Bitcoin is a peer-to-peer payment system. Introduced as open source software in 2009, it is referred to as a cryptocurrency because cryptography is used to control its creation and transfer.[4] Because the Bitcoin system is not controlled by a single repository, like a central bank, the US Treasury refers to bitcoin as a decentralized virtual currency.[5] Conventionally, the capitalized word "Bitcoin" refers to the technology and network, whereas lowercase "bitcoin" refers to the currency itself.[6]
Bitcoins are created by a process called mining, in which computer network participants, i.e. users who provide their computing power, verify and record payments into a public ledger in exchange for transaction fees and newly minted bitcoins.[7] Users send and receive bitcoins using wallet software on a personal computer, mobile device, or a web application. Bitcoins can be obtained by mining or in exchange for products, services, or other currencies.[8]
Bitcoin has been a subject of scrutiny amid concerns that it can be used for illegal activities.[9][10] In October 2013 the US FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million at the time.[11] The US is considered Bitcoin-friendly compared to other governments.[12] In China new rules restrict bitcoin exchange for local currency.[13] The European Banking Authority has warned that Bitcoin lacks consumer protections.[14] Bitcoins can be stolen and chargebacks are impossible.[15] In 2014 the US IRS ruled that the bitcoin should be treated as property rather than currency.
Commercial use of Bitcoin, illicit or otherwise, is currently small compared to its use by speculators, which has fueled price volatility.[16] Bitcoin as a form of payment for products and services has seen growth, and merchants have an incentive to accept the currency because transaction fees are lower than the 2–3% typically imposed by credit card processors.[17] The biggest transaction ever using Bitcoin was payment for buying a villa in Bali, worth over $500,000.[18]
