"How does it work?
As with any foreign exchange transaction, a person holding local currency must
first buy a foreign currency to transact in that currency. Bitcoin is foreign
to everyone, so everyone must trade their local currency for Bitcoins through
several Bitcoin exchanges that have cropped up around the world. These
exchanges purchase Bitcoins, hold them in inventory, and sell them in exchange
for the currencies of the world. In order to proliferate the system, new users
download software onto their computers, enabling them to act as a node on the
Bitcoin platform. In a process known as “hashing,” users’ computers compete to
solve the mathematics of each transaction and thereby earn new Bitcoins..
The digital currency
was created by an anonymous programmer, code name Satoshi Nakamoto. Bitcoins
are remarkably sophisticated, both technically and financially. However, in
order to assess Nakamoto’s creation, we must first consider what gives a
currency its value. Currencies must be: a medium of exchange; durable and
evenly divisible such that the quality of one unit is just as good as another;
scarce such that they cannot be created at will; widely acceptable as payment
to all participants for their goods or services; and used as a standard of
market value, thereby enabling users of the currency to save money for later
use."
http://blogs.cfainstitute.org/investor/2013/04/08/bitcoins-new-gold-or-fools-gold/
