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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 a digital concept sort of like a digital 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 via a central authority, such as a bank or payment gateway. It's created and kept 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 instance of what we call cryptocurrencies, a growing strength category that shares some characteristics of traditional currencies, 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 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's maintained by a group of volunteer coders, and run through an open network of committed servers spread around the world. This brings 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 problem of electronic currencies (in which electronic 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. 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 try to manipulate a currencys worth relative to other people. Holders of this currency (and notably citizens with very little alternative) keep the price.
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With bitcoin, on the other hand, the distribution is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle out every hourand will continue to do so at a diminishing rate until a max of 21 million has been attained. This makes bitcoin more appealing as an advantage in theory, if demand grows and the distribution 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's absolutely 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 find out here now bitcoin in addition to the ability to send them.
In practice, every user is identified by the address of their wallet. Transactions can, with some effort, be tracked this way. Additionally, law enforcement has developed approaches to identify consumers if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their clients before they're permitted to buy or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the advancement of a particular transaction is observable to all.
This is because there is no central adjudicator that can say ok, return the money. If a transaction is recorded on the network, and if more than an hour has passed, then it is not possible to change.
While this may disquiet some, 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.
Bitcoin is an electronic currency, also known as a cryptocurrency. It was invented in 2008 by an anonymous person or group named Satoshi Nakamoto.