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To cut through some of this confusion surrounding bitcoin, we need to divide it into two components. On the one hand, you have bitcoin-the-token, a snippet of code that represents ownership of a digital concept sort of like a virtual 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 is made 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 call cryptocurrencies, a growing asset category that shares some characteristics of traditional currencies, together with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto proposed 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 power, which could be transferred electronically in a secure, verifiable and immutable way.
Bitcoins most important feature 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 servers spread around the globe. This attracts individuals and groups who are uncomfortable with all the control that banks or government institutions have over their money. .
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Bitcoin solves the double spending problem of electronic currencies (in which digital assets can easily be copied 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 use this link 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 other people. Holders of this currency (and especially citizens with little alternative) keep the price.
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Together 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 reached. This makes bitcoin more appealing as an asset 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 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 checks all prior transactions to confirm that the sender gets the necessary bitcoin in addition to the authority to send them.
In practice, each user is identified by the address of their pocket. Transactions can, with some effort, be tracked this way. Also, law enforcement has developed approaches to identify consumers if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their customers before they're permitted to buy or sell bitcoin, facilitating another way that bitcoin utilization can be monitored. Since the network is transparent, the advancement of a particular 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 listed on the network, and when more than an hour has passed, it is not possible to modify.
While this may 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 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.