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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 have bitcoin-the-token, a snippet of code which represents ownership of an electronic concept type of like a digital IOU. On the other hand, you have 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 through a central authority, such as a bank or payment gateway. It's made and held 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 strength category that shares some characteristics of traditional currencies, together with verification based on cryptography.
A pseudonymous software programmer 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, which may be transferred electronically in a secure, verifiable and immutable way.
Bitcoins most important feature is that it is decentralized. No single institution controls the bitcoin network. It's 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 who are uncomfortable with all the control that banks or government institutions have over their money. .
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Bitcoin solves the dual spending problem of electronic currencies (in which digital assets can readily 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 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 try to manipulate a currencys value relative to other people. Holders of the currency (and especially citizens with little alternative) bear the cost.
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Together with bitcoin, on the other hand, the supply is tightly controlled by the underlying algorithm. Even a small number of new bitcoins trickle every hour, and will continue to do so at a diminishing rate until a max of 21 million has been attained. This creates bitcoin more appealing as an asset in theory, if demand grows and the supply remains the same, the value will increase. .
While senders of traditional electronic payments are often identified (for verification purposes, and to abide by 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 themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender gets the necessary bitcoin in addition to the authority to send them.
In practice, every 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 approaches to identify consumers if necessary.
Additionally, most exchanges are required by law to perform identity checks on their customers before they're allowed to purchase or sell bitcoin, facilitating another way that bitcoin usage can be monitored. Since the network is transparent, the progress of a specific transaction is observable to all.
This is because there is no central adjudicator that can say ok, return the money. When a What Is Bitcoin Worth transaction is recorded on the network, and when more than an hour has passed, then it's impossible to change.
Even though this might disquiet some, it does 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 may conceivably enable microtransactions that traditional electronic money cannot.
Bitcoin is a digital currency, also known as a cryptocurrency. It had been invented in 2008 by an anonymous person or group named Satoshi Nakamoto.