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To cut through some of the 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 a digital concept type of like a digital IOU. On the other hand, you have bitcoin-the-protocol, a dispersed 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, like a bank or payment gateway. It's created and kept 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 today call cryptocurrencies, a growing strength 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 proposed bitcoin in 2008, as an electronic payment method based on mathematical evidence. The idea was to produce a means of exchange, independent of any central authority, that 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 through an open network of dedicated computers spread around the world. This brings individuals and groups that are uncomfortable with all the control that banks or government institutions have over their money. .
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Bitcoin solves the dual spending problem of electronic currencies (in which digital assets can readily be copied 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 attempt to manipulate a currencys worth relative to other people. Holders of the currency (and especially citizens with very little alternative) bear the price.
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With bitcoin, on the other hand, the supply 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 appealing as an advantage in concept, 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 submitted, the protocol assesses all previous transactions to confirm that the sender has the necessary bitcoin in addition to the authority to send them.
In practice, every user is identified by the address of their wallet. Transactions can, Web Site with some effort, be tracked this way. Additionally, law enforcement has developed methods look at more info to identify users if necessary.
Additionally, most exchanges are required by law to perform identity checks on their clients before they are permitted to purchase or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the advancement of a specific transaction is observable to all.
This is because there's absolutely no central adjudicator that can say ok, return the money. When a transaction is recorded on the network, and if greater than an hour has passed, it is not possible to modify.
Even though this might disquiet a few, 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 is one hundred millionth of a bitcoin (0.00000001) in 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 had been invented in 2008 by an anonymous person or group named Satoshi Nakamoto.