Bitcoin

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"?" redirects here. It is not to be confused with "?" for Thai baht.
Bitcoin
Prevailing bitcoin logo
Prevailing bitcoin logo
Denominations
Plural bitcoins
Symbol ? (Unicode: U+20BF ? BITCOIN SIGN (HTML ₿))[a]
Ticker symbol BTC, XBT[b]
Precision 10-8
Subunits
?1/1000 millibitcoin
?1/100000000 satoshi[2]
Development
Original author(s) Satoshi Nakamoto
White paper "Bitcoin: A Peer-to-Peer Electronic Cash System"[4]
Implementation(s) Bitcoin Core
Initial release 0.1.0 / 9 January 2009 (10 years ago)
Latest release 0.19.0.1 / 24 November 2019 (18 days ago)[3]
Development status Active
Website bitcoin.org
Ledger
Ledger start 3 January 2009 (10 years ago)
Timestamping scheme Proof-of-work (partial hash inversion)
Hash function SHA-256
Issuance schedule Decentralized (block reward)
Initially ?50 per block, halved every 210,000 blocks[8][9]
Block reward ?12.5[c]
Block time 10 minutes
Block explorer bitaps.com
Circulating supply ?17,754,100 (as of 11 June 2019)
Supply limit ?21,000,000[5][d]

The symbol was encoded in Unicode version 10.0 at position U+20BF ? BITCOIN SIGN in
the Currency Symbols block in June 2017.[1]
Compatible with ISO 4217.
July 2016 to approximately June 2020, halved approximately every four years

The supply will approach, but never reach, ?21 million. Issuance will
permanently halt c. 2140 at ?20,999,999.9769.[6][7]:ch. 8

This article contains special characters. Without proper rendering support,

you may see question marks, boxes, or other symbols.

Bitcoin[a] (?) 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.[8]

Transactions are verified by network nodes through cryptography and recorded in a

public distributed ledger called a blockchain. Bitcoin was invented in 2008 by an
unknown person or group of people using the name Satoshi Nakamoto[15] and started
in 2009[16] when its source code was released as open-source software.[7]:ch. 1
Bitcoins are created as a reward for a process known as mining. They can be
exchanged for other currencies, products, and services.[17] 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.[18]
Bitcoin has been criticized for its use in illegal transactions, its high
electricity consumption, price volatility, and thefts from exchanges. Some
economists, including several Nobel laureates, have characterized it as a
speculative bubble. Bitcoin has also been used as an investment, although several
regulatory agencies have issued investor alerts about bitcoin.[19][20]
Contents

1 History
1.1 Creation
1.2 2011�2012
1.3 2013�2016
1.4 2017�2019
2 Design
2.1 Units
2.2 Blockchain
2.3 Transactions
2.3.1 Transaction fees
2.4 Ownership
2.5 Mining
2.5.1 Supply
2.5.2 Pooled mining
2.6 Wallets
2.6.1 Physical wallets
2.7 Implementations
2.7.1 Forks
2.8 Decentralization
2.8.1 Trend towards centralization
2.9 Privacy
2.10 Fungibility
2.11 Scalability
3 Ideology
3.1 Austrian economics
3.2 Anarchism and libertarianism
4 Economics
4.1 Acceptance by merchants
4.2 Financial institutions
4.3 As an investment
4.4 Venture capital
4.5 Price and volatility
4.6 Social function
5 Legal status, tax and regulation
5.1 Regulatory warnings
5.2 Price manipulation investigation
6 Criticism
6.1 As a speculative bubble
6.2 Energy consumption
6.3 Carbon footprint
6.4 Ponzi scheme and pyramid scheme concerns
6.5 Security issues
6.6 Use in illegal transactions
7 In popular culture
7.1 Literature
7.2 Film
7.3 Academia
8 See also
9 Notes
10 References
11 External links
History
Main article: History of bitcoin
Creation

The domain name "bitcoin.org" was registered on 18 August 2008.[21] On 31 October

2008, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer
Electronic Cash System[4] was posted to a cryptography mailing list.[22] Nakamoto
implemented the bitcoin software as open-source code and released it in January
2009.[23][24][16] Nakamoto's identity remains unknown.[15]

On 3 January 2009, the bitcoin network was created when Nakamoto mined the first
block of the chain, known as the genesis block.[25][26] Embedded in the coinbase of
this block was the text "The Times 03/Jan/2009 Chancellor on brink of second
bailout for banks".[16] 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.[27]:18

The receiver of the first bitcoin transaction was cypherpunk Hal Finney, who had
created the first reusable proof-of-work system (RPoW) in 2004.[28] Finney
downloaded the bitcoin software on its release date, and on 12 January 2009
received ten bitcoins from Nakamoto.[29][30] Other early cypherpunk supporters were
creators of bitcoin predecessors: Wei Dai, creator of b-money, and Nick Szabo,
creator of bit gold.[25] In 2010, the first known commercial transaction using
bitcoin occurred when programmer Laszlo Hanyecz bought two Papa John's pizzas for ?
10,000.[31]

Blockchain analysts estimate that Nakamoto had mined about one million bitcoins[32]
before 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.[33][34] 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.[35]
[34]
2011�2012

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.[36]: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.[37]

Litecoin, an early bitcoin spin-off or altcoin, appeared in October 2011.[38] Many

altcoins have been created since then.[39]

In 2012, bitcoin prices started at $5.27 growing to $13.30 for the year.[37] 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.[40]

The Bitcoin Foundation was founded in September 2012 to promote bitcoin's

development and uptake.[41]
2013�2016

In 2013, prices started at $13.30 rising to $770 by 1 January 2014.[37]

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.[42] During the split, the Mt. Gox
exchange briefly halted bitcoin deposits and the price dropped by 23% to $37[42]
[43] before recovering to previous level of approximately $48 in the following
hours.[44] 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.[45][46][47] In April, exchanges BitInstant and Mt. Gox experienced
processing delays due to insufficient capacity[48] resulting in the bitcoin price
dropping from $266 to $76 before returning to $160 within six hours.[49] The
bitcoin price rose to $259 on 10 April, but then crashed by 83% to $45 over the
next three days.[40] 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.[50][51] 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.[52][better source needed] This marked the first time a
government agency had seized bitcoin.[53] The FBI seized about ?30,000[54] in
October 2013 from the dark web website Silk Road during the arrest of Ross William
Ulbricht.[55][56][57] These bitcoins were sold at blind auction by the United
States Marshals Service to venture capital investor Tim Draper.[54] 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.[40] On 5 December 2013, the People's Bank of China
prohibited Chinese financial institutions from using bitcoins.[58] After the
announcement, the value of bitcoins dropped,[59] and Baidu no longer accepted
bitcoins for certain services.[60] Buying real-world goods with any virtual
currency had been illegal in China since at least 2009.[61]

In 2014, prices started at $770 and fell to $314 for the year.[37]

On July 30, 2014, the Wikimedia Foundation started accepting donations of bitcoin.
[62]

In 2015. prices started at $314 and rose to $434 for the year. In 2016 prices rose
to $998 on 1 January 2017.[37]
2017�2019

Prices started at $998 in 2017 and rose to $13,412.44 on 1 January 2018,[37] after
reaching its all-time high of $19,783.06 on 17 December 2017.[63]

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.[40] The percentage of bitcoin trading in the Chinese
renminbi fell from over 90% in September 2017 to less than 1% in June 2018.[64] On
August 1, 2017 a fork of the blockchain created Bitcoin Cash.

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.[65][66] The price
on January 1, 2019 was $3,747, down 72% for 2018 and down 81% since the all-time
high.[65][67]

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.[68] Bitcoin's
price was affected even though other cryptocurrencies were stolen at Coinrail and
Bancor as investors worried about the security of cryptocurrency exchanges.[69][70]
[71] In September 2019 the Intercontinental Exchange (the owner of the NYSE) began
trading of bitcoin futures on its exchange called Bakkt.[72] Bakkt also announced
that it would launch options on bitcoin in December 2019.[73]
Design
Units

The unit of account of the bitcoin system is a bitcoin. Ticker symbols used to
represent bitcoin are BTC[b] and XBT.[c][78]:2 Its Unicode character is ?.[1] 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.[2] A millibitcoin equals 0.001 bitcoins; one thousandth of a bitcoin or
100,000 satoshis.[79]
Blockchain
Data structure of blocks in the ledger.
Number of bitcoin transactions per month, semilogarithmic plot[80]
Number of unspent transaction outputs[81]
For broader coverage of this topic, see Blockchain.

The bitcoin blockchain is a public ledger that records bitcoin transactions.[82] It

is implemented as a chain of blocks, each block containing a hash of the previous
block up to the genesis block[d] of the chain. A network of communicating nodes
running bitcoin software maintains the blockchain.[36]:215�219 Transactions of the
form payer X sends Y bitcoins to payee Z are broadcast to this network using
readily available software applications.

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.[83] About 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.[7]:ch. 5
Transactions
See also: Bitcoin network

Transactions are defined using a Forth-like scripting language.[7]: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.[84] 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.[84] Any input satoshis not
accounted for in the transaction outputs become the transaction fee.[84]
Transaction fees

Though transaction fees are optional, miners can choose which transactions to
process and prioritize those that pay higher fees.[84] Miners 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.[7]:ch. 8
Ownership
Simplified chain of ownership as illustrated in the bitcoin whitepaper.[4] In
practice, a transaction can have more than one input and more than one output.[84]

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.[7]:ch. 5

If the private key is lost, the bitcoin network will not recognize any other
evidence of ownership;[36] 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.[85] About 20% of all bitcoins are believed to be lost. They would have a
market value of about $20 billion at July 2018 prices.[86]

To ensure the security of bitcoins, the private key must be kept secret.[7]: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.[87] As of December 2017,
around 980,000 bitcoins have been stolen from cryptocurrency exchanges.[88]

Regarding ownership distribution, as of 16 March 2018, 0.5% of bitcoin wallets own

87% of all bitcoins ever mined.[89]
Mining
See also: Bitcoin network � Mining
Early bitcoin miners used GPUs for mining, as they were better suited to the proof-
of-work algorithm than CPUs.[90]
Later amateurs mined bitcoins with specialized FPGA and ASIC chips. The chips
pictured have become obsolete due to increasing difficulty.
Today, bitcoin mining companies dedicate facilities to housing and operating large
amounts of high-performance mining hardware.[91]
Semi-log plot of relative mining difficulty[e][81]

Mining is a record-keeping service done through the use of computer processing

power.[f] Miners 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.[82] Each block contains a
SHA-256 cryptographic hash of the previous block,[82] thus linking it to the
previous block and giving the blockchain its name.[7]:ch. 7[82]

To be accepted by the rest of the network, a new block must contain a proof-of-work
(PoW).[82] The system used is based on Adam Back's 1997 anti-spam scheme, Hashcash.
[93][failed verification][4] 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.[7]: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, ...[7]:ch. 8) before meeting the difficulty target.

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.
[7]: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.[94]

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.[95] 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.[82]
Supply
Total bitcoins in circulation.[81]

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.[96] As of 9
July 2016,[97] 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.[7]: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[g] will be reached c. 2140; the record keeping will then be rewarded
solely by transaction fees.[98]

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.[99]
Pooled mining
For broader coverage of this topic, see Mining pool.

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.[100]
Wallets
For broader coverage of this topic, see Cryptocurrency wallet.
Bitcoin Core, a full client
Electrum, a lightweight client

A wallet stores the information necessary to transact bitcoins. While wallets are
often described as a place to hold[101] 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.[7]:ch. 1,
glossary Bitcoin uses public-key cryptography, in which two cryptographic keys, one
public and one private, are generated.[102] At its most basic, a wallet is a
collection of these keys.
There are several modes which wallets can operate in. They have an inverse
relationship with regards to trustlessness and computational requirements.

Full clients verify transactions directly by downloading a full copy of the

blockchain (over 150 GB As of January 2018).[103] They are the most secure and
reliable way of using the network, as trust in external parties is not required.
Full clients check the validity of mined blocks, preventing them from transacting
on a chain that breaks or alters network rules.[7]:ch. 1 Because of its size and
complexity, downloading and verifying the entire blockchain is not suitable for all
computing devices.
Lightweight clients consult full clients to send and receive transactions
without requiring a local copy of the entire blockchain (see simplified payment
verification � SPV). This makes lightweight clients much faster to set up and
allows them to be used on low-power, low-bandwidth devices such as smartphones.
When using a lightweight wallet, however, the user must trust the server to a
certain degree, as it can report faulty values back to the user. Lightweight
clients follow the longest blockchain and do not ensure it is valid, requiring
trust in miners.[104]

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.[105] 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.[106]
Physical wallets
A paper wallet with a banknote-like design. Both the private key and the address
are visible in text form and as 2D barcodes.
A paper wallet with the address visible for adding or checking stored funds. The
part of the page containing the private key is folded over and sealed.
A brass token with a private key hidden beneath a tamper-evident security hologram.
A part of the address is visible through a transparent part of the hologram.
A hardware wallet peripheral which processes bitcoin payments without exposing any
credentials to the computer.

Physical wallets store the credentials necessary to spend bitcoins offline and can
be as simple as a paper printout of the private key:[7]: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[h] 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.[107]: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."[108]

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.[109] 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.[108]

Physical wallets can also take the form of metal token coins[110] with a private
key accessible under a security hologram in a recess struck on the reverse side.
[111]:38 The security hologram self-destructs when removed from the token, showing
that the private key has been accessed.[112] Originally, these tokens were struck
in brass and other base metals, but later used precious metals as bitcoin grew in
value and popularity.[111]:80 Coins with stored face value as high as ?1000 have
been struck in gold.[111]:102�104 The British Museum's coin collection includes
four specimens from the earliest series[111]:83 of funded bitcoin tokens; one is
currently on display in the museum's money gallery.[113] 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.[110][111]:80

Another type of physical wallet called a hardware wallet keeps credentials offline
while facilitating transactions.[114] The 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.[107]:42�45
Implementations
Further information: Bitcoin Core

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.
[16] 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.[115] After the release of
version 0.9, the software bundle was renamed Bitcoin Core to distinguish itself
from the underlying network.[116][117]
Forks
See also: Fork (blockchain) and List of bitcoin forks

Bitcoin Core is, perhaps, the best known implementation or client. Alternative
clients (forks of Bitcoin Core) exist, such as Bitcoin XT, Bitcoin Unlimited,[35]
and Parity Bitcoin.[118]

On 1 August 2017, a hard fork of bitcoin was created, known as Bitcoin Cash.[119]
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.[120]
Decentralization

Bitcoin is decentralized:[8]

Bitcoin does not have a central authority.[8]

There is no central server; the bitcoin network is peer-to-peer.[16]
There is no central storage; the bitcoin ledger is distributed.[121]
The ledger is public; anybody can store it on their computer.[7]:ch. 1
There is no single administrator;[8] the ledger is maintained by a network of
equally privileged miners.[7]:ch. 1
Anybody can become a miner.[7]:ch. 1
The additions to the ledger are maintained through competition. Until a new
block is added to the ledger, it is not known which miner will create the block.
[7]:ch. 1
The issuance of bitcoins is decentralized. They are issued as a reward for the
creation of a new block.[96]
Anybody can create a new bitcoin address (a bitcoin counterpart of a bank
account) without needing any approval.[7]:ch. 1
Anybody can send a transaction to the network without needing any approval; the
network merely confirms that the transaction is legitimate.[122]:32

Trend towards centralization

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.
[36]:220�222 Bitcoin miners join large mining pools to minimize the variance of
their income.[36]:215, 219�222[123]:3[124] 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.[125] As of 2013 just six mining pools controlled 75% of
overall bitcoin hashing power.[125] 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.[126]
c.?2017 over 70% of the hashing power and 90% of transactions were operating from
China.[127]

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.[125]
Privacy

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.[128] Additionally, bitcoin exchanges,
where bitcoins are traded for traditional currencies, may be required by law to
collect personal information.[129] To heighten financial privacy, a new bitcoin
address can be generated for each transaction.[130]
Fungibility

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.[131] For example, in 2012,
Mt. Gox froze accounts of users who deposited bitcoins that were known to have just
been stolen.[132]
Scalability
Main article: Bitcoin scalability problem

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.[133]
Ideology

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."[134]
Austrian economics

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,[135] in which Hayek advocates a complete free market in the production,
distribution and management of money to end the monopoly of central banks.[136]:22
Anarchism and libertarianism
Further information: Crypto-anarchism

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."[134] 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".[137] Economist Paul Krugman argues that cryptocurrencies like bitcoin are
"something of a cult" based in "paranoid fantasies" of government power.[138]
External video The Declaration Of Bitcoin's Independence, BraveTheWorld, 4:38[139]

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.[140]
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."[140][139]

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.[141] 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."[142]

A 2014 study of Google Trends data found correlations between bitcoin-related

searches and ones related to computer programming and illegal activity, but not
libertarianism or investment topics.[143]
Economics
Main article: Economics of bitcoin
Liquidity,[i] semilogarithmic plot.[81]

Bitcoin is a digital asset designed to work in peer-to-peer transactions as a

currency.[4][144] 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."[145] Per some researchers, as of 2015, bitcoin functions more as a
payment system than as a currency.[36]

Economists define money as a store of value, a medium of exchange, and a unit of

account.[146] According to The Economist in 2014, bitcoin functions best as a
medium of exchange.[146] However, this is debated, and a 2018 assessment by The
Economist stated that cryptocurrencies met none of these three criteria.[137] Yale
economist Robert J. Shiller writes that bitcoin has potential as a unit of account
for measuring the relative value of goods, as with Chile's Unidad de Fomento, but
that "Bitcoin in its present form [...] doesn�t really solve any sensible economic
problem".[147]

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.[18]

In addition to being characterized as a cryptocurrency, bitcoin is also

characterized as a payment system.[148]
Acceptance by merchants
The overwhelming majority of bitcoin transactions take place on a cryptocurrency
exchange, rather than being used in transactions with merchants.[149] 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.[36] Merchants that do accept bitcoin payments may use
payment service providers to perform the conversions.[150]

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.[149] Reasons
for this decline include high transaction fees due to bitcoin's scalability issues
and long transaction times.[151]

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.[152]
Financial institutions

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.
[36] The South China Morning Post, however, mentions the use of bitcoin by Hong
Kong workers to transfer money home.[153]

In 2014, the National Australia Bank closed accounts of businesses with ties to
bitcoin,[154] and HSBC refused to serve a hedge fund with links to bitcoin.[155]
Australian banks in general have been reported as closing down bank accounts of
operators of businesses involving the currency.[156]

On 10 December 2017, the Chicago Board Options Exchange started trading bitcoin
futures,[157] followed by the Chicago Mercantile Exchange, which started trading
bitcoin futures on 17 December 2017.[158]

In September 2019 the Central Bank of Venezuela, at the request of PDVSA, ran tests
to determine if bitcoin and ether could be held in central bank's reserves. The
request was motivated by oil company's goal to pay its suppliers.[159]
As an investment

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.[160]

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.[161]

Forbes named bitcoin the best investment of 2013.[162] In 2014, Bloomberg named
bitcoin one of its worst investments of the year.[163] In 2015, bitcoin topped
Bloomberg's currency tables.[164]

According to bitinfocharts.com, in 2017 there are 9,272 bitcoin wallets with more
than $1 million worth of bitcoins.[165] The exact number of bitcoin millionaires is
uncertain as a single person can have more than one bitcoin wallet.
Venture capital
Peter Thiel's Founders Fund, invested US$3 million in BitPay.[166] 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,[167] at the time called
"mystery buyer".[168] The company's goal is to fund 100 bitcoin businesses within
2�3 years with $10,000 to $20,000 for a 6% stake.[167] Investors also invest in
bitcoin mining.[169] According to a 2015 study by Paolo Tasca, bitcoin startups
raised almost $1 billion in three years (Q1 2012 � Q1 2015).[170]
Price and volatility
Price,[j] semilogarithmic plot.[81]
Annual volatility[80]

The price of bitcoins has gone through cycles of appreciation and depreciation
referred to by some as bubbles and busts.[171] In 2011, the value of one bitcoin
rapidly rose from about US$0.30 to US$32 before returning to US$2.[172] In the
latter half of 2012 and during the 2012�13 Cypriot financial crisis, the bitcoin
price began to rise,[173] 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.[174] In 2014, the price fell sharply, and as of April remained
depressed at little more than half 2013 prices. As of August 2014 it was under
US$600.[175]

According to Mark T. Williams, as of 30 September 2014, bitcoin has volatility

seven times greater than gold, eight times greater than the S&P 500, and 18 times
greater than the US dollar.[176]
Social function

Shiller argues that enthusiasm for bitcoin speculation derives from having sense of
empowerment in response to "a fundamental deep angst of our [society's]
digitization".[177]
Legal status, tax and regulation
Further information: Legality of bitcoin by country or territory

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.[178] 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.[179]

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.[180]
Regulatory warnings

The U.S. Commodity Futures Trading Commission has issued four "Customer Advisories"
for bitcoin and related investments.[19] A July 2018 warning emphasized that
trading in any cryptocurrency is often speculative, and there is a risk of theft
from hacking, and fraud.[181] In May 2014 the U.S. Securities and Exchange
Commission warned that investments involving bitcoin might have high rates of
fraud, and that investors might be solicited on social media sites.[182] An earlier
"Investor Alert" warned about the use of bitcoin in Ponzi schemes.[183]

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.[184] FINRA and the North American Securities
Administrators Association have both issued investor alerts about bitcoin.[185]
[186]
Price manipulation investigation

An official investigation into bitcoin traders was reported in May 2018.[187] The
U.S. Justice Department launched an investigation into possible price manipulation,
including the techniques of spoofing and wash trades.[188][189][190]

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.[191][192]

State and provincial securities regulators, coordinated through the North American
Securities Administrators Association, are investigating "bitcoin scams" and ICOs
in 40 jurisdictions.[193]

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.[194] The history of hacks, fraud and theft
involving bitcoin dates back to at least 2011.[195]

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.[196][197]

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."[198]