Bitcoin is both a currency (monetary system) and a software program. Introduced in 2009 as open-source software, Bitcoin is the first decentralized digital currency. It is decentralized in the sense that is has no regulatory authority such as a central bank. Also, it is not backed by any tangible goods or precious metals like gold. The overall value of the system is based on its complicated technology and the ability of users to understand and secure it. The author of the software is unknown, although many believe that its creator is someone with the pseudonym Satoshi Nakamoto.
The term Bitcoin is used to describe the system as well as individual units (bitcoins). It is a global currency that can be used to pay for goods and services. The total value of the system is fixed at $21 million. The price of a bitcoin can fluctuate unpredictably. On March 2, 2017 the price of a bitcoin reached $1,268, the first time it surpassed a troy ounce of gold. Bitcoin prices are mainly set in China, where much of the trading takes place.
The technology behind Bitcoin is based on a system of peer-to-peer linked computers with software employing cryptographic techniques. Transactions are recorded in a public ledger using blockchain technology. The process by which users keep the network secure by verifying transactions is called mining. “Miners” are rewarded with bitcoins for their work.
Bitcoin purchases have a high but not total degree of anonymity. Although bitcoins can be used to purchase legitimate items or services, law enforcement agencies have linked bitcoin transactions to illegal activities.
Bitcoin is attractive to some retailers because of its low transaction fees, and it is accepted by an increasing number of merchants.
The success of Bitcoin technology has spurred the creation of other cryptocurrencies (digital currencies), such as Potcoin, which is used in the cannabis industry.
Further Reading
- *Bitcoin article on Financial Times.
*A Library card login is needed to read this article.