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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've got bitcoin-the-token, a snippet of code which represents ownership of a digital concept sort of like a virtual 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, like dollars or euros theyre produced by computers all around the world, using free software.
It was the first example of what we today call cryptocurrencies, a growing asset class that shares several characteristics of traditional currencies, together with verification based on cryptography.
A pseudonymous software developer 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 authority, that could be transferred electronically in a secure, verifiable and immutable manner.
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Bitcoin can be used to pay for 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 characteristic 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 dedicated 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 simplifies 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. 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 worth relative to other people. Holders of the currency (and notably citizens with little alternative) bear the price.
Even though senders of traditional electronic payments are usually identified (for verification purposes, and to comply with anti-money laundering and other legislation), users of see post 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 submitted, the protocol assesses all prior transactions to confirm that the sender gets the necessary bitcoin as well as the authority to send them.
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In practice, each user is identified with the address of their wallet. Transactions can, with some effort, be monitored this way. Also, law enforcement has developed methods to identify users if necessary.
Furthermore, 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 utilization can be tracked. Since the network is transparent, the progress of a particular transaction is visible to all.
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This is because there's 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's not possible to change.
Even though this might disquiet a few, it will 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 to find out how bitcoin transactions are processed and like this the way bitcoins are mined, what it can be used for, in addition to how you can purchase, 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 to your profit, which scams to avoid. It will also direct you to resources that will help you shop and use your very first parts of digital currency.