Bitcoin Frequently Asked Questions

Bitcoin, crypto currencies and the blockchain in general are a whole new and often confusing world for newcomers.  Below are a couple of simple ‘must knows’ but we recommend going to the community page of www.Bitcoin.org/en/faq for a comprehensive explanation of most questions.

What is Bitcoin?

Bitcoin is a fully digital or “crypto” currency using blockchain technology, a consensus network that enables users to store, make and receive payments without any intermediary such as a bank or financial institution.  Because it is fully open-source and decentralised, it simply cannot be ‘hacked’ or controlled by any individual or body.  The value is drawn from its rarity and useability.

The workings are very complicated but in simplest of terms there will only ever be 21 million Bitcoins.  Those ‘coins’ are held in blocks or a distributed public ledger (decentralised record of all payments and receipts) and that ledger is visible to everyone (open source). Not all those 21m ‘coins’ have been created though.  Bitcoins are created through a digital form of mining.  That mining process is essentially solving an immensely complicated mathematical problem.  Because there is no single intermediary to ‘approve’ a payment, payments are approved by the consensus of a number ‘miners’ who are incentivised to do so through earning Bitcoins for their efforts through ‘transaction fees’ and block rewards.  Any fraudulent transaction simply never gets approved as the algorithm will fail.

Bitcoins are held in ‘wallets’.  Each wallet has a public key (or address) and a private key (or secret code).  If you want to pay someone, they give you their public address and you send the Bitcoins to that address using your private key.  Think of it being like your bank account number and PIN.

As a form of money that can’t simply be expanded (intrinsic value), is an accepted median of exchange (albeit still limited.. but accepted at Ainslie!), and is portable, fungible, and divisible…. you can soon see why it is getting compared to gold.

What is a wallet?

Wallets can take different forms.  The most convenient is to have a digital wallet on your phone or PC.  You import your Private Key if you already have one or you can create a new wallet.  There are many different providers of these but most simply allow you to transact more easily with QR scanners and the like.  There are also hardware wallets that provide higher levels of security and allow you to take your wallet offline whilst maintaining the same level of useability as a digital wallet.  Trezor and Ledger Nano S are examples.

First time buyers at Ainslie are offered so called ‘paper wallets’.  This is simply a printout of the Bitcoin address (or the ‘Shared address’) with its QR code, and the Private Key (or ‘Secret Key’).  We also provide a USB copy to give you a backup.  For ultimate security these should be created completely offline on a machine never online.  This is how we do it.  Read our Buy Bitcoin page for more.  A securely stored paper wallet simply can’t be hacked.  We recommend storing it at Reserve Vault for ultimate peace of mind.

Sending and Receiving Bitcoin

Again, keeping it simple… if you want to buy something with Bitcoin or sell it, the recipient will most likely send you their Bitcoin address.  The easiest way to send some of your Bitcoin to that address is to download a digital wallet.  If you only have a paper wallet you can either import your Private Key or send the full balance (using your Private Key) into a new account created at their website or digital wallet.  For ultimate security you should never use the same address twice.  When you send some of your Bitcoin, all of it is sent and the ‘change’ is sent to a (essentially) new address in your wallet.  This is handled by the wallet software itself.

Receiving Bitcoin is far simpler.  Provide your address and the payer will deposit into it.

At any time you can check your balance by copying your Bitcoin address into a block explorer, like blockchain.info and it will tell you your balance.

Transaction Fees

When sending Bitcoin you need to pay a transaction fee which in simple terms pays or incentivises the miners to approve your transaction.  Transaction loads can vary in the Bitcoin network and at times you need to pay higher fees to achieve the first confirmation within say 30 minutes.  Don’t pay enough and it could literally take weeks.  Most of the popular digital wallets handle this for you, and you can even dial up the priority and how much you pay.  For more information on current fees you can go to www.bitcoinfees.21.co .  We are not talking large amounts.  At the time of writing an average transaction cost about 82,000 satoshis (1 satoshi being the 8th decimal place), so less than 0.1%.

When you buy Bitcoin off us or sell bullion for Bitcoin you will receive Bitcoin in your wallet NET of that fee which is out of our control.  We use Priority settings to ensure you get your Bitcoin promptly.  When you sell us Bitcoin or use Bitcoin to buy bullion we acknowledge and accept that likewise we will receive Bitcoin net of those fees and we stipulate in our terms you need to use the Priority setting as well.

Confirmations

As we discussed above, Bitcoin works on consensus algorithms and so the network needs to confirm transactions.  For lower amounts most will accept 1 confirmation and for large sums 6 confirmations is the standard.  This can take around 1 hour.  From bitcoin.org:

“Receiving notification of a payment is almost instant with Bitcoin. However, there is a delay before the network begins to confirm your transaction by including it in a block. A confirmation means that there is a consensus on the network that the bitcoins you received haven't been sent to anyone else and are considered your property. Once your transaction has been included in one block, it will continue to be buried under every block after it, which will exponentially consolidate this consensus and decrease the risk of a reversed transaction. Each confirmation takes between a few seconds and 90 minutes, with 10 minutes being the average. If the transaction pays too low a fee or is otherwise atypical, getting the first confirmation can take much longer. Every user is free to determine at what point they consider a transaction sufficiently confirmed, but 6 confirmations is often considered to be as safe as waiting 6 months on a credit card transaction.”