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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've got bitcoin-the-token, a snippet of code that represents ownership of an electronic concept kind 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 machine enables payments to be sent between users without passing through a central authority, like a bank or payment gateway. It is created and kept electronically. Bitcoins arent printed, like dollars or euros theyre made by computers all around the world, using free software.
It was the very first example of what we call cryptocurrencies, a growing strength class that shares some features of traditional currencies, with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, as an electronic payment method based on mathematical evidence. The idea was to produce a means of exchange, independent of any central power, that could 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 like 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 by an open network of dedicated 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. .
Bitcoin simplifies the dual spending problem of electronic currencies (in which digital assets can readily be copied 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 attempt to manipulate a currencys worth relative to others. Holders of this currency (and especially citizens with very little alternative) bear the cost.
Even though 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 theory function 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 prior transactions to confirm that the sender has the necessary bitcoin in addition to the authority to send them.
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In practice, every user is identified by the address of his or her pocket. Transactions can, with some effort, be monitored this way. Additionally, law enforcement has developed methods to identify consumers if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their customers before they're permitted to purchase or sell bitcoin, facilitating another manner that bitcoin utilization can be tracked. Since the network is transparent, the advancement 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 more than an hour has passed, then it's impossible to modify.
Even though this might disquiet a few, it will 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) in todays prices, about one hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.
Read see to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be utilized 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, the way 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 for your gain, which scams to avoid. It is going to also direct you to sources which will help you shop and use your first parts of digital currency.