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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 a digital 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, like a bank or payment gateway. It is created 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 example of what we today call cryptocurrencies, a growing strength class that shares several features of traditional currencies, with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, as an electronic payment system based on mathematical evidence. The idea was to produce a means of exchange, independent of any central authority, that 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 both parties are willing. In that sense, its similar to conventional dollars, euros, or yen, that 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 by an open network of dedicated servers spread around the globe. This brings individuals and groups who are uncomfortable with the control that banks or government institutions have over their money. .
Bitcoin solves the double spending problem of electronic currencies (in which digital assets can readily 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 try to manipulate a currencys value relative to other people. Holders of this currency (and notably citizens with very little alternative) keep the price.
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 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 as well as the authority to send them.
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In practice, each user is identified with the address of his or her pocket. Transactions can, with some effort, be tracked this way. Additionally, law enforcement has developed methods to identify consumers if necessary.
Additionally, most exchanges are required by law to perform identity checks on their clients before they're allowed to purchase or sell bitcoin, facilitating another way that bitcoin usage 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's no central adjudicator that can say okay, 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.
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's one hundred millionth of a bitcoin (0.00000001) at todays prices, about one hundredth of a cent. This may conceivably enable microtransactions that traditional electronic money cannot.
Read to from this source find out how bitcoin transactions are processed and the way bitcoins are mined, what it can be used for, as well as how you can buy, 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 guide is for you. It will explain how the system operates, how you can use it to your gain, which scams to avoid. It is going to also direct you to resources that will enable you to shop and use your very first pieces of digital currency.