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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 which represents ownership of an electronic concept sort of like a virtual IOU. On the other hand, you have bitcoin-the-protocol, a dispersed 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, like a bank or payment gateway. It is made and kept electronically. Bitcoins arent printed, like dollars or euros theyre produced by computers all around the world, using free software.
It was the very first instance of what we call cryptocurrencies, a growing asset class that shares several features of traditional currencies, together with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, as an electronic payment method based on mathematical evidence. The idea was to generate a means of exchange, independent of any central power, that could be transferred electronically in a secure, verifiable and immutable way.
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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, that are also traded digitally.
Bitcoins most important characteristic is that it is decentralized. No single institution controls the bitcoin network. It's maintained by a group of volunteer coders, and run through an open network of dedicated computers spread around the world. This brings individuals and groups who are uncomfortable with all the control that banks or government institutions have over their money. .
Bitcoin simplifies the double spending problem of electronic currencies (in which digital assets can easily 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. 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 others. Holders of the currency (and notably citizens with very little alternative) keep the cost.
Even though senders of traditional electronic payments are usually identified (for verification purposes, and to abide by anti-money laundering and other legislation), users of bitcoin in theory function in semi-anonymity. Since there is no central validator, users do not need to identify themselves when sending bitcoin to another user. When a transaction request is filed, the protocol assesses all previous transactions to confirm that the sender gets the necessary bitcoin as well as the ability to send them.
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In practice, each user is identified with the address of his or her pocket. Transactions can, with a little effort, be tracked this way. Additionally, law enforcement has developed approaches to identify consumers if necessary.
Furthermore, most exchanges are required by legislation to perform identity checks on their clients before they are permitted to purchase or sell bitcoin, facilitating another way that bitcoin utilization can be monitored. 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 say ok, return the money. If a transaction is listed on the network, and when greater than an hour has passed, then it's 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, roughly one hundredth of a cent. This may 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 utilized for, in addition to 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 get it and how it can assist you, without floundering into technical details, this Check This Out guide is for you. It will explain how the system works, how you can use it for your gain, which scams to avoid. It is going to also guide you to resources that will help you store and use your very first parts of digital currency.