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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 which represents ownership of an electronic 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's made 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 first example of what we today 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 proposed bitcoin in 2008, as an electronic payment method based on mathematical evidence. The idea was to generate a means of exchange, independent of any central power, which could 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, that 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 through 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 simplifies the dual spending problem of electronic currencies (in which digital assets can easily 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. 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 attempt to manipulate a currencys worth relative to others. Holders of this 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 every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached. This creates bitcoin web more appealing as an asset in theory, if demand grows and the distribution remains the same, the value will increase. .

While senders of traditional electronic payments are usually identified (for verification purposes, and to abide by anti-money laundering and other legislation), users of bitcoin in theory 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 submitted, the protocol assesses all previous transactions to confirm that the sender has the necessary bitcoin in addition to the ability 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 approaches to identify consumers if necessary.

Additionally, most exchanges are required by legislation to perform identity checks on their clients before they are allowed to buy or sell bitcoin, facilitating another way that bitcoin utilization 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 okay, return the money. If a transaction is listed on the network, and when greater than an hour has passed, then it is not possible to change.

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 called a satoshi. It is one hundred millionth of a bitcoin (0.00000001) in 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 how bitcoins are mined, what it can be utilized for, in addition to how you can buy, sell and save your bitcoin. We also 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 with an anonymous person or group named Satoshi Nakamoto.