bank deposit) || BTC EUR (SEPA bank transfer) || {{Table Value Yes}} ||
|-
| [[Intersango.us]] || Market || BTC USD (Dwolla) USD (Domestic bank wire) USD (ACH) || BTC USD (Dwolla) || {{Table Value Yes}} ||
|-
| [[ExchangeBitcoins.com]] || Market || BTC USD ([[Popmoney]]) USD (ING Person2Person) USD (Bank wire) USD (Check) || BTC USD (Dwolla) USD (Check) || {{Table Value Yes}} ||
|-
| [[Bitcoin7]] || Market || BTC EUR (Bank transfer) USD (Domestic wire) USD (International wire) Liberty Reserve USD Liberty Reserve EUR BGN (Bank transfer) || BTC EUR (Bank transfer) USD (Dwolla) USD (Bank transfer) Liberty Reserve USD PLN (Bank transfer) SAR (Bank transfer) BGN (ePay) BGN (Bank transfer) || {{Table Value Yes}} || USD wire to Citibank. EUR transfers to/from FiBank.
|-
| [[VirtEx]] || Market || BTC CAD (Interac) CAD (online bill pay) CAD (cash at TDBank) || BTC CAD (Interac) CAD (direct deposit) CAD (Prepaid VISA) || {{Table Value Yes}} ||
|-
| [[VirWoX]] || Market || BTC SLL (Second Life) ACD (Avination) OMC (OpenSim) USD,EUR,GBP,CHF ([[PayPal]]) USD,EUR,GBP (Credit & Debit cards via [[Moneybookers]]) USD,EUR,GBP ([[NETELLER]]) EUR (DIRECTebanking / Sofortüberweisung) USD,EUR,GBP,CHF ([[paysafecard]]) EUR (SEPA bank transfer) || BTC SLL (Second Life) ACD (Avination) OMC (OpenSim) USD,EUR,GBP,CHF ([[PayPal]]) USD,EUR,GBP ([[Moneybookers]]) USD,EUR,GBP ([[NETELLER]]) EUR (SEPA bank transfer) || {{Table Value Yes}} || Trading through Second Life Linden Dollars (highly liquid). Variable limits on PayPal and Credit Card deposits.
|-
| [[WM-Center]] || Exchanger || BTC USD (International bank wire, Western Unon, Moneygram, Xoom etc, cash) EUR (IBAN bank wire) RUB (bank wire, WU, Anelik and etc, cash) AUD (Bank wire) Liberty Reserve USD/EUR, Perfect Money USD/EUR, Pecunix, Paxum, c-gold, Hoopay, GDP || BTC USD (International bank wire, Western Unon, Moneygram, Xoom etc, cash) EUR (IBAN bank wire) RUB (bank wire, WU, Anelik and etc, cash) AUD (Bank wire) Liberty Reserve USD/EUR, Perfect Money USD/EUR, Pecunix, Paxum, c-gold, Hoopay, GDP PayPal USD/EUR, Moneybookers, Neteller || {{Table Value No}} || 24/7/365 support in english, spanish and russian!
|}

==Fixed Rate Exchanges & Others==

For smaller amounts, the options are limited due to bank transfer fees, conversion fees and transaction size restrictions. Options include:

{| class="wikitable"
|-
| Service || Type || Payment Method || Notes
|-
| [[Bitcoin Market]] || Market || USD (Liberty Reserve) USD (MoneyBookers) GAU (Pecunix) || Varies (person to person)
|-
| [[BitMarket.eu]] || Market || EUR GBP USD PLN (Polish złoty) RUB || Varies (person to person)
|-
| [[Bitcoiny.cz]] || Market || CZK || Varies (person to person)
|-
| [[Bit]] / BTC China || Market || n/a || n/a
|-
| [[Bitfunnel]] || Credit Card payment exchange/brokering services || Varies (person to person)
|-
| [[bitcoin-otc|#bitcoin-otc]] || [http://bitcoin-otc.com/vieworderbook.php Order Book] || Varies (person to person) || IRC trading marketplace will usually have people willing to deal for small and larger amounts using various payment methods, including [[PayPal]], [[Dwolla]], [[Linden Dollars]], etc.
|-
| [[BitcoinExchange Services]] || Fixed Rate || Cash USD, [[MoneyPak]], LR, MoneyGram, Western Union, [[Pecunix]] || Selling BTC/MtGoxUSD/LR - Will cash out to [[Dwolla]], wire transfer, ACH, MoneyGram, Western Union
|-
| [[Lilion Transfer]] || Fixed Rate || USD (Liberty Reserve) [[Pecunix]] ||
|-
| [[Nanaimo Gold]] || Fixed Rate || USD (Liberty Reserve) Western Union money transfer Moneygram money transfer Cash in the mail || LR <--> Bitcoin exchange is automated For cash in the mail send USD, EUR, CAD, or GBP. Canada mailing address.
|-
| [[Bitcoin Morpheus]] || Fixed Rate || Cash, check or money order through the mail || U.S. mailing address for cash transactions.
|-
| [[Bitcoin Argentina]] || Fixed Rate || Cash: ARS, BRL, USD Bank transfer: ARS || No exchange fees!
|-
| [[Bitcoin.com.es]] || Fixed Rate || EUR (bank deposit) || Bank transfer or cash deposits at OpenBank in Spain.
|-
| [[Bahtcoin]] || Fixed Rate || Cash, Webmoney Liberty Reserve USD || Will cash out to Thai mobile and gaming prepaid cards as well.
|-
| [[Bitcoin Brasil]] || Fixed Rate || BRL (Brazilian Real) USD || Cash exchange
|-
| [[BitPiggy]] || Fixed Rate || AUD (Australian Dollar)|| Payment via bank transfer.
|-
| [[GetBitcoin]] || Fixed Rate || USD (Dwolla) USD (Bank wire) USD (Cash in the mail) USD (Money Order) USD (Cashier's Check/Certified Check) USD (Western Union) USD (Traveler's Check) USD (Prepaid Debit Card) || For cash in mail, send USD. U.S. mailing address.
|-
| [[Bitcoin 4 Cash]] || Fixed Rate || Cash in the mail || Send USD or CAD. Canada mailing address.
|-
| [[Bitcoin2Cash]] || Fixed Rate || Cash in the mail || Send USD. U.S. mailing address.
|-
| [[bitcoin.local]] || Directory || Varies (person to person) ||
|-
| [[YouTipIt]] || Fixed Rate || USD EUR GBP || Purchase bitcoins to add to your balance with YouTipIt using credit card through ClickAndBuy.
|-
| [[Ubitex]] || In person exchange || Varies (person to person) ||
|}

==Other Financial Services==

{| class="wikitable"
|-
| Service || Type || Payment || Settled || Notes
|-
| [http://polimedia.us/bitcoin/options.php Derivatives] || Buy / Sell / Exercise CALLs / PUTs, American style. 52 strikes offered (by .5), current month + 2. No shorting available yet.|| BTC || BTC || Transactions encoded via amt. Must use non-rounding client (0.3.24 or later)
|}

==See Also==

* [[:Category:Digital_currencies|Digital Currencies]]
* [[Selling bitcoins]]
* [[Secure Trading]]
* [[Comparison of exchanges]]
* [[:Category:Local|Local]] exchanges

[[Category:Exchanges]]
[[Category:Introduction]]
[[zh-cn:购买bitcoins]]

Help:FAQ

2011-07-23T18:32:46Z

Mircea popescu: /* If no more coins are going to be generated, will more blocks be created? */ - took out uncalled for defeatism

Here you will find answers to the most commonly asked questions.

== General ==
=== What are bitcoins? ===
Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (eg: “100 BTC”).
A Bitcoin isn't tangible. It is just a number associated with a [[Address|Bitcoin Address]]. See also an [[Introduction|easy intro]] to bitcoin.

=== How can I get Bitcoins? ===

There are a variety of ways to acquire Bitcoins:

* Accept Bitcoins as payment for goods or services.
* There are several services where you can [[buying bitcoins|trade them]] for traditional currency.
* Find a local trader on [http://tradebitcoin.com tradebitcoin] (or somewhere else) and trade with him in cash.
* Create a new [[block]] (currently yields 50 Bitcoins).
* Participate in a [[Pooled mining|mining pool]].

=== Can I buy Bitcoins with Paypal? ===

While it's possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via [http://www.bitcoin-otc.com/ #bitcoin-otc] ) most major exchanges do not allow funding through Paypal. This is due to repeated cases where someone pays for Bitcoins with Paypal, receives their Bitcoins, and then fraudulently complains to Paypal that they never received their goods. Paypal too often sides with the fraudulent buyer in this case, and so exchangers no longer allow this method of funding.

=== Where can I find a forum full of Bitcoin users? ===

There are many forums ou there that are based on Bitcoins although the off-site active bitcoin forum would be http://bitforums.net. The other on-site forum is located on http://bitcoin.org

Buying Bitcoins from individuals with this method is still possible, but requires mutual trust. In this case, Bitcoin seller beware.

=== How are new Bitcoins created? ===

[[File:total_bitcoins_over_time_graph.png|thumb|Number of bitcoins over time, assuming a perfect 10-minute interval.]]
New coins are generated by a network node each time it finds the solution to a certain mathematical problem (i.e. creates a new [[block]]), which is difficult to perform and can demonstrate a [[proof of work]]. The reward for solving a block is [[controlled inflation|automatically adjusted]] so that in the first 4 years of the Bitcoin network, 10,500,000 BTC will be created. The amount is halved each 4 years, so it will be 5,250,000 over years 4-8, 2,625,000 over years 8-12 and so on. Thus the total number of coins will approach 21,000,000 BTC over time.

Blocks should be generated every 10 minutes, on average. As the number of people who attempt to generate these new coins changes, the difficulty of creating new coins changes. This happens in a manner that is agreed upon in advance by the network as a whole, based upon the time taken to generate the previous 2016 blocks. The difficulty is therefore related to the average computing resources devoted to generate these new coins over the time it took to create these previous blocks. The likelihood of somebody creating a block is based on the calculation speed of the system that they are using compared to the aggregate calculation speed of all the other systems generating blocks on the network.

=== What's the current total number of Bitcoins in existence? ===

[http://blockexplorer.com/q/totalbc Current count]

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is 50 BTC for each of the first 210,000 blocks, 25 BTC for the next 210,000 blocks, then 12.5 BTC, 6.25 BTC and so on.

=== How divisible are Bitcoins? ===

Technically, a Bitcoin can be divided down to 8 decimals using existing data structures, so 0.00000001 BTC is the smallest amount currently possible. Discussions about and ideas for ways to provide for even smaller quantities of Bitcoins may be created in the future if the need for them ever arises.

=== What do I call the various denominations of Bitcoins? ===

There is a lot of discussion about the naming of these fractions of Bitcoins. The leading candidates are:

* 1 BTC = 1 Bitcoin
* 0.01 BTC = 1 cBTC = 1 Centi-Bitcoin (also referred to as Bitcent)
* 0.001 BTC = 1 mBTC = 1 Milli-Bitcoin (also referred to as mbit (pronounced em-bit) or millibit)
* 0.000 001 BTC = 1 μBTC = 1 Micro-Bitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

The above follows the accepted international SI units for thousandths, millionths and billionths. There are many arguments against the special case of 0.01 BTC since it is unlikely to represent anything meaningful as the Bitcoin economy grows (it certainly won't be the equivalent of 0.01 USD, GBP or EUR). Equally, the inclusion of existing national currency denominations such as "cent", "nickel", "dime", "pence", "pound", "kopek" and so on are to be discouraged. This is a worldwide currency.

One exception is the "satoshi" which is smallest denomination currently possible

* 0.000 000 01 BTC = 1 Satoshi (pronounced sa-toh-shee)

which is so named in honour of Satoshi Nakamoto the pseudonym of the inventor of Bitcoin.

For an overview of all defined units of Bitcoin (including less common and niche units), see [[Units]].

Further discussion on this topic can be found on the forums here:

* [http://forum.bitcoin.org/index.php?topic=14438.msg195287#msg195287 We need names]
* [http://forum.bitcoin.org/index.php?topic=8282.0 What to call 0.001 BTC]

=== How does the halving work when the number gets really small? ===

The reward will go from 0.00000001 BTC to 0. Then no more coins will likely be created.

The calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by 2 and rounded down. The integer is equal to the value in BTC * 100,000,000. This is how all Bitcoin balances/values are stored internally.

Keep in mind that using current rules this will take nearly 100 years before it becomes an issue and Bitcoins may change considerably before that happens.

=== How long will it take to generate all the coins? ===

The last block that will generate coins will be block #6,929,999. This should be generated around year 2140. Then the total number of coins in circulation will remain static at 20,999,999.9769 BTC.

Even if the allowed precision is expanded from the current 8 decimals, the total BTC in circulation will always be slightly below 21 million (assuming everything else stays the same). For example, with 16 decimals of precision, the end total would be 20999999.999999999496 BTC.

=== If no more coins are going to be generated, will more blocks be created? ===

Absolutely! Even before the creation of coins ends, the use of [[transaction fee|transaction fees]] will likely make creating new blocks more valuable from the fees than the new coins being created. When coin generation ends, what will sustain the ability to use bitcoins will be these fees entirely. There will be blocks generated after block #6,929,999.

=== But if no more coins are generated, what happens when Bitcoins are lost? Won't that be a problem? ===

Because of the law of supply and demand, when fewer bitcoins are available the ones that are left will be in higher demand, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item '''de'''creases. This is a [[Deflationary spiral|deflationary economic model]]. As the average transaction size reduces, transactions will probably be denominated in sub-units of a bitcoin such as millibitcoins ("Millies") or microbitcoins ("Mikes").

The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin ("a Satoshi"), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions.

=== If every transaction is broadcast via the network, does BitCoin scale? ===
The Bitcoin protocol allows lightweight clients that can use Bitcoin without downloading the entire transaction history. As traffic grows and this becomes more critical, implementations of the concept will be developed. Full network nodes will at some point become a more specialized service.

With some modifications to the software, full BitCoin nodes could easily keep up with both VISA and MasterCard combined, using only fairly modest hardware (a couple of racks of machines using todays hardware). It's worth noting that the MasterCard network is structured somewhat like BitCoin itself - as a peer to peer broadcast network.

Learn more about [[Scalability]].

==Economy==
=== Where does the value of Bitcoin stem from? What backs up Bitcoin? ===
Bitcoins have value because they are accepted as payment by many. See the [[Trade|list of Bitcoin-accepting sites]].

When we say that a currency is backed up by gold, we mean that there's a promise in place that you can exchange the currency for gold. In a sense, you could say that Bitcoin is "backed up" by the price tags of merchants – a price tag is a promise to exchange goods for a specified amount of currency.

It's a common misconception that Bitcoins gain their value from the cost of electricity required to generate them. Cost doesn't equal value – hiring 1,000 men to shovel a big hole in the ground may be costly, but not valuable. Also, even though scarcity is a critical requirement for a useful currency, it alone doesn't make anything valuable. For example, your fingerprints are scarce, but that doesn't mean they have any exchange value.

=== What if someone bought up all the existing Bitcoins? ===
What if somebody bought up all the gold in the world? Well, by attempting to buy it all, the buyer would just drive the prices up until he runs out of money.

Not all Bitcoins are for sale. Just as with gold, no one can buy a Bitcoin that isn't available for sale.

=== Won't Bitcoin's deflationary tendencies cause a deflationary spiral? ===
See the article [[Deflationary spiral]].

=== Doesn't Bitcoin unfairly benefit early adopters? ===
Early adopters have a large number of bitcoins now because they took a risk and invested resources in an unproven technology. By so doing, they have helped Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will probably change hands dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin.

=== Is Bitcoin a Ponzi scheme? ===
In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters profit from the usefulness of a stable and widely accepted p2p currency.

The fact that early adopters benefit more doesn't alone make anything a ponzi scheme. Apple stocks aren't ponzi even though the early investors got rich.

=== Is Bitcoin a bubble? ===
Yes, in the same way as the euro and dollar are. They only have value in exchange and no value in use. If everyone suddenly stopped accepting your dollars, euros or bitcoins, the "bubble" would burst and their value would drop to zero. But that is unlikely to happen: even in Somalia, where the government collapsed 20 years ago, [http://en.wikipedia.org/wiki/Somali_shilling Somali shillings] are still accepted as payment.

==Sending and Receiving Payments==

=== Why do I have to wait 10 minutes before I can spend money I received? ===

10 minutes is the average time taken to find a block. It can be significantly more or less time than that depending on luck; 10 minutes is simply the average case.

Blocks (shown as "confirmations" in the GUI) are how the BitCoin achieves consensus on who owns what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it's possible that some network nodes believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only 6 blocks or 1 hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Why ten minutes specifically? It is a tradeoff chosen by Satoshi between propagation time of new blocks in large networks and the amount of work wasted due to chain splits. If that made no sense to you, don't worry. Reading [http://www.bitcoin.org/bitcoin.pdf the technical paper] should make things clearer.

=== Do you have to wait 10 minutes in order to buy or sell things with BitCoin? ===

No, it's reasonable to sell things without waiting for a confirmation as long as the transaction is not of high value.

When people ask this question they are usually thinking about applications like supermarkets or snack machines, as discussed in [http://www.bitcoin.org/smf/index.php?topic=423.msg3819#msg3819 this thread from July 2010]. Zero confirmation transactions still show up in the GUI, but you cannot spend them. You can however reason about the risk involved in assuming you ''will'' be able to spend them in future. In general, selling things that are fairly cheap (like snacks, digital downloads etc) for zero confirmations will not pose a problem if you are running a well connected node.

=== Why does my Bitcoin address keep changing? ===

Whenever the address listed in "Your address" receives a transaction, Bitcoin replaces it with a new address. This is meant to encourage you to use a new address for every transaction, which enhances [[anonymity]]. All of your old addresses are still usable: you can see them in ''Settings -> Your Receiving Addresses''.

===How much will the transaction fee be?===

Some transactions might require a [[transaction fee]] for them to get confirmed in a timely manner. The transaction fee is processed by and received by the bitcoin miner. The most recent version of the Bitcoin client will estimate an appropriate fee when a fee might be required.

The fee is added to the payment amount. For example, if you are sending a 1.234 BTC payment and the client requires a 0.0005 BTC fee, then 1.2345 BTC will be subtracted from the wallet balance for the entire transaction and the address for where the payment was sent will receive a payment of 1.234 BTC.

Because the fee is related to the amount of data that makes up the transaction and not to the amount of bitcoins being sent, the fee may seem extremely low (0.0005 BTC for a 1,000 BTC transfer) or unfairly high (0.004 BTC for a 0.02 BTC payment, or about 20%). If you are receiving tiny amounts (e.g., as small payments from a mining pool) then fees when sending will be higher than if your activity follows a more normal consumer or business transaction pattern.

==Networking==
=== Do I need to configure my firewall to run bitcoin? ===

Bitcoin will connect to other nodes, usually on tcp port 8333. You will need to allow outgoing TCP connections to port 8333 if you want to allow your bitcoin client to connect to many nodes. Bitcoin will also try to connect to IRC (tcp port 6667) to meet other nodes to connect to.

If you want to restrict your firewall rules to a few ips and/or don't want to allow IRC connection, you can find stable nodes in the [[Fallback Nodes|fallback nodes list]]. If your provider blocks the common IRC ports, note that lfnet also listens on port 7777. Connecting to this alternate port currently requires either recompiling Bitcoin, or changing routing rules. For example, on Linux you can evade a port 6667 block by doing something like this:

echo 173.246.103.92 irc.lfnet.org >> /etc/hosts
iptables -t nat -A OUTPUT -p tcp --dest 173.246.103.92 --dport 6667 -j DNAT --to-destination :7777 -m comment --comment "bitcoind irc connection"

=== How does the peer finding mechanism work? ===
Bitcoin finds peers primarily by connecting to an IRC server (channel #bitcoin on irc.lfnet.org). If a connection to the IRC server cannot be established (like when connecting through TOR), an in-built node list will be used and the nodes will be queried for more node addresses.

==Mining==
===What is mining?===
Mining is the process of spending computation power to find valid blocks and thus create new Bitcoins.

Technically speaking, mining is the calculation of a [[hash]] of the a block header, which includes among other things a reference to the previous block, a hash of a set of transactions and a [[nonce]]. If the hash value is found to be less than the current [[target]] (which is inversely proportional to the [[difficulty]]), a new block is formed and the miner gets 50 newly generated Bitcoins. If the hash is not less than the current target, a new nonce is tried, and a new hash is calculated. This is done millions of times per second by each miner.

===Why was the "Generate coin" option of the client software removed?===

In the early days of Bitcoin, it was easy for anyone to find new blocks using standard CPUs. As more and more people started mining, the [[difficulty]] of finding new blocks has greatly increased to the point where the average time for a CPU to find a single block can be many years. The only cost-effective method of mining is using a high-end graphics card with special software (see also [[Why a GPU mines faster than a CPU]]) and/or joining a [[Bitcoin Pool|mining pool]]. Since solo CPU mining is essentially useless, it was removed from the GUI of the Bitcoin software.

===Is mining used for some useful computation?===
The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.

===Is it not a waste of energy?===
Spending energy on creating a free monetary system is hardly a waste. Also, services necessary for the operation of currently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.

===Why don't we use calculations that are also useful for some other purpose?===
To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

===How does the proof-of-work system help secure Bitcoin?===
To give a general idea of the mining process, imagine this setup:

payload = <some data related to things happening on the Bitcoin network>
nonce = 1
hash = [http://en.wikipedia.org/wiki/SHA2 SHA2]( [http://en.wikipedia.org/wiki/SHA2 SHA2]( payload + nonce ) )

The work performed by a miner consists of repeatedly increasing "nonce" until
the hash function yields a value, that has the rare property of being below a certain
target threshold. (In other words: The hash "starts with a certain number of zeroes",
if you display it in the fixed-length representation, that is typically used.)

As can be seen, the mining process doesn't compute anything special. It merely
tries to find a number (also referred to as nonce) which - in combination with the payload -
results in a hash with special properties.

The advantage of using such a mechanism consists of the fact, that it is very easy to check a result: Given
the payload and a specific nonce, only a single call of the hashing function
is needed to verify that the hash has the required properties. Since there is no
known way to find these hashes other than brute force, this can be used as a "proof of work"
that someone invested a lot of computing power to find the correct nonce for this payload.

This feature is then used in the Bitcoin network to secure various aspects. An attacker
that wants to introduce malicious payload data into the network, will need to do the
required proof of work before it will be accepted. And as long as honest miners have more
computing power, they can always outpace an attacker.

Also see [http://en.wikipedia.org/wiki/SHA2 SHA2] and [http://en.wikipedia.org/wiki/Proof-of-work_system Proof-of-work system] on Wikipedia.

==Help==
===I'd like to learn more. Where can I get help?===

* Read the [[Introduction|introduction to bitcoin]]
* See the videos, podcasts, and blog posts from the [[Press]]
* Read and post on the [[Bitcoin:Community_portal#Bitcoin_Community_Forums|forums]]
* Chat on one of the [[Bitcoin:Community_portal#IRC_Chat|Bitcoin IRC]] channels
* Listen to [http://omegataupodcast.net/2011/03/59-bitcoin-a-digital-decentralized-currency/ this podcast], which goes into the details of how bitcoin works

==See Also==

* [[Man page]]
* [[Introduction]]

[[de:FAQ]]
[[zh-cn:FAQ]]
[[fr:FAQ]]

[[Category:Technical]]
[[Category:Vocabulary]]

Weaknesses

2011-07-23T02:36:55Z

Mircea popescu: esl/typo stuff

== Might be a problem ==
=== Wallet Vulnerable To Theft ===

The [[wallet]] is stored unencrypted, thus it becomes a valuable target for theft. That this is a problem was evidenced by the negative publicity following Allinvain's June 2011 claim that his wallet was stolen. Wallet encryption is slated to be merged into the 0.4 release. Patches are being developed also for other implementations.

=== Forcing clock drift against a target node ===

See [http://culubas.blogspot.com/2011/05/timejacking-bitcoin_802.html Timejacking] for a description of this attack. It can be fixed by changing how nodes calculate the current time.

=== Tracing a coin's history ===
Tracing a coin's history can be used to connect identities to addresses. [[Anonymity|More info]].

=== Cancer nodes ===
It's trivial for an attacker to fill the network with clients controlled by him. This might be helpful in the execution of other attacks.

For example, an attacker might connect 100,000 IP addresses to the IRC bootstrap channel. You would then be very likely to connect only to attacker nodes. This state can be exploited in (at least) the following ways:
* The attacker can refuse to relay blocks and transactions from everyone, disconnecting you from the network.
* The attacker can relay only blocks that he creates, putting you on a separate network. You're then open to double-spending attacks.
* If you rely on transactions with 0 confirmations, the attacker can just filter out certain transactions to execute a double-spending attack.
* Low-latency encryption/anonymization of Bitcoin's transmissions (With Tor, JAP, etc.) can be defeated relatively easy with a timing attack if you're connected to several of the attacker's nodes and the attacker is watching your transmissions at your ISP.

Bitcoin makes these attacks more difficult by only making an outbound connection to one IP address per /16 (x.y.0.0). Incoming connections are unlimited and unregulated, but this is generally only a problem in the anonymity case, where you're probably already unable to accept incoming connections.

Looking for suspiciously low network hash-rates may help prevent the second one.

=== No authentication for IP transfers ===
Since there's no authentication when sending to an [[IP address]] (as opposed to a [[Address|Bitcoin address]]), executing a man-in-the-middle attack and stealing the sent BitCoins is trivial. This attack is downright ''likely'' if you're using Tor.

=== Packet sniffing ===
Someone who can see all of your Internet traffic can easily see when you send a transaction that you didn't receive (which means that it's yours). This would be made more difficult (but not impossible) if node-to-node encryption was used.

=== Denial of Service (DoS) attacks ===
Sending lots of data to a node may make it so busy it cannot process normal bitcoin transactions. Bitcoin has some denial-of-service prevention built-in (it will drop connections to peers that send it too much data too quickly), but is likely still vulnerable to more sophisticated denial-of-service attacks.

== Probably not a problem ==

===Breaking the cryptography===
SHA-256 and ECDSA are considered very strong currently, but they might be broken in the far future. If that happens, BitCoin can shift to a stronger algorithm. [http://www.bitcoin.org/smf/index.php?topic=191.msg1585#msg1585 More info].

===Scalability===
BitCoin can easily scale beyond the level of traffic VISA sees globally today. See the discussion on the [[scalability]] page for more information.

===Segmentation===
If there is even a "trickle" of a connection between two sides of a segmented network, things should still work perfectly. When block chains are combined, all of the non-generation transactions in the shorter chain are re-added to the transaction pool -- they'll start over at 0/unconfirmed, but they'll still be valid. No mature transactions will be lost unless the segmentation persists for longer than ~120 blocks. Then generations will start to mature, and any transactions based on those generations will become invalid when recombined with the longer chain. [http://www.bitcoin.org/smf/index.php?topic=241.msg2071#msg2071 More info].

=== Attacking all users ===
The IP addresses of most users are totally public. You can use Tor to hide this, but the network won't work if everyone does this. BitCoin requires that ''some'' country is still free.

=== Dropping transactions ===
Nodes that generate blocks can choose not to include a transaction in their blocks. When this happens, the transaction remains "active" and can be included in a later block. Two things discourage this:
* Nodes only hash a fixed-size ''header'', so there is no speed advantage to dropping transactions.
* [[Satoshi]] has [http://www.bitcoin.org/smf/index.php?topic=165.msg1595#msg1595 communicated] that he will write code to stop this kind of thing if it becomes a problem.

=== Attacker has a lot of computing power ===
An attacker that controls more than 50% of the network's computing power can, for the time that he is in control, exclude and modify the ordering of transactions. This allows him to:
* Reverse transactions that he sends while he's in control
* Prevent some or all transactions from gaining any confirmations
* Prevent some or all other generators from getting any generations
The attacker ''can't'':
* Reverse other people's transactions
* Prevent transactions from being sent at all (they'll show as 0/unconfirmed)
* Change the number of coins generated per block
* Create coins out of thin air
* Send coins that never belonged to him

It's much more difficult to change historical blocks, and it becomes exponentially more difficult the further back you go. As above, changing historical blocks only allows you to exclude and change the ordering of transactions. It's impossible to change blocks created before the last checkpoint.

Since this attack doesn't permit all that much power over the network, it is expected that no one will attempt it. A profit-seeking person will always gain more by just following the rules, and even someone trying to destroy the system will probably find other attacks more attractive. However, if this attack is successfully executed, it will be difficult or impossible to "untangle" the mess created -- any changes the attacker makes might become permanent.

=== Spamming transactions ===

It is easy to send transactions to yourself repeatedly. If these transactions fill blocks to the maximum size (1MB), other transactions would be delayed until the next block.

This is made expensive by the [[transaction fee|fees]] that would be required after the 50KB of free transactions per block are exhausted. An attacker will eventually eliminate free transactions, but Bitcoin fees will always be low because raising fees above 0.01 BTC per KB would require spending transaction fees. An attacker will eventually run out of money. Even if an attacker wants to waste money, transactions are further prioritized by the time since the coins were last spent, so attacks spending the same coins repeatedly are less effective.

=== The "Finney" attack ===
Named for Hal Finney, who first described this variation of a double-spend attack involving accepting [http://www.bitcoin.org/smf/index.php?topic=3441.msg48384#msg48384 0-confirmation transactions]. Accepting 0-confirmation large-value transactions is problematic; accepting them for low-value transactions (after waiting several seconds to detect an ordinary double-spend attempt) is probably safe.

===Rival/malicious client code===
Any rival client must follow Bitcoin's rules or else all current BitCoin clients will ignore it. You'd have to actually get people to ''use'' your client. A better client that pretends to follow the same rules, but with an exception known only to the author (possibly by making it closed source), might conceivably be able to gain widespread adoption. At that point, its author could use his exception and go largely unnoticed.

== Definitely not a problem ==

===Coin destruction===
Bitcoin has 2.1 quadrillion raw units, making up 8 decimals of BTC precision, so the entire network could potentially operate on much less than the full quantity of Bitcoins. If deflation gets to the point where transactions of more than 10 BTC are unheard of, clients can just switch to another unit so that, for example, it shows 10 mBTC rather than 0.01 BTC.

The maximum number of raw units might not be enough if the ''entire world'' starts using BTC, but it would not be too difficult to increase precision in that case. The transaction format and version number would be scheduled to change at some particular block number after a year or two, and everyone would have to update by then.

===Generating tons of addresses===
Generating an address doesn't touch the network at all. You'd only be wasting your CPU resources and disk space.

Also, a collision is highly unlikely.

Keys are 256 bit in length and are hashed in a 160 bit address.(2^160th power)
Divide it by the world population and you have about 215,000,000,000,000,000,000,000,000,000,000,000,000 addresses per capita.(2.15 x 10^38)[http://www.wolframalpha.com/input/?i=2^160+%2F+world+population]

===Everyone calculates at the same rate===
If everyone began with identical blocks and started their nonce at 1 and incremented, the fastest machine would always win. However, each block contains a new, random public key known only to you in the list of transactions. The 256-bit "Merkle tree" hash of this is part of the block header.

So everyone begins with slightly different blocks and everyone truly has a random chance of winning (modified by CPU power).

===Generate "valid" blocks with a lower difficulty than normal===
Using unmodified Bitcoin code, an attacker could segment himself from the main network and generate a long block chain with a lower difficulty than the real network. These blocks would be totally valid for his network. However, it would be impossible to combine the two networks (and the "false" chain would be destroyed in the process).

* Even though your network's difficulty can be less than the real difficulty, this doesn't give you any advantage over the real network. You'll gain ground when the real network is taking more than 10 minutes to generate a block, but you'll lose ground when the network takes less than 10 minutes.
* Every few releases of Bitcoin, a recent block hash is hardcoded into the source code. Any blocks before that point can't be changed. An attacker starting at that point would have to reduce the difficulty, but this would require him to generate blocks at a much slower rate than once per 10 minutes. By the time he finally gets to a difficulty of 1, a new version of Bitcoin with an updated hardcoded block will probably have been released.
* "Block chain length" is calculated from the combined difficulty of all the blocks, not just the number of blocks in the chain. The one that represents the most CPU usage will win.

[[Category:Technical]]