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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've got bitcoin-the-token, a snippet of code which represents ownership of a digital concept sort of like a virtual IOU. On the other hand, you've got 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, for example dollars or euros theyre made by computers all around the planet, using free software.
It was the first example of what we call cryptocurrencies, a growing asset class that shares some characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, as an electronic payment method 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 feature is that 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 globe. 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 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 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 other people. Holders of this currency (and notably citizens with very little alternative) bear the cost.
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With bitcoin, on the other hand, the supply 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 attained. This creates bitcoin more attractive as an advantage in theory, 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 comply with anti-money laundering 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 visit this web-site checks all prior 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 pocket. Transactions can, with some effort, be monitored this way. Also, law enforcement has developed approaches 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 way that bitcoin utilization can be tracked. Since the network is transparent, the advancement of a specific transaction is visible to all.
This is because there is no central adjudicator that can say okay, return the money. When a transaction is recorded on the network, and when greater than an hour has passed, it's impossible to modify.
Even though this might disquiet some, it will 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) 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 was invented in 2008 by an anonymous person or group named Satoshi Nakamoto.