Bitcoin is an open source peer-to-peer electronic money and payment network introduced in 2009 by pseudonymous developer "Satoshi Nakamoto".[7] Bitcoin has been called a cryptocurrency because it uses cryptography to secure transactions.[8][9] Digitally signed payment messages are broadcast to and verified by a decentralized network of computers all over the world.[10] 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.[11]
Bitcoins are stored by associating them with cryptographically generated addresses. These addresses may be stored on web services, on local hardware like PCs and mobile devices, or on paper print-outs. A collection of Bitcoin addresses is known as a wallet. Thefts of bitcoins from web services and online wallet services 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.[citation needed]
In 2012, The Economist reasoned that Bitcoin has been popular because of "its role in dodgy online markets",[12] 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).[13] 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.[14] Notable vendors include OkCupid, Reddit, WordPress, and Chinese Internet giant Baidu.[15]
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.[16]
