Before reviewing what bitcoin is, I will tell you a very sad story, which will simultaneously provide context to this discussion.

I was introduced to bitcoin years ago when it was trading at 6 cents. A paid publication that I read discussed the new product in detail. I chose not to purchase any bitcoins at the time.

Fast forward to today and bitcoin is now crossing 450 dollars. Very simple math shows you how little money I would have needed to invest at 6 cents to make a fortune on the speculation. That is the sad part of the story, and it is very sad.

The context is the why? Why did I choose not to buy?

Bitcoin was designed as an electronic currency to compete with other available currencies, or stores of wealth. Its main draw is scarcity. There is a limited number of electronic bitcoins that were created and available to purchase around the world. New bitcoins can be created, but they must be "mined" electronically, a process that takes the top miners a good amount of time. Therefore, the new supply enters the market at a slow pace and ensures the scarcity factor is always there.