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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 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's made and kept electronically. Bitcoins arent printed, like dollars or euros theyre made by computers all around the planet, using free software.

It was the very first instance of what we call cryptocurrencies, a growing asset category that shares some characteristics of traditional currencies, together with verification based on cryptography.

A pseudonymous software developer 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 authority, that may be transferred electronically in a secure, verifiable and immutable way.

Bitcoin can be used to pay for things electronically, if both parties are willing. In that sense, its like 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 is maintained by a group of volunteer coders, and run by an open network of dedicated computers spread around the globe. This brings individuals and groups who are uncomfortable with the control that banks or government institutions have over their money. .

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Bitcoin solves the dual spending issue of electronic currencies (in which electronic assets can readily 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 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 value relative to other people. Holders of this currency (and notably citizens with More about the author very little alternative) keep the cost.

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With bitcoin, on the other hand, the supply is closely controlled by the underlying algorithm. Even a small number of new bitcoins trickle every hourand will continue to do so at a diminishing rate until a max of 21 million has been reached. This creates bitcoin more appealing as an asset in concept, if demand grows and the supply remains the same, the value will increase. .

Even though 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 concept 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 previous transactions to confirm that the sender gets the necessary bitcoin as well as the ability to send them.

In practice, each user is identified by the address of his or her wallet. Transactions can, with a little effort, be tracked this way. Also, law enforcement has developed approaches to identify users if necessary.

Furthermore, most exchanges are required by legislation to perform identity checks on their customers before they are permitted to buy or sell bitcoin, facilitating another way that bitcoin usage can be monitored. Since the network is transparent, the progress of a specific transaction is visible to all.

This is because there is no central adjudicator that can say okay, return the money. If a transaction is listed on the network, and when more than an hour has passed, look at these guys it is not possible to change.

While this may disquiet some, 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 is one hundred millionth of a bitcoin (0.00000001) in todays prices, about one hundredth of a cent. This may conceivably check that 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 used for, as well as how you can buy, sell and save your bitcoin. We also explain a few alternatives to bitcoin, in addition to the way its underlying technology the blockchain works. .

Bitcoin is a digital currency, also known as a cryptocurrency. It was invented in 2008 with an anonymous person or group named Satoshi Nakamoto.