How Bitcoin WorksBitcoin has emerged as a digital currency that exists virtually. It is a “cryptocurrency” which uses cryptography to manage the creation of units, administer use and provide security. Bitcoins are “mined” by solving complex mathematical problems. Ownership of bitcoins is anonymous. Bitcoin is different than the currency we use in three fundamental ways.
- Bitcoin operates without a central authority (e.g., a central bank). The currency is managed by a peer-to-peer technology that is responsible for all functions, including issuance, transaction processing and verification.
- Unlike the national currencies, bitcoin exists primarily as a digital currency, though bitcoin can made available in physical form, if desired.
- The number of bitcoins is limited to 21 million. New bitcoins are created at a rate of 25 every 10 minutes (a rate which is reduced by 50% every four years).
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