Bitcoin works because when it comes to keeping track of where the coins went or who has how many coins, you don't have to trust a person or a central entity to hold your coins. Your coins are yours. That is if you hold the private key to your Bitcoins.
People that use exchanges to buy Bitcoin are keeping their coins on these exchanges. But, leaving your coins on an exchange does not mean those coins are yours. You simply trust the exchange to give them to you if you request it. But that can be a problem as these exchanges can be hacked.
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While some cryptocurrencies, including Bitcoin, are available for purchase with U.S. dollars, others require that you pay with bitcoins or another cryptocurrency.
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