The Bitcoin Revolution
Genesis Bitcoin is a digital currency that was first proposed in Oct 2008. Curiously, the proposer had a pseudonym Satoshi Nakamoto and started dissociating himself from any of the developments related to the currency from 2010. Nobody knows who he was. The currency came into existence starting with the genesis block created by Satoshi. The operation was started on 3rd January, 2009 by starting a free source project on Source Forge. In the four years since then, the number of units in circulation has reached more than 10.5 million units. This is half the total number (21 million) of units this currency can ever have, and is hard coded into the system as designed. This is designed to be reached by the year 2040. A trade bitcoins unit or BTC can be divided into 100 million units in trade operations. These smaller units are known as satoshis.
Currency Creation & Operation All currencies are issued by some central bank or the other. Depending on the nation using the currency, it is the central bank of that particular nation. These banks control on how much money should be in circulation at any given time. Any particular currency has paper based, and metal based units of various denominations that represent different denominations of the currency. For example, in case of the US currency, you have paper based one Dollar, five dollars, twenty dollars, hundreddollar units and coins (metal based) of 1 cent, five cents, 10 cents, 25 cents (a quarter), and sometimes a metal dollar.
Soiled, damaged paper notes and damaged coins are removed and new notes and coins are introduced into circulation by the central bank, The Federal Reserve Bank in case of the USA. The central bank controls the introduction of new money, and the total money in circulation based on economic considerations. For example, if the total money in circulation is more than the value of the gross national product, the prices rise. There is more money chasing comparatively few products otherwise known as "inflation." On the other hand, should the GDP become higher compared to the money available, money would be able to buy more things (aka "deflation"). There are various complicated economic considerations of how much new money is minted by the central banks and introduced into the system. Suffice it for this discussion, that there is a central authority who alone can mint money in the currency setup.
In case on international transactions between different currencies, banks of the two countries get involved and operate based on exchange rates between the two currencies. These rates are determined very broadly, by the trades between the two countries. Parties involved in a transaction get charged quite heavily by the banks and financial institutions. Other characteristics that will be relevant to these discussions, in this case, any currency provides several tokens to be used in transactions. All those notes and coins are such tokens. There is a major property satisfied by the tokens. When a token is handed over to the other party, in lieu of product or service provided, the token is gone from the buyer's stash. This ensures that there is no "double spending."
One big difference with all the other currencies in the world is that there is: No central bank or authority who controls the generation, circulation or transaction in this currency. The transactions are based on the public key cryptography system. This system requires that if a communication is to be sent to someone securely, the communication should be encrypted by the "public" key of the particular person. The target person decrypts the cipher text (the coded text) using his/her "private" key. The encryption system ensures that there is no way one can derive the private key by knowing the public key. Thus, the transaction, communication in this case, could be totally secure. A bitcoin transaction happens in the following manner. Bitcoins are exchanged through apps named as wallets. These can draw on local bitcoin store or get it out of a service (much in the style of drawing money from a bank). Since the currency is totally decentralized, there is no need for a bank of any but is a convenience, if available.
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