Bitcoin 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. The currency began use in 2009 when its implementation was released as open-source software. In September 2021, El Salvador officially adopted Bitcoin as legal tender, becoming the first nation to do so.
The word bitcoin was defined in a white paper published on 31 October 2008. It is a compound of the words bit and coin. No uniform convention for bitcoin capitalization exists; some sources use Bitcoin, capitalized, to refer to the technology and network and bitcoin, lowercase, for the unit of account. The Wall Street Journal, The Chronicle of Higher Education, and the Oxford English Dictionary advocate the use of lowercase bitcoin in all cases.
Design
Units and divisibility
The unit of account of the bitcoin system is the bitcoin. Currency codes for representing bitcoin are BTC and XBT. Its Unicode character is ₿.
Blockchain
The bitcoin blockchain is a public ledger that records bitcoin transactions. It is implemented as a chain of blocks, each block containing a hash of the previous block up to the genesis block in the chain. A network of communicating nodes running bitcoin software maintains the blockchain. At varying intervals of time averaging to 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. 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 can exceed the intended sum of payments. In such a case, an additional output is used, returning the change back to the payer. Andreas Antonopoulos has stated Lightning Network is a potential scaling solution and referred to lightning as a second layer routing network. About 20% of all bitcoins are believed to be lost -they would have had a market value of about $20 billion at July 2018 prices.
To ensure the security of bitcoins, the private key must be kept secret. 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
Mining is a record-keeping service done through the use of computer processing power. 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. Each block contains a SHA-256 cryptographic hash of the previous block, Computations of this magnitude are extremely expensive and utilize specialized hardware.
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 increases.
Supply
The successful miner finding the new block is allowed by the rest of the network to collect for themselves all transaction fees from transactions they included in the block, as well as a pre-determined reward of newly created bitcoins. this reward is currently 6.25 newly created bitcoins per block. To claim this reward, a special transaction called a coinbase is included in the block, with the miner as the payee.
Decentralization
Bitcoin is decentralized thus:
Bitcoin does not have a central authority.
The bitcoin network is peer-to-peer, without central servers.
The network also has no central storage; the bitcoin ledger is distributed.
The ledger is public; anybody can store it on a computer.
There is no single administrator; the ledger is maintained by a network of equally privileged miners.
Anyone can become a miner.
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.
The issuance of bitcoins is decentralized. They are issued as a reward for the creation of a new block.
Anybody can create a new bitcoin address without needing any approval.
Anybody can send a transaction to the network without needing any approval; the network merely confirms that the transaction is legitimate.
Conversely, 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. Bitcoin miners join large mining pools to minimize the variance of their income. 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. Around the year 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 clients.
Privacy and fungibility
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” 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.
Wallets
A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold 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 them. 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.
Software wallets
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. 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 exist, such as Bitcoin XT, Bitcoin Unlimited, and Parity Bitcoin.
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. 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. Because of its size and complexity, downloading and verifying the entire blockchain is not suitable for all computing devices.
Lightweight clients consult full nodes to send and receive transactions without requiring a local copy of the entire blockchain. 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 full nodes, 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 full nodes.
Third-party internet services called online wallets or webwallets 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.
Cold storage
Wallet software is targeted by hackers because of the lucrative potential for stealing bitcoins. The credentials necessary to spend bitcoins can be stored offline in a number of different ways, from specialized hardware wallets to simple paper printouts of the private key.
Hardware wallets
A hardware wallet is a computer peripheral that signs transactions as requested by the user. These devices store private keys and carry out signing and encryption internally, Because hardware wallets never expose their private keys, even computers that may be compromised by malware do not have a vector to access or steal them.
The user sets a passcode when setting up a hardware wallet. with a private key accessible under a security hologram in a recess struck on the reverse side. 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. Coins with stored face value as high as ₿1000 have been struck in gold. The British Museum’s coin collection includes four specimens from the earliest series 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 to register as a money services business before producing any more funded bitcoin tokens. 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. Embedded in the coinbase of this block was the text “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.
The receiver of the first bitcoin transaction was Hal Finney, who had created the first reusable proof-of-work system 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.
Blockchain analysts estimate that Nakamoto had mined about one million bitcoins 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. 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.
In 2012, bitcoin prices started at $5.27, growing to $13.30 for the year.
The Bitcoin Foundation was founded in September 2012 to promote bitcoin’s development and uptake.
On 1 November 2011, the reference implementation Bitcoin-Qt version 0.5.0 was released. It introduced a front end that used the Qt user interface toolkit. The software previously used Berkeley DB for database management. Developers switched to LevelDB in release 0.8 in order to reduce blockchain synchronization time. The update to this release resulted in a minor blockchain fork on 11 March 2013. The fork was resolved shortly afterwards. Seeding nodes through IRC was discontinued in version 0.8.2. From version 0.9.0 the software was renamed to Bitcoin Core. Transaction fees were reduced again by a factor of ten as a means to encourage microtransactions. Although Bitcoin Core does not use OpenSSL for the operation of the network, the software did use OpenSSL for remote procedure calls. Version 0.9.1 was released to remove the network’s vulnerability to the Heartbleed bug.
2013–2016
In 2013, prices started at $13.30 rising to $770 by 1 January 2014. During the split, the Mt. Gox exchange briefly halted bitcoin deposits and the price dropped by 23% to $37 before recovering to the previous level of approximately $48 in the following hours.
The US Financial Crimes Enforcement Network established regulatory guidelines for “decentralized virtual currencies” such as bitcoin, classifying American bitcoin miners who sell their generated bitcoins as Money Service Businesses, 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 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. 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, following 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. 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.
In 2014, prices started at $770 and fell to $314 for the year.
In 2015, prices started at $314 and rose to $434 for the year. In 2016, prices rose and climbed up to $998 by 1 January 2017. Bitcoin Core 0.12.1 was released on 15 April 2016, and enabled multiple soft forks to occur concurrently. Around 100 contributors worked on Bitcoin Core 0.13.0 which was released on 23 August 2016.
In July 2016, the CheckSequenceVerify soft fork activated.
In October 2016, Bitcoin Core’s 0.13.1 release featured the “Segwit” soft fork that included a scaling improvement aiming to optimize the bitcoin blocksize. The patch which was originally finalised in April, and 35 developers were engaged to deploy it. This release featured Segregated Witness which aimed to place downward pressure on transaction fees as well as increase the maximum transaction capacity of the network. The 0.13.1 release endured extensive testing and research leading to some delays in its release date. SegWit prevents various forms of transaction malleability.
2017–2019
Research produced by the University of Cambridge estimated that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin. On 15 July 2017, the controversial Segregated Witness software upgrade was approved. Segwit was intended to support the Lightning Network as well as improve scalability. On 21 July 2017, bitcoin was trading at $2,748, up 52% from 14 July 2017’s $1,835.
Prices started at $998 in 2017 and rose to $13,412.44 on 1 January 2018,
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.
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 1 January 2019 was $3,747, down 72% for 2018 and down 81% since the all-time high.
In September 2018, an anonymous party discovered and reported an invalid-block denial-of-server vulnerability to developers of Bitcoin Core, Bitcoin ABC and Bitcoin Unlimited. Further analysis by bitcoin developers showed the issue could also allow the creation of blocks violating the 21 million coin limit and was assigned and the issue resolved.
Bitcoin prices were negatively affected by several hacks or thefts from cryptocurrency exchanges, including thefts from Coincheck in January 2018, 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. In September 2019 the Intercontinental Exchange began trading of bitcoin futures on its exchange called Bakkt. Bakkt also announced that it would launch options on bitcoin in December 2019. In December 2019, YouTube removed bitcoin and cryptocurrency videos, but later restored the content after judging they had “made the wrong call.”
In February 2019, Canadian cryptocurrency exchange Quadriga Fintech Solutions failed with approximately $200 million missing. By June 2019 the price had recovered to $13,000.
2020–present
On 13 March 2020, bitcoin fell below $4,000 during a broad market selloff, after trading above $10,000 in February 2020. On 11 March 2020, 281,000 bitcoins were sold, held by owners for only thirty days. In October 2020, Square, Inc. placed approximately 1% of total assets in bitcoin. In November 2020, PayPal announced that US users could buy, hold, or sell bitcoin. On 30 November 2020, the bitcoin value reached a new all-time high of $19,860, topping the previous high of December 2017. Alexander Vinnik, founder of BTC-e, was convicted and sentenced to five years in prison for money laundering in France while refusing to testify during his trial. In December 2020 Massachusetts Mutual Life Insurance Company announced a bitcoin purchase of USD $100 million, or roughly 0.04% of its general investment account.
On 19 January 2021, Elon Musk placed the handle #Bitcoin in his Twitter profile, tweeting “In retrospect, it was inevitable”, which caused the price to briefly rise about $5000 in an hour to $37,299. On 25 January 2021, Microstrategy announced that it continued to buy bitcoin and as of the same date it had holdings of ₿70,784 worth $2.38 billion. On 8 February 2021 Tesla’s announcement of a bitcoin purchase of USD $1.5 billion and the plan to start accepting bitcoin as payment for vehicles, pushed the bitcoin price to $44,141. On 18 February 2021, Elon Musk stated that “owning bitcoin was only a little better than holding conventional cash, but that the slight difference made it a better asset to hold”. After 49 days of accepting the digital currency, Tesla reversed course on 12 May 2021, saying they would no longer take Bitcoin due to concerns that “mining” the cryptocurrency was contributing to the consumption of fossil fuels and climate change. The decision resulted in the price of Bitcoin dropping around 12% on 13 May. During a July Bitcoin conference, Musk suggested Tesla could possibly help Bitcoin miners switch to renewable energy in the future and also stated at the same conference that if Bitcoin mining reaches, and trends above 50 percent renewable energy usage, that “Tesla would resume accepting bitcoin.” The price for bitcoin rose after this announcement.
In September 2020, the Canton of Zug, Switzerland, announced to start to accepting tax payments in bitcoin by February 2021.
In June 2021, the Legislative Assembly of El Salvador voted legislation to make Bitcoin legal tender in El Salvador. The law took effect on 7 September. The implementation of the law has been met with protests and calls to make the currency optional, not compulsory. According to a survey by the Central American University, the majority of Salvadorans disagreed with using cryptocurrency as a legal tender, and a survey by the Center for Citizen Studies showed that 91% of the country prefers the dollar over Bitcoin. As of October 2021, the country’s government was exploring mining bitcoin with geothermal power and issuing bonds tied to bitcoin.
Also In June, the Taproot network software upgrade was approved, adding support for Schnorr signatures, improved functionality of Smart contracts and Lightning Network. The upgrade was installed in November.
On 16 October 2021, the SEC approved the ProShares Bitcoin Strategy ETF, a cash-settled futures exchange-traded fund. The first bitcoin ETF in the United States gained 5% on its first trading day on 19 October 2021.
Associated ideologies
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.”

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