Bitcoin is a digital currency that operates independently—the currency that has no central bank.
As such, bitcoin is a truly supranational means of exchange. Encryption techniques regulate the generation of units of currency and verify the transfer of funds. Bitcoin has no central authority and operates on a peer-to-peer basis on the Internet. Bitcoin is a consensus network that enables a novel payment system. The concept was born in 2007. Satoshi Nakamoto developed bitcoin. Nakamoto may be an individual or a collective pseudonym for more than one person; no one knows for sure.
As a digital currency, bitcoins can be stored in a digital wallet on their owner’s computer. Bitcoins can also be stored on removable media such as USB flash drives or CD-Rs. Another method of storing bitcoins is to keep them at a third party website that allows deposits and withdrawals of balances. These websites act as exchanges. Holding bitcoins on an exchange creates a risk in that the owner of the bitcoins depends on the exchange to return their digital currency, which is after all just data.
Bitcoins can also be stored in paper wallets or bitcoin bankcards, which contain codes representing those bitcoins. Finally, bitcoins can be stored on bearer items such as Bitbills or physical coins. Mostly limited-edition novelty items, the coins contain the private key in their physical design.
A little price history
It has been a rocky road for bitcoin since its birth in 2007, but interest in the digital currency continues to grow. In February 2010, the U.S. dollar/bitcoin exchange rate was less than $0.01. As bitcoin grew in popularity, the value grew to highs of over $1,000 per bitcoin in 2013. Many businesses around the world began accepting bitcoin and many governments began to investigate its potential.
The shutdown of a major bitcoin exchange, MTGOX in early 2014 caused the value of bitcoins to plunge. Many who had bitcoins at MTGOX lost their holdings. Most recently, the U.S. dollar exchange rate for bitcoin stood at around $243. Bitcoin has a volatile price history making it an interesting vehicle from a trading perspective.