Bitcoin is a digital currency, which is also called cryptocurrency, that is not backed by any central bank or government. Bitcoins can be traded for goods/services with vendors who accept Bitcoins as payment.
It is possible to trade Bitcoin-to-Bitcoin by digitally exchanging anonymous, strongly encrypted hash codes across a peer-to-peer network. The P2P network monitors the transfer of Bitcoins between users and verifies them. Each user’s Bitcoins are stored in a digital wallet, which also holds each address the user sends/receives Bitcoins from as well as a private key known only to the user.
The Bitcoin network is designed to mathematically generate no more than 21 million Bitcoins, and the network is set up to regulate itself in order to deal with inflation. Bitcoins can be spent by initiating a transfer request from an address of Bitcoin in the user’s wallet to a Bitcoin address in the vendor’s wallet. As of this writing, one Bitcoin (BTC) is worth $7,102, but just as with stocks, the value of Bitcoins can fluctuate very quickly.
In the United States, Bitcoins are controversial because they can be used anonymously to transfer illicit funds or hide unreported income from the Internal Revenue Service (IRS). Bitcoin policy requires transactions involving traditional, government-backed currencies to be attached to an identity.