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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 that represents ownership of an electronic concept sort of like a virtual 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 through a central authority, such as a bank or payment gateway. It is created and held electronically. Bitcoins arent printed, for example dollars or euros theyre made by computers all around the world, using free software.
It was the very first example of what we today call cryptocurrencies, a growing asset class that shares some characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, within an electronic payment system 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 way.
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 globe. This brings individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. .
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Bitcoin simplifies the double spending issue of electronic currencies (in which electronic 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. 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 value relative to others. Holders of the currency (and especially citizens with very little alternative) keep the price.
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Together with bitcoin, on the other hand, the supply is closely controlled by the underlying algorithm. Even a small number of new bitcoins trickle Get More Information 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 asset in concept, if demand grows and the distribution remains the same, the value will increase. .
While 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 operate 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 assesses all previous transactions to confirm that the sender gets the necessary bitcoin in addition to the authority to send them.
In practice, each user is identified with the address of his or her pocket. Transactions can, with some effort, be monitored this way. Also, law enforcement has developed approaches to identify consumers if necessary.
Additionally, most exchanges are required by law to perform identity checks on their customers before they are allowed to purchase or sell bitcoin, facilitating another way that bitcoin utilization can from this source be tracked. 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 okay, 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 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 referred to as a satoshi. It's one hundred millionth of a bitcoin (0.00000001) at todays prices, roughly one hundredth of a cent. This may 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.