Prevailing bitcoin logo
|Ticker symbol||BTC, XBT|
|Original author(s)||Satoshi Nakamoto|
|White paper||"Bitcoin: A Peer-to-Peer Electronic Cash System"|
|Initial release||0.1.0 / 9 January 2009|
|Latest release||0.18.0 / 2 May 2019|
|Ledger start||3 January 2009|
|Timestamping scheme||Proof-of-work (partial hash inversion)|
|Issuance schedule||Decentralized (block reward)|
Initially ₿50 per block, halved every 210,000 blocks
|Block time||10 minutes|
|Block explorer|| bitaps|
|Circulating supply||₿17,754,100 (as of 11 June 2019 [update] )|
Bitcoin(₿) is a cryptocurrency. It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems.
Digital currency is a type of currency available in digital form. It exhibits properties similar to physical currencies, but can allow for instantaneous transactions and borderless transfer-of-ownership. Examples include virtual currencies and cryptocurrencies and central bank issued money accounted for in a computer database. Like traditional money, these currencies may be used to buy physical goods and services, but may also be restricted to certain communities such as for use inside an online game.
A central bank, reserve bank, or monetary authority is an institution that manages the currency, money supply, and interest rates of a state or formal monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and also generally controls the printing/coining of the national currency, which serves as the state's legal tender. A central bank also acts as a lender of last resort to the banking sector during times of financial crisis. Most central banks also have supervisory and regulatory powers to ensure the solvency of member institutions, to prevent bank runs, and to discourage reckless or fraudulent behavior by member banks.
Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people using the name Satoshi Nakamotoand was released as open-source software in 2009. Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. Research produced by University of Cambridge estimates that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
In telecommunications networks, a node is either a redistribution point or a communication endpoint. The definition of a node depends on the network and protocol layer referred to. A physical network node is an active electronic device that is attached to a network, and is capable of creating, receiving, or transmitting information over a communications channel. A passive distribution point such as a distribution frame or patch panel is consequently not a node.
Cryptography or cryptology is the practice and study of techniques for secure communication in the presence of third parties called adversaries. More generally, cryptography is about constructing and analyzing protocols that prevent third parties or the public from reading private messages; various aspects in information security such as data confidentiality, data integrity, authentication, and non-repudiation are central to modern cryptography. Modern cryptography exists at the intersection of the disciplines of mathematics, computer science, electrical engineering, communication science, and physics. Applications of cryptography include electronic commerce, chip-based payment cards, digital currencies, computer passwords, and military communications.
A distributed ledger is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions. There is no central administrator or centralized data storage.
Bitcoin has been criticized for its use in illegal transactions, its high electricity consumption, price volatility, thefts from exchanges, and by reputable economists stating that "it should have a zero price".Bitcoin has also been used as an investment, although several regulatory agencies have issued investor alerts about bitcoin.
The domain name "bitcoin.org" was registered on 18 August 2008.On 31 October 2008, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list. Nakamoto implemented the bitcoin software as open-source code and released it in January 2009. Nakamoto's identity remains unknown.
Satoshi Nakamoto is the name used by the unknown person or persons who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin's original reference implementation. As part of the implementation, Nakamoto also devised the first blockchain database. In the process, Nakamoto was the first to solve the double-spending problem for digital currency using a peer-to-peer network. Nakamoto was active in the development of bitcoin up until December 2010.
Open-source software (OSS) is a type of computer software in which source code is released under a license in which the copyright holder grants users the rights to study, change, and distribute the software to anyone and for any purpose. Open-source software may be developed in a collaborative public manner. Open-source software is a prominent example of open collaboration.
On 3 January 2009, the bitcoin network was created when Nakamoto mined the first block of the chain, known as the genesis block. 18Embedded in the coinbase of this block was the text "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks". This note references a headline published by The Times and has been interpreted as both a timestamp and a comment on the instability caused by fractional-reserve banking. :
The Times is a British daily national newspaper based in London. It began in 1785 under the title The Daily Universal Register, adopting its current name on 1 January 1788. The Times and its sister paper The Sunday Times are published by Times Newspapers, since 1981 a subsidiary of News UK, in turn wholly owned by News Corp. The Times and The Sunday Times do not share editorial staff, were founded independently, and have only had common ownership since 1967.
Fractional-reserve banking is the common practice by commercial banks of accepting deposits, and creating credit, while holding reserves equal to a fraction of the bank's deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank's accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide.
The receiver of the first bitcoin transaction was cypherpunk Hal Finney, who created the first reusable proof-of-work system (RPoW) in 2004.Finney downloaded the bitcoin software on its release date, and on 12 January 2009 received ten bitcoins from Nakamoto. Other early cypherpunk supporters were creators of bitcoin predecessors: Wei Dai, creator of b-money, and Nick Szabo, creator of bit gold. In 2010, the first known commercial transaction using bitcoin occurred when programmer Laszlo Hanyecz bought two Papa John's pizzas for ₿10,000.
A cypherpunk is any activist advocating widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change. Originally communicating through the Cypherpunks electronic mailing list, informal groups aimed to achieve privacy and security through proactive use of cryptography. Cypherpunks have been engaged in an active movement since the late 1980s.
Wei Dai is a computer engineer best known as the creator of the Bitcoin predecessor "b-money" and as the developer of the Crypto++ library.
Nick Szabo is a computer scientist, legal scholar and cryptographer known for his research in digital contracts and digital currency. He graduated from the University of Washington in 1989 with a degree in computer science and received a law degree from George Washington University Law School. He holds an honorary professorship at the Universidad Francisco Marroquín.
Blockchain analysts estimate that Nakamoto had mined about one million bitcoinsbefore disappearing in 2010, when he handed the network alert key and control of the code repository over to Gavin Andresen. Andresen later became lead developer at the Bitcoin Foundation. Andresen then sought to decentralize control. This left opportunity for controversy to develop over the future development path of bitcoin, in contrast to the perceived authority of Nakamoto's contributions.
After early "proof-of-concept" transactions, the first major users of bitcoin were black markets, such as Silk Road. During its 30 months of existence, beginning in February 2011, Silk Road exclusively accepted bitcoins as payment, transacting 9.9 million in bitcoins, worth about $214 million. 222:
In 2011, the price started at $0.30 per bitcoin, growing to $5.27 for the year. The price rose to $31.50 on 8 June. Within a month the price fell to $11.00. The next month it fell to $7.80, and in another month to $4.77.
Litecoin, an early bitcoin spin-off or altcoin, appeared in October 2011.Many altcoins have been created since then.
In 2012, bitcoin prices started at $5.27 growing to $13.30 for the year.By 9 January the price had risen to $7.38, but then crashed by 49% to $3.80 over the next 16 days. The price then rose to $16.41 on 17 August, but fell by 57% to $7.10 over the next three days.
The Bitcoin Foundation was founded in September 2012 to promote bitcoin's development and uptake.
In 2013, prices started at $13.30 rising to $770 by 1 January 2014.
In March 2013 the blockchain temporarily split into two independent chains with different rules due to a bug in version 0.8 of the bitcoin software. The two blockchains operated simultaneously for six hours, each with its own version of the transaction history from the moment of the split. Normal operation was restored when the majority of the network downgraded to version 0.7 of the bitcoin software, selecting the backward compatible version of the blockchain. As a result, this blockchain became the longest chain and could be accepted by all participants, regardless of their bitcoin software version. [ better source needed ] This marked the first time a government agency had seized bitcoin. The FBI seized about ₿30,000 in October 2013 from the dark web website Silk Road during the arrest of Ross William Ulbricht. These bitcoins were sold at blind auction by the United States Marshals Service to venture capital investor Tim Draper. Bitcoin's price rose to $755 on 19 November and crashed by 50% to $378 the same day. On 30 November 2013 the price reached $1,163 before starting a long-term crash, declining by 87% to $152 in January 2015. On 5 December 2013, the People's Bank of China prohibited Chinese financial institutions from using bitcoins. After the announcement, the value of bitcoins dropped, and Baidu no longer accepted bitcoins for certain services. Buying real-world goods with any virtual currency had been illegal in China since at least 2009.During the split, the Mt. Gox exchange briefly halted bitcoin deposits and the price dropped by 23% to $37 before recovering to previous level of approximately $48 in the following hours. The US Financial Crimes Enforcement Network (FinCEN) established regulatory guidelines for "decentralized virtual currencies" such as bitcoin, classifying American bitcoin miners who sell their generated bitcoins as Money Service Businesses (MSBs), that are subject to registration or other legal obligations. In April, exchanges BitInstant and Mt. Gox experienced processing delays due to insufficient capacity resulting in the bitcoin price dropping from $266 to $76 before returning to $160 within six hours. The bitcoin price rose to $259 on 10 April, but then crashed by 83% to $45 over the next three days. On 15 May 2013, US authorities seized accounts associated with Mt. Gox after discovering it had not registered as a money transmitter with FinCEN in the US. On 23 June 2013, the US Drug Enforcement Administration listed ₿11.02 as a seized asset in a United States Department of Justice seizure notice pursuant to 21 U.S.C. § 881.
In 2014, prices started at $770 and fell to $314 for the year.
On July 30, 2014, the Wikimedia Foundation started accepting donations of bitcoin.
In 2015. prices started at $314 and rose to $434 for the year. In 2016 prices rose to $998 on 1 January 2017.
Prices started at $998 in 2017 and rose to $13,412.44 on 1 January 2018,after reaching its all time high of $19,783.06 on 17 December 2017.
China banned trading in bitcoin, with first steps taken in September 2017, and a complete ban that started on 1 February 2018. Bitcoin prices then fell from $9,052 to $6,914 on 5 February 2018.The percentage of bitcoin trading in the Chinese renminbi fell from over 90% in September 2017 to less than 1% in June 2018.
Throughout the rest of the first half of 2018, bitcoin's price fluctuated between $11,480 and $5,848. On 1 July 2018, bitcoin's price was $6,343.The price on January 1, 2019 was $3,747, down 72% for 2018 and down 81% since the all-time high.
Bitcoin prices were negatively affected by several hacks or thefts from cryptocurrency exchanges, including thefts from Coincheck in January 2018, Coinrail and Bithumb in June, and Bancor in July. For the first six months of 2018, $761 million worth of cryptocurrencies was reported stolen from exchanges.Bitcoin's price was affected even though other cryptocurrencies were stolen at Coinrail and Bancor as investors worried about the security of cryptocurrency exchanges.
The unit of account of the bitcoin system is a bitcoin. Ticker symbols used to represent bitcoin are BTC 2 Its Unicode character is ₿. Small amounts of bitcoin used as alternative units are millibitcoin (mBTC), and satoshi (sat). Named in homage to bitcoin's creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoins, one hundred millionth of a bitcoin. A millibitcoin equals 0.001 bitcoins; one thousandth of a bitcoin or 100,000 satoshis.and XBT. :
The bitcoin blockchain is a public ledger that records bitcoin transactions. 215–219 Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications.It is implemented as a chain of blocks, each block containing a hash of the previous block up to the genesis block of the chain. A network of communicating nodes running bitcoin software maintains the blockchain. :
Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. To achieve independent verification of the chain of ownership each network node stores its own copy of the blockchain. ch. 5About every 10 minutes, a new group of accepted transactions, called a block, is created, added to the blockchain, and quickly published to all nodes, without requiring central oversight. This allows bitcoin software to determine when a particular bitcoin was spent, which is needed to prevent double-spending. A conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, but the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions. :
Transactions are defined using a Forth-like scripting language. ch. 5 Transactions consist of one or more inputs and one or more outputs. When a user sends bitcoins, the user designates each address and the amount of bitcoin being sent to that address in an output. To prevent double spending, each input must refer to a previous unspent output in the blockchain. The use of multiple inputs corresponds to the use of multiple coins in a cash transaction. Since transactions can have multiple outputs, users can send bitcoins to multiple recipients in one transaction. As in a cash transaction, the sum of inputs (coins used to pay) can exceed the intended sum of payments. In such a case, an additional output is used, returning the change back to the payer. Any input satoshis not accounted for in the transaction outputs become the transaction fee.:
Though transaction fees are optional, miners can choose which transactions to process and prioritize those that pay higher fees. ch. 8Miners may choose transactions based on the fee paid relative to their storage size, not the absolute amount of money paid as a fee. These fees are generally measured in satoshis per byte (sat/b). The size of transactions is dependent on the number of inputs used to create the transaction, and the number of outputs. :
In the blockchain, bitcoins are registered to bitcoin addresses. Creating a bitcoin address requires nothing more than picking a random valid private key and computing the corresponding bitcoin address. This computation can be done in a split second. But the reverse, computing the private key of a given bitcoin address, is mathematically unfeasible. Users can tell others or make public a bitcoin address without compromising its corresponding private key. Moreover, the number of valid private keys is so vast that it is extremely unlikely someone will compute a key-pair that is already in use and has funds. The vast number of valid private keys makes it unfeasible that brute force could be used to compromise a private key. To be able to spend their bitcoins, the owner must know the corresponding private key and digitally sign the transaction. The network verifies the signature using the public key; the private key is never revealed. ch. 5:
If the private key is lost, the bitcoin network will not recognize any other evidence of ownership;the coins are then unusable, and effectively lost. For example, in 2013 one user claimed to have lost 7,500 bitcoins, worth $7.5 million at the time, when he accidentally discarded a hard drive containing his private key. About 20% of all bitcoins are believed to be lost. They would have a market value of about $20 billion at July 2018 prices.
To ensure the security of bitcoins, the private key must be kept secret. ch. 10 If the private key is revealed to a third party, e.g. through a data breach, the third party can use it to steal any associated bitcoins. As of December 2017 [update] , around 980,000 bitcoins have been stolen from cryptocurrency exchanges.:
Regarding ownership distribution, as of 16 March 2018, 0.5% of bitcoin wallets own 87% of all bitcoins ever mined.
Mining is a record-keeping service done through the use of computer processing power. ch. 7Miners keep the blockchain consistent, complete, and unalterable by repeatedly grouping newly broadcast transactions into a block, which is then broadcast to the network and verified by recipient nodes. Each block contains a SHA-256 cryptographic hash of the previous block, thus linking it to the previous block and giving the blockchain its name. :
To be accepted by the rest of the network, a new block must contain a proof-of-work (PoW). [ failed verification ] The PoW requires miners to find a number called a nonce , such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target. :ch. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is the ascending natural numbers: 0, 1, 2, 3, ... :ch. 8) before meeting the difficulty target.The system used is based on Adam Back's 1997 anti-spam scheme, Hashcash.
Every 2,016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network. ch. 8 Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.:
The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted.As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.
The successful miner finding the new block is allowed by the rest of the network to reward themselves with newly created bitcoins and transaction fees. As of 9 July 2016 [update] , the reward amounted to 12.5 newly created bitcoins per block added to the blockchain, plus any transaction fees from payments processed by the block. To claim the reward, a special transaction called a coinbase is included with the processed payments. :ch. 8 All bitcoins in existence have been created in such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins will be reached c. 2140; the record keeping will then be rewarded solely by transaction fees.
In other words, Nakamoto set a monetary policy based on artificial scarcity at bitcoin's inception that the total number of bitcoins could never exceed 21 million. New bitcoins are created roughly every ten minutes and the rate at which they are generated drops by half about every four years until all will be in circulation.
Computing power is often bundled together or "pooled" to reduce variance in miner income. Individual mining rigs often have to wait for long periods to confirm a block of transactions and receive payment. In a pool, all participating miners get paid every time a participating server solves a block. This payment depends on the amount of work an individual miner contributed to help find that block.
A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold ch. 1, glossary Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated. At its most basic, a wallet is a collection of these keys.or store bitcoins, due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A wallet is more correctly defined as something that "stores the digital credentials for your bitcoin holdings" and allows one to access (and spend) them. :
There are several modes which wallets can operate in. They have an inverse relationship with regards to trustlessness and computational requirements.
Third-party internet services called online wallets offer similar functionality but may be easier to use. In this case, credentials to access funds are stored with the online wallet provider rather than on the user's hardware.As a result, the user must have complete trust in the online wallet provider. A malicious provider or a breach in server security may cause entrusted bitcoins to be stolen. An example of such a security breach occurred with Mt. Gox in 2011.
Physical wallets store the credentials necessary to spend bitcoins offline and can be as simple as a paper printout of the private key; ch. 10 a paper wallet. A paper wallet is created with a keypair generated on a computer with no internet connection; the private key is written or printed onto the paper and then erased from the computer. The paper wallet can then be stored in a safe physical location for later retrieval. Bitcoins stored using a paper wallet are said to be in cold storage. :39 In a 2014 interview, QuadrigaCX founder Gerald Cotten explained that the company stored customer funds on paper wallets in safe deposit boxes: "So we just send money to them, we don’t need to go back to the bank every time we want to put money into it. We just send money from our Bitcoin app directly to those paper wallets, and keep it safe that way.":
Cameron and Tyler Winklevoss, the founders of the Gemini Trust Co. exchange, reported that they had cut their paper wallets into pieces and stored them in envelopes distributed to safe deposit boxes across the United States.Through this system, the theft of one envelope would neither allow the thief to steal any bitcoins nor deprive the rightful owners of their access to them.
Physical wallets can also take the form of metal token coins 38 The security hologram self-destructs when removed from the token, showing that the private key has been accessed. Originally, these tokens were struck in brass and other base metals, but later used precious metals as bitcoin grew in value and popularity. :80 Coins with stored face value as high as ₿1000 have been struck in gold. :102–104 The British Museum's coin collection includes four specimens from the earliest series :83 of funded bitcoin tokens; one is currently on display in the museum's money gallery. In 2013, a Utahn manufacturer of these tokens was ordered by the Financial Crimes Enforcement Network (FinCEN) to register as a money services business before producing any more funded bitcoin tokens. :80with a private key accessible under a security hologram in a recess struck on the reverse side. :
Another type of physical wallet called a hardware wallet keeps credentials offline while facilitating transactions. 42–45The hardware wallet acts as a computer peripheral and signs transactions as requested by the user, who must press a button on the wallet to confirm that they intended to make the transaction. Hardware wallets never expose their private keys, keeping bitcoins in cold storage even when used with computers that may be compromised by malware. :
The first wallet program, simply named Bitcoin, and sometimes referred to as the Satoshi client, was released in 2009 by Satoshi Nakamoto as open-source software.In version 0.5 the client moved from the wxWidgets user interface toolkit to Qt, and the whole bundle was referred to as Bitcoin-Qt. After the release of version 0.9, the software bundle was renamed Bitcoin Core to distinguish itself from the underlying network.
Bitcoin Core is, perhaps, the best known implementation or client. Alternative clients (forks of Bitcoin Core) exist, such as Bitcoin XT, Bitcoin Unlimited,and Parity Bitcoin.
On 1 August 2017, a hard fork of bitcoin was created, known as Bitcoin Cash.Bitcoin Cash has a larger block size limit and had an identical blockchain at the time of fork. On 24 October 2017 another hard fork, Bitcoin Gold, was created. Bitcoin Gold changes the proof-of-work algorithm used in mining, as the developers felt that mining had become too specialized.
Bitcoin does not have a central authority and the bitcoin network is decentralized:
Researchers have pointed out at a "trend towards centralization". Although bitcoin can be sent directly from user to user, in practice intermediaries are widely used. 220–222 Bitcoin miners join large mining pools to minimize the variance of their income. :215, 219–222 :3 Because transactions on the network are confirmed by miners, decentralization of the network requires that no single miner or mining pool obtains 51% of the hashing power, which would allow them to double-spend coins, prevent certain transactions from being verified and prevent other miners from earning income. As of 2013 [update] just six mining pools controlled 75% of overall bitcoin hashing power. In 2014 mining pool Ghash.io obtained 51% hashing power which raised significant controversies about the safety of the network. The pool has voluntarily capped their hashing power at 39.99% and requested other pools to act responsibly for the benefit of the whole network. c. 2017 over 70% of the hashing power and 90% of transactions were operating from China.:
According to researchers, other parts of the ecosystem are also "controlled by a small set of entities", notably the maintenance of the client software, online wallets and simplified payment verification (SPV) clients.
Bitcoin is pseudonymous, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified, but all transactions on the blockchain are public. In addition, transactions can be linked to individuals and companies through "idioms of use" (e.g., transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses.Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information. To heighten financial privacy, a new bitcoin address can be generated for each transaction.
Wallets and similar software technically handle all bitcoins as equivalent, establishing the basic level of fungibility. Researchers have pointed out that the history of each bitcoin is registered and publicly available in the blockchain ledger, and that some users may refuse to accept bitcoins coming from controversial transactions, which would harm bitcoin's fungibility.For example, in 2012, Mt. Gox froze accounts of users who deposited bitcoins that were known to have just been stolen.
The blocks in the blockchain were originally limited to 32 megabytes in size. The block size limit of one megabyte was introduced by Satoshi Nakamoto in 2010. Eventually the block size limit of one megabyte created problems for transaction processing, such as increasing transaction fees and delayed processing of transactions.
Satoshi Nakamoto stated in his white paper that: "The root problem with conventional currencies is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust."
According to the European Central Bank, the decentralization of money offered by bitcoin has its theoretical roots in the Austrian school of economics, especially with Friedrich von Hayek in his book Denationalisation of Money: The Argument Refined, 22in which Hayek advocates a complete free market in the production, distribution and management of money to end the monopoly of central banks. :
According to The New York Times , libertarians and anarchists were attracted to the idea. Early bitcoin supporter Roger Ver said: "At first, almost everyone who got involved did so for philosophical reasons. We saw bitcoin as a great idea, as a way to separate money from the state."The Economist describes bitcoin as "a techno-anarchist project to create an online version of cash, a way for people to transact without the possibility of interference from malicious governments or banks".
Nigel Dodd argues in The Social Life of Bitcoin that the essence of the bitcoin ideology is to remove money from social, as well as governmental, control.Dodd quotes a YouTube video, with Roger Ver, Jeff Berwick, Charlie Shrem, Andreas Antonopoulos, Gavin Wood, Trace Meyer and other proponents of bitcoin reading The Declaration of Bitcoin's Independence. The declaration includes a message of crypto-anarchism with the words: "Bitcoin is inherently anti-establishment, anti-system, and anti-state. Bitcoin undermines governments and disrupts institutions because bitcoin is fundamentally humanitarian."
David Golumbia says that the ideas influencing bitcoin advocates emerge from right-wing extremist movements such as the Liberty Lobby and the John Birch Society and their anti-Central Bank rhetoric, or, more recently, Ron Paul and Tea Party-style libertarianism.Steve Bannon, who owns a "good stake" in bitcoin, considers it to be "disruptive populism. It takes control back from central authorities. It's revolutionary."
However, researchers looking to uncover the reasons for interest in bitcoin did not find evidence in Google search data that this was linked to libertarianism.
Bitcoin is a digital asset designed to work in peer-to-peer transactions as a currency. as of 2015 [update] , bitcoin functions more as a payment system than as a currency.Bitcoins have three qualities useful in a currency, according to The Economist in January 2015: they are "hard to earn, limited in supply and easy to verify." Per some researchers,
Economists define money as a store of value, a medium of exchange, and a unit of account.According to The Economist in 2014, bitcoin functions best as a medium of exchange. However, this is debated, and a 2018 assessment by The Economist stated that cryptocurrencies met none of these three criteria.
According to research by Cambridge University, between 2.9 million and 5.8 million unique users used a cryptocurrency wallet in 2017, most of them for bitcoin. The number of users has grown significantly since 2013, when there were 300,000–1.3 million users.
The overwhelming majority of bitcoin transactions take place on a cryptocurrency exchange, rather than being used in transactions with merchants.Delays processing payments through the blockchain of about ten minutes make bitcoin use very difficult in a retail setting. Prices are not usually quoted in units of bitcoin and many trades involve one, or sometimes two, conversions into conventional currencies. Merchants that do accept bitcoin payments may use payment service providers to perform the conversions.
In 2017 and 2018 bitcoin's acceptance among major online retailers included only three of the top 500 U.S. online merchants, down from five in 2016.Reasons for this decline include high transaction fees due to bitcoin's scalability issues and long transaction times.
Bloomberg reported that the largest 17 crypto merchant-processing services handled $69 million in June 2018, down from $411 million in September 2017. Bitcoin is "not actually usable" for retail transactions because of high costs and the inability to process chargebacks, according to Nicholas Weaver, a researcher quoted by Bloomberg. High price volatility and transaction fees make paying for small retail purchases with bitcoin impractical, according to economist Kim Grauer. However, bitcoin continues to be used for large-item purchases on sites such as Overstock.com, and for cross-border payments to freelancers and other vendors.
Bitcoins can be bought on digital currency exchanges.
Per researchers, "there is little sign of bitcoin use" in international remittances despite high fees charged by banks and Western Union who compete in this market.The South China Morning Post, however, mentions the use of bitcoin by Hong Kong workers to transfer money home.
In 2014, the National Australia Bank closed accounts of businesses with ties to bitcoin,and HSBC refused to serve a hedge fund with links to bitcoin. Australian banks in general have been reported as closing down bank accounts of operators of businesses involving the currency.
On 10 December 2017, the Chicago Board Options Exchange started trading bitcoin futures,followed by the Chicago Mercantile Exchange, which started trading bitcoin futures on 17 December 2017.
The Winklevoss twins have purchased bitcoin. In 2013, The Washington Post reported a claim that they owned 1% of all the bitcoins in existence at the time.
Other methods of investment are bitcoin funds. The first regulated bitcoin fund was established in Jersey in July 2014 and approved by the Jersey Financial Services Commission.
Forbes named bitcoin the best investment of 2013.In 2014, Bloomberg named bitcoin one of its worst investments of the year. In 2015, bitcoin topped Bloomberg's currency tables.
According to bitinfocharts.com, in 2017 there are 9,272 bitcoin wallets with more than $1 million worth of bitcoins.The exact number of bitcoin millionaires is uncertain as a single person can have more than one bitcoin wallet.
Venture capitalists, such as Peter Thiel's Founders Fund, which invested US$ 3 million in BitPay, do not purchase bitcoins themselves, but instead fund bitcoin infrastructure that provides payment systems to merchants, exchanges, wallet services, etc. In 2012, an incubator for bitcoin-focused start-ups was founded by Adam Draper, with financing help from his father, venture capitalist Tim Draper, one of the largest bitcoin holders after winning an auction of 30,000 bitcoins, at the time called "mystery buyer". The company's goal is to fund 100 bitcoin businesses within 2–3 years with $10,000 to $20,000 for a 6% stake. Investors also invest in bitcoin mining. According to a 2015 study by Paolo Tasca, bitcoin startups raised almost $1 billion in three years (Q1 2012 – Q1 2015).
The price of bitcoins has gone through cycles of appreciation and depreciation referred to by some as bubbles and busts. As of August 2014 [update] it was under US$600. During their time as bitcoin developers, Gavin Andresen and Mike Hearn warned that bubbles may occur.In 2011, the value of one bitcoin rapidly rose from about US$0.30 to US$32 before returning to US$2. In the latter half of 2012 and during the 2012–13 Cypriot financial crisis, the bitcoin price began to rise, reaching a high of US$266 on 10 April 2013, before crashing to around US$50. On 29 November 2013, the cost of one bitcoin rose to a peak of US$1,242. In 2014, the price fell sharply, and as of April remained depressed at little more than half 2013 prices.
According to Mark T. Williams, as of 2014 [update] , bitcoin has volatility seven times greater than gold, eight times greater than the S&P 500, and 18 times greater than the US dollar.
Because of bitcoin's decentralized nature and its trading on online exchanges located in many countries, regulation of bitcoin has been difficult. However, the use of bitcoin can be criminalized, and shutting down exchanges and the peer-to-peer economy in a given country would constitute a de facto ban.The legal status of bitcoin varies substantially from country to country and is still undefined or changing in many of them. Regulations and bans that apply to bitcoin probably extend to similar cryptocurrency systems.
According to the Library of Congress, an "absolute ban" on trading or using cryptocurrencies applies in eight countries: Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, and the United Arab Emirates. An "implicit ban" applies in another 15 countries, which include Bahrain, Bangladesh, China, Colombia, the Dominican Republic, Indonesia, Iran, Kuwait, Lesotho, Lithuania, Macau, Oman, Qatar, Saudi Arabia and Taiwan.
The U.S. Commodity Futures Trading Commission has issued four "Customer Advisories" for bitcoin and related investments.A July 2018 warning emphasized that trading in any cryptocurrency is often speculative, and there is a risk of theft from hacking, and fraud. A December 2017 advisory warned that virtual currencies are risky because:
The U.S. Securities and Exchange Commission has also issued warnings. A May 2014 "Investor Alert" warned that investments involving bitcoin might have high rates of fraud, and that investors might be solicited on social media sites.An earlier "Investor Alert" warned about the use of bitcoin in Ponzi schemes.
The European Banking Authority issued a warning in 2013 focusing on the lack of regulation of bitcoin, the chance that exchanges would be hacked, the volatility of bitcoin's price, and general fraud.
The self-regulatory organization FINRA and the North American Securities Administrators Association have both issued investor alerts about bitcoin.
An official investigation into bitcoin traders was reported in May 2018.The U.S. Justice Department launched an investigation into possible price manipulation, including the techniques of spoofing and wash trades. Traders in the U.S., the U.K, South Korea, and possibly other countries are being investigated. Brett Redfearn, head of the U.S. Securities and Exchange Commission's Division of Trading and Markets, had identified several manipulation techniques of concern in March 2018.
The U.S. federal investigation was prompted by concerns of possible manipulation during futures settlement dates. The final settlement price of CME bitcoin futures is determined by prices on four exchanges, Bitstamp, Coinbase, itBit and Kraken. Following the first delivery date in January 2018, the CME requested extensive detailed trading information but several of the exchanges refused to provide it and later provided only limited data. The Commodity Futures Trading Commission then subpoenaed the data from the exchanges.
State and provincial securities regulators, coordinated through the North American Securities Administrators Association, are investigating "bitcoin scams" and ICOs in 40 jurisdictions.
Academic research published in the Journal of Monetary Economics concluded that price manipulation occurred during the Mt Gox bitcoin theft and that the market remains vulnerable to manipulation.The history of hacks, fraud and theft involving bitcoin dates back to at least 2011.
Research by John M. Griffin and Amin Shams in 2018 suggests that trading associated with increases in the amount of the Tether cryptocurrency and associated trading at the Bitfinex exchange account for about half of the price increase in bitcoin in late 2017.
J.L. van der Velde, CEO of both Bitfinex and Tether, denied the claims of price manipulation: "Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of bitcoin or any other coin/token on Bitfinex."
The Bank for International Settlements summarized several criticisms of bitcoin in Chapter V of their 2018 annual report. The criticisms include the lack of stability in bitcoin's price, the high energy consumption, high and variable transactions costs, the poor security and fraud at cryptocurrency exchanges, vulnerability to debasement (from forking), and the influence of miners.
The Economist wrote in 2015 that these criticisms are unfair, predominantly because the shady image may compel users to overlook the capabilities of the blockchain technology, but also due to the fact that the volatility of bitcoin is changing in time.
Bitcoin, along with other cryptocurrencies, has been described as an economic bubble by at least eight Nobel Memorial Prize in Economic Sciences laureates, including Robert Shiller,Joseph Stiglitz, and Richard Thaler. Noted Keyensian economist Paul Krugman wrote in his New York Times column criticizing bitcoin, calling it a bubble and a fraud; and professor Nouriel Roubini of New York University called bitcoin the "mother of all bubbles." Central bankers, including former Federal Reserve Chairman Alan Greenspan, investors such as Warren Buffett, and George Soros have stated similar views, as have business executives such as Jamie Dimon and Jack Ma.
Bitcoin has been criticized for the amount of electricity consumed by mining. As of 2015 [update] , The Economist estimated that even if all miners used modern facilities, the combined electricity consumption would be 166.7 megawatts (1.46 terawatt-hours per year). At the end of 2017, the global bitcoin mining activity was estimated to consume between one and four gigawatts of electricity. Politico noted that the even high-end estimates of bitcoin's total consumption levels amount to only about 6% of the total power consumed by the global banking sector, and even if bitcoin's consumption levels increased 100 fold from today's levels, bitcoin's consumption would still only amount to about 2% of global power consumption.
To lower the costs, bitcoin miners have set up in places like Iceland where geothermal energy is cheap and cooling Arctic air is free.Bitcoin miners are known to use hydroelectric power in Tibet, Quebec, Washington (state), and Austria to reduce electricity costs. Miners are attracted to suppliers such as Hydro Quebec that have energy surpluses. According to a University of Cambridge study, much of bitcoin mining is done in China, where electricity is subsidized by the government.
Various journalists, 7 In June 2014, the Swiss Federal Council :21 examined the concerns that bitcoin might be a pyramid scheme; it concluded that, "Since in the case of bitcoin the typical promises of profits are lacking, it cannot be assumed that bitcoin is a pyramid scheme." In July 2017, billionaire Howard Marks referred to bitcoin as a pyramid scheme.economists, and the central bank of Estonia have voiced concerns that bitcoin is a Ponzi scheme. In April 2013, Eric Posner, a law professor at the University of Chicago, stated that "a real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion." A July 2014 report by the World Bank concluded that bitcoin was not a deliberate Ponzi scheme. :
Bitcoin is vulnerable to theft through phishing, scamming, and hacking. As of December 2017 [update] , around 980,000 bitcoins have been stolen from cryptocurrency exchanges.
The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.In the United States, the FBI prepared an intelligence assessment, the SEC issued a pointed warning about investment schemes using virtual currencies, and the U.S. Senate held a hearing on virtual currencies in November 2013. The U.S. government claimed that bitcoin was used to facilitate payments related to Russian interference in the 2016 United States elections.
Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods.Nobel-prize winning economist Joseph Stiglitz says that bitcoin's anonymity encourages money laundering and other crimes, "If you open up a hole like bitcoin, then all the nefarious activity will go through that hole, and no government can allow that." He's also said that if "you regulate it so you couldn't engage in money laundering and all these other [crimes], there will be no demand for Bitcoin. By regulating the abuses, you are going to regulate it out of existence. It exists because of the abuses."
In 2014, researchers at the University of Kentucky found "robust evidence that computer programming enthusiasts and illegal activity drive interest in bitcoin, and find limited or no support for political and investment motives". as of April 2017 [update] . There were an estimated 24 million bitcoin users primarily using bitcoin for illegal activity. They held $8 billion worth of bitcoin, and made 36 million transactions valued at $72 billion.Australian researchers have estimated that 25% of all bitcoin users and 44% of all bitcoin transactions are associated with illegal activity
In Charles Stross' 2013 science fiction novel, Neptune's Brood , the universal interstellar payment system is known as "bitcoin" and operates using cryptography.Stross later blogged that the reference was intentional, saying "I wrote Neptune's Brood in 2011. Bitcoin was obscure back then, and I figured had just enough name recognition to be a useful term for an interstellar currency: it'd clue people in that it was a networked digital currency."
The 2014 documentary The Rise and Rise of Bitcoin portrays the diversity of motives behind the use of bitcoin by interviewing people who use it. These include a computer programmer and a drug dealer.The 2016 documentary Banking on Bitcoin is an introduction to the beginnings of bitcoin and the ideas behind cryptocurrency today.
In September 2015, the establishment of the peer-reviewed academic journal Ledger ( ISSN 2379-5980) was announced. It covers studies of cryptocurrencies and related technologies, and is published by the University of Pittsburgh. The journal encourages authors to digitally sign a file hash of submitted papers, which will then be timestamped into the bitcoin blockchain. Authors are also asked to include a personal bitcoin address in the first page of their papers.
The bitcoin network is a peer-to-peer payment network that operates on a cryptographic protocol. Users send and receive bitcoins, the units of currency, by broadcasting digitally signed messages to the network using bitcoin cryptocurrency wallet software. Transactions are recorded into a distributed, replicated public database known as the blockchain, with consensus achieved by a proof-of-work system called mining. Satoshi Nakamoto, the designer of bitcoin claimed that design and coding of bitcoin began in 2007. The project was released in 2009 as open source software.
Zerocoin is a privacy protocol proposed by Johns Hopkins University professor Matthew D. Green and his graduate students in 2013. It was designed as an extension to the Bitcoin protocol that would improve Bitcoin transactions' anonymity by having coin-mixing capabilities natively built into the protocol. Zerocoin is not currently compatible with Bitcoin.
Coinbase is a digital currency exchange headquartered in San Francisco, California. They broker exchanges of Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, and Litecoin with fiat currencies in approximately 32 countries, and bitcoin transactions and storage in 190 countries worldwide.
Bitcoin is a cryptocurrency, a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities. The presumed pseudonymous Satoshi Nakamoto integrated many existing ideas from the cypherpunk community when creating bitcoin. Over the course of bitcoin's history, it has undergone rapid growth to become a significant currency both on and offline – from the mid 2010s, some businesses began accepting bitcoin in addition to traditional currencies.
The legal status of bitcoin varies substantially from state to state and is still undefined or changing in many of them. Whereas the majority of countries do not make the usage of bitcoin itself illegal, its status as money varies, with differing regulatory implications.
Ethereum is an open source, public, blockchain-based distributed computing platform and operating system featuring smart contract (scripting) functionality. It supports a modified version of Nakamoto consensus via transaction-based state transitions.
Nxt is an open source cryptocurrency and payment network launched in 2013 by anonymous software developer BCNext. It uses proof-of-stake to reach consensus for transactions—as such there is a static money supply and, unlike bitcoin, no mining. Nxt was specifically conceived as a flexible platform around which to build applications and financial services.
Dash is an open source cryptocurrency and is a form of decentralized autonomous organization (DAO) run by a subset of users, called "masternodes". It is an altcoin that was forked from the Bitcoin protocol. The currency permits fast transactions that can be untraceable.
Bitcoin Core is free and open-source software that serves as a bitcoin node and provides a bitcoin wallet which fully verifies payments. It is considered to be bitcoin's reference implementation and is the most used implementation by a large margin. Initially, the software was published by Satoshi Nakamoto under the name "Bitcoin", and later renamed to "Bitcoin Core" to distinguish it from the network. For this reason, it is also known as the Satoshi client. As of 2018, Bitcoin Core repositories are maintained by a team of maintainers, with Wladimir J. van der Laan leading the release process.
Titcoin is a type of digital currency called a cryptocurrency that uses pornography on a decentralized peer-to-peer network to manage the issuance of new currency units while simultaneously processing transactions. Titcoin is a derivative of the Bitcoin source code with key modifications to the software which greatly improve transaction speeds and network difficulty readjustments. Titcoin is exclusively designed for and marketed towards the adult entertainment industry to allow owners of the currency to pay for adult products and services without the fear of incriminating payment histories appearing on their credit cards.
A blockchain, originally block chain, is a growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
NEM is a peer-to-peer cryptocurrency and blockchain platform launched on March 31, 2015. Written in Java, with a C++ version in the works, NEM has a stated goal of a wide distribution model and has introduced new features to blockchain technology such as its proof-of-importance (POI) algorithm, multisignature accounts, encrypted messaging, and an Eigentrust++ reputation system.
Monero (XMR) is an open-source cryptocurrency created in April 2014 that focuses on fungibility, privacy and decentralization. Monero uses an obfuscated public ledger, meaning anybody can broadcast or send transactions, but no outside observer can tell the source, amount or destination. Monero uses a Proof of Work mechanism to issue new coins and incentivize miners to secure the network and validate transactions.
Cryptocurrency tumbler or cryptocurrency mixing service is a service offered to mix potentially identifiable or 'tainted' cryptocurrency funds with others, so as to obscure the trail back to the fund's original source. Tumblers have arisen to improve the anonymity of cryptocurrencies, usually bitcoin, since the currencies provide a public ledger of all transactions.
The bitcoin scalability problem refers to the discussion concerning the limits on the amount of transactions the bitcoin network can process. It is related to the fact that records in the bitcoin blockchain are limited in size and frequency.
Bitcoin Cash is a cryptocurrency that is fork of Bitcoin. In 2018 Bitcoin Cash subsequently split into two cryptocurrencies, Bitcoin Cash and Bitcoin Cash SV. Bitcoin Cash is sometimes also referred to as Bcash.
Segregated Witness, or SegWit, is the name used for an implemented soft fork change in the transaction format of the cryptocurrency bitcoin.
Cryptocurrency and security describes attempts to obtain digital currencies by illegal means, for instance through phishing, scamming, a supply chain attack or hacking, or the measures to prevent unauthorized cryptocurrency transactions, and storage technologies. In extreme cases even a computer which is not connected to any network can be hacked.
Standards vary, but there seems to be a consensus forming around Bitcoin, capitalized, for the system, the software, and the network it runs on, and bitcoin, lowercase, for the currency itself.
Bitcoin miners must also register if they trade in their earnings for dollars.
A transaction fee is like a tip or gratuity left for the miner.
While China was once home to about 70 percent of Bitcoin mining and 90 percent of trades, authorities have waged a nearly two-year campaign to shrink the crypto industry amid concerns over speculative bubbles, fraud and wasteful energy consumption.
Lack of adoption and loads of volatility mean that cryptocurrencies satisfy none of those criteria.
The decentralized nature of bitcoin is such that it is impossible to “ban” the cryptocurrency, but if you shut down exchanges and the peer-to-peer economy running on bitcoin, it's a de facto ban.
Put in the simplest terms, the quest for decentralised trust has quickly become an environmental disaster.
It doesn't serve any socially useful function.
several experts told The Washington Post that bitcoin probably uses as much as 1 to 4 gigawatts, or billion watts, of electricity, roughly the output of one to three nuclear reactors.
It's theft-proof too – for each bitcoin is cryptographically signed by the mind of its owner.
I wrote Neptune's Brood in 2011. Bitcoin was obscure back then, and I figured had just enough name recognition to be a useful term for an interstellar currency: it'd clue people in that it was a networked digital currency.
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