Bitcoin

Bitcoin
A digital bitcoin wallet
ISO 4217 code	Not designated. Not recognized as a currency by SIX Interbank Clearing.
Central bank	The bitcoin peer-to-peer network regulates transactions and balances.[1][2]
Date of introduction	3 January 2009
Source	Bitcoin Genesis Block
User(s)	International
Inflation	Limited release
Source	Total BTC in Circulation
Method	The rate of inflation will be halved every 4 years until there are 21 million BTC[3]
Subunit
.001	mBTC
.00000001	satoshi[4]
Symbol	BTC, ,[5] ฿,[6] Ƀ[7]

A common bitcoin logo.

The price for BTC/USD on the Mt.Gox exchange

Bitcoin (sign: BTC) is a decentralized digital currency^[8][9] based on an open-source, peer-to-peer internet protocol. It was introduced by a pseudonymous developer named Satoshi Nakamoto in 2009.^[10]

Internationally, bitcoins can be exchanged by personal computer directly through a wallet file or a website without an intermediate financial institution.^[11] In trade, one bitcoin is subdivided into 100 million smaller units called satoshis, defined by eight decimal places.^[4]

Bitcoin does not operate like typical currencies: it has no central bank and it solely relies on an internet-based peer-to-peer network. The money supply is automated, limited, divided and scheduled, and given to servers or "bitcoin miners" that verify bitcoin transactions and add them to an archived transaction log every 10 minutes. The log is authenticated by ECDSA digital signatures and verified by the intense process of bruteforcing SHA256 hash functions of varying difficulty by competing "bitcoin miners." Transaction fees may apply to new transactions depending on the strain put on the network's resources. Each 10-minute portion or "block" of the transaction log has an assigned money supply. The amount per block depends on how long the network has been running. Currently, 25 bitcoins are generated with every 10-minute block. This will be halved to 12.5 BTC during the year 2017 and halved continuously every 4 years after until a hard limit of 21 million bitcoins is reached during the year 2140.^[1][10]

Bitcoin is the most widely used alternative currency.^[3][12] As of March 2013, the monetary base of bitcoin is valued at over $500 million USD.^[13][14] The large fluctuation in the dollar value of a bitcoin has evoked criticism of bitcoin's economic suitability as a currency.^[15]

Transactions

Bitcoins are sent and received through websites and apps called wallets. Wallets interface with bitcoins stored locally or with a service. They use a system of ECDSA digital signatures to make and verify transactions.

Daftar/Tabel -- bitcoin wallets

Addresses

A bitcoin transaction log showing addresses.

Based on digital signatures, payments are made to bitcoin "addresses" or "public keys": human-readable strings of numbers and letters around 33 characters in length, always beginning with the digit 1 or 3, as in the example of 175tWpb8K1S7NmH4Zx6rewF9WQrcZv245W.

Users obtain new bitcoin addresses as necessary; these are stored in a wallet file with links to cryptographic passwords or "private keys" that enable access to and transfer of bitcoins. A file or "wallet" containing bitcoin addresses is usually encrypted with an additional password.

Verification

The network's software confirms a transaction when it records it in the peer-to-peer network. Further verification of transaction records make the transaction increasingly permanent in the network's log. After six records (or "blocks"), a transaction is considered confirmed beyond reasonable doubt.

The network must store the whole transaction history inside a log called the blockchain, which grows constantly as new records are added and never removed. Nakamoto conceived that as the database became larger, users would desire wallet software that didn't store the entire database on their computers. To enable this, the network uses Merkle trees to organize the transaction records in such a way that client software can locally delete portions of its own database it knows it will never need, such as earlier transaction records of bitcoins that have changed ownership multiple times.

Due to this, transaction fees may be included with any transfer of bitcoins. As of 2012^[update], many transactions are processed in a way which makes no charge for the transaction. For transactions which draw coins from many bitcoin addresses and therefore have a large data size, a small transaction fee is usually expected.

Banknotes and coins

Various vendors offer banknotes and coins denominated in bitcoins; a bitcoin private key is sold as part of a coin or banknote. Usually, a seal has to be broken to access the key, while the receiving address remains visible on the outside so that the balance can be verified.^{[citation needed]}

A 1-BTC Casascius Coin was shown in the British Museum in London to represent bitcoin.^[16]

History

Bitcoin is one of the first implementations of a concept called "crypto-currency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list.^{[citation needed]} Based on this concept, bitcoin is designed around the idea of a new form of money that uses cryptography to control its creation and transactions, rather than relying on central authorities.

Timeline

2008–2009

• In 2008, Satoshi Nakamoto published a paper on The Cryptography Mailing list at metzdowd.com describing the bitcoin protocol.^{[10][1][17][18]}

• In 2009, the bitcoin network came into existence with the release of the first open source bitcoin client and the issuance of the first bitcoins.^{[10][19][20][21]}

2010

• The initial prices for bitcoins were set by individuals on the bitcointalk forums. The most significant transaction involved a 10,000 BTC pizza.^[10] The Mt.Gox bitcoin exchange was soon established.

• On 6 August, a major vulnerability in the bitcoin protocol was found. Transactions weren't properly verified before they were included in the transaction log or "blockchain" which allowed for users to bypass bitcoin's economic restrictions and create an indefinite amount of bitcoins.

• On 15 August, the major vulnerability was exploited. Over 184 billion bitcoins were generated in a 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. This was the only major security flaw found and exploited in bitcoin's history.^[22][23]

2011–2012

• In June 2011, Wikileaks^[24] and other organizations began to accept bitcoin as donations. The Electronic Frontier Foundation initially did but has since stopped, citing concerns about a lack of legal precedent about new currency systems, and that they "generally don't endorse any type of product or service."^[25]

• In October 2012, BitPay reported having over 1000 merchants accepting Bitcoin under its payment processing service.^[26]

2013–

February

• The bitcoin-based payment processor Coinbase reported selling $1 million in bitcoins in a single month, with a bitcoin being worth over $22.^[27]

• The Internet Archive announced that it is ready to accept donations in the form of bitcoin and that it intends to give employees the option to receive portions of their salaries in bitcoin currency.^[28]

March

• The bitcoin transaction log or "blockchain" temporarily forked into two separate ledgers. The Mt.Gox bitcoin exchange briefly halted bitcoin deposits. Bitcoin prices briefly dipped by 23% to $37 as the event occurred^[29][30] before recovering to their previous level in the following hours, a price of approximately $48.^[31]

• FinCEN established regulatory guidelines for "virtual currencies" such as bitcoin, classifying American "bitcoin miners" who sell their generated bitcoins as Money Service Businesses (or MSBs), that may now stand under registration and other legal obligations.^[32][33][34]

Satoshi Nakamoto

Satoshi Nakamoto was the pseudonymous person or group of people who designed the original bitcoin protocol in 2008 and launched the bitcoin network in 2009. Beyond bitcoin, no other links to this identity have been found. His involvement in the original bitcoin protocol does not appear to extend past mid-2010.^[10] Nakamoto was active in making modifications to the bitcoin network and posting technical information on the BitcoinTalk Forum until his contact with bitcoin users began to fade. Until a few months before he left, he was responsible for creating the majority of the bitcoin protocol, only rarely accepting contributions.^[10]

In April 2011, Satoshi communicated to a bitcoin contributor saying he had “moved on to other things.”^[35]

Identity

Investigations into the real identity of Satoshi Nakamoto have been attempted by The New Yorker and Fast Company. Fast Company's investigation brought up circumstantial evidence that indicated a link between an encryption patent application filed by Neal King, Vladimir Oksman and Charles Bry on 15 August 2008 and the bitcoin.org domain name which was registered 72 hours later. The patent application (#20100042841) contained networking and encryption technologies similar to bitcoin's. After textual analysis, the phrase "…computationally impractical to reverse" was found in both the patent application and bitcoin's whitepaper.^[1] All three inventors explicitly denied being Satoshi Nakamoto.^[36][37]

The fork of March 2013

On 12 March 2013, a bitcoin server (also called a "miner") running the more recent "version 0.8.0" of the bitcoin protocol created a large record in bitcoin's transaction log (called the blockchain) that was incompatible with earlier versions of the bitcoin protocol due to its size. This created a split or "fork" in the transaction log. Users ran the more recent version of the protocol while accepting and building on the diverging log as other users ran older versions of the bitcoin protocol and rejected it. This split resulted in two separate transaction logs being formed without clear consensus, which allows for the same funds on both chains to be double-spent. In response, the Mt.Gox bitcoin exchange temporarily halted bitcoin deposits.^[38] The price of a bitcoin fell 23% to $37 on the Mt.Gox bitcoin exchange as this event occurred but subsequently rose most of the way back to its prior level of approximately $48.^[29][30]

Developers at bitcoin.org attempted to resolve the split by recommending users downgraded to "version 0.7", which utilized the oldest transaction log in the split. User funds largely remained unaffected and were available when network consensus was reached.^[39] The network reached consensus and continued to operate as normal a few hours after the split.^[40]

FinCEN regulation

On 18 March 2013, the Financial Crimes Enforcement Network (or FinCEN), a bureau of the United States Department of the Treasury, issued a report regarding centralized and decentralized "virtual currencies" and their legal status within "money services business" (MSB) and Bank Secrecy Act regulations. It classified digital currencies and other digital payment systems such as bitcoin as "virtual currencies" due to them not being legal tender under any sovereign jurisdiction. FinCEN cleared American users of bitcoin of legal obligations by saying, "A user of virtual currency is not an MSB under FinCEN’s regulations and therefore is not subject to MSB registration, reporting, and recordkeeping regulations." However, it held that American entities who generate "virtual currency" such as bitcoins are money transmitters or MSBs if they sell their generated currency for national currency: "...a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter." This specifically extends to "miners" of the bitcoin network who may have to register as an MSB and abide by the respective requirements of being a money transmitter if they sell their generated bitcoins for national currency and are within the United States.^[32]

Additionally, FinCEN claimed regulation over American entities that manage bitcoins in a payment processor setting or as an exchanger: "In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency."^[33][34]

Patrick Murck of the Bitcoin Foundation criticized FinCEN's testament as an "overreach" and claimed that FinCEN "cannot rely on this guidance in any enforcement action".^[41]

Distribution

Total bitcoins over time

Unlike fiat currency, Bitcoin has no centralized issuing authority.^[42][43][44] The network is programmed to increase the money supply as a geometric series until the total number of bitcoins reaches 21 million BTC, by issuing them to nodes that verify transaction records through intense bruteforce hashing with computing power.^[3]

Currently, 25 bitcoins are generated every 10 minutes. This will be halved to 12.5 BTC within the year 2017 and halved continuously every 4 years after until a hard-limit of 21 million bitcoins is reached within the year 2140.^[1][10] As of March 2013^[update] over 10.5 million of the total 21 million BTC had been created; the current total number created is available online.^[45] In November 2012, half of the total supply was generated, and by end of 2016, three-quarters will have been generated. By 2140, all bitcoins will have been generated with the last one consisting of fractional parts. To ensure this granularity of the money supply, clients can divide each BTC unit down to eight decimal places (a total of 2.1 × 10¹⁵ or 2.1 quadrillion units).^[46]

Exchange

The prices for BTC/USD on the Mt.Gox exchange

Through various exchanges, bitcoins are bought and sold at a variable price based on the value against other currency.

In March 2013, 1 BTC traded from $40-$78. Taking into account the total number of bitcoins mined, the monetary base of the bitcoin network stands at over 500 million USD.^[47]

According to Reuters, undisclosed documents indicate that financial firms such as Morgan Stanley and Goldman Sachs have visited bitcoin exchanges as often as 30 times a day. Additionally, employees of other international banks and major financial organizations have shown interest in the bitcoin markets.^[48]

Hedge funds

Financial laws can limit the type of assets institutional investors can buy, including alternative assets like bitcoin. However, assets stored in a licensed product can usually be bought by regulated entities. Exante Ltd., a Malta-based investment firm, launched a bitcoin hedge fund marketed towards institutional investors and high net-worth individuals. Bitcoin shares are currently traded through the Exante Hedge Fund Marketplace platform and authorized and regulated by the Malta Financial Services Authority. As of March 2013, Exante holds $3.2 million (2.5€ million) in bitcoin assets.^[49]

Protocol

Summary

Bitcoin is a solution to the double-spending problem of using a peer-to-peer network to manage transactions. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record or chain that cannot be changed without redoing the proof-of-work. The longest chain of records (called blocks) not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of computing power. As long as a majority of computing power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain of records and outpace attackers.

The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.^[1][2]

Bitcoins

A bitcoin is defined by its chain of ECDSA digital signatures. Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key (or address) of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership.

A diagram of a bitcoin transfer.

Although it would be possible to handle coins individually, it would be unwieldy to make a separate transaction for every cent in a transfer. To allow value to be split and combined, transactions contain multiple inputs and outputs. Normally there will be either a single input from a larger previous transaction or multiple inputs combining smaller amounts, and at most two outputs: one for the payment, and one returning the change, if any, back to the sender.

It should be noted that fan-out, where a transaction depends on several transactions, and those transactions depend on many more, is not a problem here. There is never the need to extract a complete standalone copy of a transaction's history.

Hashes and signatures

Two SHA-256 hashes on top of each are used for transaction verification; however, RIPEMD-160 is used on top of a SHA256 hash for bitcoin digital signatures or "addresses". A bitcoin address is specifically the hash of a ECDSA public key, computed this way:

Private-key hash = Version concatenated with RIPEMD-160(SHA-256(public key))Checksum = 1st 4 bytes of SHA-256(SHA-256(Key hash))Bitcoin Address = Base58Encode(Key hash concatenated with Checksum)

Example of double-SHA-256 encoding of string "transaction", as in the case of a bitcoin transaction:

transaction2cf24dba5fb0a30e26e83b2ac5 b9e29e1b161e5c1fa7425e73043362938b982 4 (first round of sha-256)9595c9df90075148eb06860365df3 3584b75bff782a510c6cd4883a419833d50 (second round of sha-256)

For hashing bitcoin public key signatures or "bitcoin addresses" using RIPEMD-160, this would give:

"Private-key or password"2cf24dba5fb0a30e26e83b2ac5b9 e29e1b161e5c1fa7425e73043362938b9824 (first round is sha-256)Public-key: b6a9c8c230722b7c748331a8b450f05566dc7 d0f (with ripemd-160)

Timestamps

The bitcoin specification starts with a timestamp. A timestamp server works by taking a SHA256 hash function of a block of items to be timestamped and widely publishing the hash, such as in a newspaper or Usenet post. The timestamp proves that the data must have existed at the time, obviously, in order to get into the hash. Each timestamp includes the previous timestamp in its hash, forming a chain, with each additional timestamp reinforcing the ones before it.

Bitcoin mining

To implement a distributed timestamp server on a peer-to-peer basis, bitcoin uses a proof-of-work system similar to Adam Back's Hashcash, rather than newspaper or Usenet posts.^[2] This is often called bitcoin mining.

The mining process or proof-of-work process involves scanning for a value that when hashed with SHA-256, the hash begins with a number of zero bits. The average work required is exponential in the number of zero bits required and can be verified by executing a single hash.

For the bitcoin timestamp network, it implements the mining process or "proof-of-work" by incrementing a nonce in the record or "block" until a value is found that gives the block's hash the required zero bits. Once the hashing effort has been expended to make it satisfy the proof-of-work, the block cannot be changed without redoing the work. As later records or "blocks" are chained after it, the work to change the block would include redoing all the blocks after it.

The main chain (black) consists of the longest series of transaction records from the genesis block (green) to the current block or record. Orphaned records (purple) exist outside of the main chain.

The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it. If a majority of computing power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes. The probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added.^[2]

To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases.^[2]

Process

The steps to run the network and generate or "mine" bitcoins are as follows:^[2]

1. New transactions are broadcast to all nodes.
2. Each node collects new transactions into a block.
3. Each node works on finding a difficult proof-of-work for its block.
4. When a node finds a proof-of-work, it broadcasts the block to all nodes.
5. Bitcoins are successfully collected or "mined" by the receiving node which found the proof-of-work.
6. Nodes accept the block only if all transactions in it are valid and not already spent.
7. Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.
8. Repeat.

Nodes always consider the longest chain to be the correct one and will keep working on extending it. If two nodes broadcast different versions of the next block simultaneously, some nodes may receive one or the other first. In that case, they work on the first one they received, but save the other branch in case it becomes longer. The tie will be broken when the next proof-of-work is found and one branch becomes longer; the nodes that were working on the other branch will then switch to the longer one.

New transaction broadcasts do not necessarily need to reach all nodes. As long as they reach many nodes, they will get into a block before long. Block broadcasts are also tolerant of dropped messages. If a node does not receive a block, it will request it when it receives the next block and realizes it missed one.

Mined bitcoins

By convention, the first transaction in a block is a special transaction that starts a new coin owned by the creator of the block. This adds an incentive for nodes to support the network,^[2] and provides a way to initially distribute coins into circulation, since there is no central authority to issue them.

The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation.^[2] In this case, it is computing power and electricity that is expended.

The incentive can also be funded with transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.^[2]

Local system resources

Once the latest transaction of a coin is buried under enough blocks, the spent transactions which preceded it can be discarded in order to save disk space. To facilitate this without breaking the block's hash, transactions are hashed in a Merkle tree, with only the root included in the block's hash. Old blocks can then be compacted by stubbing off branches of the tree. The interior hashes need not be stored.

A block header with no transactions would be about 80 bytes. Supposing that blocks are generated every 10 minutes, 80 bytes × 6 × 24 × 365 = 4.2MB per year. With computer systems typically selling with 2GB of RAM as of 2008, and Moore's Law predicting current growth of 1.2GB per year, storage should not be a problem even if the block headers need to be kept in memory.

Payment verification

Diagram showing how bitcoin transactions are verified.

It is possible to verify bitcoin payments without running a full network node. A user only needs to keep a copy of the block headers of the longest proof-of-work chain, which he can get by querying network nodes until he's convinced he has the longest chain, and obtain the Merkle branch linking the transaction to the block it's timestamped in. He can't check the transaction for himself, but by linking it to a place in the chain, he can see that a network node has accepted it, and blocks added after it further confirm the network has accepted it.

As such, the verification is reliable as long as honest nodes control the network, but is more vulnerable if the network is overpowered by an attacker. While network nodes can verify transactions for themselves, the simplified method can be fooled by an attacker's fabricated transactions for as long as the attacker can continue to overpower the network. To protect against this, alerts from network nodes detecting an invalid block prompt the user's software to download the full block and verify alerted transactions to confirm their inconsistency. Businesses that receive frequent payments will probably still want to run their own nodes for more independent security and quicker verification.

Applications

The bitcoin protocol introduces various technologies and economic properties that have numerous applications.

Financial haven

Financial journalists and analysts have stipulated that there was a correlation between higher bitcoin usage in Spain and the 2012–2013 Cypriot financial crisis, through which bank deposit levies as high as 40% could have been placed on bank deposits; conceding that bitcoin is serving as a sort of financial haven for some European savers.^[50][51] Nick Colas, a financial analyst, claimed a rally in the price of bitcoins was “One hundred percent...due to Cyprus,” and that “It means the Europeans are getting involved.”

In contrast, as of 2013, the use of bitcoin as a haven is limited for large amounts. As Colas also claims, “Bitcoin is good if you want to make a deposit of between $1,000 and $10,000. But the liquidity is just not there in the system for multimillion dollar transactions...”^[52]

Namecoin DNS

Namecoin is an alternative peer-to-peer Domain Name System that is based on the open-source bitcoin protocol.

Like bitcoin, the Namecoin network reaches consensus every few minutes as to which names/values have been reserved or updated.^[53][54] Each user has its own copy of the full database, which attempts to reduce censorship on the DNS level.^[55] The use of public-key cryptography also means that only the owner is allowed to modify a name in the distributed database. For name resolution Namecoin uses .bit as pseudo-top-level domain.

The internet activist Aaron Swartz described a similar concept.^[56] It tries to square Zooko's triangle which states that a naming system cannot be secure, distributed and have human-meaningful names at the same time.

Implications

As a currency

The large fluctuation in the dollar value of a bitcoin has evoked criticism of bitcoin's economic suitability as a currency.^[15]

As an investment

Although it is considered a digital currency, virtual currency, or "payment scheme", it is often traded as an investment^[57] and accused of being a form of investment fraud known as a Ponzi scheme.^[48][58] On this subject, a report by the European Central Bank, using the U.S. Securities and Exchange Commission's definition of a Ponzi scheme, found that the use of bitcoins shares some characteristics with Ponzi schemes, but also has characteristics of its own which contradict several common aspects of Ponzi schemes.^[59]

In contrast, The Bitcoin Project describes bitcoin exclusively as an "experimental digital currency." and does not to refer to it as an investment.^[60] Reuben Grinberg has claimed some of bitcoin's supporters have argued that bitcoin is neither a security nor an investment because it fails to meet the criteria for either category.^[61]

Privacy

Because transactions are broadcast to the entire network, they are inherently public. Unlike regular banking,^[62] which preserves customer privacy by keeping transaction records private, loose transactional privacy is accomplished in bitcoin by using many unique addresses for every wallet, while at the same time publishing all transactions.

Despite this, it can still be difficult to associate bitcoin identities with real-life identities.^[63] This property makes bitcoin transactions attractive to sellers of illegal products. Bitcoin is the medium of exchange on the Silk Road for this reason,^[64][65] although many bitcoin hobbyists criticize such usage.^[66]

Botnet mining

In June 2011, Symantec warned about the possibility of botnets engaging in covert "mining" of bitcoins,^[67][68] consuming computing cycles, using extra electricity and possibly increasing the temperature of the computer. Some malware also used the parallel processing capabilities of the GPUs built into many modern-day video cards.^[69]

Later that month, the Australian Broadcasting Corporation caught an employee using the company's servers to generate Bitcoins without permission.^[70]

In mid August 2011, Bitcoin miner botnets were found again,^[71] less than three months later bitcoin-mining trojans infecting Mac OS X were also discovered.^[72]

Incidents of theft

There have been incidents of theft of bitcoin balances:

• On 19 June 2011, a security breach of the Mt.Gox bitcoin exchange caused the nominal price of a bitcoin to fraudulently drop to one cent on the Mt.Gox exchange, after a hacker allegedly used credentials from a Mt.Gox auditor's compromised computer to illegally transfer a large number of bitcoins to himself. He used the exchange's software to nominally sell them all, creating a massive "ask" order at any price. Within minutes the price corrected to its correct user-traded value.^{[73][74][75][76][77][78]} Accounts with the equivalent of more than USD 8,750,000 were affected.^[75]

• In July 2011, the operator of Bitomat, the third largest bitcoin exchange, announced that he lost access to his wallet.dat file with about 17,000 bitcoins (roughly equivalent to 220,000 USD at that time). He announced that he would sell the service for the missing amount, aiming to use funds from the sale to refund his customers.^[79]

• In August 2011, MyBitcoin, a now defunct bitcoin transaction processor, declared that it was hacked, which resulted in it being shut down, with paying 49% on customer deposits, leaving more than 78,000 bitcoins (roughly equivalent to 800,000 USD at that time) unaccounted for.^[80][81]

• In early August 2012, a lawsuit was filed in San Francisco court against Bitcoinica — a bitcoin trading venue — claiming about 460,000 USD from the company. Bitcoinica was hacked twice in 2012, which led to allegations of neglecting the safety of customers' money and cheating them out of withdrawal requests.^[82][83]

• In late August 2012, an operation titled Bitcoin Savings and Trust was shut down by the owner, allegedly leaving around $5.6 million in bitcoin-based debts; this led to allegations of the operation being a Ponzi scheme.^{[84][85][86][87]} In September 2012, it was reported that U.S. Securities and Exchange Commission has started an investigation on the case.^[88]

• In September 2012, Bitfloor, a bitcoin exchange, also reported being hacked, with 24,000 bitcoins (roughly equivalent to 250,000 USD) stolen. As a result, Bitfloor suspended operations.^[89][90] The same month, Bitfloor resumed operations, with its founder saying that he reported the theft to FBI, and that he is planning to repay the victims, though the time frame for such repayment is unclear.^[91]

Taxation

Matthew Elias, founder of the Cryptocurrency Legal Advocacy Group (CLAG) published "Staying Between the Lines: A Survey of U.S. Income Taxation and its Ramifications on Cryptocurrencies", which discusses "the taxability of cryptocurrencies such as bitcoin."^[92] CLAG "stressed the importance for taxpayers to determine on their own whether taxes are due on a bitcoin-related transaction based on whether one has "experienced a realization event."^[92] Such examples are "when a taxpayer has provided a service in exchange for bitcoins, a realization event has probably occurred, and any gain or loss would likely be calculated using fair market values for the service provided."^[92]

Reception

Al Gore

In late March 2013, at an electronic payments conference at Harvard University, former US Vice President Al Gore commented on bitcoin in response to a question: "When Bitcoin currency is converted from currency into cash, that interface has to remain under some regulatory safeguards. I think the fact that within the Bitcoin universe an algorithm replaces the functions of [the government] … is actually pretty cool." He further commented on virtual currency in general: "I know that there are a lot of innovators that are out there that are trying to think up … new models and I look forward to that."^[93]

Alex Jones

In March 2013, Alex Jones, radio host, interviewed Max Keiser on his radioshow about bitcoin, accusing him of being Satoshi Nakamoto and inventing bitcoin. Keiser, on air, claimed that bitcoin could "capture 1%-10% of the [foreign exchange currency markets]." ^[94]

ConvergEx

In March 2013, Nick Colas a Chief Market Strategist at ConvergEx Group – a Bank of New York Mellon investment firm – analyzed bitcoin, saying "there is much to learn from [bitcoin] in the world of stateless currencies," and that "confidence in money as a store of value is the ultimate driver of its value, both in the cyber and real worlds. I have no idea which way [bitcoins] will trade in the next 2 days or 2 years, but the whole process of starting a new Internet currency is a great case study in how real people use real currency."^[95]

Paul Krugman

In 2011, Paul Krugman, a Keynesian economist, reviewed bitcoin saying that "[bitcoin] has fluctuated sharply, but overall it has soared. So buying into [bitcoin] has, at least so far, been a good investment. But does that make the experiment a success? Um, no. What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in [bitcoin]."^[15]

Popular culture

The Good Wife

Bitcoin was a featured subject in The Good Wife television series, in an episode titled "Bitcoin for Dummies". The CNBC host of Mad Money, Jim Cramer, was shown in a courtroom scene in which he claims he doesn’t consider bitcoin a true currency: “There’s no central bank to regulate it; it’s digital and functions completely peer to peer.”^[96]

See also

Look up bitcoin in Wiktionary, the free dictionary.

• Ripple monetary system
• Ven (currency)
• Digital currency exchanger
• Private currency
• Anonymous Internet banking
• Complementary currency
• Crypto-anarchism

References

Further reading

• All about Bitcoin: the rise and trials of an anonymous virtual currency, The Verge, 2013.
• Bitcoin’s Gains May Fuel Central Bank Concerns: Chart of the Day, Bloomberg, 2013.
• Bitcoin: inside the encrypted, peer-to-peer digital currency, Arstechnica, 2011.
• Bitcoin, the City traders' anarchic new toy, Reuters, 2012.
• Bitter to Better — How to Make Bitcoin a Better Currency, University of California.
• Crypto Currency, Forbes Magazine, 2011.
• My Money Is Cooler Than Yours, Slate, 2011.
• Online Cash Bitcoin Could Challenge Governments, Banks, TIME, 2011.
• What Bitcoin Is, and Why It Matters, MIT Technology Review, 2011.

External links

• Charts and Stats for the Bitcoin network
• Bitcoin Block Explorer