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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'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 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's created and held electronically. Bitcoins arent printed, like dollars or euros theyre produced by computers all around the world, using free software.
It was the first example of what we call cryptocurrencies, a growing strength class which shares some characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto proposed 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 power, that may 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 similar to conventional dollars, euros, or yen, that can also be traded digitally.
Bitcoins most important feature 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 that are uncomfortable with 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 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 attempt to manipulate a currencys value relative to others. Holders of the 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 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 look at these guys all prior transactions to confirm that the sender gets the necessary bitcoin as well as the ability to send them.
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In practice, every user is identified with the address of their pocket. Transactions can, with a little effort, be monitored this way. Additionally, law enforcement has developed approaches to identify users if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their customers before they are allowed to purchase or sell bitcoin, facilitating another manner that bitcoin utilization can be monitored. Since the network is transparent, the progress 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 recorded on the network, and if greater than an hour has passed, it's impossible to modify.
While this may disquiet a few, 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 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 purchase, sell and store 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 assist you, without link floundering into technical details, this guide is for you. It'll explain how the system works, how you can use it for your gain, which scams to avoid. It is going to also direct you to sources which will help you store and use your first pieces of digital currency.