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To cut through some of the confusion surrounding bitcoin, we need to separate 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 digital IOU. On the other hand, you've got 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 through a central authority, like a bank or payment gateway. It's made and kept electronically. Bitcoins arent printed, like dollars or euros theyre made by computers all around the world, using free software.
It was the first instance of what we today call cryptocurrencies, a growing asset class that shares several features of traditional currencies, together with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, as an electronic payment method based on mathematical evidence. The idea was to produce a means of exchange, independent of any central power, that may 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, which can also be traded digitally.
Bitcoins most important characteristic is it is decentralized. No single institution controls the bitcoin network. It's maintained by a group of volunteer coders, and run by an open network of committed servers spread around the globe. This attracts individuals and groups who are uncomfortable with all the control that banks or government institutions have over their money. .
Bitcoin solves the dual spending problem of electronic currencies (in which electronic assets can easily be replicated 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 other people. Holders of the currency (and notably citizens with little alternative) keep the cost.
While senders of traditional electronic payments are often 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 checks all prior transactions to confirm that the sender has the necessary bitcoin in addition to the ability to send them.
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In practice, every user is identified by 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.
Furthermore, most exchanges are required by legislation to perform identity checks on their customers before they're allowed to purchase or sell bitcoin, facilitating another way that bitcoin utilization can be tracked. Since the network is transparent, the advancement of a particular transaction is observable to all.
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This is because there's no central adjudicator that can say okay, return the money. When a transaction is recorded on the network, and if more than an hour has passed, it's not possible to change.
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's 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 utilized for, as well as how you can buy, sell and save your bitcoin. In addition, we explain a few alternatives to bitcoin, in addition to how its underlying see here technology the blockchain works. .
If you want to know what is Bitcoin, the way you can get it and how it can help you, without floundering into technical details, this manual is for you. It will explain how the system operates, how you can use it for your profit, which scams to avoid. It is going to also direct you to resources which will enable you to store and use your very first pieces of digital currency.