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To cut through some of the confusion surrounding bitcoin, we need to separate 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 virtual IOU. On the other hand, you've got bitcoin-the-protocol, a dispersed network which maintains a ledger of balances of bitcoin-the-token.
The system enables payments to be sent between users without passing via a central authority, like a bank or payment gateway. It is created and kept electronically. Bitcoins arent printed, for example dollars or euros theyre made by computers all around the world, using free software.
It was the very first example of what we call cryptocurrencies, a growing asset class which shares some characteristics of traditional currencies, with verification based on cryptography.
A pseudonymous software developer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, as an electronic payment system based on mathematical evidence. The idea was to generate a means of exchange, independent of any central authority, 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, that are also traded digitally.
Bitcoins most important characteristic is that 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 world. This attracts individuals and groups that 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 electronic 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 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 attempt to manipulate a currencys value relative to others. Holders of this currency (and notably citizens with very little alternative) bear the cost.
While senders of traditional electronic payments are often 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 checks all prior transactions to confirm that the sender has the necessary bitcoin in addition to the authority to send them.
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In practice, every user is identified by the address of his or her wallet. Transactions can, with some effort, be tracked this way. Also, law enforcement has developed approaches to identify users if necessary.
Additionally, most exchanges are required by legislation to perform identity checks on their customers before they are permitted to purchase or sell bitcoin, facilitating another manner that bitcoin usage can be tracked. Since the network is transparent, the progress of a specific transaction is observable to all.
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This is because there is no central adjudicator that can say okay, return the money. If a transaction is listed on the network, and if more than an hour has passed, then it is not possible 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 referred to as a satoshi. It is 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.
Read to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be used for, in addition to how you can buy, sell and store your bitcoin. We also explain a few alternatives to bitcoin, as well as how 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 guide is for you. It'll explain how the system operates, how you can use it for your profit, which scams to avoid. It will also guide you to resources which will help you store and use your first pieces of digital currency.