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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 a digital concept sort of like a virtual 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 through 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 world, using free software.

It was the very first instance of what we today call cryptocurrencies, a growing strength category that shares some features 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 system based on mathematical proof. 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 manner.

Bitcoin can be used to pay for things electronically, if both parties are willing. In that sense, its similar to conventional dollars, euros, or yen, which are also traded digitally.

Bitcoins most important feature is it is decentralized. No single institution controls the bitcoin network. It is maintained by a group of volunteer coders, and run through an open network of committed 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 simplifies the dual spending issue of electronic currencies (in which digital assets can readily be copied 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. 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 worth relative to other people. Holders of the currency (and especially citizens with very little alternative) keep the cost.

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With bitcoin, on the other hand, the supply is closely 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 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 theory operate 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 checks all prior transactions to confirm that the sender has the necessary bitcoin as well as the ability try this to send them.

In practice, every user is identified by the address of their wallet. Transactions can, with some effort, be monitored this way. Additionally, law enforcement has developed methods to identify users if necessary.

Furthermore, most exchanges are required by legislation to perform identity checks on their clients before they're allowed to buy or sell bitcoin, facilitating another manner that bitcoin like it usage can be tracked. Since the network is transparent, the progress of a specific transaction is visible to all.

This is because there is no central adjudicator that can say okay, return the money. When a transaction is recorded on the network, and when more than an hour has passed, then it is not possible 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 may 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, in addition to how you can buy, sell and save your bitcoin. We also explain a few alternatives to bitcoin, as well as how its underlying technology the blockchain works. .

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