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What is Bitcoin?

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To deal with the rumors around bitcoin, we must divide it into two components. On the one hand there is bitcoin – a token, a piece of code representing the property of a digital concept – something like a virtual debenture script. On the other hand, there is bitcoin – a protocol, a distributed network that maintains a bitcoin balance sheet – token. Both are referred to as „bitcoins”.

The system makes it possible to transfer payments between users without having to go through a central authority, such as a bank or payment gateway. It has been created and is stored in electronic form. Bitcoins are not printed like the dollar or euro – they are produced by computers around the world, using free software.

This was the first example of what we now call cryptocurrencies, a growing asset class that has some features of traditional currencies, with cryptography-based verification.

Who created it?

A pseudonymous programmer named Satoshi Nakamoto proposed Bitcoin in 2008 as an electronic payment system based on mathematical proof. The idea was to create a medium of exchange independent of the central authority that could be transmitted electronically in a secure, controlled and unchangeable manner.

To this day no one knows who Satoshi Nakamoto really is.

How is it different from traditional currencies?

Bitcoin can be used to pay for items electronically, if both parties agree. In this sense, it is like conventional dollars, euros or yen, which are also the subject of digital commerce.

But it differs from finducjarnych digital currencies in several important aspects:

1 – Decentralization
The most important feature of Bitcoin is that it is decentralized. No institution controls the Bitcoin network. It is supported by a group of volunteer coders and is supported by an open network of designated computers scattered around the world. This attracts people and organizations which feel uncomfortable with the control banks or government institutions have over their money.

Bitcoin solves the problem of „double issue” of electronic currencies (in which digital resources can be easily copied and reused) through the ingenious combination of cryptography and economic incentives. In the electronic fiat currencies, these functions are performed by the banks, which gives them control over the traditional system. Bitcoin ensures the integrity of transactions through a distributed and widely available network that does not belong to anyone.

2 – Limited supply

Fiat currencies (dollars, euros, yen, etc.) They have unlimited supply – central banks can spend as much as they want, and can try to manipulate the value of the currency in relation to other currencies. Currency holders (especially citizens with a small alternative) incur costs.

In the case of bitcoin, the supply is strictly controlled by the base algorithm. A small number of new bitcoins appear every hour and will continue to appear with a downward trend until it reaches a maximum of 21 million. This makes bitcoin a theoretically more attractive asset. If the demand increases and the supply stays the same, the value will increase.

3 – Pseudoanonymity

While users of traditional electronic payments are usually identified (for verification purposes and due to compliance with anti-money laundering regulations and other regulations), bitcoin users theoretically act in an anonymous manner. Because there is no central „validator”, users do not need to identify themselves when sending bitcoin to another user. After submitting the transaction request, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin, as well as the right to send them. The system does not need to know the identity of the sender.

In practice, each user is identified by the address of his portfolio. You can try to track transactions in this way. In addition, if necessary, law enforcement agencies have developed methods to identify users.

What’s more, most stock exchanges are legally required to carry out identity checks on their clients before they can buy or sell Bitcoin, providing another way to track and use Bitcoin. Because the network is transparent, the progress of the transaction is visible to everyone.

This makes bitcoin not an ideal currency for criminals, terrorists and money launderers.

4 – Invariability

Bitcoin transactions can not be reversed, unlike electronic transactions.

This is because there is no central „arbitrator” who could say „well, pay back the money”. If the transaction is registered in the network and it has been over an hour, it can not be changed.

While this may bother some, this means that you can not change any transaction in the Bitcoin network.

5 – Divisibility

The smallest bitcoin unit is called satoshi. It is a hundred millionth part of Bitcoin (0.00000001) – according to today’s prices, about one hundredth of a cent. Thanks to this, micropayments that traditional electronic money can not afford could become possible.

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