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To cut through some of this confusion surrounding bitcoin, we need to separate it into two components. On the one hand, you have 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 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's made and held electronically. Bitcoins arent printed, for example dollars or euros theyre made by computers all around the planet, using free software.
It was the very first example of what we call cryptocurrencies, a growing asset class that shares several characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, as an electronic payment method based on mathematical proof. The idea was to produce 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, that are also traded digitally.
Bitcoins most important feature is 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 world. This attracts individuals and groups who 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 readily be replicated 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. 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 value relative to others. Holders of the currency (and notably citizens with very little alternative) keep the cost.
While senders of traditional electronic payments are often identified (for verification purposes, and to abide by 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 filed, the protocol assesses all prior transactions to confirm that the sender has the necessary bitcoin in addition to the ability to send them.
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In practice, every user is identified with the address of his or her wallet. Transactions can, with a little effort, be monitored this way. Also, law enforcement has developed methods to identify consumers if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their clients before they're allowed to purchase or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the progress of a particular transaction is observable to all.
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This is because there's no central adjudicator that can say okay, return the money. When a transaction is listed on the network, and when greater than an hour has passed, then it's not possible to modify.
While this may disquiet some, 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 is one hundred millionth of a bitcoin (0.00000001) at 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 how bitcoins are mined, what it can be used for, as well as how you can buy, sell and store your bitcoin. We also explain a few alternatives to bitcoin, as well as the way its underlying technology the blockchain functions. .
If official site you want to know what is Bitcoin, how you can get it and how it can help you, without floundering into technical details, this guide is for you. It'll explain how the system operates, how you can use it for your gain, which scams to avoid. It is going to also guide you to sources which will help you store and use your first parts of digital currency.