“Bitcoin,” capitalized, refers to the protocol and transaction network but “bitcoin,” lowercase, refers to the currency itself.
Bitcoin is a peer-to-peer payment network based on an open source protocol and a digital currency used in the network.
Introduced in 2009 by pseudonymous developer Satoshi Nakamoto, bitcoin is one of several so-called “cryptocurrencies” as it uses public-key cryptography.
When paying with bitcoin, no exchange of digital notes or tokens takes place between buyer and seller.
Instead, the buyer requests an update to a public transaction log, the blockchain.
This master list of all transactions shows who owns what bitcoins currently and in the past and is maintained by a decentralized network that verifies and timestamps payments.
The operators of this network, known as “miners”, are rewarded with transaction fees and newly minted bitcoins.
Commercial use of bitcoin is currently small compared to its use by speculators, which has fueled price volatility.
Bitcoin as a form of payment for products and services has seen growth and merchants have an incentive to accept the currency because transaction fees are lower than the 2-3% typically imposed by credit card processors.
In order to make a payment, a user requests an update to the master transaction list, the blockchain, and the transaction is validated by the network.
Although, transactions can be validated instantly, it takes bitcoin miners approximately 10 minutes to record the payment within the blockchain and confirm it was not spent twice.
In addition, transactions that pay a fee may be processed more quickly.
Bitcoin payment processing fees are optional and generally substantially lower than those of credit cards or money transfers.