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To cut through some of this confusion surrounding bitcoin, we need to separate it into two components. On the one hand, you have bitcoin-the-token, a snippet of code which represents ownership of a digital concept type of like a virtual 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, like 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 world, using free software.
It was the very first example of what we call cryptocurrencies, a growing asset 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 proposed 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, that may be transferred electronically in a secure, verifiable and immutable manner.
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 servers spread around the globe. This attracts individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. .
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Bitcoin simplifies the dual spending issue of electronic currencies (in which electronic 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. 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 value relative to others. Holders of the currency (and notably citizens with very little alternative) keep the cost.
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With bitcoin, on the other hand, the distribution is closely 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 site web has been reached. This creates bitcoin more appealing as an asset in theory, if demand grows and the supply remains the same, the value will go to my blog increase. .
Even though senders of traditional electronic payments are often 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 is no central validator, users do not need to identify themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol assesses all previous transactions to confirm that the sender has the necessary bitcoin as well as the authority to send them.
In practice, each user is identified by the address of their wallet. Transactions can, with some effort, be monitored this way. Also, law enforcement has developed methods to identify consumers if necessary.
Additionally, most exchanges are required by legislation to perform identity checks on their customers before they're allowed to purchase or sell bitcoin, facilitating another way that bitcoin usage can be tracked. Since the network is transparent, the advancement of a particular transaction is observable to all.
This is because there is no central adjudicator that can say ok, return the money. If a transaction is recorded on the network, and when greater than an hour has passed, it's not possible 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 called a satoshi. It's one hundred millionth of a bitcoin (0.00000001) in todays prices, roughly one hundredth of a cent. This may 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.