The concept of traditional currencies centers on a centralized system i.e. State Banks which are in completely in government control. Digital currencies aim at doing something exactly opposite to this concept. Cryptocurrencies aim for a decentralized system. Bitcoins and other cryptocurrencies lack a centralized authority. The exchange rates are based on a free enterprise economy. Transactions are verified collectively and each transaction is publicly accessible. The thesis addresses the evolution of digital currencies by focusing on bitcoin as an example. In this work, first the technical terms and methodologies surrounding bitcoin are described. Then various hypotheses are first formulated and then evaluated against experts’ opinions, facts and past trends. The approach followed in order to do so is to first conduct secondary research in order to enumerate and then analyze key bitcoin parameters like number of transactions and transaction volumes and then primary research summarizes the conclusions drawn based on secondary research. Lastly the results are summarized in conclusion and the future prospects and potential of bitcoin as a currency and as an asset are discussed. By doing this an effort is made to assess the impact of bitcoin and other digital currencies on existing financial systems. Supervisor:- Muhammad Ali Kemal