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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 that represents ownership of a digital concept kind of like a digital 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 via a central authority, such as a bank or payment gateway. It is created and kept electronically. Bitcoins arent printed, like 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 asset class which shares some characteristics of traditional currencies, 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 produce a means of exchange, independent of any central authority, that could be transferred electronically in a secure, verifiable and immutable way.

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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 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 by an open network of dedicated computers spread around the world. This brings individuals and groups who are uncomfortable with all the control that banks or government institutions have over their money. .

Bitcoin solves the double spending issue of electronic currencies (in which digital assets can easily 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. 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 value relative to others. Holders of the currency (and especially citizens with little alternative) bear the cost.

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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 hourand will continue to do so at a diminishing rate until a max 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. .

Even though 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 submitted, 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, each user is identified by the address of his or her pocket. Transactions can, with a little effort, be tracked 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 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 is no central adjudicator that can say ok, return the money. When a transaction is listed on the network, and when greater than an hour has passed, it is impossible to modify.

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 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 more to find out how bitcoin transactions over at this website are processed and how bitcoins are mined, what it can be used for, as well as how you can buy, sell and store your bitcoin. In addition, we explain a few alternatives to bitcoin, as well as how its underlying technology the blockchain works. .

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

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