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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 a digital concept type of like a digital IOU. On the other hand, you've got bitcoin-the-protocol, a dispersed network which 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 made 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 asset category that shares some characteristics of traditional currencies, together with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, as an electronic payment system 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's maintained by a group of volunteer coders, and run through an open network of committed computers spread around the globe. 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 solves the double spending issue of electronic currencies (in which digital 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. 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 attempt to manipulate a currencys value relative to others. Holders of the currency (and notably citizens with little alternative) bear website link 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 reached. 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 abide by 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 authority to send them.
In practice, each user is identified with the address of their pocket. Transactions can, with a little effort, be monitored this way. Additionally, law enforcement has developed methods to identify consumers if necessary.
Furthermore, most exchanges are required by legislation to perform identity checks on their customers before they're allowed to buy or sell bitcoin, facilitating another way 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 okay, return the money. If a transaction is recorded on the network, and if greater than an hour has passed, it is impossible to modify.
Even though this might 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) at todays prices, about one hundredth of a cent. This may 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.