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To cut through some of the confusion surrounding bitcoin, we need to divide 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 have bitcoin-the-protocol, a distributed network which maintains a ledger of balances of bitcoin-the-token.
The system enables payments to be sent between users without passing via a central authority, like a bank or payment gateway. It is made and kept electronically. Bitcoins arent printed, for example dollars or euros theyre produced by computers all around the planet, using free software.
It was the very first example of what we call cryptocurrencies, a growing strength class that shares several characteristics 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 produce a means of exchange, independent of any central authority, that could be transferred electronically in a secure, verifiable and immutable manner.
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Bitcoin can be used to pay for things electronically, if the two parties are willing. In that sense, its like conventional dollars, euros, or yen, which can also be traded digitally.
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 servers spread around the world. This attracts individuals and groups who are uncomfortable with all the control that banks or government institutions have over their money. .
Bitcoin solves the double spending issue 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. 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 try to manipulate a currencys value relative to other people. Holders of this currency (and notably citizens with little alternative) keep the cost.
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 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 filed, the protocol assesses all previous transactions to confirm that the sender has the necessary bitcoin as well as the authority to send them.
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In practice, each user is identified with 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.
Additionally, most exchanges are required by legislation to perform identity checks on their customers before they are allowed to buy or sell bitcoin, facilitating another way that bitcoin usage can be tracked. Since the network is transparent, the progress of a particular transaction is visible to all.
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This is because there is no central adjudicator that can say ok, return the money. If a transaction is recorded on the network, and if greater than an hour has passed, then it is impossible to change.
Even though this might disquiet some, 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's one hundred millionth of a bitcoin (0.00000001) in todays prices, roughly one hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.
Read to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be used for, look these up as well as how you can purchase, sell and save your bitcoin. We also explain a few alternatives to bitcoin, in addition to how its underlying technology the blockchain works. .
If you want to know what is Bitcoin, the way you can get it and how it can help you, without floundering into technical details, this important source manual is for you. It will explain how the system operates, how you can use it for your gain, which scams to avoid. It will also guide you to sources that will enable you to store and use your very first pieces of digital currency.