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To cut through some of this 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 which represents ownership of a digital concept kind of like a virtual 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 is created and kept electronically. Bitcoins arent printed, for example dollars or euros theyre made by computers all around the world, using free software.
It was the first example of what we today call cryptocurrencies, a growing asset class which shares several characteristics 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 generate a means of exchange, independent of any central power, that may be transferred electronically in a secure, verifiable and immutable way.
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Bitcoin can be utilized to cover things electronically, if the two parties are willing. In that sense, its like conventional dollars, euros, or yen, which are also traded digitally.
Bitcoins most important characteristic 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 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 electronic assets can easily 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 these 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 the currency (and notably citizens with very little alternative) bear the price.
Even though senders of traditional electronic payments are usually identified (for verification purposes, and to comply with anti-money laundering and other legislation), users of bitcoin in concept 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 submitted, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin in addition to the ability to send them.
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In practice, each user is identified with the address of their wallet. Transactions can, with some effort, be monitored this way. Additionally, law enforcement has developed methods to identify users if necessary.
Additionally, most exchanges are required by law to perform identity checks on their customers before they are allowed to buy or sell bitcoin, facilitating another way that bitcoin usage 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's 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 change.
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 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 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 how 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 guide is for you. It will explain how the system works, how you can use it to your gain, which scams to avoid. It is going to also direct you to sources which will help you store and use your very first parts of digital currency.