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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 type of like a virtual IOU. On the other hand, you have 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's created and kept electronically. Bitcoins arent printed, for example 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 characteristics of traditional currencies, together with verification based on cryptography.

A pseudonymous software developer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, within an electronic payment system based on mathematical evidence. The idea was to generate a means of exchange, independent of any central authority, which could 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 like 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 is maintained by a group of volunteer coders, and run by an open network of committed servers spread around the globe. This brings 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 double spending problem of electronic currencies (in which digital assets can readily be replicated 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 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 this currency (and especially citizens with little alternative) keep the price.

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With bitcoin, on the other hand, the supply is closely 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 attained. This makes bitcoin more appealing as an advantage in theory, 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 abide by anti-money laundering and other legislation), users of bitcoin in concept operate 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 filed, the protocol checks all prior 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 his or her pocket. Transactions can, with a little effort, be monitored this way. Additionally, law enforcement has developed methods to identify consumers if necessary.

Furthermore, most exchanges are required by legislation to perform identity checks on their customers before they're allowed to purchase or sell bitcoin, facilitating another manner that bitcoin utilization can be monitored. Since the network is transparent, the progress of a particular transaction is visible to all.

This is because there is no central adjudicator that can say ok, return the money. When a transaction is recorded on the network, and when more than an hour has passed, it is not possible to change.

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 more helpful hints as a satoshi. It's one hundred millionth of a bitcoin (0.00000001) at 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 the way bitcoins are mined, what it can be utilized for, in addition to how you can purchase, sell and store your bitcoin. We also explain a few alternatives to bitcoin, as well as how its underlying technology the blockchain functions. .

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