Bitcoin is an experimental new digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin is a decentralized digital currency created by developer Satoshi Nakamoto. It does not rely on a central server to process transactions or store funds. There are a maximum of 2,100,000,000,000,000 Bitcoin elements (called satoshis), currently most commonly measured in units of 100,000,000 known as BTC.
The block chain is a transaction database shared by all nodes participating in a system based on the Bitcoin protocol. A full copy of a currency’s block chain contains every transaction ever executed in the currency. With this information, one can find out how much value belonged to each address at any point in history.
Bitcoin uses peer-to-peer technology to operate with no central authority: managing transactions and issuing money are carried out collectively by the network(pdf). Bitcoin is also the name of the open source software which enables the use of this currency.
Bitcoin is one of the first implementations of a concept called crypto-currency, which was first described in 1998 by Wei Dai on the cypherpunks mailing list. Building upon the notion that money is any object, or any sort of record, accepted as payment for goods and services and repayment of debts in a given country or socio-economic context, Bitcoin is designed around the idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities.
- Bitcoins can be transferred between arbitrary nodes on the network.
- Transactions are irreversible.
- Double spending is prevented by using a block chain.
- Transactions are broadcasted within seconds and verified within 10 to 60 minutes.
- Transactions can be received at any time regardless of whether your computer is turned on or off.
These rules are enforced collectively by the network. While they will not change for Bitcoin, other digital currencies using Bitcoin’s technology may change them to suit their needs.
- Hard limit of about 21 million Bitcoins.
- Bitcoins are divisible to 8 decimal places yielding a total of approx. 21×1014 currency units.
- Transactions are cheap, and mostly free (Transaction fees).
Features of the Bitcoin network
The network has been running for more than 45 months yielding to some impressive security features.
- Long block chain (more than 210.800 blocks on 28-11-2012) with lots of processing power securing transactions.
- Only one major incident (fixed in August 2010).
- A lot of processing power securing transactions – estimated at over 25 terahashes/s.
- Over $1 million USD of daily trade volume distributed across 40,000 transactions.
- Total value of all Bitcoins in circulation is over $999 Million at the moment.
How divisible are bitcoins?
A bitcoin can be divided down to 8 decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be handled in a transaction. If necessary, the protocol and related software can be modified to handle even smaller amounts.
What do I call the various denominations of bitcoin?
There is a lot of discussion about the naming of these fractions of bitcoins. The leading candidates are:
- 1 BTC = 1 bitcoin
- 0.01 BTC = 1 cBTC = 1 centibitcoin (also referred to as bitcent)
- 0.001 BTC = 1 mBTC = 1 millibitcoin (also referred to as mbit (pronounced em-bit) or millibit/bitmill)
- 0.000 001 BTC = 1 μBTC = 1 microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)
The above follows the accepted international SI prefixes for hundredths, thousandths, and millionths. There are many arguments against the special case of 0.01 BTC since it is unlikely to represent anything meaningful as the Bitcoin economy grows (it certainly won’t be the equivalent of 0.01 USD, GBP or EUR). Equally, the inclusion of existing national currency denominations such as “cent”, “nickel”, “dime”, “pence”, “pound”, “kopek” and so on are to be discouraged; this is a worldwide currency.
One exception is the “satoshi” which is smallest denomination currently possible:
0.000 000 01 BTC = 1 satoshi (pronounced sa-toh-shee)
which is so named in honour of Satoshi Nakamoto, the pseudonym of the inventor of Bitcoin.
For an overview of all defined units of Bitcoin (including less common and niche units), see Units.