Bitcoin is the world's first decentralized digital currency and online payment system which allows clients to perform transactions without the need of any third party intermediary like e.g. banks.
Bitcoin which is the name given to one unit of the virtual currency can be portioned further into subunits which are similar to cents or pennies - the smallest of which is referred to as a satoshi (one hundred millionth of a bitcoin). The bitcoin protocol and reference software that works on any computer or smart phone was developed from the person who had been introduced in 2008 by pseudonymous inventor known as Satoshi Nakamoto.
The currency is secured by cryptography so that making it impossible to duplicate. To start using bitcoin a client can sign-up for a free account with any of the bitcoin wallet providers - Blockchain.info and Coinbase are the popular ones. Once signed up a unique 34-character address - a combination of letters and numbers - is dedicated to the client. Alternatively for better security you can download an appropriate wallet and store the bitcoins offline - so called a cold storage.
All transactions between the bitcoin clients are verified by network nodes and recorded in open shared account which is referred to as the block chain. A record of each transaction is shown in the log of the client as well. Thereby a transaction only starts if there is spendable balance in the wallet. Bitcoin uses a private key to hinder thieves from stealing the coins from the wallets and to hinder loss or duplication of the coins in the block chain.
The process of confirming the transactions or record-keeping service is called mining. The computers which are involved in such a process are called the network nodes. There is a cap of 21 million bitcoins which would be ever created - through reward for the mining process. The rate of creation divides in half every four years until the cap is reached.
There are four ways of purchasing bitcoins:
Advantages over other online payment systems: