Bitcoin is a cryptocurrency – a form of electronic money. It exists solely as records stored on computers around the world and anyone can join the network to check that transactions are valid. This means that bitcoin has no direct link to anything of value, such as gold reserves. However, that is not so unusual. Many traditional currencies, such as the US dollar are no longer linked with gold either.

Where bitcoin and traditional currencies do differ is why people trust them. Governments back their currencies and payment processors like Visa guarantee the transactions. With bitcoin, algorithms do the job instead.

A decentralised network of computers that anyone can join is used to check whether a set of transactions, known as a block, are valid. To validate the block, the network of computers works together on an extremely hard mathematical problem. The first one to get to a solution gets to write the new block to the official record of transactions, known as the blockchain, and gets some bitcoin as a prize. This is called mining and is the process by which more bitcoin is slowly added to the system.

Because the mathematical problems involved are so hard to solve, no individual can gain control of them system – allowing people to trust it. Bitcoin was first launched in 2008 and has gone from a niche project to a multibillion-dollar industry. Its value has suffered from extreme volatility, soaring at times and diving at others. Satoshi Nakamoto is the name of the person who first proposed bitcoin, however, it is not known who they are. Timothy Revell