Bitcoin is a digital currency, aka digital money. Here’s an official video from Bitcoin explaining what it is:
Bitcoin is an attempt (and a very good one at that) to allow a digital transfer of value between individuals.
Traditionally the way money is transferred is that there is a trusted third party involved to verify and certify the transactions. These trusted third parties can be banks, Visa or Mastercard. Bitcoin was inspired, at least in part, by the 2009 WikiLeaks scandal in which PayPal decided to freeze WikiLeaks accounts and stop processing donations. The distributed structure of how Bitcoin works means that it doesn’t rely on trusted third parties to work, and value can be transferred no matter what others think of it.
The original Bitcoin paper goes in to significant details of the technological principles of how Bitcoin works, it is well worth a read.bitcoin
Bitcoin was designed to have all the characteristics of something that is a good store of value:
- Scarcity – only 21 million Bitcoins will be created
- Highly divisible – Bitcoins can be split to many decimal places
- Resistant to fraud / double spending
- Persistent – as durable as the medium it is stored on
A few of the above characteristics such as Bitcoins resistance to fraud are due to how the blockchain (the underlying technology) works.
Below is one of the best explanations of how blockchains work that I have come across.