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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 have bitcoin-the-token, a snippet of code that represents ownership of an electronic concept kind of like a digital IOU. On the other hand, you've got bitcoin-the-protocol, a distributed network that 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 planet, using free software.
It was the first example of what we today call cryptocurrencies, a growing asset class that shares some features of traditional currencies, together 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 evidence. The idea was to produce a means of exchange, independent of any central authority, that may be transferred electronically in a secure, verifiable and immutable manner.
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Bitcoin can be used to cover 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 characteristic is 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 that are uncomfortable with all the control that banks or government institutions have over their money. .
Bitcoin solves the double spending issue of electronic currencies (in which digital assets can readily be replicated 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. 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 attempt to manipulate a currencys worth relative to others. Holders of the currency (and notably citizens with little alternative) keep the cost.
While senders of traditional More about the author electronic payments are usually identified (for verification purposes, and to comply with anti-money laundering and other legislation), users of bitcoin in theory 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 previous transactions to confirm that the sender has 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 some effort, be tracked this way. Also, law enforcement has developed methods to identify consumers if necessary.
Additionally, most exchanges are required by legislation to perform identity checks on their clients before they're permitted to purchase or sell bitcoin, facilitating another manner that bitcoin utilization can be tracked. 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 when greater than an hour has passed, it's not possible 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 referred to as a satoshi. It's one hundred millionth of a bitcoin (0.00000001) at todays prices, roughly 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, as well as how you can purchase, sell and save your bitcoin. We also explain a few alternatives to bitcoin, as well as the way its underlying technology the blockchain works. .
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 manual 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 guide you to resources that will help you shop and use your very first parts of digital currency.