Bitcoin explained

Learn everything there is to know about the world of Bitcoin. Whether you want to inform yourself about Bitcoin in general or you are keen to find out how payments and security measures of the world's best known cryptocurrency work.

We at BitBucks want to help, to bring Bitcoin payments into the life of everybody.

Bitcoin for beginners

Do you need banks in order to use Bitcoin?

Yes and no. If you want to buy Bitcoin directly from, for example, the stock market, you will need a valid credit card or bank account. Another way to get bitcoin is by using custodial wallets like BitBucks. This is possible because Bitcoin is a monetary protocol for the Internet. You can use Bitcoin in the same way as you access a website. Access is enabled by wallet software, which is available in various models free of charge, or by direct connection to a node.

How do I get Bitcoin?

Generally from digital wallets or currency exchanges. These exist in virtually every country. These facilities will usually confirm the identity of their customers via video-based methods. You can then purchase Bitcoin via bank transfer or in some cases using other payment methods such as credit cards and PayPal for instance.
Many countries also have platforms for direct trade between private individuals which are quite popular. There are often vending machines from which you can buy Bitcoin. In addition to that you can also purchase credit vouchers in kiosks.
An alternative way to the purchase of Bitcoin is acceptance. You can accept Bitcoin as payment for goods or services that you provide. In some countries, employees or freelancers may be able to convert part of their salary or fee payments into Bitcoin.

Is Bitcoin legal?

In almost all countries, the use of Bitcoin to send and receive money is permitted. In a few countries this is restricted or completely forbidden. Please seek reliable information as to the legal situation regarding Bitcoin in your country.

What are “coins”?

In Bitcoin terminology, Bitcoin are not saved to addresses but as UTXO or “unspent output”. UTXO is commonly known as “coin” as it represents just this: coinage to the specified value of Bitcoin. Such coins can only be spent as a whole. If they are larger than the sum to be sent, then the remaining amount comes back into your wallet as change.

What is Bitcoin?

Bitcoin is a virtual currency, also known as a cryptocurrency. It was developed in 2009 and has grown at a rapid rate since then. Bitcoin is accepted in almost every country in the world; more than 500 million dollars have been transferred via this method till today. It gives an unprecedented degree of financial autonomy to its users.

What is a wallet?

A wallet is software you can use to administer your bitcoins. There are many wallets for all common computer systems. You can choose between local and online wallets. A local wallet gives greater independence and privacy, while an online wallet can offer more convenience. 

What is an address?

Bitcoins are sent to addresses. An address is an approximately 35-digit character combination. It has a similar function as the IBAN number for bank transfers: You can transfer money to it by entering it in a field on the transfer form. However, unlike IBAN numbers, your wallet can form an almost infinite number of addresses.

Who can use Bitcoin?

Anyone who has access to the Internet. Everyone is equal with Bitcoin; the network does not require permission. Age, gender, religion, social status, origin - Bitcoin does not recognise these categories.

Who does Bitcoin belong to?

Bitcoin is, in essence, an open-source software. This means that it belongs to no-one and therefore to everyone. No-one can build a fence around Bitcoin - everyone has access.

Why choose Bitcoin over other virtual currencies?

There are 1,000 virtual currencies, and none of these offer any significant advantages over Bitcoin. Bitcoin is the face of the financial revolution, the brand name of virtual currencies, the best-known and most widely accepted of them all. Why, then, would anyone want to start from scratch with another currency?

Why is Bitcoin so revolutionary?

Bitcoin is a truly international currency which is inflation-resistant, private, autonomous, does not require consent and cannot be censored. There is no central bank devaluing money through inflation, nor any banks or other middle-men conducting the transfer between sender and receiver. Bitcoin transactions are without borders. The user's private key gives full ownership of Bitcoin units, and with a passphrase you can even store it in your head. 

Bitcoin payments

Can I mis-type with my transaction?

No. Bitcoin addresses have a checksum of their own symbols. The chance of accidentally entering a false address with the correct checksum is virtually zero. It is much lower than, for example, with IBAN numbers.

Do you need banks in order to use Bitcoin?

Yes and no. If you want to buy Bitcoin directly from, for example, the stock market, you will need a valid credit card or bank account. Another way to get bitcoin is by using custodial wallets like BitBucks. This is possible because Bitcoin is a monetary protocol for the Internet. You can use Bitcoin in the same way as you access a website. Access is enabled by wallet software, which is available in various models free of charge, or by direct connection to a node.

How can I trace a transaction?

Bitcoin transactions are part of the blockchain and are therefore stored in every node of the network. “Blockexplorer” allows transactions to be traced using the address or transaction ID. This is helpful in ascertaining that a transaction has actually occurred.

How do I send Bitcoin?

It's simple: copy the recipient's address into a field, enter the amount, and click "Send". In most wallets, you can specify the amount in your local currency, so no conversion is required. Payment requests or the payment protocol are often used. They already include the amount and can either be activated by clicking or by copying them into the send field. Mobile wallets are able to scan transaction requests, so you only have to confirm the transaction.

What are payment URIs and the payment protocol?

A payment URI is a request for payment that many wallets can generate. URIs define a target address, an amount and may include a notification for the sender such as the order number. These can be scanned like a QR code or copied into the send field of a wallet. One click on the payment URI opens the wallet with the pre-formulated transaction.
The payment service provider BitPay uses the payment protocol. This enables BitPay to set fees for a transaction and transfer this amount to the miner itself. In this way, BitPay can increase the success rate of its payments. This payment method is used in the same way as the URI: you can scan it in, click the link or copy it into a wallet. In any case, not all wallets support the payment protocol.

What are transaction fees?

A Bitcoin transaction attracts a fee which is paid to the miner. Under normal circumstances fees amount between one and five cents. However during peak times these may increase noticeably to values of 50 cents or even one euro. If you pay too little in fees, you will have to wait longer for confirmation of your transaction. Most wallets select the appropriate fees. Wallets like BitBucks, in which transactions can also be internally calculated, can save you fees and accelerate confirmation of your transactions.

What is a confirmation?

As soon as the miner puts your transaction into a block and then attaches it to the blockchain, the transaction is “confirmed”. This means that it is an official part of the blockchain and can no longer be countermanded. “Confirmation” corresponds to the two-week buyer protection period with PayPal or the settlement period with credit cards, which can take months. With Bitcoin, the confirmation period usually lasts 5-10 minutes. 

What is a transaction?

With a transaction, you transfer Bitcoin from your wallet to another party. This transaction will be signed off with your private key and forwarded to the node in the Bitcoin network. This is propagated across the whole network until it reaches a miner, which can confirm the transaction. 

What is the difference between Bitcoin and PayPal?

PayPal is a closed system. The money that is moved via PayPal remains in that system, and can only be accessed through PayPal software. Bitcoin, on the other hand, is an open system. The user can transfer money directly, without a middle-man. At the same time this means that there is a market for middle-mens, who can provide users with an interface for Bitcoin and, with a wallet like BitBucks, payments are cheaper and more convenient.

What is the lightning network?

The lightning network is a so-called “offchain” network. It does not transport Bitcoins to the blockchain, but operates through “payment channels”. These increase the privacy of transactions and the scalability of the system, but so far they still offer users reduced convenience and security.
An alternative to the lightning network is a fiduciary wallet such as BitBucks, which carries out transactions for users within its own system. This is less autonomous, like lightning, however results in the same effect in terms of scalability and can be better integrated into a convenient user interface.

Where can I make payments with Bitcoin?

In theory, everywhere there is Internet. Unlike national currencies, however, there is no obligation to accept Bitcoin as legal tender and so individual merchants may choose to accept it or not. At any rate, there are shops and stores in almost every country in the world that accept payments in Bitcoin, as well as numerous international online providers. Many merchants are also willing to accept Bitcoin on request.

Bitcoin security

Are bitcoin payments anonymous?

No, bitcoins payments are not anonymous. The blockchain stores every transaction including sender and receiver. However, bitcoins payment is pseudonymous: The blockchain does not know any private data, but only signatures and addresses. Bitcoin thus allows a degree of privacy that goes far beyond that of banks and payment service providers.

Can I accept unconfirmed transactions?

It is, in theory, possible to double-pay an unconfirmed transaction. This risk is always present when accepting unconfirmed transactions, especially large amounts. In many cases, however, this risk is insignificant, such as with dining and low-priced goods. In transactions using wallets which, like BitBucks, include the services of administering the private key and signing transactions, the risk of double spending on unconfirmed transactions is greatly reduced.

Can bitcoin transactions be censored?

If you make the transaction yourself - no. Transactions are pseudonymised and processed by a network without distinction. As Bitcoin is a decentralised network, there is no central location with the power to prevent other nodes from carrying out and verifying transactions - as long as these are covered and valid according to the rules of the network. 

Can bitcoins be seized?

If you store your private key securely, no one can confiscate your bitcoins.  Only the one who has the key can access bitcoins. It is protected by strong cryptography.

How can I improve my privacy?

As all transactions are transparent, it is important to look after your privacy. Most wallets automatically have a few fundamental rules in place. You will never use the same address to receive Bitcoin, including change. Where users use multiple wallets, this significantly increases your privacy.  It is also good for privacy to use offchain methods such as lightning or BitBucks. 

How can I store my private key?

Usually the wallet keeps your private keys private by storing them in an encrypted file. You can also print the private keys as "Cold Wallet" and separate them from the Internet. You should be aware that you are solely responsible for the security of the keys. If you lose them, you lose your bitcoins. Wallets such as BitBucks, which store keys for their customers, can offer inexperienced users additional protection against key loss.

How does bitcoin protect against inflation?

While in Fiat money the central banks can control the money supply, in Bitcoin it is determined by an algorithm. The miners are forced to mine the amount of bitcoins specified in the protocol. The amount of bitcoins in circulation can be checked in the present by anyone and predicted for the future. Currently, there are more than 17.5 million bitcoins, the creation of new coins reduces by half every four years. There will never be more than 21 million bitcoins.