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A bitcoin faucet is a reward system, in the form of a website or app, that dispenses rewards in the form of a satoshi, which is a hundredth of a millionth BTC, for visitors to claim in exchange for completing a captcha or task as described by the website. There are also faucets that dispense alternative cryptocurrencies.
Rewards are dispensed at various predetermined intervals of time as rewards for completing simple tasks such as captcha completion and as prizes from simple games. Faucets usually give fractions of a bitcoin, but the amount will typically fluctuate according to the value of bitcoin. Some faucets also have random larger rewards. To reduce mining fees, faucets normally save up these small individual payments in their own ledgers, which then add up to make a larger payment that is sent to a user's bitcoin address.
As bitcoin transactions are irreversible and there are many faucets, they have become targets for hackers stealing the bitcoins.
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Faucets can help introduce new people to bitcoin or to altcoins. A majority of faucets provide information to new users as well as offering them some free coins so that they can "try before they buy", experimenting with a test transaction or two before putting real money on the line. Since this whole experience is so new and a bit complicated to people, this is a beneficial way to promote digital currency and bring in new users.
Faucets are high traffic websites. It is not all that difficult to get a huge number of page views per day to a site which is giving away free money. If a website has other content or services to promote to Bitcoin users, especially new users, a faucet is a great way to bring them to make them familiar with a brand name.
Making a healthy profit from a faucet site on its own is a lot harder than just making a popular faucet, but it is still possible. There are a lot of these sites around today, so it's a very competitive market, and earning enough from advertising to cover the cost of the coins you are giving away and hosting costs is nearly impossible. Adding additional content to a website, or creating some kind of unique or interesting twist, is the only way to generate an income for a Bitcoin faucet.
It is typical for faucets to have a referral system, where existing users referring new ones are rewarded with a pro rata portion of new users' earnings from the faucet. Unlike illegal pyramid schemes, earnings do not percolate to the top in the chain of referrals. The exact legal status of bitcoin faucets is unclear and can vary by jurisdiction, refer to legality of bitcoin by country.
The setting up of a Bitcoin Faucet involves integrating a payments processor/manager. The owner of the Bitcoin Faucet loads some bitcoin into this payments manager's cryptocurrency wallet. The payout for visitors are given out according to the sites rates/kind of operation.
Advertisements are the main income source of bitcoin faucets. Faucets try to get traffic from users by offering free bitcoin as an incentive. Some ad networks also pay directly in bitcoins. This means that faucets often have a low profit margin. Some faucets also make money by mining altcoins in the background, using the user's CPU.
- Lee, Timothy B. (2014-01-03). "Five years of Bitcoin in one post". The Washington Post. ISSN 0190-8286. Retrieved 2016-01-15.
- Jason Mick (12 June 2011). "Cracking the Bitcoin: Digging Into a $131M USD Virtual Currency". Daily Tech. Retrieved 30 December 2014.
- Andresen, Gavin (1 March 2012). "Bitcoin Faucet Hacked". GavinTech. Retrieved 30 December 2015.
- "The Complete Guide to Making Money from Bitcoin Faucets". 99 Bitcoins. Retrieved 2016-01-15.