A question you might have is “why do people even bother with Bitcoin in the first place?” Why wouldn’t Alice just send Bob an electronic check or transfer money via Paypal, using methods that are more mainstream and established? Well there are a few properties that make Bitcoin slightly different.
The first is privacy. People can transact without divulging who they are in the real world. From the perspective of bitcoin, Alice’s identity is just going to be a sequence of numbers and that sequence of numbers is going to function like a username for Alice except it has nothing to do with her real world identity. This anonymity is kind of, but not quite, like something that you buy when using cash. And this is different from buying something with credit cards where you have to provide a name, billing address and so on. This new level of privacy is what makes bitcoin attractive to the black market. That being said, there are certainly legitimate reasons why legitimate transactions may want to be private and not open to the whole world.
Another property bitcoin has is that it’s open. Literally anyone who has an internet connection can get started. Once you have downloaded a bitcoin client you can send and receive bitcoins instantly from anyone around the world. The entire time the user, Alice or Bob, needs little to no technical knowledge to use. On the other hand there are people out there who do not have access to banks or credit cards. In the US alone, the number of households without a bank account is somewhere north of about 8%. These people, if they had an internet connection could use bitcoin.
Another property of bitcoin that is worth mentioning is that it is decentralized. There’s no bank or centralized entity that can control what’s happening in the bitcoin ecosystem. This means when you do a transaction, it does not have to go through a 3rd party, meaning no one person can control the money supply of bitcoins. It also means no one entity can seize assets. Or no one entity can reverse a transaction which is definitely desirable for some merchants who are limited by online transactions due to concerns of fraud. If you have a system where chargebacks are eliminated and may inhibit fraud. The property of decentralization causes concern from some people, because banks do add some value to transactions by validating them and reducing fraud. Bitcoin however uses a decentralized system to do the verifying and validating so instead of trusting one central bank you must trust the network of nodes that make up the bitcoin system.
Check out Satoshi’s orginal work here http://bitcoin.org/bitcoin.pdf