Peter Kent - Cryptocurrency All-in-One For Dummies

These limitations are hard-coded into the Bitcoin protocol and help ensure that the network stays decentralized. And decentralization is key to Bitcoin’s robustness. Larger blocks would impose hardships on the miners and might push out small operations.

Bitcoin has built-in limitations that prevent it from handling the global volume of monetary transactions. It is also being used to secure other types of data and systems. The demand to use the secure Bitcoin ledger is high. This difficulty is referred to as Bitcoin bloat, and it has slowed down the network and increased the cost of transactions.

At this point, most blockchain developers are only experimenting with expanding the utility of the Bitcoin blockchain. Most are not at a point where they need to scale up their prototypes and concepts so that the Bitcoin blockchain can handle their requests. Other new blockchain technologies have also helped bring down the pressure on Bitcoin and have given developers cheaper options to secure data.

Bitcoin is a living and ever-changing system. The Bitcoin core development community is actively seeking ways to improve the system by making it stronger and faster. Anyone can contribute to the Bitcoin protocol by engaging on its GitHub page ( www.github.com/bitcoin ). However, there is a small community of dominant core developers of Bitcoin. The most prolific contributors are Wladimir Van Der Laan, Pieter Wuille, and Gavin Andresen.

Bitcoin is under intense scrutiny from the outside. The decentralized nature of Bitcoin that may displace central authorities made it a target for regulators. Bitcoin is also favored by people who want to purchase illicit items anonymously or move money from a controlled economy to a noncontrolled economy, bypassing governmental controls. All these factors have given Bitcoin a bad rap and drawn the judgment of society. Entrepreneurs who wanted to capitalize on the technology of Bitcoin rebranded it. The change in terminology was used to differentiate the software structure of Bitcoin and other cryptocurrencies. Software that used the structure of cryptocurrencies began to be called blockchain. The shift to deemphasize the controversial tokens and highlight the structure of cryptocurrencies changed both government and commercial views of Bitcoin from fear to excitement.

People are often suspicious of anything new, especially new things that aren’t easy to understand. So, it’s only natural that Bitcoin — a totally new currency unlike anything the world had ever seen before — would confound people, and a few misconceptions would result.

Here are some of the misconceptions you might have heard about Bitcoin:

Bitcoin was hacked. There was one known instance in 2011 where someone double-spent their Bitcoin, but it was resolved within an hour. Since this issue, there have been no known successful attacks on the Bitcoin blockchain that resulted in stolen Bitcoins. However, many central systems that use Bitcoin have been hacked. And wallets and Bitcoin exchanges are often hacked due to inadequate security. The Bitcoin community has fought back by developing elegant solutions to keep their coins safe, including wallet encryption, multiple signatures, offline wallets, paper wallets, and hardware wallets, just to name a few.

Bitcoin is used to extort people. Because of the semi-anonymous nature of Bitcoin, it’s used in ransomware attacks. Hackers breach networks and hold them hostage until payment is made to them. Hospitals and schools have been victims of these types of attacks. However, unlike cash, which was favored by thieves in the past, Bitcoin always leaves a trail in the blockchain that investigators can follow.

Bitcoin is a pyramid scheme. Actually, Bitcoin is the opposite of a pyramid scheme from the point of view of Bitcoin miners. The Bitcoin protocol is designed like a cannibalistic arms race. Every additional miner prompts the protocol to increase the difficulty of mining. From a social point of view, Bitcoin is a pure market. The price of Bitcoins fluctuates based on market supply, demand, and perceived value. Bitcoin is not a pyramid scheme, but many scams exist surrounding Bitcoin, so be careful.

Bitcoin will collapse after 21 million coins are mined. Bitcoin has a limit to the number of tokens it will release. That number is hard-coded at 21 million. The estimated date of Bitcoin issuing its last coin is believed to be in the year 2140. No one can predict what will happen at that point, but miners will always earn some profit from transaction fees. Plus, users of the blockchain and the Bitcoins themselves will be incentivized to protect the network, because if mining stops, Bitcoins become vulnerable and so does the data that has been locked into the blockchain.

Enough computing power could take over the Bitcoin network. This is true, but it would be extremely difficult, with little to no reward. The more nodes that enter the Bitcoin network, the harder this type of attack becomes. In order to pull this off, an attacker would need the equivalent of all the energy production of Ireland. The payoff of this sort of attack is also extremely limited. It would only allow the attacker to roll back their own transaction. They couldn’t take anybody else’s Bitcoins, or fake transactions or coins.

Bitcoin is a good investment. Bitcoin is a new and interesting evolution in how people trade value. It isn’t backed by any single government or organization, and it’s only worth something because people are willing to trade it for goods and services. People’s willingness and ability to utilize Bitcoin fluctuates a lot. It’s an unstable investment that should be approached cautiously. Learn more about investing in cryptocurrencies in Book 5.

The Bitcoin world is much like the early days of the Wild West. It’s best to approach cautiously until you figure out who the good guys and bad guys are and which saloon serves the coldest beer. If you fall victim to a scam, you’ll have little to no protection.

Bitcoins and other decentralized cryptocurrencies are considered currency in many countries, but little to no oversight or protection is in place for consumers.

This section covers three common scams that are prevalent in the cryptocurrency world. They all revolve around stealing your coins and look a lot like traditional cons you might already be familiar with. This list isn’t exhaustive, and crooks are nothing if not creative, so be very cautious when using Bitcoins. You never know what’s around the next corner.

Websites that look like exchanges or web wallets but are fakes have plagued some of the top Bitcoin websites. This type of scam is common in the Bitcoin world and on the web in general. Scammers hope to make money by stealing login information from users or misleading them into sending Bitcoins.

Always double-check the URL and only use secure websites (those that start with https://) to avoid this problem. If a website or claim seems doubtful, check to see if it’s listed on Badbitcoin.org ( www.badbitcoin.org ). This is not an exhaustive list, but it includes many of the bad players.

“Send me your Bitcoins, and then I’ll ship you the goods.” Smells fishy, right? Scams like this are similar to money wire fraud. In this type of fraud, an individual pretends to sell you something but never delivers.