Bitcoin is a digital currency (also called crypto-
currency) that is not backed by any country's
central bank or government. Bitcoins can be
traded for goods or services with vendors who
accept Bitcoins as payment.
Bitcoin-to-Bitcoin transactions are made by
digitally exchanging anonymous, heavily encrypted
hash codes across a peer-to-peer (P2P ) network.
The P2P network monitors and verifies the transfer
of Bitcoins between users. Each user's Bitcoins are
stored in a program called a digital wallet , which
also holds each address the user sends and
receives Bitcoins from, as well as a private key
known only to the user.
The Bitcoin network is designed to mathematically
generate no more than 21 million Bitcoins and the
network is set up to regulate itself to deal with
inflation. Bitcoins can be spent by initiating a
transfer request from a Bitcoin address in the
customer's wallet to a Bitcoin address in the
vendor's wallet. As of this writing, one Bitcoin
(also called a BTC) is worth $104 -- but just as
with stocks, the value of Bitcoins can fluctuate
quickly.
In the United States, Bitcoins are controversial
because they can be used to anonymously transfer
illicit funds or hide unreported income from the
Internal Revenue Service (IRS). Bitcoin policy now
requires transactions that involve traditional,
government-backed currencies to be attached to
an identity.