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what is bitcoin

WHAT IS BITCOIN – THE BASICS

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WHAT IS BITCOIN - THE BASICS

Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto, who published the invention in 2008 and released it as open-source software in 2009.

The system is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain, which uses bitcoin as its unit of account. Since the system works without a central repository or single administrator, the U.S. Treasury categorizes bitcoin as a decentralized virtual currency. Bitcoin is often called the first cryptocurrency, although prior systems existed and it is more correctly described as the first decentralized digital currency. Bitcoin is the largest of its kind in terms of total market value.

Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into a public ledger. This activity is called mining and miners are rewarded with transaction fees and newly created bitcoins. Besides being obtained by mining, bitcoins can be exchanged for other currencies, products, and services.

In February 2015, the number of merchants accepting bitcoin for products and services passed 100,000. Instead of 2–3% fee typically imposed by credit card processors, merchants accepting bitcoins often pay fees in the range from 0% to less than 2%. The European Banking Authority and other sources have warned that bitcoin users are not protected by chargebacks. Countries such as the United States also recognize that bitcoin can provide legitimate financial services.

 

Funds are not tied to real-world!

Bitcoin is a pseudonymous currency, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified, but all transactions on the block chain are public. In addition, transactions can be linked to individuals and companies through "idioms of use" (e.g., transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses. Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information.

To heighten financial privacy, a new bitcoin address can be generated for each transaction. For example, hierarchical deterministic wallets generate pseudorandom "rolling addresses" for every transaction from a single seed, while only requiring a single passphrase to be remembered to recover all corresponding private keys. Additionally, "mixing" services aggregate multiple users coins and output them to fresh addresses to increase privacy. Researchers at Stanford University and Concordia University have also shown that bitcoin exchanges and other entities can prove assets, liabilities, and solvency without revealing their addresses using zero-knowledge proofs.

Overall, without additional privacy-preserving measures, it has been suggested that bitcoin payments should not be considered more private than credit card payments.

blockchain

WHAT IS BLOCKCHAIN?

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WHAT IS BLOCKCHAIN?

The block chain is a public ledger that records bitcoin transactions.

A novel solution accomplishes this without any trusted central authority: maintenance of the block chain is performed by a network of communicating nodes running bitcoin software. Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications.

Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The block chain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin (amount), each network node stores its own copy of the block chain.

Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the block chain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight.

Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the block chain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.

digital

WHAT IS AN EXCHANGE?

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WHAT IS AN EXCHANGE?

Digital currency exchangers (DCEs) or bitcoin exchanges are businesses that allow customers to trade digital currencies for other assets, such as conventional fiat money, or different digital currencies.

Exchangers are one of the key aspects for the operation of crypto currency. It is what lets you exchange electronic currencies for money and vice versa.

They are in every continent, country and city around the world, various types of exchangers. At some you can link your bank account to receive fiat currencies in exchange of your electronic currencies, some makes possible to have a MasterCard or Visa card which allows the automatic withdrawal at all ATM machines around the world where Visa or MasterCard is accepted

The Exchange receives your virtual currency, validate the transaction and exchange it for real money.

The Exchange is like your virtual Banking.

exchanges_example