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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 that represents ownership of an electronic concept type of like a virtual IOU. On the other hand, you've got bitcoin-the-protocol, a distributed network that maintains a ledger of balances of bitcoin-the-token.
The machine enables payments to be sent between users without passing via a central authority, such as a bank or payment gateway. It is made 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 instance of what we today call cryptocurrencies, a growing strength category that shares some features of traditional currencies, together with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, as 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 manner.
Bitcoins most important feature 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 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 issue of electronic currencies (in which digital assets can readily 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 worth relative to other people. Holders of the currency (and especially citizens with very little alternative) bear the cost.
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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 max of 21 million has been attained. This makes bitcoin more appealing 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 usually 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 this website 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 ability to send them.
In practice, every user is identified by the address of his or her pocket. Transactions can, with a little effort, be monitored this way. Additionally, law enforcement has developed methods to identify users if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their customers before they're permitted to buy or sell bitcoin, facilitating another way that bitcoin usage can be tracked. Since the network is transparent, the advancement of a particular transaction is visible to all.
This is because there is no central adjudicator that can say okay, return the money. If a transaction is recorded on the network, and when greater than an hour has passed, then it's 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 is one hundred millionth of a bitcoin (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 with an anonymous person or group named Satoshi Nakamoto.