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  1. What Is
May 23, 2016updated 07 Feb 2017 3:45pm

What is Bitcoin?

The open source, peer-to-peer digital currency is far removed from traditional banking - so what exactly is bitcoin and how do you use it?

By Ellie Burns

Bitcoin is a type of digital currency, most commonly defined as a virtual, digital or crypto- currency.

Bitcoin was invented by Satoshi Nakamoto, who published the payment system in a whitepaper in 2008. Released as open-source software in 2009, the bitcoin system is peer-to-peer which means that transactions take place without the need for a third-party. These transactions or payments are then recorded in a public distributed ledger called the blockchain, which uses bitcoin as its unit of account.

The blockchain is the backbone of bitcoin, serving as a financial ledger without any trusted central authority – this means that it is decentralized and no single person or institution owns the currency.

With every new transaction, recordings are added as ‘blocks’, which each block added in a linear, chronological order. Described in simple traditional banking terms – the blockchain is the full history of banking transactions, while the blocks are like individual bank statements. Bitcoins do not physically exist, instead there are only these records of transactions and balances.

The unit of currency in the bitcoin system is, simply, bitcoin. There are three symbols used to express bitcoin – BTC, XBT and ?. Bitcoins can be split down into alternative units such as millibitcoin (mBTC), microbitcoin (µBTC) and satoshi. Satoshi, named in honour of the bitcoin founder, is one hundred millionth of a bitcoin – the smallest amount possible.

You can acquire bitcoins as payment for a service or goods or through purchase at bitcoin exchanges.

Bitcoins, however, can be created by anyone – all you have to do is help process payments into the distributed ledger. By offering your own compute power to verify and record payments, bitcoins are created as a reward or payment for your services. This activity is widely known as bitcoin mining.

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