Bitcoin (BTC) is really a new kind of digital currency-with cryptographic keys-that is decentralized to some network of computers used by users and miners around the globe and is not controlled by a single organization or government. It is the first digital cryptocurrency which has gained the public's attention and it is accepted with a growing variety of merchants. Like other currencies, users are able to use a digital currency to buy goods and services online as well as in some physical stores that accept it a kind of payment. Currency traders can also trade Bitcoins in Bitcoin exchanges.
There are many major differences between Bitcoin and traditional currencies (e.g. U.S. dollar):
Bitcoin does not have a centralized authority or clearing house (e.g. government, central bank, MasterCard or Visa network). The peer-to-peer payment network is managed by users and miners around the globe. The currency is anonymously transferred directly between users online without experiencing a clearing house. Which means transaction fees are much lower.
Bitcoin is created by way of a process called "Bitcoin mining". Miners around the world use mining software and computers to resolve complex bitcoin algorithms and also to approve Bitcoin transactions. They are graced with transaction fees and new Bitcoins generated from solving Bitcoin algorithms.
There can be a limited quantity of Bitcoins in circulation. According to Blockchain, there was about 12.A million in circulation by Dec. 20, 2013. The problem to mine Bitcoins (solve algorithms) becomes harder as increasing numbers of Bitcoins are generated, and also the maximum amount in circulation is capped at 21 million. The limit won't be reached until approximately the season 2140. As a result Bitcoins worth more as increasing numbers of people use them.
A public ledger called 'Blockchain' records all Bitcoin transactions and shows each Bitcoin owner's respective holdings. Everyone can connect to the public ledger to confirm transactions. This will make the digital currency more transparent and predictable. More importantly, the transparency prevents fraud and double spending of the same Bitcoins.
The digital currency can be acquired through Bitcoin mining or Bitcoin exchanges.
The digital currency is accepted by a limited number of merchants on the internet and in certain brick-and-mortar retailers.
Bitcoin wallets (much like PayPal accounts) are used for storing Bitcoins, private keys and public addresses as well as for anonymously transferring Bitcoins between users.
Bitcoins usually are not insured and aren't paid by government agencies. Hence, they can't be recovered if the secret keys are stolen by way of a hacker or lost to a failed hard disk drive, or as a result of closure of the Bitcoin exchange. When the secret keys are lost, the associated Bitcoins cannot be recovered and would be out of circulation. Visit this link to have an FAQ on Bitcoins.
I have faith that Bitcoin will grow in acceptance from the public because users usually stay anonymous while buying services and goods online, transactions fees are much lower than credit card payment networks; the general public ledger is obtainable by anyone, which you can use to stop fraud; the currency supply is capped at 21 million, and also the payment network is operated by users and miners instead of a central authority.