Bitcoin is a digital currency produced by computers. Unlike paper money (such as dollars, euros and pounds) Bitcoin is not printed in a mint, it only ever exists digitally. The second and most important fundamental difference between Bitcoin and paper money is that Bitcoin is decentralized, this means no one institution or group of people control its flow.
Bitcoin is a cryptocurrency, it was the first main cryptocurrency to take off, but these days there are over 1,000 cryptocurrencies, however Bitcoin remains the most popular.
The idea for Bitcoin came from a guy called Satoshi Nakamoto. He proposed it as an electronic payment system (and he wrote some clever maths to describe how it could work).
Bitcoin transactions are processed by other Bitcoin users (miners). This ensures the currency will forever remain free from outside control.
Years ago, you used to be able to exchange your dollar bills (or pounds) for gold, because the paper currency stood for some amount of precious material, that’s how paper money originally got its value.
Where does the value come from?
So how did Bitcoin get its value? Bitcoin is based on mathematics. The value of Bitcoin derives from the mathematics behind it. The mathematics that powers Bitcoin is publicly available, which means anyone can make Bitcoins. In practice however, the computing power needed to make Bitcoins is vast and so it’s no longer financially effective to ‘mine’ new coins, unless you have access to super computing power.
There is a set of rules that govern how Bitcoin can operate. Unlike conventional money and financial institutions, where banks can print more money if needed to support local fiscal policy thereby devaluing the currency, there is a cap on the amount of Bitcoin that can be mined.
The Bitcoin protocol puts a limit on the amount of coins that can be generated, that limit is 21 million coins.
The decentralized nature of Bitcoin means that you and you alone control the Bitcoin in your wallet, a bank or institution cannot take your Bitcoin away from you. There is a public record that tracks who has what Bitcoins (this is called a Blockchain). The Blockchain is distributed and processed by other Bitcoin users (miners).
For however long there are people using Bitcoin, your Bitcoin will always be safe, government cannot take your money from you (unlike what happened in Cyprus in 2013).
Another advantage of Bitcoin is that it is far more anonymous than paper money, because unlike banks which require personal identification and all sorts of personal information from you, you can create your own digital wallet if you so choose!
Finally the fees for transacting are tiny in comparison to non cryptocurrency transfer fees which can often be exorbitant when transferring money overseas.
It’s for all of these reasons that Bitcoin is fast becoming the most popular currency for online gaming.