How exactly to categorize Bitcoin is a matter of controversy. Is it a type of currency, a store of value, a payment network or an asset class?
Fortunately, it's easier to define what Bitcoin actually is. It's software. Don't be fooled by stock images of shiny coins emblazoned with modified Thai baht symbols. Bitcoin is a purely digital phenomenon, a set of protocols and processes.
It also is the most successful of hundreds of attempts to create virtual money through the use of cryptography, the science of making and breaking codes. Bitcoin has inspired hundreds of imitators, but it remains the largest cryptocurrency by market capitalization, a distinction it has held throughout its decade-plus history.
(A general note: according to the Bitcoin Foundation, the word "Bitcoin" is capitalized when it refers to the cryptocurrency as an entity, and it is given as "bitcoin" when it refers to a quantity of the currency or the units themselves. Bitcoin is also abbreviated as "BTC." Throughout this article, we will alternate between these usages.)
KEY TAKEAWAYS
- Bitcoin is a digital currency, a decentralized system which records transactions in a distributed ledger called a blockchain.
- Bitcoin miners run complex computer rigs to solve complicated puzzles in an effort to confirm groups of transactions called blocks; upon success, these blocks are added to the blockchain record and the miners are rewarded with a small number of bitcoins.
- Other participants in the Bitcoin market can buy or sell tokens through cryptocurrency exchanges or peer-to-peer.
- The Bitcoin ledger is protected against fraud via a trustless system; Bitcoin exchanges also work to defend themselves against potential theft, but high-profile thefts have occurred.
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