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. but the real-world value of the coins is extremely volatile. 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.
Bitcoin has been criticized for its use in illegal transactions, the large amount of electricity used by mining, price volatility,
and thefts from exchanges. Some economists and commentators have characterized it as a speculative bubble at various
times. Bitcoin has also been used as an investment, although several regulatory agencies have issued investor alerts about
bitcoin.
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.
History
Creation
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. 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
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 May 12, 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 May 13. 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 September 7. In the same month, a bitcoin network software upgrade called "Taproot", which adds support for
Schnorr signatures, and improved functionality of Smart contracts and Lightning Network, was approved with the actual
change to the network scheduled for November 2021.
Design
Bitcoin is based on an elliptic curve called "secp256k1" and encrypted with the ECDSA algorithm. The equation for the
Bitcoin secp256k1 curve is y2 x3+7. Bitcoin has a proposed Bitcoin Improvement Proposal that would add support for
Schnorr signatures.
Units and divisibility
The unit of account of the bitcoin system is a bitcoin. Currency codes used to represent 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 of 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
reward amounted to 6.25 newly created bitcoins per block added to the blockchain, plus any transaction fees from payments
processed by the block. To mine half of the supply of bitcoins took four years but the remainder will take another 120 years,
because of an artificial process called "bitcoin halving" according to which miners are compensated by fewer BTC as time
goes on.n 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.
Transactions
Transactions are defined using a Forth-like scripting language. 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 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.
Ownership
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 practically unfeasible. 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,
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.
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.
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.
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 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: a paper wallet or more advanced such as a hardware 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.
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 not allow the thief to steal any bitcoins.
Physical wallets can also take the form of metal token coins 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.
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.
Decentralization
Bitcoin is decentralized thus:
Bitcoin does not have a central authority.
There is no central server; the bitcoin network is peer-to-peer.
There is no central storage; the bitcoin ledger is distributed.
The ledger is public; anybody can store it on their computer.
There is no single administrator; the ledger is maintained by a network of equally privileged miners.
Anybody 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.
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."
Austrian economics roots
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, in which Hayek advocates a complete free market in the production, distribution and management of money to end
the monopoly of central banks.
Anarchism and libertarianism
According to The New York Times, libertarians and anarchists were attracted to the philosophical idea behind bitcoin. 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." 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."
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. Per some researchers,, bitcoin functions more
as a payment system than as a currency. According to The Economist in 2014, bitcoin functions best as a medium of
exchange.
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".
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.
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.
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.
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.
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.
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.
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.
In August 2020, MicroStrategy invested in Bitcoin.
In May 2021, the Bitcoin's market share on exchanges dropped from 70% to 45% as investors pursued altcoins.
Venture capital
Peter Thiel's Founders Fund invested million in BitPay. 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. According to a 2015 study by Paolo Tasca, bitcoin
startups raised almost $1 billion in three years .
Price and volatility
The price of bitcoins has gone through cycles of appreciation and depreciation referred to by some as bubbles and busts. 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. it was under US$600.
According to Mark T. Williams,, bitcoin has volatility seven times greater than gold, eight times greater than the S&P 500,
and 18 times greater than the US dollar. Hodl is a meme created in reference to holding during periods of volatility. Unusual
for an asset, bitcoin weekend trading during December 2020 was higher than for weekdays. Hedge funds have attempted to
use the volatility to profit from downward price movements. At the end of January 2021, such positions were over $1billion,
their highest of all time.
, the closing price of bitcoin equals US$44,797.
Legal status, tax and regulation
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.
In October 2020, the Islamic Republic News Agency announced pending regulations that would require bitcoin miners in
Iran to sell bitcoin to the Central Bank of Iran, and the central bank would use it for imports. Iran, as of October 2020, had
issued over 1,000 bitcoin mining licenses. The US Office of Foreign Assets Control listed two Iranians and their bitcoin
addresses as part of its Specially Designated Nationals and Blocked Persons List for their role in the 2018 Atlanta
cyberattack whose ransom was paid in bitcoin.
Regulatory warnings
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. 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. 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. FINRA and the North American Securities
Administrators Association have both issued investor alerts about bitcoin.
Price manipulation investigation
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.
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."
Analysis
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, and the influence of miners.
François R. Velde, Senior Economist at the Chicago Fed, described bitcoin as "an elegant solution to the problem of creating
a digital currency". David Andolfatto, Vice President at the Federal Reserve Bank of St. Louis, stated that bitcoin is a threat
to the establishment, which he argues is a good thing for the Federal Reserve System and other central banks, because it
prompts these institutions to operate sound policies.
Economic concerns
Bitcoin, along with other cryptocurrencies, has been described as an economic bubble by at least eight Nobel Memorial Prize
in Economic Sciences laureates at various times, including Robert Shiller on 1 March 2014, Joseph Stiglitz on 29 November
2017, and Richard Thaler on 21 December 2017. On 29 January 2018, a noted Keynesian economist Paul Krugman has
described bitcoin as "a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology", on 2 February 2018,
professor Nouriel Roubini of New York University has called bitcoin the "mother of all bubbles", and on 27 April 2018, a
University of Chicago economist James Heckman has compared it to the 17th-century tulip mania. 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. In June 2014, the Swiss Federal Council examined concerns that bitcoin might be a pyramid scheme, and 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."
Energy consumption and carbon footprint
, ; for details, see )]]
Bitcoin has been criticized for the amount of electricity consumed by mining.
, estimated combined electricity consumption attributed to mining was 166.7 megawatts and by 2017, was estimated to be
between one and four gigawatts of electricity. In July 2019 BBC reported bitcoin consumes about 7 gigawatts, 0.2% of the
global total, or equivalent to that of Switzerland. A 2021 estimate from the University of Cambridge suggests bitcoin
consumes more than 178 annually, ranking it in the top 30 energy consumers if it were a country.
Bitcoin is mined 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, 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. A significant part of Bitcoin mining is powered by cheap electricity in Xinjiang, which mostly comes from
coal power. In April 2021 a coal mine explosion in the province coincided with a 35% drop in hashing power and a flash
crash in price. In other provinces, such as Hunan and Sichuan, mining farms use more hydropower, however these account
for at most 4% of hash power. According to Alex de Vries, renewable energy is not a good match for Bitcoin mining as 24/7
operations are best for ROI on mining devices. and thermal pollution in the nearby Seneca lake.
Concerns about bitcoin's environmental impact relate bitcoin's energy consumption to carbon emissions. The difficulty of
translating the energy consumption into carbon emissions lies in the decentralized nature of bitcoin impeding the localization
of miners to examine the electricity mix used. The results of recent studies analyzing bitcoin's carbon footprint vary. A study
published in Nature Climate Change in 2018 claims that bitcoin "could alone produce enough emissions to push warming
above 2 °C within less than three decades." According to studies published in Joule and American Chemical Society in 2019,
bitcoin's annual energy consumption results in annual carbon emission ranging from 17
Use in illegal transactions
Bitcoin held at exchanges are vulnerable to theft through phishing, scamming, and hacking., around 980,000 bitcoins have
been stolen from cryptocurrency exchanges. Bitcoin gained early notoriety for its use on the Silk Road. 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. However, a 2021 study led by former CIA director
Michael Morell showed that broad generalizations about the use of bitcoin in illicit finance are significantly overstated and
that blockchain analysis is an effective crime fighting and intelligence gathering tool.
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.
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". Australian
researchers have estimated that 25% of all bitcoin users and 44% of all bitcoin transactions are associated with illegal
activity . 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.
Software implementation
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. Initially, the software was published by Satoshi
Nakamoto under the name "Bitcoin", and later renamed to "Bitcoin Core" to distinguish it from the network. It is also known
as the Satoshi client.
The MIT Digital Currency Initiative funds some of the development of Bitcoin Core. The project also maintains the
cryptography library libsecp256k1. The wallet allows for the sending and receiving of bitcoins. It does not facilitate the
buying or selling of bitcoin. It allows users to generate QR codes to receive payment.
The software validates the entire blockchain, which includes all bitcoin transactions ever. This distributed ledger which has
reached more than 235 gigabytes in size as of Jan 2019, must be downloaded or synchronized before full participation of the
client may occur. Finally, bitcoin-cli, a simple program which allows users to send RPC commands to bitcoind, is also
included.
Checkpoints which have been hard coded into the client are used only to prevent Denial of Service attacks against nodes
which are initially syncing the chain. For this reason the checkpoints included are only as of several years ago. A one
megabyte block size limit was added in 2010 by Satoshi Nakamoto. This limited the maximum network capacity to about
three transactions per second. Since then, network capacity has been improved incrementally both through block size
increases and improved wallet behavior. A network alert system was included by Satoshi Nakamoto as a way of informing
users of important news regarding bitcoin. In November 2016 it was retired. It had become obsolete as news on bitcoin is
now widely disseminated.
Bitcoin Core includes a scripting language inspired by Forth that can define transactions and specify parameters.
ScriptPubKey is used to "lock" transactions based on a set of future conditions. scriptSig is used to meet these conditions or
"unlock" a transaction. Operations on the data are performed by various OP_Codes. Two stacks are used - main and alt.
Looping is forbidden.
Bitcoin Core uses OpenTimestamps to timestamp merge commits.
The original creator of the bitcoin client has described their approach to the software's authorship as it being written first to
prove to themselves that the concept of purely peer-to-peer electronic cash was valid and that a paper with solutions could be
written. The lead developer is Wladimir J. van der Laan, who took over the role on 8 April 2014. Bitcoin Core in 2015 was
central to a dispute with Bitcoin XT, a competing client that sought to increase the blocksize. Over a dozen different
companies and industry groups fund the development of Bitcoin Core.
In popular culture
Term "HODL"
Hodl is slang in the cryptocurrency community for holding a cryptocurrency rather than selling it. A person who does this is
known as a Hodler. It originated in a December 2013 post on the Bitcoin Forum message board by an apparently inebriated
user who posted with a typo in the subject, "I AM HODLING." It is often humorously suggested to be a backronym to "hold
on for dear life". In 2017, Quartz listed it as one of the essential slang terms in Bitcoin culture, and described it as a stance,
"to stay invested in bitcoin and not to capitulate in the face of plunging prices." TheStreet.com referred to it as the "favorite
mantra" of Bitcoin holders. Bloomberg News referred to it as a mantra for holders during market routs.
Literature
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."
Film
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.
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