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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've got bitcoin-the-token, a snippet of code that represents ownership of a digital concept sort 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 machine enables payments to be sent between users without passing via a central authority, such as a bank or payment gateway. It is made 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 first example of what we today call cryptocurrencies, a growing asset category that shares some characteristics of traditional currencies, 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 evidence. The idea was to produce a means of exchange, independent of any central power, which may be transferred electronically in a secure, verifiable and immutable way.

Bitcoin can be utilized to pay for 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 servers 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 simplifies the dual spending problem of electronic currencies (in which electronic assets can readily 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 these 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 worth relative to other people. Holders of the currency (and notably citizens with little alternative) bear the cost.

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

Even though senders of traditional electronic payments his explanation are often identified (for verification purposes, and to abide by anti-money laundering and other legislation), users of bitcoin in theory operate in semi-anonymity. Since there's absolutely no central validator, users try this site 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 gets the necessary bitcoin as well as the authority to send them.

In practice, each user is identified with the address of his or her wallet. Transactions can, with some effort, be monitored this way. Also, law enforcement has developed methods to identify consumers if necessary.

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

This is because there's absolutely no central adjudicator that can say okay, return the money. When a transaction is recorded on the network, and when greater than an hour has passed, then it's impossible to modify.

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 referred to as a satoshi. It's one hundred millionth of a bitcoin (0.00000001) at todays prices, about 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 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 how 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.