Bitcoin

Bitcoin is a cryptocurrency and worldwide payment system.[8]:3 It is the first decentralized digital currency – the system works without a central repository or single administrator.[8]:1[9] The network is peer-to-peer and transactions take place between users directly through the use of cryptography, without an intermediary.[8]:4 These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto[10] and released as open-source software in 2009.[11]

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies,[12] products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.[13] Research produced by Cambridge University estimates that in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.[14]

Contents [hide]
1 Etymology
1.1 Units
2 History
3 Design
3.1 Blockchain
3.2 Transactions
3.3 Transaction fees
3.4 Ownership
3.5 Mining
3.6 Supply
3.7 Wallets
3.8 Reference implementation
3.9 Decentralization
3.10 Privacy
3.11 Fungibility
3.12 Scalability
4 Economics
4.1 Classification
4.2 General use
4.3 Acceptance by merchants
4.4 Payment service providers
4.5 Financial institutions
4.6 As an investment
4.7 Venture capital
4.8 Price and volatility
4.9 Ponzi scheme and pyramid scheme concerns
4.10 Speculative bubble dispute
5 Legal status, tax and regulation
6 Criticism
6.1 Energy consumption
6.2 Criminal activity
7 In popular culture
7.1 Academia
7.2 Film
7.3 Literature
7.4 Television
8 See also
9 Notes
10 References
11 External links
Etymology
The word bitcoin first occurred and was defined in the white paper[15] that was published on 31 October 2008.[16] It is a compound of the words bit and coin.[17] The white paper frequently uses the shorter coin.[15]

There is no uniform convention for bitcoin capitalization. Some sources use Bitcoin, capitalized, to refer to the technology and network and bitcoin, lowercase, to refer to the unit of account.[18] The Wall Street Journal,[19] The Chronicle of Higher Education,[20] and the Oxford English Dictionary[17] advocate use of lowercase bitcoin in all cases, a convention followed throughout this article.

Units
The unit of account of the bitcoin system is bitcoin. As of 2014, tickers used to represent bitcoin are BTC[a] and XBT.[b] Its Unicode character is ₿.[25]:2 Small amounts of bitcoin used as alternative units are millibitcoin (mBTC)[1] and satoshi. Named in homage to bitcoin's creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoin, one hundred millionth of a bitcoin.[4] A millibitcoin equals to 0.001 bitcoin, one thousandth of a bitcoin or 100,000 satoshis.[26]

History
Main article: History of bitcoin
On 18 August 2008, the domain name "bitcoin.org" was registered.[27] In November that year, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System[15] was posted to a cryptography mailing list.[27] Nakamoto implemented the bitcoin software as open source code and released it in January 2009.[28][11] The identity of Nakamoto remains unknown.[10]

In January 2009, the bitcoin network came into existence after Satoshi Nakamoto mined the first ever block on the chain, known as the genesis block, for a reward of 50 bitcoins.[29][30] Embedded in the coinbase of this block was the following text:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.[11]

This note has been interpreted as both a timestamp of the genesis date and a derisive comment on the instability caused by fractional-reserve banking.[31]

One of the first supporters, adopters, and contributors to bitcoin was the receiver of the first bitcoin transaction, programmer Hal Finney. Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world's first bitcoin transaction.[32][33] Other early supporters were Wei Dai, creator of bitcoin predecessor b-money, and Nick Szabo, creator of bitcoin predecessor bit gold.[34]

In the early days, Nakamoto is estimated to have mined 1 million bitcoins.[35] In 2010, Nakamoto handed the network alert key and control of the Bitcoin Core code repository over to Gavin Andresen, who later became lead developer at the Bitcoin Foundation.[36][37] Nakamoto subsequently disappeared from any involvement in bitcoin.[38] Andresen stated he then sought to decentralize control, saying: "As soon as Satoshi stepped back and threw the project onto my shoulders, one of the first things I did was try to decentralize that. So, if I get hit by a bus, it would be clear that the project would go on."[38] This left opportunity for controversy to develop over the future development path of bitcoin.[39]

The value of the first bitcoin transactions were negotiated by individuals on the bitcointalk forums with one notable transaction of 10,000 BTC used to indirectly purchase two pizzas delivered by Papa John's.[29]

On 6 August 2010, a major vulnerability in the bitcoin protocol was spotted. Transactions were not properly verified before they were included in the blockchain, which let users bypass bitcoin's economic restrictions and create an indefinite number of bitcoins.[40][41] On 15 August, the vulnerability was exploited; over 184 billion bitcoins were generated in a single transaction, and sent to two addresses on the network. Within hours, the transaction was spotted and erased from the transaction log after the bug was fixed and the network forked to an updated version of the bitcoin protocol.[42][40][41]

Forbes claimed that on 1 August 2017 bitcoin split into two derivative digital currencies, the classic bitcoin (BTC) and Bitcoin Cash (BCH). The split has been called the Bitcoin Cash hard fork.[43]

Techcrunch described the same event so that on 1 August 2017, Bitcoin Cash came into existence after a community disagreement regarding bitcoin scaling. Up until the event, Bitcoin Cash used the same transactions as core blockchain and increased the blocksize to allow for more transactions in the future, making the future transactions and balances of core and Bitcoin Cash independent from each other.[44]

Design
Blockchain
For a broader coverage related to this topic, see Blockchain.

Number of unspent transaction outputs
The blockchain is a public ledger that records bitcoin transactions.[45] A novel solution accomplishes this without any trusted central authority: the maintenance of the blockchain is performed by a network of communicating nodes running bitcoin software.[8] Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications.[46] Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin amount, each network node stores its own copy of the blockchain.[47] Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.[3]:ch. 5