Bitcoin is both a virtual currency and an online payment system — one that some people believe will transform the global financial system. But the details of this new technology have remained a mystery to most.

What is Bitcoin?

Bitcoin is both a type of digital token, or virtual currency, and the network on which those tokens can be stored and moved around.

Each unit of the virtual currency is nothing more than an entry on a digital ledger, just as most dollars and cents exist only as entries on a bank’s digital ledger. The price of a Bitcoin is set on the open market, generally on exchanges where people offer to buy and sell Bitcoin, similar to the way that a stock’s price is set.

Normal currencies are, of course, tracked by banks — and their employees and computer systems. Bitcoins, in contrast, are kept on a ledger that is maintained and updated by any user of Bitcoin who wants to help. The constantly updated ledger is kept on the computers of all the users — just as Wikipedia entries are written and kept current by the encyclopedia’s users rather than by any central authority. The work maintaining Bitcoin’s ledger is done according to rules that are established by the Bitcoin software.