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Bitcoin is a digital currency (also called crypto-currency) that is not backed by any country's
central bank or government. Bitcoins can be traded for goods or services with vendors who
accept Bitcoins as payment.
Bitcoin-to-Bitcoin transactions are made by digitally exchanging anonymous, heavily encrypted codes across a
peer-to-peer (P2P)
network. The P2P network monitors and verifies the transfer of Bitcoins between users. Each user's
Bitcoins are stored in a program called a digital wallet, which also holds each address the
user sends and receives Bitcoins from, as well as a private key known only to
the user.
The Bitcoin network is designed to mathematically generate no more than 21 million Bitcoins and
the network is set up to regulate itself to deal with inflation. Bitcoins can be spent by
initiating a transfer request from a Bitcoin address in the customer's wallet to a Bitcoin address
in the vendor's wallet. As of this writing, one Bitcoin (also called a BTC) is worth $104 --
but just as with stocks, the value of Bitcoins can fluctuate quickly.
In the United States, Bitcoins are controversial because they can be used to anonymously
transfer illicit funds or hide unreported income from the Internal Revenue Service (IRS). Bitcoin
policy now requires transactions that involve traditional, government-backed currencies to be
attached to an identity.
This CNN video provides an overview of Bitcoin:
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