This document discusses common myths about Bitcoin and provides clarification on several points: - Bitcoin transactions are public, not anonymous, though some methods can obscure identities. - Waiting for confirmations is unnecessary with trusted peers or small transactions, as the risk of fraud is very low even with just one confirmation. - Coins are not represented by strings of 1s and 0s but rather transactions recorded on a public ledger. - Validating transactions does not require massive computing power - it can be done efficiently on a standard computer. Mining solves simple, not complex, problems to earn rewards. - Blocks are not "solved" but found randomly through repeated hashing; the difficulty ensures one

1. Myths and Misnomers:
Bitcoin Explained Tips Welcome
There are a lot of talking heads pontificating about the Bitcoin. Many are parroting worn out
talking points. Most are trying to either explain away the ​meteoric rise​or evangelize the
dawning of the ​cyberlibertarian​age. Few have read the ​3,000 word whitepaper​written by
Satoshi Nakamoto​.
There is much misinformation published, and many myths have emerged. If you want to
use Bitcoin, it is ​simple​. If you want to accept Bitcoin, ​Coinbase​or ​Bitpay​makes it hassle
free. If you want to understand the why of Bitcoin, read on.
“Bitcoin: Come for the investment. Stay for the currency.” --​Austin Craig, Life on Bitcoin
In the following pages, I will address 6 common Myths about the Bitcoin:
● Bitcoin is anonymous,
● You need to wait for 1, 3, 5, or 120 confirmations to protect yourself against fraud,
● A coin is represented by a string of 1s and 0s,
● Bitcoin transactions are validated and secured by complex mathematical problems
that cannot be solved without the massive computing power of Bitcoin miners,
● Blocks are solved,
● The block reward solves the problem of compensating miners enough to perform
complex calculations to verify transactions.
But before we dive in to the debunking, let’s learn a little more about valuation of the
Bitcoin, and what it is like unto. Imagine this scenario...
It is 2008. California has a population of 0. No one is allowed to live there b​ecause
there is ​Cherubim​with a flaming sword guarding it against all trespass.
Cherubim declares that California will be a guaranteed ​open source society​and no
state​will be permitted. Cherubim also declares that, beginning in 2009, anyone is
welcome to move there, but you must first own some property.
The protocol for distributing property, as dictated by Cherubim, is:
1. Every 10 minutes Cherubim will grant a deed to 250 acres (at random
coordinates). This deed will be awarded by raffle.

2. 2. To enter the raffle, applicants have to do jumping jacks. One jumping jack
gets you 1 raffle ticket with an expiration of 10 minutes, and there is no cap
on the number of raffle tickets distributed.
3. Every 4 years the granted property acreage will be split in half, but still
awarded every 10 minutes. In 2013 the grants will be reduced to 125 acres.
By 2014 over half of land will have been awarded. By 2024 nearly all the land
will be awarded.
Now it is 2013. People have been outsourcing the jumping jacks, they hire people to
do jumping jacks in proxy, full-time. So many raffle tickets are being distributed that
you have a better chance of winning the lottery than winning a land grant.
In California, cities are just starting to be built. It's not just rural ranch land any
more. The California culture is starting to look very attractive. Everyone wants to go
to California, and everyone is doing jumping jacks.
There are groups of people doing jumping jacks together, agreeing that if someone
in the group wins the raffle they'll divvy up the land grant among themselves. People
don't need 250 acres, and they'd like to have neighbors, so there is a thriving resale
market.
Meanwhile, in New York, Wall Street can’t decide if the rising California property
values are a bubble or a solid investment.
Some Terminology
Block Hash​: A block hash is a simple calculation done by a Bitcoin Miner. It is represented
by the jumping jack in the California analogy. This is ​proof-of-work​.
Block Chain​: An unbroken chain of block hashes from the ​genesis block​(c.a. 2009) to the
present.
Transaction Chain​: The public ledger of all payments made on the Bitcoin network. The
Block Chain orders all the transactions, creating a timestamp. The Transaction Chain is
represented by the granting, buying and selling of property in the California analogy.
Bitcoin Protocol​: The Bitcoin Protocol is published set of rules dictating how the block
chain is built, and adopted by all peers on the ​P2P network​. The P2P Network is represented
by Cherubim in the California analogy.
Block Reward​: The Block Reward is represented by the recurring land grant in the
California analogy. Approximately ​every 10 minutes​on average, someone receives the block
reward. The block reward between 2009 and 2012 was 50BTC. Beginning with ​block
210,000​the reward was reduced to 25BTC. Beginning with ​block 420,000​the reward will be
reduced to 12.5BTC.

3. Cryptography​: The Bitcoin Protocol utilizes ​Public-key Cryptography​to secure account
balances. This technology is also utilized by mainstream ​TLS​, ​SSL​, ​RSA​, ​SSH​, ​PGP​, and
GnuPG​systems that secure everyday internet transactions and communications.
Difficulty​: ​Difficulty​is a measure of how difficult it is to find a new, valid block compared to
the easiest it can ever be. The difficulty is the regulator that paces the award of the block
reward to 10 minute intervals.
Mythbusting
Myth​: Bitcoin is anonymous.
Truth​: Bitcoin transactions are unabashedly public. Cash transactions are far more
anonymous than Bitcoin transactions are. In fact, Bitcoin transactions are less private than
credit card transactions in the sense that if you are not actively working to conceal your
identity then anyone, with a little sleuthing, can trace your bitcoin transactions as if they
were reading your credit card statement. Case in point, ​I take tips​from people reading this
article who feel so inclined. You can see all those transactions in the block chain.
There are of course ways to obscure and conceal the identities of the transacting parties,
but these methods are separate and apart from the Bitcoin Protocol.
Myth​: You need to wait for 1, 3, 5, or 120 confirmations (at 10 mins per confirmation) to
protect yourself against ​fraud​.
Truth​: If you are using a trusted peer on the network (any peer running the protocol) to
verify the transaction and the sender included a transaction fee then there is little risk in not
waiting for any confirmations. Unless you have reason to suspect that the person you are
transacting with is controlling or has the ability to control 50%+ of all the bitcoin miners in
the world, there is also very little risk in only waiting for 1 confirmation. Certainly far less
risk than taking a personal check.
Myth​: A coin is represented by a string of 1s and 0s.
Truth​: There is no string of 1s and 0s that represent a coin that you send to someone else.
Transactions are constructed and signed, then inserted into a ledger (the transaction chain).
If I construct two transactions, sending Bob 1BTC and sending Alice 1BTC, then the binary
strings representing each transaction will have no resemblance ​even if I use the exact same
input (coin)​. If I send 1BTC to Bob and he sends it immediately to Alice, the binary strings
representing each transaction will still have absolutely no resemblance.

4. Even when looking at the overarching architecture, it is best to realize that the “coin” is only
a temporary construct. Every ​transaction​has 1 or more inputs and 1 or more outputs
(debits and credits on a ledger). An output might be considered to be a “coin,” but it is of
arbitrary value and transitory existence; it was created by one transaction (as an output)
and it will be destroyed by another (as an input). A “coin” is never passed from one account
to another; it is always destroyed in the creation of 1 or more new “coins.”
What does this mean in practical terms? It means that counterfeiting is impossible and that
transactions are tamper proof. It doesn’t mean that “no one has found a way to hack it;” it
means it cannot be hacked. There is no minting ad infinitum if you can just “crack the
code.” There is no way to intercept my transmission and redirect or duplicate it. There are
no firewalls to compromise or databases to alter. The only way to hack the Bitcoin is to
compromise individual private keys​(localized attack) or break ​Public-key Cryptography​,
both of which can be defended against.
Myth​: Bitcoin transactions are validated and secured by complex mathematical problems
that cannot be solved without the massive computing power of Bitcoin miners, making the
Bitcoin an ecological disaster.
Truth​: The mathematical functions which validate transactions are simple (for computers).
It takes my laptop all of 0.0000001s to check the hash of the latest block. The 10​16​
hashes
performed every second by miners are computing power that is above and beyond the
processing required to process transactions. Miners do not solve difficult problems, they
solve simple problems to "purchase raffle tickets" many, many times.
If you have ​bitcoin-qt​installed, open it up and open Task Manager. Go to the Processes tab
in Task Manager and find bitcoin-qt. Now go to ​blockchain.info​or ​listentobitcoin.com​and
watch all the transactions scroll by, look at your minimal cpu usage, and realize that your
cpu is processing each one of those transactions in real time, and validating them just the
same as even the most powerful computers on the bitcoin network.
Myth​: Blocks are solved.
Truth​: Bitcoin mining is not a race to solve an extremely difficult puzzle which is “​The​​(one
and only)​Next Block.” It is a race to find 1 of the 10​57​
needles (at current difficulty) in the
stack of 10​77​
sprigs of hay. These are ​extremely large numbers​, but the probability works
out to ​1 in 10​20​
, which ​just so happens to be​how many hashes are performed in 10 minutes
(at the current hash rate). Blocks are not solved, they are stumbled upon (once every 10
minutes).
Myth​: The block reward solves the problem of compensating miners enough to perform
complex calculations to verify transactions.
Truth​: Every peer in the P2P Network running a client individually verifies ​every​transaction
in real time with minimal computing resources. Also, miners currently generate ​over 10,000
trillion ​blocks per second​when one is “needed” only once every 10 minutes.

5. The real problems the block reward solves is:
1. how to incentivize mining on a scale that the block chain can't be co-opted by a
latent pool of miners,
2. and more importantly, how to distribute the currency without a central issuing
authority.
Conclusion
There are many ​other myths​to bust. The preceding are only the most common
misconceptions I have seen within Bitcoin discussion circles. The Bitcoin is far more robust
than even many of its supporters realize.
The Bitcoin is a disruptive technology that will change how humanity holds and transacts
currency forever. The open source protocol ​will evolve​and adapt to market demands.
Governments will try to regulate it, but it will continue to be exactly what its user base
wants it to be. I do not believe the Bitcoin will ever be stamped out or relegated to the
shadows. I do not believe it will be supplanted by any competing digital fiat or
cryptocurrency. The Bitcoin Protocol will join the ​Internet Protocol Suite​as the HTTP of
transactions. The Bitcoin is to transactions what ​HTTP​is to media. The Block Chain (c.a.
2009) is the WWW of transactions and will not be supplanted.
I may be wrong, but I wouldn’t bet on it.
Russ Fugal
Tips Welcome
This work is licensed under a ​Creative Commons Attribution­NonCommercial­ShareAlike 4.0 International License​.