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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 an electronic concept sort of like a virtual IOU. On the other hand, you have bitcoin-the-protocol, a distributed 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, like 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 world, using free software.
It was the first instance of what we today call cryptocurrencies, a growing asset category that shares some features 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 method based on mathematical proof. The idea was to generate a means of exchange, independent of any central authority, that 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 by an open network of committed computers spread around the world. This brings 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 dual spending problem of electronic currencies (in which digital 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 others. Holders of this currency (and especially citizens with very little alternative) keep the cost.
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Together with bitcoin, on the other hand, the supply is tightly controlled by the underlying algorithm. Even 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 attained. This creates bitcoin more appealing as an asset 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 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 previous transactions to confirm that the sender has the necessary bitcoin in addition to the authority to send them.
In practice, each user is identified with the address of his or her wallet. Transactions can, with a little effort, be tracked this way. Additionally, law enforcement has developed approaches to identify users if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their clients before they're permitted to buy or sell bitcoin, facilitating another way that bitcoin usage can be monitored. Since the network is transparent, the progress of a particular transaction is visible to all.
This is because there is 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, then it is not possible to change.
Even though this might disquiet a few, 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 is 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 had been invented in 2008 with an anonymous person or group named Satoshi check out here Nakamoto.