Bitcoin is a peer-to-peer payment system and digital currency introduced as open source software in 2009 by pseudonymous developer Satoshi Nakamoto. It is a cryptocurrency, so-called because it uses cryptography to control the creation and transfer of money.[5] Users send payments by broadcasting digitally signed messages to the network. Participants known as miners verify and timestamp transactions into a shared public database called the block chain, for which they are rewarded with transaction fees and newly minted bitcoins.[6] Conventionally "Bitcoin" capitalized refers to the technology and network whereas "bitcoins" lowercase refers to the currency itself.[7]
Bitcoin has been a subject of scrutiny due to ties with illicit activity. In 2013 the FBI shut down the Silk Road online black market and seized 144,000 bitcoins, US$28.5 million at the time.[8] The United States, however, is currently considered to be Bitcoin friendly compared to other governments.[citation needed] In China, new rules mean bitcoins cannot be exchanged for local currency,[9] and the European Banking Authority has warned that Bitcoin lacks consumer protections.[10] Theft of bitcoins can occur, and chargebacks are impossible.[11]
Commercial use of Bitcoin, illicit or otherwise, is currently small compared to its use by speculators, which has fueled price volatility.[12] Bitcoin as a form of payment for products and services has seen growth, however, and merchants have an incentive to accept the currency because transaction fees are lower than the 2–3% typically imposed by credit card processors.[13]