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To cut through some of this confusion surrounding bitcoin, we need to divide it into two components. On the one hand, you've got bitcoin-the-token, a snippet of code which represents ownership of a digital concept kind of like a virtual IOU. On the other hand, you have bitcoin-the-protocol, a distributed network which maintains a ledger of balances of bitcoin-the-token.
The machine enables payments to be sent between users without passing via a central authority, like a bank or payment gateway. It is made and kept electronically. Bitcoins arent printed, for example dollars or euros theyre produced by computers all around the planet, using free software.
It was the first instance of what we call cryptocurrencies, a growing asset class that shares several 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 method based on mathematical evidence. The idea was to produce a means of exchange, independent of any central authority, which could be transferred electronically in a secure, verifiable and immutable manner.
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Bitcoin can be used to pay for things electronically, if the two parties are willing. In that sense, its similar to conventional dollars, euros, or yen, which can also be traded digitally.
Bitcoins most important feature is that 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 servers spread around the world. This attracts individuals and groups who are uncomfortable with the control that banks or government institutions have over their money. .
Bitcoin simplifies the double spending problem of electronic currencies (in which electronic assets can readily be copied and re-used) through 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. Together 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 try to manipulate a currencys value relative to others. Holders of this currency (and notably citizens with very little alternative) bear the cost.
While senders of traditional electronic payments are usually identified (for verification purposes, find out here and to abide by anti-money laundering and other legislation), users of bitcoin in concept 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 filed, the protocol checks all previous transactions to confirm that the sender has 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 approaches to identify users if necessary.
Additionally, most exchanges are required by legislation to perform identity checks on their customers before they're permitted to purchase or sell bitcoin, facilitating another manner that bitcoin utilization can be tracked. Since the network is transparent, the progress of a particular transaction is observable to all.
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This is because there is no central adjudicator that can Join Bitcoin Mining Pool say okay, return the money. When a transaction is listed on the network, and when more than an hour has passed, then it is not possible to modify.
While this may 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) in todays prices, roughly 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 the way bitcoins are mined, what it can be used for, as well as how you can buy, sell and store 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 see this page get it and how it can assist you, without floundering into technical details, this guide is for you. It will explain how the system operates, how you can use it to your profit, which scams to avoid. It will also guide you to sources that will help you store and use your first pieces of digital currency.