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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 an electronic concept type of like a digital IOU. On the other hand, you have bitcoin-the-protocol, a distributed network that 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 created and held electronically. Bitcoins arent printed, like dollars or euros theyre made by computers all around the planet, using free software.

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

A pseudonymous software programmer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, within an electronic payment system 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 way.

Bitcoin can be utilized to pay for things electronically, if the two parties are willing. In that sense, its similar to 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 through an open network of dedicated servers spread around the globe. This attracts individuals and groups who 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) 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. Together 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 others. Holders of this currency (and especially citizens with little alternative) bear the price.

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Together with bitcoin, on the other hand, the distribution is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a max of 21 million has been reached. This creates bitcoin more attractive as an advantage in concept, if demand grows and the distribution remains the same, the value will increase. .

While 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 concept function 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 assesses all previous transactions to confirm that the sender gets the necessary bitcoin in addition to the authority to send them.

In practice, each user is identified with the address of their pocket. Transactions can, with some effort, be tracked this way. Also, law enforcement has developed methods to identify consumers if necessary.

Furthermore, most exchanges are required by law to perform identity checks on their clients before they are allowed to buy or sell bitcoin, facilitating another manner that bitcoin utilization can be monitored. Since the network is transparent, the advancement of a particular transaction is observable to all.

This is because there's absolutely no central adjudicator that can say ok, return the money. When a transaction is recorded on the network, and if greater than an hour has passed, it is not possible to modify.

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 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 could conceivably enable microtransactions that traditional electronic money cannot.

Read more to find out how bitcoin transactions are processed and how bitcoins anchor are mined, what it can be utilized for, in addition to how you can buy, sell and save your bitcoin. In addition, we explain a few alternatives to bitcoin, as well as the way its underlying technology the blockchain functions. .

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