Bitcoin Wiki - User contributions [en]

Help:FAQ

2011-06-27T12:33:45Z

Sneak: /* Economy */

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 five ways to get Bitcoins:

* There are several services where you can [[buying bitcoins|trade them]] for “real” money.
* Accept Bitcoins as payment for goods or services.
* 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.

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.

In addition, built into the network is a system that attempts to allocate new coins in blocks about every 10 minutes, on average, somewhere on the network. 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 "discovering" one of these blocks 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, assuming that people are still using Bitcoins at that time.

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

Not at all. 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 when Bitcoins are lost, the remaining Bitcoins will increase in value to compensate. As the value of Bitcoins increase, the number of Bitcoins required to purchase an item '''de'''creases. This is known as a [[Deflationary spiral|deflationary economic model]]. Eventually, if and when it gets to the point where the largest transaction is less than 1BTC, then it's a simple matter of shifting the decimal place to the right a few places, and the system continues.

=== 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]].

=== 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''.

==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.

==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]]

Help:FAQ

2011-06-27T12:30:52Z

Sneak: /* How are new Bitcoins created? */

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 five ways to get Bitcoins:

* There are several services where you can [[buying bitcoins|trade them]] for “real” money.
* Accept Bitcoins as payment for goods or services.
* 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.

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.

In addition, built into the network is a system that attempts to allocate new coins in blocks about every 10 minutes, on average, somewhere on the network. 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 "discovering" one of these blocks 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, assuming that people are still using Bitcoins at that time.

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

Not at all. 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 when Bitcoins are lost, the remaining Bitcoins will increase in value to compensate. As the value of Bitcoins increase, the number of Bitcoins required to purchase an item '''de'''creases. This is known as a [[Deflationary spiral|deflationary economic model]]. Eventually, if and when it gets to the point where the largest transaction is less than 1BTC, then it's a simple matter of shifting the decimal place to the right a few places, and the system continues.

=== 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]].

=== 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''.

==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.

=== Bitcoin's monetary policy causes 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.

==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]]

Myths

2011-06-14T11:18:26Z

Sneak: /* Anyone with enough computing power can take over the network */

Let's clear up some common Bitcoin misconceptions.

== Bitcoin is just like all other digital currencies; nothing new ==

Nearly all other digital currencies are centrally controlled. This means that:
* they can be printed at the subjective whims of the controllers
* they can be destroyed by attacking the central point of control
* arbitrary rules can be imposed upon their users by the controllers

Being decentralized, Bitcoin solves all of these problems.

== Bitcoins don't solve any problems that fiat currency and/or gold doesn't solve ==

Unlike gold, bitcoins are:
* easy to transfer
* easy to secure
* easy to verify
* easy to granulate

Unlike fiat currencies, bitcoins are:
* predictable and limited in [[Controlled_Currency_Supply|supply]]
* not controlled by a central authority(Ex. Fed)

Unlike electronic fiat currency systems, bitcoins are:
* potentially anonymous
* freeze proof
* fee free

== Bitcoin is backed by processing power ==

It is not correct to say that Bitcoin is backed by processing power. A currency being "backed" by something means that it is pegged to something else via a central party at a certain exchange rate. You cannot exchange bitcoins for the computing power that was used to create them. Bitcoin is in this sense not backed by anything. It is a currency in its own right. Similar to gold - is gold backed by anything? No! It's just gold. The same applies with Bitcoin.

The Bitcoin currency is ''created'' via processing power, and the integrity of the block chain is ''protected'' by the existence of a large network of computing nodes from certain possible [[Weaknesses#Attacker_has_a_lot_of_computing_power|attacks]]. And that is all.

== Bitcoins are worthless because they aren't backed by anything ==

Gold isn't backed by anything either, except its intrinsic, physical value. Bitcoins have properties inherent to its design that are subjectively valued by individuals. This valuation is demonstrated when individuals freely exchange for or with bitcoins. Please refer to the [http://en.wikipedia.org/wiki/Subjective_theory_of_value Subjective Theory of Value]. See also myth [https://en.bitcoin.it/wiki/Myths#Bitcoin_is_backed_by_processing_power Bitcoin is backed by processing power].

== Bitcoins value is based on how much electricity and computing power it takes to mine them ==

This statement is an attempt to apply to Bitcoin the [http://en.wikipedia.org/wiki/Labor_theory_of_value labor theory of value], which is generally accepted as false. Just because something takes X resources to create does not mean that the resulting product will be worth X. It can be worth more, or less, depending on the utility thereof to its users.

In fact the causality is the reverse of that (this applies to the labor theory of value in general). The cost to mine Bitcoins is based on how much they are worth. If Bitcoins go up in value, more people will mine (because mining is profitable), thus [difficulty] will go up, thus the cost of mining will go up. The inverse happens if bitcoins go down in value. These effects balance out to cause mining to always cost the amount of bitcoins it produces.

== Bitcoins have no intrinsic value (unlike some other things) ==

It is true that bitcoins have no intrinsic value, in the [http://en.wikipedia.org/wiki/Intrinsic_value_%28numismatics%29 numismatic sense], in other words, value in any realm outside of being used as a medium of exchange.

However, while some tangible commodities do have intrinsic value, that value is generally much less than its trading price. Consider for example that gold, if it were not used as an inflation-proof store of value, but rather only for its industrial uses, would certainly not be worth what it is today, since the industrial requirements for gold are far smaller than the available supply thereof.

While historically intrinsic value, as well as other attributes like divisibility, fungibility, scarcity, durability, helped establish certain commodities as mediums of exchange, it is certainly not a prerequisite. While bitcoins lack 'intrinsic value' in this sense, they make up for it in spades by possessing the other qualities necessary to make it a good medium of exchange, equal to or better than [http://en.wikipedia.org/wiki/Commodity_money commodity money].

Value is ultimately determined by what people are willing to trade for - by supply and demand.

== Bitcoins are illegal because they're not legal tender ==

Short answer: chickens aren't legal tender either, but bartering with chickens is not illegal.

There are a [http://en.wikipedia.org/wiki/Local_currency number of currencies] in existence that are not official government-backed currencies. A currency is, after all, nothing more than a convenient unit of account. While national laws may vary from country to country, and you should certainly check the laws of your jurisdiction, in general trading in any commodity, including digital currency like Bitcoin, game currencies like WoW gold or Linden dollars, is not illegal.

== Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency ==

http://en.wikipedia.org/wiki/Definitions_of_terrorism#United_States according to this, you need to do violent activities to be considered a terrorist for legal purposes. This has no bearing on politicians and idiotic US attorney's public remarks.

Also, Bitcoin isn't domestic. It's a worldwide community. See this map of Bitcoin nodes
http://forum.bitcoin.org/?topic=2346.0

== Bitcoin will only enable tax evaders which will lead to the eventual downfall of civilization ==

Cash transactions hold the same level of anonymity but are still taxed successfully. It is up to you to follow the applicable state laws in your home country, or face the consequences.

== Bitcoins can be printed/minted by anyone and are therefore worthless ==

Bitcoins are not printed/minted. Instead, [[Blocks]] are computed by miners and for their efforts they are awarded a specific amount of bitcoins + transaction fees. See [[Blocks]] for more information on how this process works.

== Bitcoins are worthless because they're based on unproven cryptography ==

SHA256 and ECDSA which are used in Bitcoin are well-known industry standard algorithms. If you believe that these algorithms are untrustworthy then you should not trust Bitcoin, credit card transactions or any type of electronic bank transfer.

== Early adopters are unfairly rewarded ==

Early adopters are rewarded for taking the higher risk with their time and money.

In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be agreed upon by a large population. Establishing "fairness" is no goal of Bitcoin, as this would be impossible.

The vast majority of the 21 million Bitcoins still have not been distributed. By starting to mine or acquire bitcoins today, you too can become an early adopter.

== 21 million coins isn't enough; doesn't scale ==

One Bitcoin is divisible down to eight decimal places. There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the bitcoin design.

The value of "1 BTC" represents 100,000,000 of these. In other words, each is divisible by up to 10^8.

As the value of the unit of 1 BTC grows too large to be useful for day to day transactions, people can start dealing in smaller [[Units|units]], such as milli-bitcoins (mBTC) or micro-bitcoins (μBTC).

== Bitcoins are stored in wallet files, just copy the wallet file to get more coins! ==

No, your wallet contains your secret keys, giving you the rights to spend your bitcoins. Think of it like having bank details stored in a file. If you give your bank details (or bitcoin wallet) to someone else, that doesn't double the amount of money in your account. You can spend your money or they can spend your money, but not both.

== Lost coins can't be replaced and this is bad ==

Bitcoins are divisible to 0.00000001, so this is not a problem. If you lose your coins, all other coins will go up in value a little. Consider it a donation to all other bitcoin users.

A related question is: Why don't we have a mechanism to replace lost coins? The answer is that it is impossible to distinguish between a 'lost' coin and one that is simply sitting unused in someone's safe.

== It's a giant 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.

Not to be confused with the [[Bitcoin randomizer|Bitcoin Randomizer]] which is a game that really is self-described as a Ponzi scheme.

== Finite coins plus lost coins means deflationary spiral ==
As deflationary forces may apply, economic factors such as hoarding are offset by human factors that may lessen the chances that a [[Deflationary spiral]] will occur.

== Bitcoin can't work because there is no way to control inflation ==

Inflation is simply a rise of prices over time, which is generally the result of the devaluing of a currency. This is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks.

Given the fact that Bitcoin is a distributed system of currency, if demand were to decrease to almost nothing, the currency would be doomed anyway.

The key point here is that Bitcoin as a currency can't be inflated by any single person or entity, like a government, as there's no way to increase supply past a certain amount.

Indeed, the most likely scenario, as Bitcoin becomes more popular and demand increases, is for the currency to increase in value, or deflate, until demand stabilizes.

== The Bitcoin community consists of anarchist/conspiracy theorist/gold standard 'weenies' ==

The members of the community vary in their ideological stances.

== Anyone with enough computing power can take over the network ==

CONFIRMED, see [[Weaknesses]].

That said, as the network grows, it becomes harder and harder for a single entity to do so. Already the Bitcoin network's computing power is quite ahead of the world's fastest supercomputers, together.

What an attacker can do once the network is taken over is quite limited. Under no circumstances could an attacker take anybody else's money. An attacker's capabilities are limited to taking back their own money that they very recently spent, and preventing other people's transactions from receiving confirmations. Such an attack would be very costly in resources, and for such meager benefits there is little rational economic incentive to do such a thing.

Furthermore, this attack scenario would only be feasible for as long as it was actively underway. As soon as the attack stopped, the network would resume normal operation.

== Bitcoin violates governmental regulations ==

Name them if you can.

See also the [[Myths#Bitcoins_are_illegal_because_it_s_not_legal_tender|legal tender]] question.

== Fractional reserve banking is not possible ==

It is possible. There is no fundamental difference between classical currencies and Bitcoin as it applies to banking. Banks will still be free to take in bitcoins and present them to customers as "available for withdrawal" while still lending most of those bitcoins to a different customer for a profit. Some of those bitcoins will be held in reserves in case of a bank run. It will be up to the bank to hold a sufficient supply of reserves in order to prevent insolvency in the event of a bank run. Central banks were established to enforce reserve requirements and so, with Bitcoin lacking a central bank, some banks will almost surely collapse, taking their customers' deposits with them.

See [http://en.wikipedia.org/wiki/Fractional-reserve_banking Fractional reserve banking].

Conventional banks in the United States guarantee that account holders can withdraw 100% of their dollars based on their "word" and the fact that they are backed up by the [http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation FDIC]. This program insures depositors up to a certain amount (currently $250K USD per depositor). The FDIC is widely known to have reserves sufficient to cover only a very small fraction of the total deposits it insures though the FDIC itself can be considered to be backed up by the US Congress in the event of its insolvency. After politically desired, the FDIC's role could be extended to insure Bitcoin banks and establish a minimum reserve requirement. Such a change would only happen after public outrage occurs after the inevitable collapse of major Bitcoin banks.

Because Fractional Reserve Banking is possible with bitcoins, the money supply of bitcoins (which includes demand deposits) can greatly exceed 21 million.

== Point of sale with bitcoins isn't possible because of the 10 minute wait for confirmation ==

Transactions '''can''' take tens of minutes to become ''confirmed'', and this won't change for the foreseeable future. Even after the computing power of the network is orders of magnitude larger than today, the difficulty of generating a block will self-adjust to maintain a target of 6 blocks per hour. Three potential solutions to allow POS transactions are:

1) For small transactions, simply assume the customer isn't ripping you off. Give the customer his latte immediately after the transaction posts to the network. The transaction should propagate through the network almost instantly, allowing the seller to see the transaction within seconds (albeit with zero confirmations.) The cost of a double-spend attack should make small-scale fraud not worthwhile.

2) Utilize a [http://www.bitcoin.org/smf/index.php?topic=423.msg3819#msg3819 'listening' period] prior to rendering the service or good. This has yet to be formally implemented in the standard Bitcoin client, but would allow a vendor to receive the transaction and then monitor the Bitcoin network for a certain period of time (maybe 10 seconds) for possible double spends. Vendors might utilize specialized payment processors with multiple well-connected nodes for this purpose. As explained by Satoshi, the network nodes only accept the first version of a transaction they receive to incorporate into the block they're trying to generate. When you broadcast a transaction, if someone else broadcasts a double-spend at the same time, it's a race to propagate to the most nodes first. If one has a slight head start, it'll geometrically spread through the network faster and get most of the nodes. Therefore, the longer the listening period goes without a double spend attempt, the far less likely a double-spend attempt will actually succeed. If a double-spend is detected, the vendor is notified: no latte.

3) Create a network of transaction hubs. These entities would communicate using a common API. They would float short-term loans between each other to facilitate instant transactions.

Imagine that Alice uses Carol's Clearinghouse as her hub, and Bob uses Dave's Anonymous Exchange. Both Alice and Bob have accounts with their respective hubs, and have already deposited some bitcoins in their accounts. When Alice wants to buy a latte from Bob at a point of sale, Alice tells Carol "I want to send Bob ''x'' bitcoins. He uses Dave's Anonymous Exchange." After checking that Alice's account does contain at least ''x'' bitcoins, Carol sends a message to Dave, saying "Credit Bob's account with ''x'' bitcoins immediately; I'll send you the real bitcoins in the next block." Bob instantly sees his balance increase, and gives Alice her latte.

As always, trust is required - Alice has to trust Carol, and the hubs have to trust each other. Due to competition, various hubs could develop with vastly different fee structures, membership requirements, trustability, etc.

(But the point of Bitcoin is you don't need trust to execute the transaction, in the above description of option 3 you replaced the bitcoins with a trust-based centralized authority.)

== After 21 million coins are mined, no one will generate new blocks ==

When operating costs can't be covered by the block creation bounty, which will happen some time before the total amount of BTC is reached, miners are expected to earn profit from [[transaction fees]].

== Bitcoin has no built-in chargeback mechanism, and this isn't good ==

'''Why some people think this is bad''': Chargebacks are useful for limiting fraud. The person handling your money has a responsibility to prevent fraud. If you buy something on eBay and the seller never ships it, PayPal takes funds from the seller's account and gives you back the money. This strengthens the eBay economy, because people recognize that their risk is limited and are more willing to purchase items from risky sellers.

'''Why it's actually a good thing''': Bitcoin is designed such that your money is yours and yours alone. Allowing chargebacks implies that it is possible for another entity to take your money from you. You can have either total ownership rights of your money, or fraud protection, but not both. That said, nothing prevents the creation of services overlayed on top of Bitcoin that provide fraud protection services.

The statement "The person handling your money has a responsibility to prevent fraud" is still true; the power has been shifted into your own hands. Fraud will always exist. It's up to you to only send bitcoins to trusted entities. It is possible to trust an online identity without ever knowing their physical identity; see the [http://wiki.bitcoin-otc.com/wiki/OTC_Rating_System OTC Web of Trust].

== Quantum computers would break Bitcoin's security ==

Yes, but quantum computers don't yet exist and probably won't for a while. Bitcoin's security can be [http://en.wikipedia.org/wiki/Post-quantum_cryptography upgraded] if this were considered an imminent threat.

See the implications of quantum computers on public key cryptography here http://en.wikipedia.org/wiki/Quantum_computer#Potential

The ''risk'' of quantum computers is also there for financial institutions, like banks, because they heavily rely on cryptography when doing transactions.

== Bitcoin mining is a waste of energy and harmful for ecology ==

No more so than the the wastefulness of mining gold out of the ground, melting it down and shaping it into bars, and then putting it back underground again. Not to mention the building of big fancy buildings, the waste of energy printing and minting all the various fiat currencies, the transportation thereof in armored cars by no less than two security guards for each who could probably be doing something more productive, etc.

As far as mediums of exchange go, Bitcoin is actually quite economical of resources, compared to others.

== Shopkeepers can't seriously set prices in bitcoins because of the volatile exchange rate ==

Your assumption is that bitcoins must be sold immediately to cover operating expenses. If the shopkeeper's back-end expenses were transacted in bitcoins as well, then the exchange rate would be irrelevant. Larger adoption of bitcoins would make prices [http://en.wikipedia.org/wiki/Sticky_%28economics%29 sticky]. Future volatility is expected to decrease, as the size and depth of the market grows.

In the meantime, many merchants simply regularly pull the latest market rates from the exchanges and automatically update the prices on their websites. Also you might be able to buy a put option in order to sell at a fixed rate for a given amount of time. This would protect you from drops in price and simplify your operations for that time period.

== Like Flooz and e-gold, bitcoins serve as opportunities for criminals and will be shut down ==

* Hopefully Bitcoin will grow to the point where no single organization can disrupt the network, or would be better served by helping it.
* Terrorists fly aircraft into buildings, but the governments have not yet abolished consumer air travel. Obviously the public good outweighs the possible bad in their opinion.
* Criminal law differs between jurisdictions.

== Bitcoins will be shut down by the government just like Liberty Dollars were ==

Liberty Dollars started as a commercial venture to establish alternative US currency, including physical banknotes and coins, backed by precious metals. This, in and of itself, is not illegal. They were later shut down for counterfeiting and intent to fraud after the coins, which contained less than $1 worth of silver, were put into circulation with the general money supply, supposedly having a value of 1 USD. These actions were encouraged by the makers of Liberty Dollars.

Bitcoins are not necessarily equal in value to dollars or any other currency and no one is saying they are. No member of the public will be tricked into accepting a bitcoin instead of a dollar.

Of course, actually 'shutting down' the decentralized Bitcoin network is rife with its own set of difficult considerations.

== Bitcoin is not decentralized because the developers can dictate the software's behaviour ==

The Bitcoin protocol was originally defined by Bitcoin's inventor, Satoshi Nakamoto, and this protocol has now been widely accepted as the standard by the community of miners and users.

Though the developers of the official Bitcoin client still exert influence over the Bitcoin community, their power to arbitrarily modify the protocol is very limited. Since the release of Bitcoin v0.3, changes to the protocol have been minor and always in agreement with community consensus.

Protocol modifications, such as increasing the block award from 50 to 100 BTC, are not compatible with clients already running in the network. If the developers were to release a new client that the majority of miners perceives as corrupt, or in violation of the project’s aims, that client would simply not catch on, and the few users who do try to use it would find that their transactions get rejected by the network.

Apart from the “official” Bitcoin client, other clients are available (and currently in development) from other groups of developers. As long as these clients adhere to the Bitcoin protocol, it is impossible for the developers of the official client to stop them from competing for blocks, because the network cannot tell them apart from official clients.

[[de:Mythen]]