Bitcoin Interview Questions And Answers
1. What do you mean by Bitcoin Mining?
Answer: Bitcoin mining is equivalent to gold mining in digital form. The procedure requires specialized computers equipped for solving algorithmic equations. These computers help miners to authenticate blocks of transactions held within each network. Miners are rewarded in Bitcoin who confirms and authenticates transactions on the blockchain. These miners can harvest new coins that will continue until the last Bitcoin is found. (Bitcoin Interview Questions)
2. What is a Bitcoin wallet?
Answer: Bitcoin is a digital wallet that preserves, sends, and accepts Bitcoins. It’s equivalent to a leather wallet full of cash in our trouser’s hind pocket. The most widespread form of the digital wallet is on Smartphones which access the camera and uses it as a scanner to convert QR codes into data. Some apps have value-added features like location-based Bitcoin business guides, links to authorized exchange centers., more secured vaults for holding digital tokens instead of Bitcoins.
3. What is a Bitcoin address?
Answer: A Bitcoin address is a long string of 27 – 34 numbers and letters that acts similarly to an email address. The address enables the Bitcoin blockchain to recognize when bitcoins are sent and received. These addresses can be used by anybody, from single individuals to businesses to multiple people accessing the one address if desired. It is also considered more secure not to re-use addresses but rather to use a unique address every time you send and receive bitcoins. This increases the privacy of your transactions to a degree and helps in avoiding public tracking of your funds.
4. How Does The Blockchain Work?
Answer: The blockchain records all of the newly minted bitcoins rewarded to miners who find blocks. Blocks are sets of sent/received transactions that miners confirm for the network. As these actions take place within the Bitcoin protocol the blockchain acts as a ledger of account for all transactions undertaken within the Bitcoin network.
5. Who Created Bitcoin?
Answer: Bitcoin is the first implementation of a concept called “cryptocurrency”, which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept were published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with many developers working on Bitcoin.
Satoshi’s anonymity often raised unjustified concerns, many of which are linked to misunderstanding of the open-source nature of Bitcoin. The Bitcoin protocol and software are published openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. Just like current developers, Satoshi’s influence was limited to the changes he made being adopted by others and therefore he did not control Bitcoin. As such, the identity of Bitcoin’s inventor is probably as relevant today as the identity of the person who invented paper. (online training institute)
6. What Are The Advantages Of Bitcoin?
Answer: Payment freedom: It is possible to send and receive any amount of money instantly anywhere in the world at any time. No bank holidays. No borders. No imposed limits. Bitcoin allows its users to be in full control of their money.
Very low fees: Bitcoin payments are currently processed with either no fees or extremely small fees. Users may include fees with transactions to receive priority processing, which results in faster confirmation of transactions by the network. Additionally, merchant processors exist to assist merchants in processing transactions, converting bitcoins to fiat currency and depositing funds directly into merchants’ bank accounts daily. As these services are based on Bitcoin, they can be offered for much lower fees than with PayPal or credit card networks.
Fewer risks for merchants: Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks, and there is no need for PCI compliance. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs.
Security and control: Bitcoin users are in full control of their transactions; merchants can’t force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption.
Transparent and neutral: All information concerning the Bitcoin money supply itself is readily available on the blockchain for anybody to verify and use in real-time. No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable.
7. Is Bitcoin Fully Virtual And Immaterial?
Answer: Bitcoin is as virtual as the credit cards and online banking networks people use every day. Bitcoin can be used to pay online and in physical stores just like any other form of money. Bitcoins can also be exchanged in physical form such as the Open Dime, but paying with a mobile phone usually remains more convenient. Bitcoin balances are stored in a large distributed network, and they cannot be fraudulently altered by anybody. In other words, Bitcoin users have exclusive control over their funds and bitcoins cannot vanish just because they are virtual.
8. You have just had to restore from backup and do not have any control files. How would you go about bringing up this database?
Answer: I would create a text-based backup control file, stipulating where on disk all the data files where and then issue the recover command with the using backup control file clause.
9. What is encryption? What is its role in Blockchain?
Answer: Data security always matters. Encryption is an approach that helps organizations to keep their data secure.cryptography-top blockchain interview questions-edurekaThe encrypted data is encoded or changed up to some extent before it is sent out of a network by the sender and only authorized parties can access that information. In Blockchain, this approach is useful because it simply adds more to the overall security and authenticity of blocks and helps to keep them secure.
10. What is a ledger? Is Blockchain an incorruptible ledger?
Answer: Blockchain is considered incorruptible. Any ill-intentioned individual acting alone is powerless. “To take over the network, an attacker would have to control more than 50 percent of its total computing power,” Augier explains. “We hope that’s a theoretical scenario, but we can’t be sure. Should it happen, the individual would take every precaution to avoid being noticed.” Not to mention the energy required to power the computers needed for the blockchain system to work.
11. What is Double Spending? Is it possible to double spend in a Blockchain system?
It’s a condition when one digital token is spent multiple times because the token generally consists of a digital file that can easily be cloned. It simply leads to inflation and organizations must bear a huge loss. One of the primary aims of Blockchain technology is to eliminate this approach up to the possible extent.
Blockchain prevents double-spending by confirming a transaction by multiple parties before the actual transaction is written to the ledger. It’s no exaggeration to say that the entirety of bitcoin’s system of Blockchain, mining, proof of work, difficulty, etc, exists to produce this history of transactions that is computationally impractical to modify.
12. What exactly do you know about executive accounting? Does Blockchain support the same?
Answer: Executive accounting is nothing but a special type of accounting which is designed exclusively for a business that offers services to the people. There is no strict upper limit on services and businesses can manage any through executive accounting. Blockchain has algorithms that are specially meant to handle executive accounting. It cut down many problems that are associated with the same.
13. What challenges information leak can impose on an organization?
Answer: An information leak can cut down the reputation of an organization up to an excellent extent. In addition to this, it can be the reason for an organization bearing huge losses. Many organizations that fail to implement security protocols to keep their data secure have already lost the trust of their customers and are struggling very hard to get the same reputation again. The overall profits of any organization can reduce up to 80% if no attention is paid to the online transaction security.
14. What are Cryptocurrency and Bitcoin?
Answer: First of all, Bitcoin is a cryptocurrency. There are many other cryptocurrencies like Ethereum, Neo, Tron and so on. Bitcoin was the first-ever cryptocurrency created by Satoshi Nakamoto in 2009.
15. Why are there so many coins and which are the best to invest? What are ICOs?
Answer: Each company or foundation releases its cryptocurrency to uniquely be identified with it. They also raise money by Initial coin offerings or ICOs. In an ICO, an investor pays in Legal tender or any other existing cryptocurrency to acquire an amount of the new tokens/coins that the company is generating. After the money is raised, these tokens get listed on exchanges and can be traded.
There are 100s of companies doing an ICO every year. It is subjective to decide which one is the best. I may like a project you wouldn’t. There are also numerous scams happening around the world with Cryptocurrency ICO, so you need to be vigilant where you invest the money.
An ideal way to determine if a coin is worth investing in by checking their product, their team, community response (asking around), and finally if it solves an issue. If a company is reinventing the wheel sooner or later it may become irrelevant.
16. Why is the value and demand for Bitcoin growing?
Answer: The devaluation of currencies, especially the US dollar and the grim global economy are some reasons why there is demand for Bitcoin. More than that, Bitcoin was designed to mimic precious metals, and its supply is kept limited by design — only 21 million bitcoins will be available.
The demand is increasing year on year due to two reasons: The early adopters are experimenting with and using Bitcoin. For instance, freelancers in India are accepting payments in Bitcoin. The second reason is that people see this currency or technology as 100 times more revolutionary than any currency or payment network that ever existed. I believe that more people will use bitcoins in the future, so I buy bitcoins and stock it.
17. What is the price of one Bitcoin? Can I buy a part of one Bitcoin?
Answer: The buying rate (as of late March 2017) is approximately Rs 87,000 for one Bitcoin and the selling rate is approximately Rs 85,000. The price changes every second. You can buy a fraction of a Bitcoin. For instance, you can buy Bitcoin for Rs 100 or Rs 1,000.
18. What can Indians buy with Bitcoin today? Our service providers, utilities and e-commerce companies accepting Bitcoin?
Answer: Typically, in a trade of any commodity or foreign currency, 98 percent are traders speculating on the potential future value and 2 percent is for goods and services, to buy and sell goods. It’s the same with commodities and the stock market. People are buying and selling based on news and assumptions. They speculate whether they will make a profit in the future. This is fine as it provides liquidity to that asset. Likewise, people are speculating on the future value of Bitcoin.
In India, there are very few merchants who accept Bitcoin. But in western countries large businesses like Dell, Expedia, WordPress, etc accept Bitcoin. So you can buy a Dell laptop with bitcoins or make a hotel or airline reservation and pay in Bitcoin. Rakuten, Japan’s largest e-commerce company, has started accepting Bitcoin. It’s the same as South Africa’s largest e-commerce company.
It does not make sense for Indian e-commerce companies to start accepting Bitcoin yet as few Indian consumers own bitcoins. It hasn’t reached critical mass yet.
But it will be interesting to watch what happens around 2018 – 2019.
Zebpay stocks voucher from different service providers and if you own bitcoins, you can top up your airtime, for instance, using these pre-paid vouchers. We aren’t paying directly to these vendors. You can purchase these vouchers in bitcoins from us. We do more than Rs 50 lakh sales per month, and we are doing this to grow the community. This number doubles every 3 or 4 months.
19. When do you see widespread use of Bitcoin to the extent that people are using e-wallets these days?
Answer: We believe that Bitcoin has already taken off and it is the world’s most valuable currency. Today (late March 2017) the price is $1,250 and the rate was $1,000 continuously for a month. It is at its peak now. It has been the best performing asset since it was invented. In China and the US, the trade-in Bitcoin is worth billions of dollars. In India, we do a turnover of Rs 200 crore a month. We are adding 1 lakh users every month. This will increase exponentially and you will see 10x growth every year.
20. How do Bitcoin exchanges factor in taxation and prevent people from bypassing tax payment on transactions?
Answer: This comes from self-regulation. We track all transactions on our exchange to ensure that all users comply with taxation norms. In the last week of March, we ensure that all the rupee amounts you have in Zebpay are credited back to your bank account. This ensures that you declare all profit and loss on your bitcoin trade on Zebpay. We do not allow users to buy and sell bitcoins unless they have completed their KYC. We have users’ PAN card details. All buying and selling take place only through bank accounts.
21. Can private blockchain platforms like R3 be used for trading Bitcoin?
Answer: People accept the fact that blockchain powers Bitcoin and that it is set to change the way financial institutions work. We believe that blockchain without a cryptocurrency attached to it – something called ‘private blockchain’ or ‘permission blockchain’ — does not have a future. It has none of the advantages of a Bitcoin blockchain, which is a public ledger powered by virtual currencies. You could think of blockchain as a public Internet with the participation of many players. The private blockchain is like a company intranet.
But having a blockchain without Bitcoin is a misnomer – we believe you cannot have one without the other.
R3 is a big consortium and a private blockchain. The consortium is supported by bankers. They have started using the term ‘distributed ledger’. It is not blockchain and it has got nothing to do with virtual currencies.
22. Will direct peer-to-peer Bitcoin transactions (bypassing an exchange) be possible in the future?
Answer: It is already possible to send bitcoins peer-to-peer. You can send money to friends and relatives in the form of bitcoins (if they are ready to accept). You can transfer bitcoin to US universities to pay for university fees. This can be done without the intervention of a credit card company or a wallet or PayPal.
But an exchange will always be needed to buy and sell bitcoins because it ensures trust between two parties. Technically, an exchange like Zebpay can be replaced by say an automated escrow account. However, a trusted third party will always be required to resolve disputes.
23. Why should I invest in Cryptocurrencies?
Answer: Cryptocurrencies are a product of technological innovation. Many crypto projects are offering better solutions with decentralization and distributed ledger technologies like Blockchain.
If you believe that these innovations will be a widely used technology and can make people’s lives better in the future or now, you can invest in such projects. Cryptocurrencies are the tokens/coins of such projects that also act as a fuel. If a product is successful, the prices of the cryptocurrency will increase.
This is the risk you take when you invest. You invest in land hoping for the prices to go up. You invest in shares and stocks, hoping for the company to perform well. Similarly, you invest in cryptocurrencies with the hopes that the technology behind that crypto will be successful.
The prices can skyrocket, the prices can go to Zero. Cryptocurrency investments carry a lot of risks. Be careful.
24. What are the threats to the information you are familiar with?
Answer: There are lots of threats to information in the present scenario. Due to the increase in online transactions over the internet, many hackers have become active and are adopting new approaches to hack information and servers that contain financial information.
The major threat is software attack, identity theft, information extortion, as well as sabotage. In addition to this, Trojan horses, worms, and viruses are other trouble creators.
25. What are the key principles in Blockchain that help eliminate the security threats that need to be followed?
Answer: Yes, there are a few principles that need to be followed concerning time. They are:
3. Securing testing and similar approaches
4. Database security
5. Continuity planning
6. Digital workforce training
All these principles are basic and are easy to implement. They help make the transaction records useful.
26. Are there any network-specific conditions for using Blockchain technology in an organization?
Answer: There is no specific condition of using it. However, the network must be a peer-to-peer network under the concerned protocols. It validates the new block simply and helps organizations to keep up the pace in this matter without investing in third-party applications.
27. Where to Buy Cryptocurrencies?
Answer: You can buy cryptocurrencies from exchanges. In India, there are many exchanges like Koinex, Zebpay, Coindelta, Bitbns, etc that offer multiple cryptocurrencies to buy and sell. However, some of these exchanges have currently disabled INR based purchases due to regulatory restrictions from the RBI. You can check the latest status of INR on these exchanges here.
Alternatively, you can also buy Cryptocurrencies from Peer to Peer exchanges like Localbitcoins, Instashift, gifts and many more. You can compare the prices on multiple Indian and International exchanges and decide where to purchase the cryptocurrency from.
Some exchanges offer only Crypto to Crypto trading. It means you can only buy cryptocurrency using another cryptocurrency like Bitcoin, Ethereum, USDT, etc.
Note: You can buy Cryptocurrency on one exchange and transfer it to your wallet or another exchange. It is not mandatory to buy and sell or even hold your coins on the same exchange.
5. Difference Between Shares/Stock and Cryptocurrencies
Shares are units of ownership of a company. If a company has 10000 shares and you own 1 share, you own 0.01% of the company. While in cryptocurrency, you do not own the units of the company. The cryptocurrency coin or token is just a medium of exchange of value of utility.
Currencies like Bitcoin can be used to transfer value. For example, if you want to spend $1000 to someone in London. You can buy $1000 worth of BTC and send it. The receiver can redeem it on any exchanges in the UK. Cryptocurrency transfers are cheaper than many other forms of transfer especially banks.
On another hand, Bitcoin can also be used to invest money. You can buy bitcoin now as an investment and sell it when the price is higher.
28. What is RBI’s view on blockchain and Bitcoin?
Answer: The merit with RBI is that it considers blockchain to be an interesting technology. There is a wait and watch approach – it is waiting for the proliferation to happen, and to let the technologies develop.
RBI’s research arm also released a detailed whitepaper that mentioned Bitcoin. They have also issued two press releases. They say that there are legal and technical risks involved. They are concerned about the misuse of Bitcoin.
The critical role of a public token is still under-appreciated.
There will be lots of PoCs and pilots but I don’t think there will be any mass implementation in the next couple of years. The technology is not ready.
29. What steps should consumers take to safeguard themselves from Bitcoin fraud?
Answer: The basic advice is that one should not invest in anything that one does not understand. There are schemes and scams designed around bitcoin mining. A simple rule for users to consider is that any scheme which guarantees something should be taken with huge skepticism.
We say that it is a high-risk technology, it has potential – but we never guarantee anything.
There is no such thing as a guaranteed return in the Bitcoin world.
There is a section on the Zebpay home page that lists frauds and schemes and advises users on how to protect themselves. We also do this on our social media channels.
30. How Is The Blockchain Different From Banking Ledgers?
Answer: Banks and accounting systems use ledgers to track and timestamp transactions. The difference is that the blockchain is a completely decentralized and open source. This means that people do not have to rely on or trust the central bank to keep track of the transactions. The peer-to-peer blockchain technology can keep track of all the transactions without the fear of having them erased or lost.
Furthermore, the blockchain, because of its open source nature, is more versatile and programmable than central banking ledgers. If programmers need new functionality on the blockchain, they can simply innovate on top of already existing software through consensus. This is difficult for central banks because of all of their regulations and central points of failure.
31. What do we mean by Unconfirmed Transaction?
Answer: Funds that haven’ to been authenticated by a miner is known as unconfirmed transaction and goes back into the sender’s wallet. Generally, it doesn’t happen. It takes 10 minutes for authentication only. In some cases where there is extreme traffic, it has been reported of lasting even for 1 hr.
32. Can I Trade Bitcoin without selling at an exchange?
Answer: More and more people prefer to trade Bitcoin directly without an exchange. The reason behind it is security and trust. Many exchanges were hacked and their Bitcoins vanished without explanation. Exchanges these days have to be backed by KYC requirements to banks, and if not maintained properly money laundering charges may chase you.
33. Why should we trust Bitcoin?
Answer: Bitcoin’s trust is based on the fundamental valuations of human faith in mathematical algorithms, encryption, and numbers. It is a network operated system based on the principles of technical freedom, decentralization and open source code with true peer to peer technology.
34. What do you mean by Double Spending?
Answer: Sometimes people try to make use of the same Bitcoins twice. This is known as double-spending. There are only 21 million set cap on the protocol and can’t be produced anymore. Every single Bitcoin is unique which legitimizes its transactions. Anyone trying to duplicate a transaction is notified that it is unacceptable.
35. What is the difference between Blockchain and Banking Ledgers?
Answer: Financial institutions involved in dealing with daily transactions use ledgers to record and timestamp them. It is fully under the control of the central govt. authorities and strictly regulated. Blockchain is very similar to ledgers with a striking difference. It is open to all and every single individual can operate with their own set of perceptions and practice accordingly. Blockchain can be customized as per the will of the programmers and doesn’t need any regulations. Bitcoin isn’t being regulated by govt. authorities because it covers an end number of Central Bank Jurisdictions.
36. Can we sell Bitcoins?
Answer: Bitcoins can be sold in many ways. From selling them online to an exchange or someone who lives nearby. The way it is purchased, similarly, can be sold too. Bitcoins vary its prices regularly as per the demand. It can also be sold through two way ATMs, which allow selling and purchasing of Bitcoins. Transaction fees are the lowest amongst all bank charges applied globally.
37. What can Bitcoin do?
Answer: Bitcoin can change the monetary landscape of the world. Apart from digital currency, it can be used for crowdfunding, voting mechanism, initiate trusts, wills and contracts, decentralized domain name, future markets, and all other fundamental functioning of an ethical financial system. The digital currency is just the beginning of the evolution of a single global financial system.
38. What can I buy with Bitcoins?
Answer: We can buy anything that is legally sold in the world. It’s very easy to use in any shopping malls to vendors who accept the digital mode of payments and Bitcoins. Amazon pays a 20% discount on any purchase through Bitcoins. Bitcoin has its store which sells Bitcoin-related products like T-shirts, etc.
39. What are the costs involved?
Answer: Fees involved in transactions are known as miner fees. They are the ones who authenticate the transactions within the network. Each transaction has its time limit of being authenticated. Large volumes are generally quickly authenticated rather than smaller transactions.
40. What Is Bitcoin Mining?
Answer: Bitcoin mining is analogous to the mining of gold, but its digital form. The process involves specialized computers solving algorithmic equations or hash functions. These problems help miners to confirm blocks of transactions held within the network. Bitcoin mining provides a reward for miners by paying out in Bitcoin, in turn, the miners confirm transactions on the blockchain. Miners introduce new Bitcoin into the network and also secure the system with transaction confirmation. They are also rewarded network fees for when they harvest new coin and a time when the last bitcoin is found mining will continue.
41. How Can You Buy Bitcoin?
Answer: Bitcoins can be bought from various sources. You can purchase them online using an exchange or brokerage service that will enable you to buy Bitcoin with a bank transfer using fiat currency, a credit card, and some services also offer to buy opportunities using Paypal. Bitcoin can also be purchased locally using LocalBitcoins, and from Bitcoin Teller Machines which are similar to cash ATMs that you find worldwide.
Bitcoin.com offers a recommended list of current online exchanges and brokers who sell bitcoins. You can also buy Bitcoins instantly using your credit card on Bitcoin.com (The service is provided by Simplex). We aim to provide the best quality services via our website so anyone can easily obtain the cryptocurrency from a wide array of respected Bitcoin buying/selling platforms.