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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 that represents ownership of a digital concept kind of like a digital 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 system enables payments to be sent between users without passing through a central authority, such as a bank or payment gateway. It is created and held electronically. Bitcoins arent printed, for example 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 asset class which shares several characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, within an electronic payment method based on mathematical evidence. The idea was to produce 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 pay for things electronically, if the two parties are willing. In that sense, its like conventional dollars, euros, or yen, that are also traded digitally.
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 by an open network of committed computers spread around the globe. This attracts individuals and groups that are uncomfortable with all the control that banks or government institutions have over their money. .
Bitcoin solves the dual spending problem of electronic currencies (in which digital assets can easily 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. Together 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 attempt to manipulate a currencys worth relative to other people. Holders of the currency (and notably citizens with very little alternative) keep the price.
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 operate 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 prior transactions to confirm that the Bitcoin Mining Device sender has the necessary bitcoin as well as the ability to send them.
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In practice, each user is identified by the address of their wallet. Transactions can, with some effort, be tracked this way. Additionally, law enforcement has developed approaches to identify users if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their customers before they are allowed to buy or sell bitcoin, facilitating another way that bitcoin utilization can be monitored. 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. When a transaction is listed on the network, and when more than an hour has passed, it is impossible to change.
While this may disquiet a few, it does mean that any transaction on the bitcoin network cannot be tampered with.
The smallest unit of a bitcoin is called 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 more to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be utilized for, as well as how you can purchase, sell and store your bitcoin. In addition, we explain a few alternatives to bitcoin, in addition to the way 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 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 direct you to sources that will help you shop and use your very first parts of digital currency.