Bitcoin is a software-based online payment system described by Satoshi Nakamoto in 2008 and introduced as open-source software in 2009.

Payments are recorded in a public ledger using its own unit of account, which is also called bitcoin.

Payments work peer-to-peer without a central repository or single administrator, which has led the US Treasury to call bitcoin a decentralized virtual currency.

Although its status as a currency is disputed, media reports often refer to bitcoin as a cryptocurrency or digital currency.

Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. Called mining, individuals or companies engage in this activity in exchange for transaction fees and newly created bitcoins.

Besides mining, bitcoins can be obtained in exchange for fiat money, products, and services.

Users can send and receive bitcoins electronically for an optional transaction fee using wallet software on a personal computer, mobile device, or a web application.

Bitcoin as a form of payment for products and services has seen growth, and merchants have an incentive to accept the digital currency because fees are lower than the 2–3% typically imposed by credit card processors.The European Banking Authority has warned that bitcoin lacks consumer protections. Unlike credit cards, any fees are paid by the purchaser not the vendor. Bitcoins can be stolen and chargebacks are impossible.

As of July 2013 the commercial use of bitcoin was small compared to its use by speculators, which has contributed to price volatility.

 

Bitcoin has several important features that set it apart from normal fiat currencies.

 

1. It’s decentralized

 

The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.

 

2. It’s easy to set up

 

Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.

 

3. It’s anonymous

 

Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…

 

4. It’s completely transparent

 

…bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the block chain. The block chain tells all. If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours. There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.

 

5. Transaction fees are minimal

 

Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.

 

6. It’s fast

 

You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.

 

7. It’s non-repudiable

 

When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.