Disclaimer: The information provided in this article is not financial advice and the author is not a financial advisor. The topics discussed are purely for educational purposes and all investing comes with risks.

For the past couple of years, there has been talk about a new concept of money called Bitcoin, a form of cryptocurrency. The currency has both high upside and high volatility, as it has reached as high as $126,000 in October of 2025 but more recently, lows of around $73,000.

With so many questions surrounding the topic, Professor Nikhil Bhatia, a USC adjunct professor of finance and business economics helped explain the basics of this currency. Bhatia has published multiple books about Bitcoin and the history of economics.

When explaining Bitcoin as a topic, it is important to get a basic definition of what it is before getting into the more complicated elements of Bitcoin. According to Bhatia, “Bitcoin is a software, and that software has a [kind of] money inside of it. They’re both called Bitcoin, which can be confusing for people getting started, because people know of Bitcoin as a coin or as money. It’s actually a software and the money inside that software.”

Alternatively, the definition and purpose of use for Bitcoin was written in the initial Bitcoin white papers. There, Bitcoin is described as a “purely peer-to-peer version of electronic cash [that] allow[s] online payments to be sent directly from one party to another without going through a financial institution.”

Bhatia said it is also important to get a background on where and how Bitcoin was actually started.

“Bitcoin, the software, was created by an alias, Satoshi Nakamoto,” Bhatia said. “Satoshi Nakamoto has never claimed or has never revealed who they are, and so we don’t know the identity of Satoshi Nakamoto.”

Despite not knowing who the creator is, Bhatia further explained the initial beginnings of this idea.

“When Satoshi Nakamoto created Bitcoin, it was basically a research paper written about a software idea, and then the first software code released. That code is downloaded by different computers and run by different computers, so there is no owner of Bitcoin,” Bhatia said.

Despite there not being any single owner, there still were several people that have some say in how Bitcoin works. “There is no single operator of Bitcoin. There are now thousands of operators of Bitcoin. So that started from one, and then it went to two, and then now there are several thousand operators of the Bitcoin software around the world,” Bhatia explained. “So there’s nobody that controls the software. The software does from time-to-time update, but only the users themselves are the ones that agree or disagree to update their software, really as a consensus. This follows a process called open-source software.”

The initial white paper on Bitcoin was published on Oct. 31, 2008. Satoshi began the software on Jan. 3, 2009, then released a few days later to be downloaded by a handful of people.“The first transaction was later that week in January of 2009 and then the first evidence of it having value or being actually bought and sold online in exchange for dollars was between 2010 and 2011,” Bhatia said. “That’s where people started to view it as some sort of digital collectible, long before it became a bona fide asset class.”

The first transaction of Bitcoin in exchange for dollars in 2010 and 2011 is well-known in the Bitcoin community. On May 22, 2010, Laszlo Hanyecz from Florida purchased two large pizzas from Papa John’s in exchange for 10,000 Bitcoins. At the time, the worth of those Bitcoins was around $41. Compared to Bitcoin at its all-time high, those two pizzas would now be worth approximately 1.3 billion dollars.

With such a drastic change in value of Bitcoin, it is important to consider where the idea for this form of currency came from. Bhatia discussed the history of where the idea came from.

“The idea of a decentralized virtual currency, or digital currency, had been sought after, I would argue, since the early 1980s in cryptography circles. These are academic computer science circles in which computer scientists and cryptographers were pursuing how to create a decentralized digital currency, and that problem was worked on by many computer scientists and cryptographers since the early 80s, and culminated with the creation of Bitcoin in 2009,” Bhatia said.

“So if the question is, ‘why was Bitcoin created?’ It’s because computer scientists identified a problem. ‘How do we create a decentralized currency digitally?’ And a single entity, Satoshi Nakamoto, was able to solve it with some quite brilliant game theory and a rule set,” said Bhatia.

So if the purpose of Bitcoin was to create a decentralized currency, it was integral for Nakamoto to make the network secure. Bhatia explains what makes the network so secure.

“Bitcoin works using cryptography. Cryptography is essentially the encryption of data. So Bitcoin works with cryptography and then a bunch of rules. It’s like a game, a game has rules, and if you follow the rules, you can play the game and Bitcoin,” he said.

He further explains the exact function of how the software works.

“It basically consists of a set of rules, and those rules work together to create a digital currency that can’t be artificially inflated by any one actor. The rules of how the coin comes into existence are very strict and enforced by cryptography and now a global network of computers,” he said.

While the actual network is incredibly complicated, Bhatia captures the main idea in that the rules followed by Bitcoin are very strict and secure, making it a fairly sound currency.

He then continues to go into detail about where exactly the currency is used around the world.

“Some of the higher adoption countries are Turkey, Brazil, Vietnam and Thailand, for example. But Bitcoin is also an asset that is not used as a Person A to Person B currency, but is used as an investment from Person A today to Person A five years from now, or 10 years from now,” he said.

Bhatia continued to compare Bitcoin being very similar to gold in that sense.

“It’s a savings technology, and that adoption rate is highest in the United States in terms of the number of people using Bitcoin as a store of value, as an asset that they hold, much like people hold land or a gold bar, for example. Gold isn’t really used as a hand to hand currency anymore, but it is used as a savings tool,” Bhatia said.

There is a difference between the two as savings tools, however, as he says Bitcoin can “provide a really innovative digital currency that people can use and are using hand-to-hand in some of those countries I’ve mentioned, as well as online.” Gold, on the contrary, cannot be transferred as easily as Bitcoin can.

While Bitcoin is a great tool for saving in the long run — as shown by the all-time high price of $126,000 — there are serious concerns with the volatility of Bitcoin. Since its all-time high, the price per token has reached as low as $63,000 since its high. Despite this extreme variability, Bhatia says it is just a part of the software.

“Bitcoin is very volatile in terms of dollars, because it’s a very young asset with a highly decentralized pricing mechanism. So there is no one place you can buy and sell Bitcoin. There are actually thousands of places where you can buy and sell Bitcoin,” Bhatia said.

With so many people trading Bitcoin around the planet, the supply and demand of the token is constantly changing.

“The Bitcoin price you see on your screen, it’s really just perhaps an average of thousands of different Bitcoin prices around the world. So there can be large spikes and drops in demand, and that leads to large spikes and drops in the price. It’s traded 24 hours a day, seven days a week in every time zone on the planet. So the people that need to buy and need to sell Bitcoin can vary extremely widely,” he said.

Despite the constant changes, Bhatia said this is of no concern in the long run of the currency.

“It’s an internet-based currency that the world has just never experienced before, and the volatility is declining statistically over the years, but a lot of people aren’t able to see that with their naked eye because, at least to traditional investors, it appears to be extremely volatile,” he said.

While the concept of Bitcoin is completely new and questioned by many around the world, it is essentially a savings technology and store of value comparable to gold. It requires no third party to trade and has a computer network in place to keep the network stable and secure. While it may not be the most traditional-sounding good, as Bhatia said, it is a technology of the future that no one has ever seen before.