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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 that represents ownership of a digital concept kind of like a digital IOU. On the other hand, you have bitcoin-the-protocol, a dispersed 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, like a bank or payment gateway. It's made and held 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 call cryptocurrencies, a growing strength class which shares several characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, as an electronic payment system based on mathematical proof. The idea was to generate a means of exchange, independent of any central authority, which may be transferred electronically in a secure, verifiable and immutable manner.
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Bitcoin can be used to pay for things electronically, if both parties are willing. In that sense, its similar to conventional dollars, euros, or yen, which can also be 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 through an open network of dedicated computers spread around the world. This brings individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. .
Bitcoin simplifies the double spending issue 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 value relative to others. Holders of this currency (and especially citizens with very little alternative) bear the cost.
While 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 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 filed, the protocol assesses all prior transactions to confirm that the sender gets the necessary bitcoin in addition to the ability to send them.
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In practice, every user is identified by the address of their pocket. Transactions can, with a little effort, be tracked this way. Also, law enforcement has developed methods to identify consumers if necessary.
Additionally, most exchanges are required by law to perform identity checks on their customers before they're allowed to purchase 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 listed on the network, and if greater than an hour has passed, it's impossible to modify.
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 description 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 why not try this out buy, sell and store your bitcoin. In addition, we 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 operates, 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 very first pieces of digital currency.