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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 which represents ownership of a digital concept sort of like a digital 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 created and kept electronically. Bitcoins arent printed, like dollars or euros theyre produced by computers all around the planet, using free software.
It was the first example of what we call cryptocurrencies, a growing asset category that shares some features of traditional currencies, with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, as an electronic payment system based on mathematical evidence. The idea was to generate a means of exchange, independent of any central authority, which 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 is maintained by a group of volunteer coders, and run through an open network of dedicated servers spread around the globe. This brings individuals and groups who are uncomfortable with 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 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. 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 try to manipulate a currencys value relative to others. Holders of this currency (and especially citizens with little alternative) keep the cost.
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With bitcoin, on the other hand, the distribution is closely controlled by the underlying algorithm. A small number of new bitcoins trickle out every hourand 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 advantage in theory, if demand grows and the supply remains the same, the value will increase. .
Even though senders of traditional electronic payments are often identified (for verification purposes, and to comply with anti-money laundering Visit Website and other legislation), users of bitcoin in theory 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 previous transactions to confirm that the sender has the necessary bitcoin as well as the ability to send them.
In practice, each user is identified by the address of their wallet. Transactions can, with a little effort, be tracked this way. Also, law enforcement has developed methods to identify consumers if necessary.
Furthermore, most exchanges are required by legislation to perform identity checks on their customers before they are permitted to buy or sell bitcoin, facilitating another way that bitcoin usage can be monitored. Since the network is transparent, the advancement of a particular transaction is visible to all.
This is because there's absolutely no central adjudicator that can say ok, return the money. If a transaction is recorded on the network, and when greater than an hour has passed, it is not possible to change.
While this may disquiet a few, it does 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 special info (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 by an anonymous person or group named Satoshi Nakamoto.