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To cut through some of the 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 an electronic concept type 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 system enables payments to be sent between users without passing through a central authority, such as a bank or payment gateway. It's created and held electronically. Bitcoins arent printed, for example dollars or euros theyre produced by computers all around the world, using free software.
It was the first instance of what we today call cryptocurrencies, a growing asset class that shares some characteristics of traditional currencies, together with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, within an electronic payment method based on mathematical proof. The idea was to generate a means of exchange, independent of any central power, which 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 that are uncomfortable with the control that banks or government institutions have over their money. .
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Bitcoin simplifies the dual spending problem of electronic currencies (in which digital assets can easily 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. 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 value relative to others. Holders of the currency (and notably citizens with very 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. 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 attractive as an advantage in concept, if demand grows and the supply remains the same, the value will increase. .
While senders of traditional electronic payments are often identified (for verification purposes, and to abide by anti-money laundering and other legislation), users of bitcoin in concept 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 assesses all prior transactions to confirm that the sender gets the necessary bitcoin in addition to the authority to send them.
In practice, every user is identified by the address of his or her pocket. Transactions can, with a little effort, be tracked this way. Additionally, law enforcement has developed methods to identify users if necessary.
Furthermore, most exchanges are required by legislation to perform identity checks on their clients before they're permitted to buy or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the progress of a specific transaction is observable to all.
This is because there's absolutely no central adjudicator that can say ok, return the money. If a transaction is listed on the network, and if greater than an hour has passed, then it is impossible to modify.
While this may 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 visit the website hundred millionth of a bitcoin (0.00000001) at todays prices, about one hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.
Bitcoin is an electronic currency, also known as a cryptocurrency. It had been invented in 2008 by an anonymous person or group named Satoshi Nakamoto.