Frequently Asked Questions (FAQ)
1.NextCoin
NextCoin is a peer-to-peer payment system introduced as open source software in 2009 by developer Satoshi Nakamoto. The digital currency created and used in the system is alternatively referred to as a virtual currency, electronic money, or a cryptocurrency although it does not meet the generally recognized definition of money. The NextCoin system is not controlled by a single entity, like a central bank, which has led the US Treasury to call NextCoin a decentralized currency.
NextCoins are created as a reward for payment processing work in which users who offer their computing power verify and record payments into a public ledger. Called mining, individuals engage in this activity in exchange for transaction fees and newly minted NextCoins. Users can buy, send, and receive NextCoins electronically for a nominal fee using wallet software on a personal computer, mobile device, or a web application. NextCoins can be obtained by mining or in exchange for products, services, or other currencies.
NextCoin as a form of payment for products and services has seen growth, and merchants have an incentive to accept the currency because transaction fees are lower than the 2–3% typically imposed by credit card processors. The European Banking Authority has warned that NextCoin lacks consumer protections. NextCoins can be stolen and chargebacks are impossible. Commercial use of NextCoin is currently small compared to its use by speculators, which has fueled price volatility.
NextCoin is a peer-to-peer payment system introduced as open source software in 2009 by developer Satoshi Nakamoto. The digital currency created and used in the system is alternatively referred to as a virtual currency, electronic money, or a cryptocurrency although it does not meet the generally recognized definition of money. The NextCoin system is not controlled by a single entity, like a central bank, which has led the US Treasury to call NextCoin a decentralized currency.
NextCoins are created as a reward for payment processing work in which users who offer their computing power verify and record payments into a public ledger. Called mining, individuals engage in this activity in exchange for transaction fees and newly minted NextCoins. Users can buy, send, and receive NextCoins electronically for a nominal fee using wallet software on a personal computer, mobile device, or a web application. NextCoins can be obtained by mining or in exchange for products, services, or other currencies.
NextCoin as a form of payment for products and services has seen growth, and merchants have an incentive to accept the currency because transaction fees are lower than the 2–3% typically imposed by credit card processors. The European Banking Authority has warned that NextCoin lacks consumer protections. NextCoins can be stolen and chargebacks are impossible. Commercial use of NextCoin is currently small compared to its use by speculators, which has fueled price volatility.
2.The block chain ledger
Just as a ledger can be used to record transfers of conventional money like dollars, all NextCoin transfers are recorded in a computer file that acts as a ledger called the block chain. Where a conventional ledger records the transfer of actual dollar bills or promissory notes that exist apart from it, in the case of NextCoin, NextCoins are entries in the block chain and do not exist outside of it. In essence, the block chain records the transfer of numbers from payers to payees, and those numbers are called NextCoins.
Just as a ledger can be used to record transfers of conventional money like dollars, all NextCoin transfers are recorded in a computer file that acts as a ledger called the block chain. Where a conventional ledger records the transfer of actual dollar bills or promissory notes that exist apart from it, in the case of NextCoin, NextCoins are entries in the block chain and do not exist outside of it. In essence, the block chain records the transfer of numbers from payers to payees, and those numbers are called NextCoins.
3.Mining
Maintaining the block chain is called mining, and those who do, are rewarded with newly created NextCoins and transaction fee. Miners may be located on any continent and process payments by verifying each transaction as valid and adding it to the block chain. As of 2014 payment processing is rewarded with 25 newly created NextCoins per block. To claim the reward, the miner includes in the block a special transaction called a coinbase that assigns the rewarded NextCoins to an address of the miner's choosing. All NextCoins in circulation can be traced back to such coinbase transactions. The NextCoin protocol specifies that this reward will be halved to 12.5 NextCoins in 2017 and again approximately every four years thereafter. Mining will stop when an arbitrary limit of 21 million NextCoins is reached c. 2140 and transaction processing will then only be rewarded by the transaction fees. Users that pay a fee may have their transactions processed more quickly.
As of 2013 mining has become so competitive that the process has been compared to an arms race as ever more specialized technology has become indispensable. The most efficient mining hardware makes use of custom designed application-specific integrated circuits, which are much faster and use less power compared to general purpose microprocessors, such as x86 processors. Without access to these purpose built machines, a NextCoin miner is unlikely to earn enough to even cover the cost of the electricity used in his or her mining efforts.
Maintaining the block chain is called mining, and those who do, are rewarded with newly created NextCoins and transaction fee. Miners may be located on any continent and process payments by verifying each transaction as valid and adding it to the block chain. As of 2014 payment processing is rewarded with 25 newly created NextCoins per block. To claim the reward, the miner includes in the block a special transaction called a coinbase that assigns the rewarded NextCoins to an address of the miner's choosing. All NextCoins in circulation can be traced back to such coinbase transactions. The NextCoin protocol specifies that this reward will be halved to 12.5 NextCoins in 2017 and again approximately every four years thereafter. Mining will stop when an arbitrary limit of 21 million NextCoins is reached c. 2140 and transaction processing will then only be rewarded by the transaction fees. Users that pay a fee may have their transactions processed more quickly.
As of 2013 mining has become so competitive that the process has been compared to an arms race as ever more specialized technology has become indispensable. The most efficient mining hardware makes use of custom designed application-specific integrated circuits, which are much faster and use less power compared to general purpose microprocessors, such as x86 processors. Without access to these purpose built machines, a NextCoin miner is unlikely to earn enough to even cover the cost of the electricity used in his or her mining efforts.
4.Mining pools
The odds of winning the reward for adding a block to the block chain decrease alongside an increase in the number of miners. Mining is a competitive process, and while many participate, the reward for each block can only go to a single miner. As of 2014 it has become common for miners to join organized mining pools to circumvent this problem. Such pools split the work and the reward among all participants and make mining a less risky endeavor. Even for those who join pools, the cost of the electricity necessary to mine may outweigh the NextCoin rewards from doing so.
The odds of winning the reward for adding a block to the block chain decrease alongside an increase in the number of miners. Mining is a competitive process, and while many participate, the reward for each block can only go to a single miner. As of 2014 it has become common for miners to join organized mining pools to circumvent this problem. Such pools split the work and the reward among all participants and make mining a less risky endeavor. Even for those who join pools, the cost of the electricity necessary to mine may outweigh the NextCoin rewards from doing so.
5.Ownership
The ownership of NextCoins associated with certain NextCoin address can be asserted by demonstrating the knowledge of the private key belonging to the address. For the owner, it is important to keep his private keys safe backing them up to make sure the keys cannot be lost. When the private keys are lost, the user cannot prove his ownership by other means. If this occurs, the coins are lost and cannot be recovered. It is also important to keep the keys private since anybody knowing the keys can dispose of the NextCoins as the owner.
The ownership of NextCoins associated with certain NextCoin address can be asserted by demonstrating the knowledge of the private key belonging to the address. For the owner, it is important to keep his private keys safe backing them up to make sure the keys cannot be lost. When the private keys are lost, the user cannot prove his ownership by other means. If this occurs, the coins are lost and cannot be recovered. It is also important to keep the keys private since anybody knowing the keys can dispose of the NextCoins as the owner.
6.Buying and selling
NextCoins can be bought and sold for many different currencies from individuals and from companies. Perhaps the easiest way to purchase NextCoins is in NextCoins trading web or at a NextCoin ATM for cash. Participants in online exchanges offer NextCoin buy and sell bids. Since NextCoin transactions are irreversible, sellers of NextCoins must take extra measures to ensure they have received traditional funds from the buyer.
NextCoins can be bought and sold for many different currencies from individuals and from companies. Perhaps the easiest way to purchase NextCoins is in NextCoins trading web or at a NextCoin ATM for cash. Participants in online exchanges offer NextCoin buy and sell bids. Since NextCoin transactions are irreversible, sellers of NextCoins must take extra measures to ensure they have received traditional funds from the buyer.
7.Wallets
NextCoin uses public-key cryptography, in which a pair of a public and a private cryptographic key is generated. A collection of keys is called a wallet. Note that sometimes the term is used to mean the software in the sense of digital wallet. A NextCoin transaction transfers ownership to a new address, a string having the form of random letters and numbers derived from public keys by application of a hash function and encoding scheme. The corresponding private keys act as a safeguard for the owner; a valid payment message from an address must contain the associated public key and a digital signature proving possession of the associated private key. Because anyone with a private key can spend all of the NextCoins sent to the corresponding address, the essence of NextCoin security is protection of private keys. Theft of NextCoins has occurred on numerous occasions, and the practical day-to-day security of NextCoin wallets is a concern like the security of other forms of payment. Risk of theft can be reduced by generating keys offline on an uncompromised computer and saving them on external storage or paper printouts. Physical NextCoins, ubiquitous in media coverage of NextCoin, are produced by various vendors. They store a private key on paper, metal, wood, or plastic. There are also digital products known as hardware wallets to store NextCoins securely on a physical device. NextCoins can be lost.
NextCoin uses public-key cryptography, in which a pair of a public and a private cryptographic key is generated. A collection of keys is called a wallet. Note that sometimes the term is used to mean the software in the sense of digital wallet. A NextCoin transaction transfers ownership to a new address, a string having the form of random letters and numbers derived from public keys by application of a hash function and encoding scheme. The corresponding private keys act as a safeguard for the owner; a valid payment message from an address must contain the associated public key and a digital signature proving possession of the associated private key. Because anyone with a private key can spend all of the NextCoins sent to the corresponding address, the essence of NextCoin security is protection of private keys. Theft of NextCoins has occurred on numerous occasions, and the practical day-to-day security of NextCoin wallets is a concern like the security of other forms of payment. Risk of theft can be reduced by generating keys offline on an uncompromised computer and saving them on external storage or paper printouts. Physical NextCoins, ubiquitous in media coverage of NextCoin, are produced by various vendors. They store a private key on paper, metal, wood, or plastic. There are also digital products known as hardware wallets to store NextCoins securely on a physical device. NextCoins can be lost.
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