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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 a digital concept sort of like a virtual IOU. On the other hand, you've got 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 via a central authority, such as a bank or payment gateway. It's created 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 example of what we today call cryptocurrencies, a growing strength class that shares some 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, within an electronic payment system based on mathematical evidence. The idea was to produce a means of exchange, independent of any central power, which may be transferred electronically in a secure, verifiable and immutable way.
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Bitcoin can be utilized to pay for things electronically, if the two parties are willing. In that sense, its similar to conventional dollars, euros, or yen, which are also traded digitally.
Bitcoins most important feature is that 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 dedicated servers spread around the world. This brings 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 replicated 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. 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 especially citizens with very little alternative) keep the cost.
While senders of traditional electronic payments are often identified (for verification purposes, and to comply click for source with 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 submitted, the protocol assesses all previous 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 some effort, be tracked 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 allowed to purchase or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the progress of a specific transaction is visible to all.
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This is because there's no central adjudicator that can say ok, return the money. If a transaction is listed on the network, and when more than an hour has passed, it's not possible to modify.
While this may disquiet a few, it will mean that any transaction on the bitcoin network cannot be tampered with.
The smallest unit of a bitcoin is called a satoshi. It is 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 to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be used for, as well as how you can buy, sell and store your bitcoin. In addition, we explain a few alternatives to bitcoin, as well as how its underlying technology the blockchain functions. .
If you want to know what is Bitcoin, how you can 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 for your gain, which scams to avoid. It will also guide you to sources that will enable you to store and use your very first pieces of digital currency.