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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've got bitcoin-the-token, a snippet of code that represents ownership of a digital concept type of like a digital IOU. On the other hand, you've got 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 via a central authority, such as a bank or payment gateway. It's 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 category that shares some characteristics of traditional currencies, together with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, within an electronic payment system based on mathematical proof. The idea was to produce 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 through an open network of committed computers 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 simplifies 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. 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 the currency (and especially citizens with very little alternative) bear the price.
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Together with bitcoin, on the other hand, the distribution is tightly controlled by the underlying algorithm. Even 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 makes bitcoin more attractive 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 abide by 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 filed, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin as well as the authority to send them.
In practice, every user is identified by the address of his or her pocket. Transactions can, with some effort, be monitored this way. Also, law enforcement has developed methods to identify users if necessary.
Additionally, most exchanges are required by law to perform identity checks on their customers before they're permitted to buy or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the advancement of a specific transaction is observable to all.
This is because there's absolutely no central adjudicator that can say okay, return the money. When a transaction is listed on the network, and if this page greater than an hour has passed, it's not possible 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, about 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 had been invented in 2008 by an anonymous person or group named Satoshi Nakamoto.