Bitcoin is an open source cryptocurrency that utilizes a peer-to-peer payment network to allow digital transactions to take place in a more secure and private way than traditional currencies backed by governmental entities. Bitcoin was originally introduced in 2009 by pseudonymous developer “Satoshi Nakamoto” and its actual origins remain largely unknown as the founder and users of Bitcoin put a premium on privacy.
Bitcoin is often called a cryptocurrency because of its reliance on public-key cryptography as the primary security measure with buyers and sellers sending payments by broadcasting a digitally signed message that effectively transfers ownership of Bitcoins without the use of any central controlling authority providing regulatory oversight.
A redundant decentralized network of computers verifies and timestamps each transactions using a proof-of-work system and the operators of these customized computers are known as “miners” who earn newly minted Bitcoins as a reward for providing computing power to the network.
Much more volatile than most traditional currencies or financial instruments, Bitcoin has been widely criticized for providing illegal activities a digital means of conducting illicit business online. However Bitcoins persist as a viable alternative currency because they provide more security than paper notes and an element of privacy. The risk of theft can be mitigated by generating and storing keys offline. Also merchants have an incentive to accept the currency because transaction fees are lower than the 2-3% typically charged by credit card processors.
The Chinese government recently prohibited Chinese banks from using Bitcoin or for Bitcoins to be used as legal tender currency in China. Online the Bitcoin continues to gain popularity and is already in use as a payment option on high traffic E-commerce sites including OkCupid, Reddit, WordPress, and Virgin Galactic.