21 Questions About Bitcoin IV

13. Can a transaction be rejected or canceled?

One of the most important properties of Bitcoin is true ownership. When you own it, you own your money. It is not stored with someone in a bank; your account cannot be frozen, and your access cannot be restricted. When you send bitcoin to someone, it is like handing them cash in person – no one can get involved, nothing can be rejected, and no one has the right to tell you what to do. It is freedom in its pure form.

Of course, this freedom also means greater responsibility, which is a price many people are happy to pay in exchange for control over their own finances. In the Bitcoin network, there is no central authority that can dictate terms to you. If you understand the principles of how the network works, stay cautious, and adopt a few simple habits, the benefits of this system far outweigh the potential risks. Transactions are fast, cheap, independent, secure – and above all, under your complete control as a user.

In the traditional banking system, you can contact customer support, request a payment cancellation, a chargeback, or temporarily block an account in case of suspicion. In the case of Bitcoin, such an option does not exist. Bitcoin is decentralized – it has no headquarters, no call center, and no "main office" that you could call.

Once you send a transaction and it is confirmed (included in a block), it is forever irreversible. It works according to a simple rule: what is sent once is sent forever. Transactions in the Bitcoin network cannot be "rejected" or "canceled" as is common with card or bank payments.

Is there an exception?

Yes, but only until a certain point. As we already know, when sending a transaction, it first enters the so-called mempool, where it waits for confirmation by miners. If you chose a very low transaction fee, miners might temporarily ignore your transaction. At this stage, the transaction is not yet part of the blockchain, and therefore it can be "replaced" by a new one – with a higher fee. This mechanism is called Replace-by-Fee (RBF) and is supported by most modern wallets. Using RBF, a new version of the transaction can be created that replaces the original one – but only until the moment one of them appears in a block.

As soon as the transaction is confirmed (meaning included in a block), it can no longer be changed, canceled, or returned. It is not possible to perform a reversal even in case of error — for example, if you send bitcoins to the wrong address.

Why is it good to wait for confirmations?

In practice, it is always recommended to wait for at least one confirmation, especially for higher amounts. With each additional confirmation (block), the probability of change decreases exponentially. For larger transactions, such as buying a car, an apartment, or exchanging a larger volume of bitcoin, it is considered safe to wait for 6 confirmations.

Why exactly six? Because reversing a chain of transactions with 6 blocks would require enormous computing power, essentially more than the rest of the network combined. Such an attack would be extremely costly and improbable. Imagine you are selling a car to someone and they send you bitcoins. The transaction appears in your wallet, but it is not yet confirmed. Technically, they could have sent it with a very low fee and simultaneously created an RBF transaction that goes elsewhere – and you wouldn't know. Until the transaction is confirmed, it is not certain that the money will really "land." That is why in such cases it is wise to wait for 1–6 confirmations, depending on the value and level of risk.

14. Why is it not a good idea to keep a lot of bitcoin on an exchange?

In the practical part of this book, I mention the possibility of buying bitcoins through exchanges. It is probably the most used and simplest way to acquire your first satoshis. At the same time, I warn that I do not consider it an ideal solution for long-term holding of your bitcoins.

Bitcoin exchanges appear very convenient on the outside. Many of them resemble common online banking – they offer a clear interface, 24/7 customer support, allow the purchase of various cryptocurrencies in a few clicks, and often provide additional services like staking or margin trading. For a complete beginner, they may seem like the best possible choice. Exchanges also offer convenience – you don't have to buy a hardware wallet, remember a seed phrase, or deal with complex security settings.

However, this convenience comes at a high price – you lose control over your funds. If you leave bitcoins on an exchange, you are not actually their true owner. The owner is the exchange, which holds them in its wallets. You only see a number on the screen representing your claim to bitcoins – but only as long as the exchange operates without problems. In case of technical failure, legal complications, or a hacker attack, your bitcoins can very quickly become just a "promise." An exchange can freeze your account, restrict withdrawals, or simply cease to exist.

In the History of Bitcoin section, I mentioned the collapse of the Mt. Gox exchange, but it was not the only one. In November 2022, the third-largest cryptocurrency exchange in the world, FTX, collapsed. Millions of users were left overnight without access to their bitcoins and other cryptocurrencies. Investigations revealed that the company's management irresponsibly handled client funds. To this day, creditors have not been fully compensated, and if they ever are, it will most likely be in dollar value, not in bitcoins themselves – thus not in the value they could have had today.

Bitcoin was created as a tool for personal financial sovereignty. One of its greatest advantages is that you can hold it yourself, without an intermediary, without a bank, without an exchange. If you leave it on an exchange, however, you completely lose this advantage – and you have returned back to the old financial system where someone else decides on your access to your own money. An exchange is simple for a quick purchase, but it is not a safe place to store value.

Many people use the simplicity of exchange platforms specifically to buy cryptocurrencies but subsequently transfer their bitcoins to hardware wallets. By doing so, they eliminate the potential problem of losing their coins if the exchange were to go bankrupt. However, even the purchase itself carries a risk. The vast majority of exchanges have implemented KYC (Know Your Customer), which I already mentioned in the book. Even though you are the holder of your bitcoins and have them in your own wallet, you lose your privacy. In the event of a government mandate, exchanges are very willing to hand over all their client information, but it might not only be the state. There are numerous cases where exchanges were attacked and user data was stolen. To this day, no customer of an exchange attacked in this way can be sure where all their sensitive data has been used – or will be used in the future.

15. What is the difference between a hot wallet and a cold wallet?

There are several ways to categorize bitcoin wallets, but the most basic division is into hot wallets and cold wallets.

A hot wallet is a wallet with internet access, which means it is constantly online and ready for immediate use. These are usually various mobile applications, desktop programs, or browser extensions. Their greatest advantage is convenient and fast access to your funds, making them ideal for daily transactions and common use.

A cold wallet, on the other hand, is a wallet that is not connected to the internet. All transactions are prepared offline and reach the online network only after they are signed. A cold wallet is therefore considered a much safer way to store cryptocurrencies. These are usually specialized hardware devices, such as Trezor or Ledger. They are suitable mainly for long-term storage of larger amounts of bitcoin that you do not want to expose to the risk of an online attack.

While a hot wallet can be compared to a common wallet that you carry in your pocket and use for daily purchases, a cold wallet fulfills the function of a digital vault – it serves for long-term and safe storage of value to which you do not need daily access.

16. Is Bitcoin hackable?

In the previous two questions, we discussed why it is important to store your seed in a hardware wallet and why we should not leave bitcoins on an exchange. Logically, the question arises: Is it even possible to hack Bitcoin? Can I lose my savings even when I follow all safety principles?

Although there have been cases in the past where users lost their cryptocurrencies due to attacks on exchanges or software wallets, it was never a breach of the Bitcoin network itself. In most cases, it was a failure on the user's side – either the attacker obtained the seed phrase, or a virus entered the system that changed the recipient's address. The Bitcoin network itself has never been hacked so far. On the contrary, its resilience grows every day along with increasing computational difficulty and growing hashrate, the total power of the network.

What are the potential threats for the future?

One of the most frequently repeated concerns relates to the rise of quantum computers. Theoretically, these could threaten the foundations of asymmetric cryptography on which Bitcoin stands, specifically the ability to create a private key from a published public key. But how realistic is this threat? We have been hearing about quantum computers for several years, but the technology is still far from ready for practical use on such a scale. Furthermore, if a quantum computer capable of such performance appeared in the future, not only Bitcoin would be threatened, but also all banks, government institutions, military systems, and the entire digital infrastructure. Even in such a case, the Bitcoin community would likely react – for example, with a hard fork of the network where cryptography is adapted to the new threat.

It must be said, however, that such danger does not exist at the moment; Bitcoin evolves very dynamically, and a community of developers around the world is constantly working on its security and innovations. And progress in this area is currently advancing much faster than the development of quantum technologies. In the future, we can change the signature algorithm to be quantum-resistant.

The second potential risk is that a critical error (bug) appears in the Bitcoin code. Although nothing like this has appeared so far (with the exception of the 2010 incident where 184 billion bitcoins were created and the error was quickly fixed), the risk of a new bug during updates is still there. This is where one of the strongest arguments in favor of Bitcoin comes into play (for which many criticize it, by the way): its extremely conservative development model. Every change in the protocol is first long-term tested, assessed, and analyzed. The developer community must reach a consensus, which sometimes takes months or even years. The reason is simple: if an error were included in an update, it could disrupt the entire system. Bitcoin is also open-source, meaning its code is public and can be analyzed by anyone in the world. Every proposed change undergoes extensive security audits and stress tests, thereby minimizing the possibility of a dangerous element entering the network.