Pardon the disrespect, but a noob is what your crypto native friends call you, right? A noob who is NGMI? Since Bitcoin’s 2009 launch, you’re now facing 2024 with basic cryptocurrency questions you’re too embarrassed to ask. Worry not, though, Blockverse is at your rescue!
This entire blog is at your service to answer questions about the world of blockchain and crypto, but this time, our specific mission is to solve and provide respectively the very basic and yet interesting questions about Bitcoin and answers you seek. Without further ado, let’s dive in!
Top Ten Questions about Bitcoin and Crypto
Your questions about cryptocurrency may encompass a wide range of topics: what if Bitcoin, how is it connected to blockchains, workings of Bitcoin, is crypto tranceable, and what are crypto wallets. Here’s your quick cryptocurrency questions and answers to simplify the space for you!
First up, what is Bitcoin?
1. What is Bitcoin?
You may have a basic idea, but here’s everything you need to know: Satoshi Nakamoto (a pseudonym for a genius, or a group of geniuses) came up with the idea of Bitcoin after witnessing the failure of the US economy during the 2008 financial crisis. The intention behind Bitcoin was to create a global, decentralized financial network for users to make transactions and keep control of their money.
With traditional money, you know how it’s controlled by banks and you have certain restrictions when you want to make transactions? There are more problems: long waiting period for cross border transfers, several types of trading charges, needing permission from higher ups to conduct some transactions. All these problems find their root in a centralized system where one single point of control is there to watch over transactions, control your money, and impose limits when they deem it necessary. Nakamoto canceled all of that before Gen Z’s cancel culture was even a thing.
Instead, Nakamoto said people worldwide would create a monetary network of bitcoins, holding and trading the coins as currency, with every willing participant managing the network – a democracy to end all democracies. This network is called blockchain, where all transactions are added in virtual blocks; the records are updated in real time, and can be verified by all network participants.
So Bitcoin brings a peer-to-peer blockchain, where participants can directly send each other funds and no centralized authority controls anything. Instead, there is this decentralized network, increasing security of the money being transferred with transparency and even distribution of power.
2. Are Bitcoin and blockchain not the same thing?
When it comes to questions about Bitcoin and answers, this one is bound to appear. Nakamoto gave birth to the concept of blockchain as a live ledger for transactions carried out on a network, managed by a distributed network of participants called nodes (or more accurately, the computers they connect to a blockchain are called nodes). Blockchain and Bitcoin burst out in the mainstream together in 2009 as the Bitcoin whitepaper explained, but they are definitely not the same thing.
Bitcoin is a decentralized, virtual currency that aims to rival the traditional financial system and overtake it. Blockchain (visualized as a digital chain of blocks containing transaction information) is a virtual ledger that is decentralized and updated by nodes in real time after transactions carried on it are verified, and it can find utility beyond cryptocurrencies.
3. Who creates bitcoins? What is Bitcoin mining?
Yet another of the popular questions about cryptocurrency- bitcoins are created through a process called Bitcoin mining. You could say the entire network of nodes is capable of ‘creating’ bitcoins through mining, again bringing decentralization.
Coming to Bitcoin mining, bitcoin’s creation is based on a mathematical process. Bitcoin uses a consensus mechanism called proof of work (PoW) to achieve consensus among its nodes. Have the nodes prove their commitment to preserving the decentralized network, and to release new bitcoins. Mining is how the nodes prove themselves.
Bitcoin mining requires nodes to employ powerful computers to solve difficult mathematical puzzles to validate and add transactions to the blockchain. They compete to solve said problems, and the first one to reach the solution gets the right to add a brand new block to the Bitcoin blockchain.
As a reward for their efforts and the computational power they contribute, the system releases new bitcoins (along with a part of the transaction fees from the transactions in the blocks they add) to these miners. So proof of work is basically miners demonstrating their dedication by competing in mining with their computational power.
4. What is the total number of bitcoins?
When Nakamoto created Bitcoin, they made it to be deflationary, invulnerable to sudden policies from central banks and governments. Key to this mechanism of theirs was an upper cap to the total supply of bitcoins. Among cryptocurrency questions and answers, the total number of bitcoins is a common one, and the answer is 21 million. The design choice on Nakamoto’s part was to mimic the scarcity of precious metals, particularly that of gold. The finite supply and decentralized aspects of Bitcoin make it resistant to manipulation by any single entity, providing security and transparency to the network.
5. What is Bitcoin halving?
We hope your questions about Bitcoin and answers you received have been satisfactory so far. The next Bitcoin halving is due in 2024, and there’s been some speculation in the market about it you may have heard of. Bitcoin halving is key to its deflationary mechanism, as miners receive rewards that create new bitcoins. The Bitcoin halving event cuts into half the number of bitcoins created for every miner per block, and this event takes place roughly every four years or 210,000 blocks later.
When Nakamoto launched Bitcoin in 2009, the initial block reward was 50 BTC. In 2012, the first halving occurred, cutting the reward per block down to 25 BTC. The 2016 Bitcoin halving followed, cutting the reward into half again at 12.5 BTC, and the 2020 halving made the mining reward 6.25 BTC per block. The next Bitcoin halving is now expected to take place in April 2024, cutting the block reward into half again at 3.125.
Every Bitcoin halving has historically been followed by a bull market, which is probably what is getting your trader friends excited this time too. Take a look at this table below:
History of Bitcoin Halving
Notably, once the Bitcoin network releases all 21 million bitcoins (as of December 2023, 19.57 million bitcoins are already mined, leaving about 1.45 million bitcoins to be released still), no more new bitcoins will ever be created. All bitcoins are expected to be released into circulation by 2140, given the halving system keeps up as usual.
6. Is Bitcoin traceable?
Yet another widely asked one among questions about cryptocurrency, ‘yes’ is the one word answer here. Bitcoin is a public blockchain, as in anyone can view and verify the transactions carried out on the chain. Bitcoin offers anonymity, allowing pseudonymous transactions on-chain for better financial control compared to traditional finance (tradFi).
Now, these pseudonymous transactions are transparent and available for public view- so anyone can see the trades relevant to an address on the Bitcoin blockchain. This nails both the transparency and anonymity factors, scoring a win for decentralized finance.
If your question is ‘is cryptocurrency traceable’, however, the answer would be not in all cases. You see, there are private blockchains too, which restrict viewership and are controlled by a select group of people. In such cases, crypto isn’t traceable to all.
7. What is staking?
Breaking away from the interesting questions about Bitcoin, staking is popularized by proof of stake blockchains, unlike the PoW of Bitcoin. Ethereum recently adopted the proof of stake consensus mechanism, as your crypto-enthusiast friends may have mentioned. ETH used to be a PoW chain, but they shifted to proof of stake out of the need to be more environmentally sustainable- with the high power computers, PoW consumes more power than any other consensus systems. Now, proof of stake has lowered Ethereum’s energy consumption by over 99%.
Coming to what is staking, it is how nodes on the new Ethereum chain prove their commitment to maintaining the network. You have to lock up your Ethereum holdings on the chain as a ‘stake’, and those with the highest stakes stand to be chosen as a ‘validator’. Ethereum chooses a new validator for every block to prevent centralization of power. Validators verify transactions, add them to the chain, and receive new ETH tokens plus a share of transaction fees.
Now, you have to stake minimum 32 ETH to be chosen as a validator. You can choose to pool your ETH holdings with others to back a validator of your choice, and split up the rewards.
8. How to buy/trade cryptocurrencies?
Along with the more theoretical cryptocurrency questions and answers, you might want to know how to buy and trade in cryptocurrencies. Beginner-friendly centralized exchanges allow fiat-to-crypto trades, making them a safer starting point compared to decentralized platforms. Before choosing the best crypto exchanges, however, remember to look for a few factors like:
- Maximized user convenience
- Good reputation on the internet
- Security factors like 2FA integration
- How many types of cryptocurrency are there?
9. How many types of cryptocurrency are there?
Your questions about cryptocurrency may include an enquiry about the types of crypto. Some of the types include:
- Crypto coins: These act as currency, and each crypto coin has its native blockchain. Examples include Bitcoin (BTC) and Ethereum (ETH).
- Crypto tokens: These serve for various utilities across projects built on a blockchain, such as to distribute governance rights, to pay for services, and more. Crypto tokens are vastly different from crypto coins. Examples include Polygon (MATIC). All crypto coins can be called crypto tokens, but you can’t say vice versa.
- NFTs: Non fungible tokens don’t differ much from your average crypto tokens, except that you can replace one unit of bitcoin with another, while each NFT remains unique.. A popular example is CryptoKitties.
- Stablecoins: Cryptocurrencies derive their value from user sentiments: how people perceive their utility and consider their valuation. User sentiment drives crypto volatility, similar to how it affects any asset market. However, stablecoins are an exception. They are pegged to fiat, crypto, or assets like precious metals to stabilize value and reduce crypto volatility. Examples include USDT (Tether) and DAI.
- CBDCs: Central bank digital currencies are conventional monetary systems’ answer to the rising popularity of cryptocurrencies. They basically bridge the gap between crypto and fiat. They exist digitally and yet are centrally managed. Whether you want to call that the best of both worlds or the worst, your call. Examples include the Indian RBI’s eRupee.
10. What are crypto wallets?
Crypto wallets are your primary contact point with cryptocurrencies, answering key questions about the crypto world. Note that Bitcoin and other crypto have no physical existence, and thus they exist only virtually. So what do your crypto wallets store, exactly?
Crypto wallets store private keys (like a UPI pin) to prove ownership and initiate cryptocurrency trades. Your wallet has a public key, similar to a UPI ID, which you can share to receive crypto payments.
Crypto wallets come in two basic types, which are:
- Hot wallets: These are online wallets and can come in the form of mobile apps/websites/desktop applications. Exchanges offer an in-house web wallet, allowing you to transfer crypto to a smartphone or offline wallet.
- Cold wallets: These are offline wallets, coming in the form of extraneous hardware devices. Hardware wallets bear fewer threats of getting hacked because they are not connected to the internet, unless you’re making transactions. Ledger is a popular brand for hardware crypto wallets.
Paper wallets involve writing your private key on paper, and if you’re confident in your security, you can use one. But honestly, we wouldn’t recommend such a flimsy tactic.
Learn More on Blockverse!
And with that, this quick session of cryptocurrency questions and answers is over! We hope we’ve answered all your basic questions about cryptocurrency, saving you from your friends’ jeering. Want to keep learning more about blockchain and cryptocurrencies? The gates of Blockverse are always open!
