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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 that represents ownership of an electronic concept kind of like a virtual IOU. On the other hand, you have bitcoin-the-protocol, a distributed 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, like a bank or payment gateway. It's made and held electronically. Bitcoins arent printed, for example dollars or euros theyre made by computers all around the world, using free software.

It was the very first instance of what we call cryptocurrencies, a growing strength class that shares some features of traditional currencies, with verification based on cryptography.

A pseudonymous software developer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, as an electronic payment method based on mathematical proof. 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.

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

Bitcoins most important characteristic 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 committed servers spread around the world. This brings individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. .

Bitcoin simplifies the dual spending problem of electronic currencies (in which electronic assets can easily 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. Together with bitcoin, the integrity of the 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 value 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 supply is tightly controlled by the underlying algorithm. 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 makes bitcoin more attractive as an asset in theory, if demand grows and the distribution remains the same, the value will increase. .

Even though senders of traditional electronic payments are often identified (for verification purposes, and to comply with anti-money laundering and other legislation), users of bitcoin in concept 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 previous transactions to confirm that the sender has the necessary bitcoin in addition to the authority to send them.

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

Additionally, most exchanges are required by law that site to perform identity checks on their customers before they are permitted to purchase or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the progress of a specific transaction is visible to all.

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This is because there's no central adjudicator that can say the original source 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 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's 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 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 store your bitcoin. We also explain a few alternatives to bitcoin, as well as how its underlying technology the blockchain works. .

If you want to know what is Bitcoin, the way you can get it and how it can help you, without floundering into technical details, this guide is for you. It'll explain how the system works, how you can use it for your gain, which scams to avoid. It is going to also guide you to resources which will help you shop and use your very first pieces of digital currency.

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