Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.

Creation of Bitcoin

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. Bitcoin can also be held as an investment. Bitcoin has been a subject of scrutiny amid concerns that it can be used for illegal activities. Bitcoin (uppercase) is different from Bitcoin (lowercase). Bitcoin is capitalized in this guide when referring to the entity or concept, Bitcoin is not capitalized when referring to the unit of account. Bitcoin should be treated as a commodity by those with assets related to Bitcoin, and by extension, Bitcoin transactions are taxed similarly to all other commodities. For more information visit https://the-bitcoinmotion.com/.

Bitcoin was invented after decades of research into cryptography by Satoshi Nakamoto (real name unknown), who published the invention in 2008 and released it as open-source software in 2009. Bitcoin uses SHA-256, which although designed by the U.S National Security Agency, is now thought to be effectively computationally secure. Bitcoin's design allows for anonymous ownership and transfers. Bitcoin uses the Proof of Work (POW) system to ensure that blocks cannot be changed once written, though writing can still occur under exceptional circumstances. Bitcoin does not have a centralized authority or clearinghouse, so it is more resistant to wild inflation and corrupt banks.

Basics of Bitcoin

Bitcoin was released as open-source software in 2009 with issuance halving every four years until the completion of Bitcoin's initial coin distribution phase when issuance will cease. Bitcoin can also be seen on Blockchain Statistics.

The first Bitcoin specification and proof of concept were published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The Bitcoin community has since grown exponentially with many developers working on Bitcoin. Bitcoin shows up in a Google search as the most referenced cryptocurrency and is currently the largest in terms of market capitalization (over 11B USD) and also in terms of mining power with more than 70% of the mining power (see Mining ). Bitcoin's value has increased ten-fold in 2012 and again by another ten-fold in 2013. Bitcoin was designed to appreciate in value like gold and other non-fiat currencies, but instead, it has experienced its highest level of volatility when compared against any other currency or commodity. Bitcoin's volatility increases over time due to the fact that there is an estimated finite supply, increasing usage by merchants, and greater awareness.

Independent from Central Authorities

Bitcoin has no central issuer; instead, the peer-to-peer network regulates Bitcoins, resolving discrepancies by reaching consensus on the historical blockchain. Bitcoin uses public-key cryptography to implement a decentralized signature and proof of ownership system which allows Bitcoin nodes to reach an agreement about Bitcoin transactions. The Bitcoin network is resistant to government regulation, censorship, or interference by any third party. 

The issuance of Bitcoin is fixed per block and new coins are created at a fixed rate. These traits are what makes Bitcoin different from fiat money such as the U.S dollar. In contrast to fiat money, since it is a fully self-contained system, Bitcoins can be stored offline for safety and securely transferred worldwide at a low cost almost instantly (for very large sums some security measures may be involved) with no third parties required to verify the transaction except for Bitcoin users themselves.

Open-Source Currency

Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Bitcoin issuance and transactions are carried out collectively by the Bitcoin network. Bitcoin software ensures that all rules of Bitcoin are fully enforced by every user. While developers are improving the software they cannot force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.