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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 an electronic concept sort of like a digital IOU. On the other hand, you have bitcoin-the-protocol, a distributed 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, 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 example of what we today call cryptocurrencies, a growing strength category that shares some features of traditional currencies, together with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, within an electronic payment method based on mathematical evidence. The idea was to produce a means of exchange, independent of any central power, which may 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 by an open network of dedicated servers spread around the world. This attracts individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. .
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Bitcoin solves the double spending issue of electronic currencies (in which digital assets can easily 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. 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 little alternative) keep the cost.
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Together with bitcoin, on the other hand, the distribution is closely controlled by the underlying algorithm. A small number of new bitcoins trickle every hour, and will continue to weblink do so at a diminishing rate until a max of 21 million has been reached. This makes bitcoin more appealing as an advantage in concept, click to read 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 concept function 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 checks all prior transactions to confirm that the sender has the necessary bitcoin as well as the ability to send them.
In practice, every user is identified by the address of his or her wallet. Transactions can, with a little effort, be tracked this way. Also, law enforcement has developed approaches to identify users if necessary.
Furthermore, most exchanges are required by legislation to perform identity checks on their customers before they're permitted to purchase or sell bitcoin, facilitating another way that bitcoin utilization can be monitored. Since the network is transparent, the advancement of a particular transaction is visible 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 greater than an hour has passed, it is impossible to change.
While this may 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's one hundred millionth of a bitcoin (0.00000001) at todays prices, about one hundredth anonymous of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.
Bitcoin is a digital currency, also known as a cryptocurrency. It was invented in 2008 by an anonymous person or group named Satoshi Nakamoto.