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To cut through some of the confusion surrounding bitcoin, we need to divide it into two components. On the one hand, you have bitcoin-the-token, a snippet of code that represents ownership of a digital concept kind of like a digital IOU. On the other hand, you have bitcoin-the-protocol, a distributed network that maintains a ledger of balances of bitcoin-the-token.
The system enables payments to be sent between users without passing via a central authority, such as a bank or payment gateway. It is made and kept electronically. Bitcoins arent printed, for example dollars or euros theyre made by computers all around the planet, using free software.
It was the first instance of what we today call cryptocurrencies, a growing strength class which shares some characteristics of traditional currencies, together with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, within an electronic payment system based on mathematical proof. The idea was to generate a means of exchange, independent of any central authority, that may be transferred electronically in a secure, verifiable and immutable way.
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Bitcoin can be used to cover things electronically, if both parties are willing. In that sense, its like conventional dollars, euros, or yen, which can also be traded digitally.
Bitcoins most important feature is it is decentralized. No single institution controls the bitcoin network. It is maintained by a group of volunteer coders, and run through an open network of committed computers spread around the world. This attracts individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. .
Bitcoin solves the dual spending problem of electronic currencies (in which digital assets can easily be replicated and re-used) via an ingenious combination of cryptography and economic incentives. In electronic fiat currencies, this function is fulfilled by banks, which gives them control over the traditional system. With bitcoin, the integrity of the transactions is maintained by a distributed and open network, owned by no-one. .
Fiat currencies (dollars, euros, yen, etc.) have an unlimited supply central banks can issue as many as they want, and can attempt to manipulate a currencys worth relative to other people. Holders of the currency (and especially citizens with little alternative) keep the cost.
While senders of traditional electronic payments are often identified (for verification purposes, and to comply with anti-money laundering and other legislation), users of bitcoin in theory operate in semi-anonymity. Since there's absolutely no central validator, users do not need to identify themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol assesses all previous transactions to confirm that the sender gets the necessary bitcoin as well as the authority to send them.
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In practice, each user is identified with the address of his or her pocket. Transactions can, with some effort, be monitored this way. Also, law enforcement has developed methods to identify users if necessary.
Additionally, most exchanges are required by legislation to perform identity checks on their customers before they are permitted to purchase or sell bitcoin, facilitating another manner that bitcoin utilization can be monitored. Since the network is transparent, the advancement of a specific transaction is visible to all.
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This is because there is no central adjudicator that can say ok, return the money. If a transaction is recorded on the network, and if greater than an hour has passed, then it is impossible to change.
Even though this might disquiet some, it does mean that any transaction on the bitcoin network cannot be tampered with.
The smallest unit of a bitcoin is referred to as a satoshi. It is one hundred millionth of a bitcoin (0.00000001) at todays prices, about one hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.
Read more to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be used for, as well as how you can purchase, sell and save your bitcoin. We also explain a few alternatives to bitcoin, as well as how its underlying technology the blockchain functions. .
If you want to know what is Bitcoin, the way you can resource get it and how it can assist you, without floundering into technical details, this guide is for you. It'll explain how the system operates, how you can use it to your gain, which scams to avoid. It is going to also guide you to resources which will enable you to store and use your first parts of digital currency.