Bitcoin is an online payment system that was created in 2008. There is still some speculation but it is believed that Bitcoin was created by a group of developers working under the pseudonym of Satoshi Nakamoto.
Bitcoin transactions can be completed peer-to-peer (meaning that no third-party intermediary is required, see this collection of Bitcoin videos for more detailed info). Transactions are verified through their entry into Bitcoin’s open-source public ledger, generally referred to as the block chain. Bitcoin is often described as a virtual currency because it works without any central bank control or regulation. It is completely decentralised and borderless.
In many ways it seems the perfect solution for the digital age in which we’re living, but its early links with blackmarket activity and suggestions of crime and terrorism taking advantage of the anonymity it offers, have left an enduring taint on the reputation of the world’s most successful crypto-currency.
In many ways, the strength of the Bitcoin concept is also one of its main weaknesses – no rules or regulation.
It’s quite likely that a lack of regulation, a lack of certainty, is what is preventing serious investors from piling into Bitcoin. That’s why the move by the Winklevoss twins (who made their money on Facebook) is a bit interesting. The twins launched an exchange platform for Bitcoin – called Gemini, that's regulated in the US.
While the regulation that the Gemini exchange is operating under won’t change the borderless nature of the Bitcoin currency, it gives Bitcoin greater confidence in the trading of the currency – avoiding the losses that could be incurred by a failure such at Mt Gox.
This type of move has the potential to boost the credibility of the Bitcoin currency as the preferred currency for international trade and online transactions. Making the currency synonymous with global business as opposed to being synonymous with crime, fraud, and terrorism.
Regardless of whether Bitcoin does become the go-to currency for international trade, what is probably clearer and you don't need to be a crypto guru to see that crypto-currencies such as Bitcoin are going to become an intrinsic feature of the digital age. The blockchain algorithm created by the founders of Bitcoin has demonstrated that not only is a borderless, digital currency feasible, but that it is actually preferable for online or international transactions. The reason that a crypto-currency is preferable is that you are removing the exchange risk and the potential meddling of central banks, plus you have greater fraud protection and the benefits of anonymity.
The world of crypto-currencies is set to get very interesting in the years to come.