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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 an electronic concept sort of like a virtual IOU. On the other hand, you've got 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, like a bank or payment gateway. It's created and held electronically. Bitcoins arent printed, like 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 some characteristics of traditional currencies, together with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, within an electronic payment method based on mathematical proof. The idea was to generate a means of exchange, independent of any central authority, that could be transferred electronically in a secure, verifiable and immutable way.
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 through an open network of committed servers spread around the globe. 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) 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 others. Holders of the currency (and especially citizens with little alternative) keep the price.
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With bitcoin, on the other hand, the distribution is closely controlled by the underlying algorithm. Even a small number of new bitcoins trickle 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. .
While 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 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 submitted, the protocol assesses all prior transactions to confirm that the sender gets the necessary bitcoin as well as the authority to send them.
In practice, every user is identified by the address of their pocket. Transactions can, with some effort, be monitored this way. Also, law enforcement has developed methods to identify users if necessary.
Additionally, most exchanges are required by legislation to perform identity checks on their clients before they are allowed to buy or sell bitcoin, facilitating another manner that bitcoin usage can be tracked. 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 ok, return the money. If a transaction is listed on the network, and if greater than an hour has passed, then it is not possible 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 called a satoshi. It's 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 pop over to this web-site cannot.
Bitcoin is an electronic visit this site currency, also known as a cryptocurrency. It was invented in 2008 with an anonymous person or group named Satoshi Nakamoto.