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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 which represents ownership of a digital concept sort of like a digital IOU. On the other hand, you have 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 via a central authority, such as a bank or payment gateway. It's made 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 asset class that shares some features 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 proof. The idea was to produce a means of exchange, independent of any central authority, which could 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 is maintained by a group of volunteer coders, and run through an open network of dedicated computers spread around the world. 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 solves the double spending issue of electronic currencies (in which electronic 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. Together 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 worth relative to other people. Holders of the currency (and notably citizens with very little alternative) bear the cost.
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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 every hourand will continue to do so at a diminishing rate until a maximum of 21 million has been reached. This creates bitcoin more appealing 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 comply with anti-money laundering and other legislation), users of bitcoin in theory 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 submitted, the protocol checks all prior transactions to confirm that go to this site the sender has the necessary bitcoin as well as the ability to send them.
In practice, every user is identified with the address of his or her pocket. Transactions can, with some effort, be monitored this way. Additionally, law enforcement has developed approaches to identify consumers if necessary.
Additionally, most exchanges are required by legislation to perform identity checks on their customers before they're allowed to purchase or sell bitcoin, facilitating find out another way that bitcoin usage can be monitored. Since the network is transparent, the progress of a specific transaction is visible to all.
This is because there's absolutely 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, it's 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 called a satoshi. It's one hundred millionth of a bitcoin (0.00000001) at todays prices, roughly one hundredth 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 with an anonymous person or group named Satoshi Nakamoto.