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Bitcoin (BTC) Logo
$ 1,140.52 B
Ƀ 238.27 K
~ 21.00 M
Total Coins Mined
~ 18.50 M
*General last updated 09/25/20 4:09:10 PM
Bitcoin is a peer-to-peer version of electronic cash that was created by Satoshi Nakamoto in 2008. It is based on a cryptographic proof that allows two parties to conduct transactions directly with each other. Bitcoin was the first cryptocurrency that proposed a means of exchange that did not require a third party, cutting out the need for a central authority or payment gateway. There is Bitcoin the token, which represents a stake in the digital concept which is created by Bitcoin the protocol, or the governing system that regulates the Bitcoin distributed ledger. This ledger is known as a blockchain. Today, Bitcoin is the largest cryptocurrency by market capitalization. The Bitcoin Foundation is maintained by a team of volunteer developers, supported by a massive international effort to keep the decentralized ledger running.
Bitcoin’s supply schedule is set to 21 million fixed units, and the release of Bitcoin tokens is mathematically controlled. To date, around 17 million Bitcoin out of the total available supply have been mined.
The Bitcoin whitepaper proposed to create a means of electronic payment that did not require a third party or payment gateway to verify. By allowing two interested parties to conduct transactions directly with each other, the need for additional fees regarding transaction reversals, mediation, escrow mechanisms, and minimum transaction size become unnecessary. This system of payment is supposed to make computational reversal impractical, which protects both parties from fraud.
Prior to Bitcoin, there were other projects that proposed electronic cash protocols, most notably eCash started by David Chaum and Stefan Brands, and hashcash developed by Adam Beck. There was also an effort led by Nick Szabo to create a Byzantine-fault-tolerant asset registry.
The Bitcoin whitepaper released in 2008 marked the official start for mainstream proof-of-work. Satoshi Nakamoto, the creator of Bitcoin mined the genesis block of Bitcoin (block 0) when the network went live in 2009. The reward was 50 Bitcoins. Embedded into the text was the Times headline from January 3, 2009 stating “Chancellor on the brink of second bailout for banks.” Bitcoin’s first open-source client was released on January 9, 2009. Developer Hal Finney conducted the first ever Bitcoin transaction on January 12, 2009. Nakamoto is estimated to have mined 1 million Bitcoins before disappearing from the foundation and the blockchain space. Developer Gavin Andresen became head of the Bitcoin Foundation, and lead developer after Nakamoto left.
Who is Satoshi Nakamoto?
In August of 2010 a major bug was discovered in the Bitcoin protocol that allowed participants to bypass economic restrictions and create an infinite number of coins. When a 184 billion Bitcoin transaction was spotted, it was erased from the transaction log and the problem was fixed. This incident is the only serious security flaw found in the Bitcoin protocol to date.
Today, the core team of developers and contributors to the Bitcoin protocol is massive and spans the globe. Contributors to the team have different roles from development & testing, peer review, research submissions and more. Everyone is free to propose a patch to the underlying code, and it is the role of project maintainers to approve patches and integrate them where appropriate. Every Bitcoin core software release contains a section that mentions the contributors who have done their part for the previous release cycle. You can find a list of code contributors for the previous year on Github.
By 2011, the hype around cryptocurrencies and open-source code started to emerge. That same year, Wikileaks and other organizations began accepting Bitcoin as a means of donation and payment. Vitalik Buterin (co-founder of Ethereum) founded Bitcoin Magazine that same year.
The Bitcoin foundation was officially launched, with Gavin Andresen, Peter Vessenes, Patrick Murck, Charlie Shrem, and John Matonis as the core team. WordPress started accepting Bitcoin as means of payment in 2012, and BitPay reported over 1000 merchants who followed suit.
One of today’s largest cryptocurrency exchanges Coinbase, reported over $1 million USD in Bitcoin sales over a single month in 2013. March that same year, the blockchain underlying the Bitcoin network temporarily split into two different chains, with two different records of transaction history. Bitcoin’s core team suggested stopping transactions, sparking a huge sell-off.
The American Financial Crimes Enforcement Network (FinCEN) released guidelines on regulations governing virtual currencies. They classified Bitcoin miners, or those operating Bitcoin mining businesses to be Money Service Businesses (MSB’s), which are subject to additional regulations and reporting requirements.
OkCupid and Foodler began accepting Bitcoin as a payment in 2013. In June 2013, the US Drug Enforcement Administration listed 11.02 Bitcoin as part of seized assets in an ongoing criminal investigation. This was the first time that a government agency had officially claimed to have seized Bitcoin as an asset. The 5th circuit congressional court (Texas) ruled Bitcoin as a currency and as such a form of money.
In Germany, the finance ministry listed Bitcoin as a ‘unit of account’- making it a financial instrument but not a security. Almost 30 000 BTC were seized from underground website Silk Road in October 2013. The worlds first Bitcoin ATM was launched in Vancouver, British Columbia, Canada in 2013. The People’s Bank of China prohibited Chinese financial institutions from using or accepting Bitcoin as payment or in facilitating a service in December 2013.
Some Las Vegas hotels and online gaming portals began accepting Bitcoin in 2014. Mt. Gox, one of the largest cryptocurrency exchanges at the time, filed for bankruptcy in 2014, citing that almost 750,000 Bitcoin had been stolen. Newegg and Dell started accepting Bitcoin in 2014. The US Commodity and Trading Futures Commission (CFTC) approved the trading of an over-the-counter swap product which was based on the price of a Bitcoin. This was the first time a regulator approved the product model for a financial instrument based on Bitcoin.
Cryptocurrency exchange Coinbase raised almost $US 80 million in 2015 as part of their series C financing round. Bitstamp (UK-based exchange) went offline for almost two-weeks after a massive hack that left almost $US 5 million in Bitcoin stolen. By August 2015, over 150,000 merchants announced they accepted Bitcoin as a means of payment. Barclay’s, one of Britain’s largest financial institutions announced it would start accepting charitable donations for causes made on behalf of their customers, in Bitcoin.
Japan recognized Bitcoin as having properties similar to FIAT money. Steam, one of the largest video game purchase portals started accepting Bitcoin in 2016. Bitfinex was hacked in 2016, with over $US 60 million stolen. The number of Bitcoin ATM’s worldwide exceed 700 in 2016.
The average price of Bitcoin skyrocketed from around $US 900 at the beginning of 2017, to around $US 20 000 by the end of the year. Governments around the world began to take a serious look at their regulatory regimes surrounding the blockchain space. Japan started accepting Bitcoin as a means of legal payment.
The Russian, Taiwanese, and Venezuelan government plan the launches of their own cryptocurrencies. The amount of Bitcoin proposed projects on Github exceeded 10 000 in 2017. Exchange trading volumes continue to rise, with the worlds biggest exchanges reporting over 500% increases in active participants.
The Bitcoin ‘bubble’ of 2017 also led to a massive increase in Initial Coin Offerings or ICO’s around the world, almost all accepting Bitcoin as a means of payment for crowd funding.
Bitcoin is a peer-to-peer transaction processing system that works without the need for a third party to mediate, or verify the transactions. It is conducted on what is called a distributed ledger, or blockchain. Transactions are verified by nodes, who then cryptographically imprint the transaction and record them. Bitcoin the token is produced as a reward for computers who act as these nodes, in a process called mining. These tokens or coins are exchangeable for fiat currency, or other goods and services.
Bitcoin utilizes the SHA-256 proof-of-work algorithm. It works by scanning for value (transaction), and the hash begins with a number of zero bits. The work required to verify the transaction is related to the exponential number of these zero bits that are verifiable by conducting a single hash. The proof-of-work is conducted by nodes, where the processing power needed to conduct it equals one CPU vote. This prevents external efforts to attack the network from succeeding. In order to change the block, a hacker would have to change all the previous blocks as well.
In practice, the Bitcoin blockchain works as follows:
On the Bitcoin blockchain, the tokens themselves are registered to individual Bitcoin addresses. To create a valid Bitcoin address, a user would select a valid private key and attach it by computing it to the corresponding address. This process is simple, but doing the opposite and computing the private key for a Bitcoin address is extremely difficult without compromising the private key that goes along with it. Because the possibility for private keys is mathematically close to infinite, the likelihood of computing a match for a key-pair already in use remains unlikely. In order to conduct a Bitcoin transaction, the owner must know the corresponding key signature to digitally conduct the transaction. The signature is verified by the network using the public key. Losing the private key will prevent the Bitcoin network from verifying any other evidence of ownership. In order to prevent this from happening, many users keep back-ups of their keys.
Transaction records are kept through the process of mining. This is where computer processing power is used to verify transactions, done by miners. They perform custodial management of the blockchain network, and group new transactions into blocks, verified by other nodes in the network and cryptographically hashed using the SHA-256 algorithm of the previous block. The proof-of-work forces all miners to find a number called a nonce, and when a target block is hashed along with the nonce (numbers ascending 0,1,2,3 etc), the result is numerically smaller than the networks difficulty target. Any node can easily verify transactions, but the difficulty target is time consuming to generate. The Bitcoin network’s difficulty target is adjusted every 2, 016 blocks based on recent network performance. The average time for verifying new blocks is 10 minutes.
Because the overall difficulty in mining for Bitcoin increases as every adjustment target comes to pass, efforts at pooled mining exist to reduce the variance across miner income. This also spreads overhead costs across miners, unlike solo mining, where the participant must bear all associated costs alone, and cannot leverage other miners to regulate overall income disparity.
Mining is performed by different models of processors on the market, the most advanced currently being the ASIC Antminer s9, L3+, X3, and D3. Mining for bitcoin is extremely expensive because the processers must run 24/7. At the end of 2017, global bitcoin mining activity surpassed 1.5 gigawatts of electricity. Mining operations around the world often move to climates where cooler seasonal air is free, and they can harness either geothermal, or hydroelectric energy to lower costs. Some of the most popular destinations for Bitcoin mining include China, Iceland, Quebec (Canada), Russia, Austria, and Tibet.
Bitcoin Mining Graphic
All of the software that supports the Bitcoin ecosystem (including wallets, the Bitcoin Core network, global mining efforts) all contribute to establishing the basic level of Bitcoin fungibility. Because the history of each bitcoin is displayed in the blockchain, users may refuse to accept transactions they think come from a suspicious origin.
Cryptocurrencies like bitcoin are stored on wallets. Unlike traditional physical wallets used to hold paper money, these wallets digitally store Bitcoins either on or offline. When a Bitcoin transaction is processed and generated it creates different key signatures – one public, and one private. The wallet is a collection of these keys.
Bitcoin Wallet Graphic
There are different types of wallets:
These wallets are downloaded and installed directly to a PC or associated laptop. Their accessibility is limited to the single computer onto which the software was downloaded initially. They also offer some of the highest levels of security, however, users should be aware that any hacks, DDoS or BotNet attacks or other viruses that target the PC or laptop can still leave you with a partial or complete loss of funds.
Mobile wallets run on the cloud, are accessible via any computer or associated device in any location, and are convenient to access because of this. The private keys for mobile wallets are kept and controlled by third parties to ensure accountability and prevent hacking, but ironically can also leave the user exposed to hacking for this same reason because custody of the keys is in someone else’s hands. These types of wallets are usually operated by exchanges to ensure the security of thousands of users on their platforms, and these exchanges usually require 2FA or MFA to set up/access them.
These are app-based wallets that run on your phone, making them multifaceted, and useable anywhere, including retail outlets. Their size and limited space available for storage is tailored to work with the existing memory in your mobile device, so they can’t store the same amount of funds as an online, or desktop wallet. However, they are convenient, and simple to use.
Hardware wallets can store a user’s private keys on a hardware device like USB drives, making them different from traditional software wallets. Transactions are conducted online, but the actual storage of funds is held off-line (disconnected), increasing the level of associated security. Their web interface compatibility can support various currencies depending on what one you choose to use. Transactions are completed by plugging in the device to any internet-enabled computing system (mobile, PC etc.), entering a pin and sending the currency to confirm. This makes it easy to conduct and complete transactions, while keeping additional funds safely stored offline, and away from potential hacking threats.
Paper wallets offer among the highest levels of security, but should not be confused with a traditional wallet. Paper in this case can refer to a physical printout of one’s public/private keys, or to a piece of software which is then used to render a pair of keys, which are then in turn physically printed. In order to successful transmit funds, the user need only transfer them initially from the software wallet to the public address of the paper wallet. The inverse is true in order to spend funds. Transfer them back from the paper wallet to the software wallet. Commonly referred to as ‘sweeping,’ the transaction is completed both manually (enter private keys) or by scanning the paper wallet’s QR code.
Economists define money as fulfilling three functions: a store of value, medium of exchange, and unit of account. In the 2008 Bitcoin whitepaper, it is described as a means of electronic or digital currency. To date, no jurisdiction has recognized Bitcoin as legal tender, however some have made steps in describing certain properties that Bitcoin has with fiat currency and other financial instruments other than money. Around 24 million blockchain or cryptocurrency wallets (majority using Bitcoin) exist by early 2018.
The number of merchants accepting Bitcoin went from 1000 in 2012, to over 100 000 in 2015, to over 150,000 by 2017. Microsoft, Dell, Newegg and PayPal all started accepting Bitcoin by 2015. In 2017 amid the wild price swings, acceptance of Bitcoin started to dwindle slightly among key online retailers due to growing fees, high latency, and network bottlenecks which resulted in slower transaction processing as the Bitcoin network struggled with scalability issues due to surging demand.
The adoption of cryptocurrencies in general is just under 5% globally. There have been studies conducted in the last several years which argue that the current state of Bitcoin, and blockchain as a technology can be compared to 1994, just before the .com bubble began and computerization in households skyrocketed.
Merchants that accept Bitcoin as payments go through primary payment services such as BitPay or Coinbase, who accept the Bitcoins rendered, convert them to the desired fiat currency, and then redeem the deposited funds in the users back account. This service is usually preformed for a fee.
BitPay Credit Card Sample
Bitcoin and other cryptocurrencies can be traded on digital currency exchanges like Binance, Coinbase, or Huobi. Financial institutions like banks have a so far shaky relationship with Bitcoin. In 2014, National Australia Bank closed all accounts related to Bitcoin. In 2016-17, several Canadian financial institutions like TD Bank, Royal Bank of Canada, and Canadian Imperial Bank of Commerce made further restrictions barring cryptocurrency related matters. Some financial institutions like Bank of America Merrill Lynch have made arguments that they believe Bitcoin will become a major means of payment. In 2017, the Chicago Mercantile Exchange announced plans to launch Bitcoin futures. In early 2018, Canadian banks began like Royal Bank of Canada relaxed some rules around client accounts and related cryptocurrency matters. The 2018 European Union General Data Protection Regulations will bring Bitcoin and cryptocurrency matters in the path of laws governing data collection and privacy. Goldman Sach’s launched a Bitcoin OTC desk leveraging darkpool capital in early 2018. Central banks around the world will start holding digital currencies in 2018.
There is a huge online presence surrounding Bitcoin and it holds a special place in the blockchain ecosystem. Some of the best community/forum based sources for Bitcoin related information include:
Bitcoin was the first in what is already a long and continuously growing list of Blockchain advancements in the last 10 years since Satoshi Nakamoto’s whitepaper. The promise of social advancements that could bridge the income disparity felt by people around the world, and also the yet undiscovered potential of blockchain technology that could simplify different processes from supply chain management to monetizing incentives for students to complete school in third world countries, and everything in between.
Forks occur when two or more blocks obtain the same block height. When this happens, in the case of Bitcoin, a change in the protocol occurs. Forks affect the validity and composition of network rules. They are typically conducted in order to add new features or to reverse affects to the network as a result of bugs or hacking. The most notable bitcoin forks include Bitcoin Cash, Bitcoin Gold, and Bitcoin and Bitcoin private. Here is a list of planned forks for 2017-18. Note that not all planned forks occur.