To cut through some of the confusion surrounding bitcoin, we will need to separate it into two components. On the 1 hand, you have bitcoin-the-token, a snippet of code that represents ownership of a digital theory -- 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. Both are referred to as"bitcoin." You need to know that what is free bitcoin mining exactly work.

The system enables payments to be sent between users without passing via a central authority, such as a lender or payment gateway. It's created and held electronically. Bitcoins are not published, like dollars or euros -- they're produced by computers all around the planet, using free software.

It was the first instance of what we today call cryptocurrencies, an increasing asset class that shares some features of traditional currencies, with verification based on cryptography.

A pseudonymous software developer going by the title of Satoshi Nakamoto proposed bitcoin from 2008, as an electronic payment system based on mathematical proof. The idea was to produce a way of exchange, independent of any central power, that could be moved electronically in a secure, verifiable and immutable way.

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

Bitcoin can be utilized to pay for things electronically if both parties are prepared. In that sense, it is like traditional dollars, euros, or yen, that are also traded digitally.

But it is different from fiat digital monies in Many important ways:

Bitcoin's most important characteristic is that it's decentralized. No single institution controls the bitcoin network. It is maintained by a group of volunteer coders and operate through an open network of dedicated computers spread around the world. This brings individuals and groups that are uncomfortable with the management that banks or government associations have over their money.

Bitcoin simplifies the"double spending problem" of electronic currencies (where digital assets can easily be replicated and re-used) through an innovative mix of cryptography and economic incentives. In electronic fiat monies, this purpose is fulfilled by banks, which gives them control over the traditional system. With bitcoin, the ethics of these trades is maintained by a distributed and open community, owned by no-one.

Fiat currencies (dollars, euros, yen, etc.) have an infinite supply -- central banks can issue as many as they want, and may attempt to manipulate a currency's value relative to others. Holders of the money (and especially citizens with very little alternative) bear the price tag.

With bitcoin, on the flip side, the supply is closely controlled by the underlying algorithm. A few fresh bitcoins trickle out every hour and will continue to do so at a decreasing rate until a max of 21 million has been attained. 

This makes bitcoin more attractive as an asset -- in concept if demand grows as well as the supply is still the same, the value will increase.

While senders of conventional electronic payments are often identified (for verification purposes, and also to abide by anti-money laundering and other laws ), users of bitcoin, in theory, operate in semi-anonymity. Since there is absolutely no fundamental"validator," consumers do not need to identify themselves when sending bitcoin to some other user. When a trade request is submitted, the protocol checks all previous trades to verify that the sender gets the necessary bitcoin in addition to the ability to ship them. The machine doesn't have to know their individuality.

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

Additionally, most trades are required by legislation to perform identity checks on their clients before they are permitted to buy or sell bitcoin, facilitating another manner that bitcoin usage can be monitored. Since the network is transparent, the progress of a specific trade is observable to all.

This makes bitcoin not an perfect currency for criminals, terrorists or even money-launderers.

This is because there's absolutely no fundamental"adjudicator" that may say"ok, return the cash ." If a trade is recorded on the community, and if more than an hour has passed, it's impossible to modify.

While this may disquiet a few, it will mean that any transaction on the bitcoin system can't be tampered with.

It is one hundred millionth of a bitcoin (0.00000001) -- in today's prices, roughly one-hundredth of a cent. This could conceivably enable micro transactions that traditional digital money cannot.