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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 an electronic concept sort of like a digital IOU. On the other hand, you've got bitcoin-the-protocol, a dispersed network that 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 is made and held electronically. Bitcoins arent printed, like dollars or euros theyre produced by computers all around the planet, using free software.
It was the very first example of what we today call cryptocurrencies, a growing asset class that shares some characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, within an electronic payment method based on mathematical proof. The idea was to generate a means of exchange, independent of any central power, that may 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 through an open network of committed computers spread around the world. This brings individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. .
Bitcoin simplifies the dual spending issue of electronic currencies (in which digital assets can easily be copied 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 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 others. Holders of the currency (and especially citizens with little alternative) bear the price.
While 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 theory function 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 checks all prior 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 their pocket. Transactions can, with a little effort, be monitored this way. Also, 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 are permitted to buy or sell bitcoin, facilitating another manner that bitcoin utilization can be monitored. Since the network is transparent, the advancement of a specific transaction is observable to all.
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This is because there's no central adjudicator that can say ok, return the money. When a transaction is recorded on the network, and if more than an hour has passed, it's impossible to modify.
Even though this might disquiet a few, it does mean that any transaction on the bitcoin network find out cannot be tampered with.
The smallest unit of a bitcoin is called a satoshi. It's 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 to find out how bitcoin transactions are processed and the way 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, as well as 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 assist you, without floundering into technical details, this manual is for you. It will explain how the system works, how you can use it for your profit, which scams to avoid. It is going to also guide you to sources which will help you store and use your very first pieces of digital currency.