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To cut through some of this 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 kind of like a digital IOU. On the other hand, you have bitcoin-the-protocol, a distributed network which maintains a ledger of balances of bitcoin-the-token.
The system enables payments to be sent between users without passing through 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 produced by computers all around the world, using free software.
It was the very first instance of what we today call cryptocurrencies, a growing strength class which 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, as an electronic payment method based on mathematical evidence. The idea was to produce a means of exchange, independent of any central power, which could be transferred electronically in a secure, verifiable and immutable manner.
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Bitcoin can be utilized to pay for things electronically, if the two parties are willing. In that sense, its like conventional dollars, euros, or yen, that are also traded digitally.
Bitcoins most important characteristic 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 globe. This attracts individuals and groups that are uncomfortable with all the control that banks or government institutions have over their money. .
Bitcoin simplifies the double spending issue of electronic currencies (in which digital 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 value relative to others. Holders of the currency (and notably citizens with very little alternative) bear 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 concept operate 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 as well as the authority to send them.
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In practice, every user is identified with the address of their pocket. Transactions can, with some effort, be tracked this way. Also, law enforcement has developed methods to identify users if necessary.
Additionally, most exchanges are required by law to perform identity checks on their clients before they are permitted to buy or sell bitcoin, facilitating another way that bitcoin usage can be monitored. Since the network is transparent, the advancement of a particular transaction is visible to all.
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This is because there's no central adjudicator that can say ok, return the money. When a transaction is recorded on the network, and when more than an hour has passed, then it is not possible to change.
Even though this might disquiet a few, it will 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, about 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 the way bitcoins are mined, what it can be used for, in addition to how you can purchase, sell and store your bitcoin. We also explain a few alternatives to bitcoin, in addition to how its underlying technology the blockchain works. .
If you want to know what is Bitcoin, how you can get it and how it can help you, without floundering into technical details, this manual is for you. It'll explain how the system works, how you can use it to your gain, which scams to avoid. It will also direct you to resources which will enable you to shop and use your first pieces of digital currency.