Put together, the system enables electronic payments to be sent between users without using a central authority like a bank or payment gateway. Bitcoins aren’t printed, like dollars or euros. Instead they are produced by computers all over the world via free software.

Bitcoin was the first of what we now call cryptocurrencies, an evolving asset class that shares some features with traditional currencies, but with its verification system based on decentralised cryptography.

Who invented it?

In 2008, a person or group of people under the pseudonym Satoshi Nakamoto proposed the electronic payment system, which was grounded in a mathematical proof. The goal was to create a means of exchange that functions independent of central authority, and that could be transferred electronically in a verifiable and immutable way.

To this day, nobody knows who Satoshi Nakamoto is.

How is Bitcoin different from traditional currencies?

Like traditional currencies such as dollars, euros or yen, bitcoin facilitates mutual free trade between two willing parties. Aside from that, the cryptocurrency differs in several important ways:

1. Decentralisation

   
   No single institution can or will ever control the bitcoin network, as decentralisation is the main component of the system. The network is maintained by a group of volunteer developers, and run by an open network of dedicated computers all over the world. A consequence of this system is that it attracts individuals who are uncomfortable handing over control of their assets to banks or government institutions.
   
   Bitcoin also solves the “double spending problem” of electronic currencies, in which digital assets can be easily copied and re-used, through an innovative combination of cryptography and economic incentives. In electronic fiat currencies, banks fulfil this role, giving them control over the traditional system. This sort of centralised authority is entirely antithetical to bitcoin, since the integrity of transactions is maintained by a distributed open network (or ledger).

2. Limited supply

   
   Fiat currencies have potentially unlimited supply, as central banks can issue funds through various means (quantitative easing being one), allowing the for the possibility of value manipulation in relation to other currencies. Holders of the currency who do not have access to unlimited funds normally bear the cost. On the other hand, bitcoin’s supply is restricted by an underlying algorithm which only permits a couple of bitcoins to trickle out every hour, and at a diminishing rate until a maximum of 21 million bitcoins has been reached. In theory, if the demand continues to grow and the supply remains the same, the value will increase making bitcoin more attractive as an asset.

3. Pseudonymity

   
   Transaction benefactors of traditional electronic payments are normally known, partly for verification purposes but also for guaranteed compliance with anti-money laundering schemes and other legal frameworks.
   
   Bitcoin users operate in semi-anonymity. Since no central “validator” is required, users do not need to identify themselves when sending bitcoin(s) to each other. Upon a transaction request, the protocol checks all prior transactions in order to ascertain that the benefactor has the necessary funds as well as the authority to complete payment. The user’s identity is not required for the system to function.
   
   However, put in practice, every user is identified by the address of his or her wallet, which means transactions can be tracked with some additional effort. Not to mention the fact that law enforcements has naturally found ways to identify users should the need arise.
   
   In addition, in order for exchanges to function lawfully, they must perform identity checks on their customers before they are allowed to buy or sell bitcoin (or any other crypto asset), which opens up a new avenue for possible tracking depending on the terms of a platform. This means that bitcoin is not an ideal currency for criminals, terrorists or money-launderers – which are problems every currency has to deal with.

4. Immutability

   
   Bitcoin transactions are final. They cannot be reversed because there is no central “arbitrator” that can give the go ahead to return funds. Once a transaction is recorded by the network, and if more than an hour has passed, it cannot be modified in any way. This means that any transaction on the bitcoin network can never be tampered with - an assertion backed by the reality that the underlying bitcoin code hasn’t been cracked since its original inception 10 years ago.

5. Divisibility

   
   The smallest unit of a bitcoin is known as a “satoshi”, which denotes a one hundred millionth of a bitcoin (0.00000001). This means that bitcoin transactions can accommodate transactions that traditional currencies cannot, and, if a consensus is reached this could be revised to 16 decimal places or more.
   
   That said, either side of the bitcoin divide recognises the potential of the underlying blockchain technology. But it remains to be seen whether the rally cries of bitcoin bulls all over the world will see the cryptocurrency colonise the moon (and beyond)!