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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 have bitcoin-the-token, a snippet of code which represents ownership of a digital concept kind of like a digital IOU. On the other hand, you have 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 through a central authority, such as a bank or payment gateway. It's 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 example of what we today call cryptocurrencies, a growing strength class that shares some characteristics of traditional currencies, together 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 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.
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Bitcoin can be used to cover things electronically, if both parties are willing. In that sense, its similar to conventional dollars, euros, or yen, which are also traded digitally.
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 computers spread around the world. This brings individuals and groups who are uncomfortable with the control that banks or government institutions have over their money. .
Bitcoin solves the double spending problem of electronic currencies (in which digital assets can readily be replicated and re-used) through 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 especially citizens with little alternative) keep the cost.
Even though senders of traditional electronic payments are usually 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 filed, the protocol assesses all previous transactions to confirm that the sender has the necessary bitcoin as well as the ability to send them.
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In practice, each user is identified with the address of his or her pocket. Transactions can, with some effort, be tracked this way. Additionally, 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 allowed 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 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 more than an hour has passed, then it's impossible to change.
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 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.
Read more to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be used for, as well as how you can buy, sell and save your bitcoin. In addition, we explain a few alternatives to bitcoin, in addition to the way its underlying technology the blockchain functions. .
If you want to know what is Bitcoin, the way you can get it and how it can assist you, without floundering into technical details, this manual is for you. It will explain how the system works, how you can use it to your profit, which scams to avoid. It will also direct you to resources which will enable you to shop and use your first pieces of digital currency.