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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've got bitcoin-the-token, a snippet of code that represents ownership of an electronic concept kind of like a virtual IOU. On the other hand, you've got bitcoin-the-protocol, a dispersed network that maintains a ledger of balances of bitcoin-the-token.
The machine 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, like dollars or euros theyre produced by computers all around the planet, using free software.
It was the very first instance of what we today call cryptocurrencies, a growing strength class which shares some characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, within an electronic payment method based on mathematical proof. 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 way.
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Bitcoin can be utilized to cover things electronically, if the two parties are willing. In that sense, its like conventional dollars, euros, or yen, which can also be traded digitally.
Bitcoins most important characteristic 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 dedicated 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 dual spending problem of electronic currencies (in which electronic assets can easily be copied 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 try to manipulate a currencys worth relative to others. Holders of the currency (and notably citizens with very little alternative) bear the price.
With bitcoin, on the other hand, the distribution is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle every hourand will continue to do so at a diminishing rate until a max of 21 million has been reached. This makes bitcoin more attractive as an asset in concept, if this page demand grows and the distribution remains the same, the value will increase. .
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 function 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 prior transactions to confirm that the sender gets the necessary bitcoin in addition to the authority to send them.
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In practice, each user is identified with the address of their pocket. Transactions can, with a little effort, be tracked this way. Additionally, law enforcement has developed methods to identify consumers if necessary.
Furthermore, most exchanges are required by legislation to perform identity checks on their clients before they're permitted to buy or sell bitcoin, facilitating another manner that bitcoin utilization can be tracked. Since the network is transparent, the advancement of a particular transaction is visible to all.
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This is because there is no central adjudicator that can say ok, return the money. When a transaction is listed on the network, and if greater than an hour has passed, it's not possible to change.
Even though this might disquiet a few, it does mean that any transaction on the bitcoin network cannot be tampered with.
The smallest unit of a bitcoin is called a satoshi. It's one hundred millionth of a bitcoin (0.00000001) in 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 the way bitcoins are mined, what it can be used for, in addition to how you can purchase, sell and save your bitcoin. We also explain a few alternatives to bitcoin, in addition to the way its underlying 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 works, how you can use it for your gain, which scams to avoid. It is going to also guide you to sources which will help you shop and use your first pieces of digital currency.