Q: What is Bitcoin?
A: Bitcoin is a decentralized digital currency that can be sent electronically from one user to another without the need for a central authority or intermediary.
Q: How does Bitcoin work?
A: Bitcoin transactions are recorded on a public digital ledger called a blockchain. The blockchain is maintained by a network of computers that work together to validate and record transactions, known as "miners." Miners are rewarded with new bitcoins for their work.
Q: How do I store my Bitcoin?
A: You can store your Bitcoin in a digital wallet, which can be a software, hardware or paper wallet. Software and hardware wallets are considered more secure because they keep your private keys offline and away from potential hackers.
Q: How are new bitcoins created?
A: New bitcoins are created through a process called mining. Miners use powerful computers to solve complex mathematical problems, and when a problem is solved, a new block is added to the blockchain. As a reward for their work, miners are given a certain number of bitcoins, which is known as the block reward. The block reward is currently 6.25 BTC.
Q: How is the blockchain secured?
A: The blockchain is secured through a consensus mechanism called proof-of-work (PoW). In PoW, miners compete to solve a complex mathematical problem, and the first miner to solve it gets to add the next block to the blockchain. The solution to the problem, called a hash, is added to the block, and all other miners then verify the solution is correct before adding the block to their own copy of the blockchain.
Q: How are transactions verified?
A: Transactions are verified by the network of miners. When a user initiates a transaction, it is broadcast to the network. Miners then collect unconfirmed transactions into blocks, and then use their computational power to solve a complex mathematical problem, called a proof-of-work, in order to add the block to the blockchain. Once the block is added, the transactions in it are considered confirmed.
Q: What is a Bitcoin address?
A: A Bitcoin address is a unique string of letters and numbers that represents a destination for a bitcoin payment. It is also sometimes called a "public key." Bitcoin addresses can be generated for free using a variety of different software or online tools.
Q: What is a private key?
A: A private key is a secret code that allows a user to access and control the bitcoins associated with a particular address. It is important to keep private keys safe and secure, as anyone with access to a private key can use it to spend the bitcoins associated with that address.
Q: How does SegWit (Segregated Witness) improve Bitcoin?
A: SegWit is a protocol upgrade that was implemented on the Bitcoin network in August 2017. It increases the transaction capacity of the network by effectively increasing the block size limit. This is achieved by separating transaction signature data (witness data) from the transaction data that is used to calculate the transaction's hash. This allows more transactions to be included in a block, which in turn speeds up the confirmation process and reduces transaction fees.
Q: What is Bitcoin Script?
A: Bitcoin Script is a programming language that is used to create smart contracts and other complex transaction types on the Bitcoin network. It is a stack-based, Forth-like language and is used to create scripts, which are then embedded into the input of a bitcoin transaction. Scripts can be used to create multi-sig addresses, time-locked transactions, and other advanced features.
Q: How does the difficulty of mining adjust?
A: The difficulty of mining adjusts every 2016 blocks (about two weeks) on the Bitcoin network. The difficulty is adjusted to ensure that the average time to mine a block remains at 10 minutes. If more miners join the network and the overall hash rate increases, the difficulty will increase to compensate. Conversely, if miners leave the network and the hash rate decreases, the difficulty will decrease. This mechanism helps to maintain the stability of the network and ensure that new blocks are added at a consistent rate.
Q: What is a hard fork?
A: A hard fork is a change to the Bitcoin protocol that makes previously invalid blocks/transactions valid (or vice-versa). This requires all users to upgrade to the latest version of the software. When a hard fork occurs, the blockchain splits into two separate chains, one that follows the new rules and one that follows the old rules. This can result in two different versions of the cryptocurrency, such as Bitcoin and Bitcoin Cash.
Q: What is a soft fork?
A: A soft fork is a change to the Bitcoin protocol that is backwards-compatible. This means that old versions of the software can still validate the new blocks, but new version of the software will have new rules for validating blocks. Unlike a hard fork, a soft fork does not result in a split of the blockchain, and all users are still able to use the same version of the cryptocurrency.
Q: What are unspent transaction outputs (UTXO)?
A: In Bitcoin, a transaction output (TXO) is a value that is sent to a specific address, and it can only be spent by the person who controls the private key associated with that address. An unspent transaction output (UTXO) is a TXO that has not yet been spent in a subsequent transaction. UTXOs are the basic building blocks of transactions in the Bitcoin network, and they are used to track the current balance of each address.
Q: What is a Merkle Tree?
A: A Merkle tree is a data structure that is used to efficiently summarize all the transactions in a block. It is a binary tree, where each leaf node represents a transaction and each non-leaf node is the hash of its child nodes. The root of the tree is called the Merkle root, and it is included in the block header. This allows for efficient verification of transactions without having to download the entire block.
Q: What is a full node?
A: A full node is a computer that stores a copy of the entire blockchain and participates in the network by validating and relaying transactions. Full nodes enforce the rules of the Bitcoin protocol and help to keep the network decentralized. Running a full node is a way to support the network and ensure that your transactions are processed correctly.
Q: What is a light node?
A: A light node, also known as a "light client," is a type of Bitcoin node that does not store a copy of the entire blockchain. Instead, it relies on other full nodes for information about the blockchain. Light nodes are typically used by users who want to access the Bitcoin network without having to download and store the large amount of data required for a full node. They are also useful for devices that have limited storage capacity.
Q: What is a mining pool?
A: A mining pool is a group of miners who combine their computational resources to mine Bitcoin more efficiently. Miners in a pool work together to solve a block and share the reward according to their contributed hashrate. By joining a mining pool, individual miners can earn a steady stream of bitcoins, rather than only earning them sporadically when they are able to solve a block on their own.
Q: What is a block reward halving?
A: The block reward halving is a built-in mechanism in the Bitcoin protocol that reduces the number of bitcoins mined in each block by half approximately every four years. This is done to control the rate of inflation and ensure that the total supply of bitcoins will not exceed 21 million. The first halving occurred in 2012, reducing the block reward from 50 BTC to 25 BTC. The second halving occurred in 2016, reducing the block reward to 12.5 BTC, the third halving in 2020 reduced the block reward to 6.25. The fourth halving scheduled to happen in 2024.
Q: What is the difference between a hot and cold wallet?
A: A hot wallet is a type of Bitcoin wallet that is connected to the internet, allowing for easy access and transactions. Examples of hot wallets include software wallets on a computer or mobile device, as well as online exchanges where you can buy, sell and store bitcoins. A cold wallet, on the other hand, is a type of wallet that is not connected to the internet and is therefore considered more secure. Examples of cold wallets include hardware wallets and paper wallets.
Q: What is the Lightning Network?
A: The Lightning Network is a second-layer scaling solution for the Bitcoin network. It is a network of payment channels that allows users to make fast, low-cost transactions without having to wait for confirmation on the main blockchain. The Lightning Network is built on top of the Bitcoin blockchain and uses smart contracts to enable instant, secure and private transactions.
Q: What is a SegWit address?
A: SegWit (Segregated Witness) is a protocol upgrade that was implemented on the Bitcoin network in August 2017. It increases the transaction capacity of the network by effectively increasing the block size limit. SegWit addresses (also known as "bech32 addresses") are a new type of address format that are fully compatible with SegWit. They start with the prefix "bc1" and are more efficient in terms of storage and network usage, leading to lower transaction fees.
Q: What is a non-SegWit address?
A: A non-SegWit address is a type of address format that is not compatible with the SegWit protocol upgrade. These addresses typically start with the prefix "1" and "3" and are also known as "legacy addresses." Transactions from non-SegWit addresses are still valid on the Bitcoin network, but they do not benefit from the increased efficiency and lower transaction fees provided by SegWit.
Q: What is Coinjoin?
A: Coinjoin is a method of enhancing the privacy of Bitcoin transactions by combining multiple inputs from different users into a single transaction. This makes it more difficult for third parties to track the flow of coins and identify the individuals behind the addresses. Coinjoin can be implemented through a centralized service or a decentralized protocol.
Q: What is a mnemonic phrase?
A: A mnemonic phrase, also known as a "seed phrase" or "recovery phrase," is a sequence of words that is used to generate a private key for a Bitcoin wallet. Mnemonic phrases are typically 12 to 24 words long and are generated by the wallet software. They can be used to recover access to a wallet in case the original private key is lost or forgotten. It's important to store the mnemonic phrase in a safe and secure place, as it can be used to access and control the bitcoins associated with that wallet.
Q: What is a hardware wallet?
A: A hardware wallet is a physical device, like a USB drive, that is designed to store a user's private keys offline and away from potential hackers. Hardware wallets are considered to be one of the most secure ways to store bitcoins, as they are not connected to the internet and are therefore less vulnerable to hacking and malware. Examples of popular hardware wallets include Trezor and Ledger.
Q: What is a paper wallet?
A: A paper wallet is a type of cold storage method for holding bitcoins, where the private key is printed on a piece of paper. The private key can then be used to access and control the bitcoins associated with that key. Paper wallets are considered to be one of the most secure ways to store bitcoins, as long as the paper is stored in a safe and secure place, and the private key is not compromised.
Q: What is a brain wallet?
A: A brain wallet is a type of Bitcoin wallet that is created by memorizing a passphrase and using it to generate a private key. The private key can then be used to access and control the bitcoins associated with that key. Unlike other types of wallets, brain wallets do not have a physical or digital storage device, so the security of the wallet relies solely on the strength of the passphrase and the user's ability to remember it. Brain wallets can be vulnerable to hacking attempts, such as brute force attacks, and it is crucial to use a strong and unique passphrase.
Q: What is a watch-only wallet?
A: A watch-only wallet is a type of Bitcoin wallet that allows a user to monitor their balance and transactions without having access to the private keys. This means that the user can view their bitcoins and track their movements, but they can not spend them. Watch-only wallets can be useful for tracking the balance of an address or keeping an eye on a cold storage wallet without exposing the private keys to potential hackers.