Bitcoin (sometimes known by its generally accepted ticker BTC) is an online payment system launched as on open source software in 2009. Its creator, whose identify to day remains unknown, goes by the name Satoshi Nakamoto. Nakamoto published a paper describing his or her creation entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” in 2008.
In many ways it functions as a currency, whereby one party can send a unit of currency to another party in exchange for a good or service. As such, bitcoin is often referred to as a “virtual currency” or “cryptocurrency.” All transfers of bitcoin are verified and then recorded on a public ledger known as the block chain.
Potential users can purchase bitcoin by using an online exchange. These exchanges act as either brokers or dealers in allowing users to convert a major currency such as the U.S. dollar into bitcoins. The first of these exchanges, Bitcoin Market, open in February 2010. Another exchange, MtGox, first launched in July of that same year.
Based on the dollar values at these exchanges, the market capitalization of bitcoin (the number of bitcoin in circulation multiplied by the market price in dollars) exceeded $1 million by October 2010. By March 2013, the market cap surpassed $1 billion. During that time, bitcoin had come to be accepted as payment by a variety of businesses and organizations, from Baidu in China to coffee shops in Palo Alto and antique shops in New Orleans. One writer for Forbes, Kashmir Hill, was actually able to live for a week in San Fransisco in May 2013 using nothing but bitcoin to make purchases (Hill 2013-2). In October and November 2013, interest in bitcoin in China surged, making BTC China, a Shanghai based bitcoin exchange, the largest in the world for a brief time (Hill 2013-3). The price of a bitcoin surged to over $1000 as many users in China begin to invest in bitcoin, but has since declined to the 200's.
One reason for the growth in bitcoin’s popularity (and notoriety) is the anonymity of its users. Although all transactions are recorded on a public ledger, only one’s public address is associated with the transfer’s one makes. One’s public address contains no identifying information in and of itself, and so as long as the public address is not associated with any dentity, transactions remain anonymous. This anonymity has made bitcoin the currency of choice for the so-called “darknet”--websites that sell illegal commodities such as drugs and weapons. One such notable website was “Silk Road,” which was shut down by the United States government in October 2013. Since its closure, a number of new websites have emerged to take its place and have adopted the model of using bitcoin as a medium between buyers and sellers.