Bitcoin is a decentralized electronic currency system that is utilized through peer-to-peer networking. The network uses electronic signatures and other cryptographic proofs in order to conduct trades. Bitcoin has no centralized bank to make more bitcoin, so inflation can only take place through the process of mining. The exchange rate between bitcoin and conventional currencies have fluctuated a large amount due to the amount of bitcoin held by speculators and a fear of government regulation and the lack of liquidity in the market for exchanging bitcoin for various conventional currency.
The bitcoin system was defined in a 2008 paper and then implemented in a set of open-source software issued in January 2009 by Satoshi Nakamoto, although third-party reviewers have questioned whether this is a nom de plume for one individual or a collective group of people. All bitcoin transfers are recorded in a public ledger that uses cryptography to insure its autheticity and to prevent tampering. This ledger will grow very long as more bitcoin transactions occur, so the ledger is divided into block with the blocks linked together to form a block-chain. A large number of mathematical calculations are needed to maintain the block chain, so the bitcoin protocol provides a financial payment (in bitcoin) to the people who update the block-chain. The process of updating the block-chain in exchange for a set amount of bitcoin is called "bitcoin mining."
As with cash transactions, a bitcoin transaction is final and irrevocable. Although bitcoin transactions are linked to specific accounts, those accounts do not have to be identified with the real names of their owners. So, bitcoin provides its users with more privacy than comes with using credit cards or electronic bank transfers. However, the text Financial Cryptography and Data Security states that "Although the relation between Bitcoin accounts and civil identities of their owners is a priori unknown, Bitcoin transactions are not anonymous. A simple abstraction for Bitcoin is to think of it as a public distributed ledger that records all transactions between valid Bitcoin accounts." In addition, the transaction costs for bitcoin transfers is much lower than the typical transaction cost of credit card purchases.
Bitcoin is heavily supported by both libertarians and conservatives as an alternative form of currency against the U.S. Dollar, which, after President Nixon's executive order essentially eliminating the gold standard in 1971, has become less valuable and has less trust put into it. Despite support from many conservatives, on July 11th 2019 President Trump strongly criticized Bitcoin on Twitter, writing: "I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity". There are several bitcoin exchanges on the internet, which one could use to exchange currency or something else of value (i.e. gold or silver) and receive Bitcoins, or by letting one's computer's resources be used by a Bitcoin network, and receiving an amount of Bitcoins for that service (essentially "mining" Bitcoin). Several online stores currently accept Bitcoin, and even some real-life outlets accept the currency, such as an Italian restaurant in New York City.
Bitcoin has also been used to conduct criminal activity and black market by people seeking to evade the monitoring of large all-cash transactions. One academic study found that in 2012, 4.5% to 9% of all transactions of all bitcoin exchanges in the world were for drug trades on the drug market, Silk Road. After the FBI raided Silk Road, the price of bitcoin fell dramatically.
Seth Meyers noted on his Late Night program, "Wikipedia is now accepting donations using the online currency Bitcoin. So now you can support information you're not sure is true with currency you're not sure is money."
Although Bitcoin is the best known Cryptocurrency, there are others known as "alt-coins." These include:
- BlackCoin (Proof-of-Stake)
- LiteCoin (generally considered the best alternative)
- NXT (Proof-of-Stake)
- StorjCoin X
- What Is A Bitcoin And Is Bitcoin Money? (6 April 2014). Retrieved on 30 October 2014. “Bitcoin was introduced in January 2009 by someone named Satoshi Nakamoto. There has been much controversy since as to whether he is a real person, or a group of people, what his real name is and where he or they might live. There are reasons for this confusion. For example, the initial published research papers that the currency was founded upon have been analyzed and there seem to be some grammatical differences between the use of American and English English, leading some people to suggest that Satoshi Nakamoto is actually a collective name for more than one person.”
- Straus, Ryan (5 June 2013). The Last Straw for Bitcoin. American Banker. Retrieved on 30 October 2014. “Yet those dealing in bitcoins are now themselves considered financial institutions. To survive, these businesses will have to do more than "de-anonymize" their operations. They will also have to cope with the loss of Bitcoin's most fundamental characteristic: irrevocability.”
- Rainer Böhme, Michael Brenner, Tyler Moore and Matthew Smith (7 March 2014). Financial Cryptography and Data Security. Springer. ISBN 9783662447741. Retrieved on 30 October 2014.
- Christin, Nicolas. "Traveling the Silk Road: A Measurement Analysis of a Large Anonymous Online Marketplace", Carnegie Mellon INI/CyLab, pp. 8. Retrieved on August 25, 2014.
- http://www.thespec.com/living-story/4733681-tuesdayfile/ Retrieved August 8, 2014