Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system.
Bitcoin is an open source peer-to-peer payment network and digital currency introduced in 2009 by pseudonymous developer "Satoshi Nakamoto". Bitcoin has been called a cryptocurrency because it uses cryptography to secure funds. Transactions transfer bitcoins, the unit of currency, between Bitcoin addresses derived from cryptographic public keys. To spend the funds associated with an address, a user must broadcast a payment message digitally signed with the associated private key. Transactions are verified by a decentralized network of computers all over the world. Specialized computers use a proof-of-work system to prevent people from copying and spending the same bitcoin multiple times, a problem for digital currencies known as double-spending. The operators of these computers, known as "miners", are rewarded with transaction fees and newly minted bitcoins.
A collection of addresses and their associated private keys is known as a wallet. These may be stored online on the web, on local hardware (like a personal computer or mobile device), or on paper print-outs. Thefts of bitcoins from online wallets have been covered in the media, prompting assertions that the safest way to store bitcoins is in a paper wallet generated by the owner on an uncompromised computer.
In 2012, The Economist reasoned that Bitcoin has been popular because of "its role in dodgy online markets", and in 2013 the FBI shut down one such service, Silk Road, which specialized in illegal drugs (whereupon the FBI took control of approximately 1.5% of all bitcoins in circulation). However, Bitcoins are increasingly used as payment for legitimate products and services, and merchants have an incentive to accept the currency because transaction fees are lower than the 2 to 3% typically imposed by credit card processors. Notable vendors include OkCupid, Reddit, WordPress, and Chinese Internet giant Baidu.
Speculators have been attracted to Bitcoin, fueling volatility and price swings. As of November 2013, the use of Bitcoin in the retail and commercial marketplace is relatively small compared with a relatively large use by speculators.