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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've got bitcoin-the-token, a snippet of code that represents ownership of an electronic concept sort of like a virtual IOU. On the other hand, you have bitcoin-the-protocol, a dispersed network that 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 created and kept electronically. Bitcoins arent printed, for example dollars or euros theyre produced by computers all around the world, using free software.
It was the first example of what we today call cryptocurrencies, a growing asset class that shares some 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 method based on mathematical evidence. The idea was to generate a means of exchange, independent of any central authority, which could be transferred electronically in a secure, verifiable and immutable manner.
Bitcoins most important characteristic 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 committed servers spread around the globe. This attracts individuals and groups who are uncomfortable with the control that banks or government institutions have over their money. .
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Bitcoin simplifies the dual spending issue 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, visite site 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 notably citizens with very little alternative) bear the cost.
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Together with bitcoin, on the other hand, the supply is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been attained. This makes bitcoin more attractive as an advantage in theory, if demand grows and the supply remains the same, the value will increase. .
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 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 assesses all prior transactions to confirm that the sender gets the necessary bitcoin as well as the ability to send them.
In practice, every user is identified with the address of their pocket. Transactions can, with a little effort, be monitored this way. Also, law enforcement has developed methods to identify consumers if necessary.
Additionally, most exchanges linked here are required by legislation to perform identity checks on their customers before they are allowed to purchase or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the progress of a specific transaction is observable to all.
This is because there's absolutely no central adjudicator that can say okay, return the money. When a transaction is listed on the network, and if greater than an hour has passed, then it is impossible to change.
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 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 What Is Bitcoin Worth conceivably enable microtransactions that traditional electronic money cannot.
Bitcoin is a digital currency, also known as a cryptocurrency. It had been invented in 2008 by an anonymous person or group named Satoshi Nakamoto.