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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 which represents ownership of an electronic concept kind 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 machine enables payments to be sent between users without passing via a central authority, such as a bank or payment gateway. It is created and kept electronically. Bitcoins arent printed, for example dollars or euros theyre produced by computers all around the planet, using free software.
It was the very first example of what we today 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, within an electronic payment method based on mathematical proof. The idea was to produce a means of exchange, independent of any central power, which could be transferred electronically in a secure, verifiable and immutable manner.
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Bitcoin can be utilized to cover things electronically, if both parties are willing. In that sense, its similar to conventional dollars, euros, or yen, which can also be traded digitally.
Bitcoins most important characteristic is 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 world. This attracts individuals and groups that are uncomfortable with 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 copied 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 other people. Holders of the currency (and especially citizens with little alternative) bear 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 concept function in semi-anonymity. Since there is no central validator, users do not need to identify click for source themselves when sending bitcoin to another user. When a transaction request is filed, the protocol checks all previous transactions to confirm that the 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 his or her pocket. Transactions can, with a little effort, be monitored 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 purchase or sell bitcoin, facilitating another manner that bitcoin utilization can be monitored. Since the network is transparent, the advancement of a specific transaction is observable to all.
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This is because there's no central adjudicator that can say ok, return the money. If a transaction is listed on the network, and if more than an hour has passed, then it is impossible to change.
While this may 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, about 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 the way bitcoins are mined, what it can be used for, as well as how you can purchase, sell and save your bitcoin. We also 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 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 gain, which scams to avoid. It is going to also direct you to resources which will enable you to shop and use your first pieces of digital currency.