Bitcoin is a digital currency which means that it works as a form of online digital payment system. It’s based on something called a block chain which is a permanent public ledger that records every transaction that occurs in the currency, so it effectively holds the currency’s history. Every time a new transaction occurs it needs to be recorded in the current block of data in the chain. Each block usually holds up to 2 MB of data although it can theoretically hold up to 4 MB. When it is full, a new block is created and added to the chain.

The advantage of this kind of approach is that it becomes impossible to counterfeit Bitcoins. Every transfer and transaction between individuals is recorded and cannot be erased or altered. It is there for all time and for all to see.