Bitcoin For The Sake Of Investing

Bitcoin for the sake of investing

"₿" redirects here. It is not to be confused with "฿" for Thai baht.

decentralized cryptocurrency


Prevailing bitcoin logo

Symbol₿ (Unicode: U+20BF ₿BITCOIN SIGN (HTML ))[a]
Ticker symbolBTC, XBT[b]
Original author(s)Satoshi Nakamoto
White paper"Bitcoin: A Peer-to-Peer Electronic Cash System"[4]
Implementation(s)Bitcoin Core
Initial release0.1.0 / 9 January 2009 (11 years ago) (2009-01-09)
Latest release0.19.0.1 / 24 November 2019 (53 days ago) (2019-11-24)[3]
Development statusActive
Ledger start3 January 2009 (11 years ago) (2009-01-03)
Timestamping schemeProof-of-work (partial hash inversion)
Hash functionSHA-256
Issuance scheduleDecentralized (block reward)
Initially ₿50 per block, halved every 210,000 blocks[8][9]
Block reward₿12.5[c]
Block time10 minutes
Circulating supply₿17,754,100 (as of 11 June 2019[update])
Supply limit₿21,000,000[5][d]
  1. ^The symbol was encoded in Unicode version 10.0 at position U+20BF ₿BITCOIN SIGN in the Currency Symbols block in June 2017.[1]
  2. ^Compatible with ISO 4217.
  3. ^July 2016 to approximately June 2020, halved approximately every four years
  4. ^The supply will approach, but never reach, ₿21 million.

    Issuance will permanently halt c. 2140 at ₿20,999,999.9769.[6][7]:ch.

    Bitcoin - What You NEED To Know Before Investing in Bitcoin


Bitcoin[a] () is a cryptocurrency. It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.[8]

Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.

Bitcoin was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto[15] and started in 2009[16] when its source code was released as open-source software.[7]:ch.

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1 Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.[17] Research produced by University of Cambridge estimates that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.[18]

Bitcoin has been criticized for its use in illegal transactions, its high electricity consumption, price volatility, and thefts from exchanges.

Some economists, including several Nobel laureates, have characterized it as a speculative bubble. Bitcoin has also been used as an investment, although several regulatory agencies have issued investor alerts about bitcoin.[19][20]


Main article: History of bitcoin


The domain name "" was registered on 18 August 2008.[21] On 31 October 2008, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System[4] was posted to a cryptography mailing list.[22] Nakamoto implemented the bitcoin software as open-source code and released it in January 2009.[23][24][16] Nakamoto's identity remains unknown.[15]

On 3 January 2009, the bitcoin network was created when Nakamoto mined the first block of the chain, known as the genesis block.[25][26] Embedded in the coinbase of this block was the text "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks".[16] This note references a headline published by The Times and has been interpreted as both a timestamp and a comment on the instability caused by fractional-reserve banking.[27]:18

The receiver of the first bitcoin transaction was cypherpunk Hal Finney, who had created the first reusable proof-of-work system (RPoW) in 2004.[28] Finney downloaded the bitcoin software on its release date, and on 12 January 2009 received ten bitcoins from Nakamoto.[29][30] Other early cypherpunk supporters were creators of bitcoin predecessors: Wei Dai, creator of b-money, and Nick Szabo, creator of bit gold.[25] In 2010, the first known commercial transaction using bitcoin occurred when programmer Laszlo Hanyecz bought two Papa John's pizzas for ₿10,000.[31]

Blockchain analysts estimate that Nakamoto had mined about one million bitcoins[32] 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.[33][34] 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.[35][34]


After early "proof-of-concept" transactions, the first major users of bitcoin were black markets, such as Silk Road.

During its 30 months of existence, beginning in February 2011, Silk Road exclusively accepted bitcoins as payment, transacting 9.9 million in bitcoins, worth about $214 million.[36]:222

In 2011, the price started at $0.30 per bitcoin, growing to $5.27 for the year.

The price rose to $31.50 on 8 June. Within a month the price fell to $11.00. The next month it fell to $7.80, and in another month to $4.77.[37]

Litecoin, an early bitcoin spin-off or altcoin, appeared in October 2011.[38] Many altcoins have been created since then.[39]

In 2012, bitcoin prices started at $5.27 growing to $13.30 for the year.[37] By 9 January the price had risen to $7.38, but then crashed by 49% to $3.80 over the next 16 days.

The price then rose to $16.41 on 17 August, but fell by 57% to $7.10 over the next three days.[40]

The Bitcoin Foundation was founded in September 2012 to promote bitcoin's development and uptake.[41]


In 2013, prices started at $13.30 rising to $770 by 1 January 2014.[37]

In March 2013 the blockchain temporarily split into two independent chains with different rules due to a bug in version 0.8 of the bitcoin software.

The two blockchains operated simultaneously for six hours, each with its own version of the transaction history from the moment of the split. Normal operation was restored when the majority of the network downgraded to version 0.7 of the bitcoin software, selecting the backward compatible version of the blockchain. As a result, this blockchain became the longest chain and could be accepted by all participants, regardless of their bitcoin software version.[42] During the split, the Mt.

Gox exchange briefly halted bitcoin deposits and the price dropped by 23% to $37[42][43] before recovering to previous level of approximately $48 in the following hours.[44]

The US Financial Crimes Enforcement Network (FinCEN) established regulatory guidelines for "decentralized virtual currencies" such as bitcoin, classifying American bitcoin miners who sell their generated bitcoins as Money Service Businesses (MSBs), that are subject to registration or other legal obligations.[45][47]

In April, exchanges BitInstant and Mt.

Gox experienced processing delays due to insufficient capacity[48] resulting in the bitcoin price dropping from $266 to $76 before returning to $160 within six hours.[49] The bitcoin price rose to $259 on 10 April, but then crashed by 83% to $45 over the next three days.[40]

On 15 May 2013, US authorities seized accounts associated with Mt.

Gox after discovering it had not registered as a money transmitter with FinCEN in the US.[50][51] 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.[52][better source needed] This marked the first time a government agency had seized bitcoin.[53] The FBI seized about ₿30,000[54] in October 2013 from the dark web website Silk Road during the arrest of Ross William Ulbricht.[55][56][57] These bitcoins were sold at blind auction by the United States Marshals Service to venture capital investor Tim Draper.[54] Bitcoin's price rose to $755 on 19 November and crashed by 50% to $378 the same day.

On 30 November 2013 the price reached $1,163 before starting a long-term crash, declining by 87% to $152 in January 2015.[40]

On 5 December 2013, the People's Bank of China prohibited Chinese financial institutions from using bitcoins.[58] After the announcement, the value of bitcoins dropped,[59] and Baidu no longer accepted bitcoins for certain services.[60] Buying real-world goods with any virtual currency had been illegal in China since at least 2009.[61]

In 2014, prices started at $770 and fell to $314 for the year.[37] On July 30, 2014, the Wikimedia Foundation started accepting donations of bitcoin.[62]

In 2015, prices started at $314 and rose to $434 for the year.

Bitcoin for the sake of investing

In 2016, prices rose and climbed up to $998 by 1 January 2017.[37]


Prices started at $998 in 2017 and rose to $13,412.44 on 1 January 2018,[37] after reaching its all-time high of $19,783.06 on 17 December 2017.[63]

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.[40] The percentage of bitcoin trading in the Chinese renminbi fell from over 90% in September 2017 to less than 1% in June 2018.[64] On August 1, 2017 a fork of the blockchain created Bitcoin Cash.

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.[65][66] The price on January 1, 2019 was $3,747, down 72% for 2018 and down 81% since the all-time high.[65][67]

Bitcoin prices were negatively affected by several hacks or thefts from cryptocurrency exchanges, including thefts from Coincheck in January 2018, Coinrail and Bithumb in June, and Bancor in July.

For the first six months of 2018, $761 million worth of cryptocurrencies was reported stolen from exchanges.[68] Bitcoin's price was affected even though other cryptocurrencies were stolen at Coinrail and Bancor as investors worried about the security of cryptocurrency exchanges.[69][70][71] In September 2019 the Intercontinental Exchange (the owner of the NYSE) began trading of bitcoin futures on its exchange called Bakkt.[72] Bakkt also announced that it would launch options on bitcoin in December 2019.[73] In December 2019 YouTube removed bitcoin and cryptocurrency videos, but later restored the content and they said they "made the wrong call."[74]



The unit of account of the bitcoin system is a bitcoin.

Ticker symbols used to represent bitcoin are BTC[b] and XBT.[c][79]:2 Its Unicode character is ₿.[1] Small amounts of bitcoin used as alternative units are millibitcoin (mBTC), and satoshi (sat). Named in homage to bitcoin's creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoins, one hundred millionth of a bitcoin.[2] A millibitcoin equals 0.001 bitcoins; one thousandth of a bitcoin or 100,000 satoshis.[80]


For broader coverage of this topic, see Blockchain.

The bitcoin blockchain is a public ledger that records bitcoin transactions.[83] It is implemented as a chain of blocks, each block containing a hash of the previous block up to the genesis block[d] of the chain.

A network of communicating nodes running bitcoin software maintains the blockchain.[36]:215–219 Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications.

Bitcoin for the sake of investing

Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. To achieve independent verification of the chain of ownership each network node stores its own copy of the blockchain.[84] About 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.[7]:ch.



See also: Bitcoin network

Transactions are defined using a Forth-like scripting language.[7]:ch.

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5 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.[85] 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.

Bitcoin Cash Index Overview

As in a cash transaction, the sum of inputs (coins used to pay) can exceed the intended sum of payments. In such a case, an additional output is used, returning the change back to the payer.[85] Any input satoshis not accounted for in the transaction outputs become the transaction fee.[85]

Transaction fees

Though transaction fees are optional, miners can choose which transactions to process and prioritize those that pay higher fees.[85] Miners may choose transactions based on the fee paid relative to their storage size, not the absolute amount of money paid as a fee.

These fees are generally measured in satoshis per byte (sat/b). The size of transactions is dependent on the number of inputs used to create the transaction, and the number of outputs.[7]:ch.

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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 mathematically unfeasible. Users can tell others or make public a bitcoin address without compromising its corresponding private key.

Moreover, the number of valid private keys is so vast that it is extremely unlikely someone will compute a key-pair that is already in use and has funds. The vast number of valid private keys makes it unfeasible that brute force could be used to compromise a private key. To be able to spend their bitcoins, the owner must know the corresponding private key and digitally sign the transaction.

The network verifies the signature using the public key; the private key is never revealed.[7]:ch. 5

If the private key is lost, the bitcoin network will not recognize any other evidence of ownership;[36] the coins are then unusable, and effectively lost. For example, in 2013 one user claimed to have lost 7,500 bitcoins, worth $7.5 million at the time, when he accidentally discarded a hard drive containing his private key.[86] About 20% of all bitcoins are believed to be lost.

They would have a market value of about $20 billion at July 2018 prices.[87]

To ensure the security of bitcoins, the private key must be kept secret.[7]:ch. 10 If the private key is revealed to a third party, e.g.

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through a data breach, the third party can use it to steal any associated bitcoins.[88] As of December 2017[update], around 980,000 bitcoins have been stolen from cryptocurrency exchanges.[89]

Regarding ownership distribution, as of 16 March 2018, 0.5% of bitcoin wallets own 87% of all bitcoins ever mined.[90]


See also: Bitcoin network § Mining

Mining is a record-keeping service done through the use of computer processing power.[f] 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.[83] Each block contains a SHA-256cryptographic hash of the previous block,[83] thus linking it to the previous block and giving the blockchain its name.[7]:ch.


To be accepted by the rest of the network, a new block must contain a proof-of-work (PoW).[83] The system used is based on Adam Back's 1997 anti-spam scheme, Hashcash.[94][failed verification][4] The PoW requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target.[7]:ch.

8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is the ascending natural numbers: 0, 1, 2, 3, ...[7]:ch. 8) before meeting the difficulty target.

Every 2,016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes.

In this way the system automatically adapts to the total amount of mining power on the network.[7]:ch. 8 Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.[95]

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.[96] As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.[83]


The successful miner finding the new block is allowed by the rest of the network to reward themselves with newly created bitcoins and transaction fees.[97] As of 9 July 2016[update],[98] the reward amounted to 12.5 newly created bitcoins per block added to the blockchain, plus any transaction fees from payments processed by the block.

To claim the reward, a special transaction called a coinbase is included with the processed payments.[7]:ch. 8 All bitcoins in existence have been created in such coinbase transactions.

The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins[g] will be reached c. 2140; the record keeping will then be rewarded solely by transaction fees.[99]

In 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.[100]

Pooled mining

For broader coverage of this topic, see Mining pool.

Computing power is often bundled together or "pooled" to reduce variance in miner income.

Individual mining rigs often have to wait for long periods to confirm a block of transactions and receive payment.

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In a pool, all participating miners get paid every time a participating server solves a block. This payment depends on the amount of work an individual miner contributed to help find that block.[101]


For broader coverage of this topic, see Cryptocurrency wallet.

A wallet stores the information necessary to transact bitcoins.

While wallets are often described as a place to hold[102] 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 (and spend) them.[7]:ch.

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1, glossary Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated.[103] 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.

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  • Full clients verify transactions directly by downloading a full copy of the blockchain (over 150 GB As of January 2018[update]).[104] 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.[7]:ch.

    1 Because of its size and complexity, downloading and verifying the entire blockchain is not suitable for all computing devices.

  • Lightweight clients consult full clients to send and receive transactions without requiring a local copy of the entire blockchain (see simplified payment verificationSPV).

    This makes lightweight clients much faster to set up and allows them to be used on low-power, low-bandwidth devices such as smartphones.

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    When using a lightweight wallet, however, the user must trust the server to a certain degree, 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 miners.[105]

Third-party internet services called online wallets offer similar functionality but may be easier to use.

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In this case, credentials to access funds are stored with the online wallet provider rather than on the user's hardware.[106] 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.[107]

Physical wallets

Physical wallets store the credentials necessary to spend bitcoins offline and can be as simple as a paper printout of the private key:[7]:ch.

10 a paper 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[h] 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.[108]:39 In a 2014 interview, QuadrigaCX founder Gerald Cotten explained that the company stored customer funds on paper wallets in safe deposit boxes: "So we just send money to them, we don’t need to go back to the bank every time we want to put money into it.

We just send money from our Bitcoin app directly to those paper wallets, and keep it safe that way."[109]

Cameron and Tyler Winklevoss, the founders of the Gemini Trust Co.

Bitcoin for the sake of investing

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.[110] Through this system, the theft of one envelope would neither allow the thief to steal any bitcoins nor deprive the rightful owners of their access to them.[109]

Physical wallets can also take the form of metal token coins[111] with a private key accessible under a security hologram in a recess struck on the reverse side.[112]:38 The security hologram self-destructs when removed from the token, showing that the private key has been accessed.[113] Originally, these tokens were struck in brass and other base metals, but later used precious metals as bitcoin grew in value and popularity.[112]:80 Coins with stored face value as high as ₿1000 have been struck in gold.[112]:102–104 The British Museum's coin collection includes four specimens from the earliest series[112]:83 of funded bitcoin tokens; one is currently on display in the museum's money gallery.[114] In 2013, a Utahn manufacturer of these tokens was ordered by the Financial Crimes Enforcement Network (FinCEN) to register as a money services business before producing any more funded bitcoin tokens.[111][112]:80

Another type of physical wallet called a hardware wallet keeps credentials offline while facilitating transactions.[115] 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.[108]:42–45


Further information: Bitcoin Core

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.[16] In version 0.5 the client moved from the wxWidgets user interface toolkit to Qt, and the whole bundle was referred to as Bitcoin-Qt.[116] After the release of version 0.9, the software bundle was renamed Bitcoin Core to distinguish itself from the underlying network.[117][118]


See also: Fork (blockchain) and List of bitcoin forks

Bitcoin Core is, perhaps, the best known implementation or client.

Alternative clients (forks of Bitcoin Core) exist, such as Bitcoin XT, Bitcoin Unlimited,[35] and Parity Bitcoin.[119]

On 1 August 2017, a hard fork of bitcoin was created, known as Bitcoin Cash.[120] Bitcoin Cash has a larger block size limit and had an identical blockchain at the time of fork.

On 24 October 2017 another hard fork, Bitcoin Gold, was created. Bitcoin Gold changes the proof-of-work algorithm used in mining, as the developers felt that mining had become too specialized.[121]


Bitcoin is decentralized:[8]

  • Bitcoin does not have a central authority.[8]
  • There is no central server; the bitcoin network is peer-to-peer.[16]
  • There is no central storage; the bitcoin ledger is distributed.[122]
  • The ledger is public; anybody can store it on their computer.[7]:ch.


  • There is no single administrator;[8] the ledger is maintained by a network of equally privileged miners.[7]:ch.

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  • Anybody can become a miner.[7]:ch. 1
  • 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.[7]:ch.


  • The issuance of bitcoins is decentralized. They are issued as a reward for the creation of a new block.[97]
  • Anybody can create a new bitcoin address (a bitcoin counterpart of a bank account) without needing any approval.[7]:ch.


  • Anybody can send a transaction to the network without needing any approval; the network merely confirms that the transaction is legitimate.[123]:32

Trend towards centralization

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.[36]:220–222 Bitcoin miners join large mining pools to minimize the variance of their income.[36]:215, 219–222[124]:3[125] 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.[126] As of 2013[update] just six mining pools controlled 75% of overall bitcoin hashing power.[126] In 2014 mining pool obtained 51% hashing power which raised significant controversies about the safety of the network.

The pool has voluntarily capped their hashing power at 39.99% and requested other pools to act responsibly for the benefit of the whole network.[127]c. 2017 over 70% of the hashing power and 90% of transactions were operating from China.[128]

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 (SPV) clients.[126]


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.

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In addition, transactions can be linked to individuals and companies through "idioms of use" (e.g., transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses.[129] Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information.[130] To heighten financial privacy, a new bitcoin address can be generated for each transaction.[131]


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.[132] For example, in 2012, Mt.

Gox froze accounts of users who deposited bitcoins that were known to have just been stolen.[133]


Main article: Bitcoin scalability problem

The blocks in the blockchain were originally limited to 32 megabytes in size.

The block size limit of one megabyte was introduced by Satoshi Nakamoto in 2010. Eventually the block size limit of one megabyte created problems for transaction processing, such as increasing transaction fees and delayed processing of transactions.[134]Andreas Antonopoulos has stated Lightning Network is a potential scaling solution and referred to lightning as a second layer routing network.[7]:ch.



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."[135]

Austrian economics

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,[136] in which Hayek advocates a complete free market in the production, distribution and management of money to end the monopoly of central banks.[137]:22

Anarchism and libertarianism

Further information: Crypto-anarchism

According to The New York Times, libertarians and anarchists were attracted to the idea.

Early bitcoin supporter Roger Ver said: "At first, almost everyone who got involved did so for philosophical reasons.

Bitcoin for the sake of investing

We saw bitcoin as a great idea, as a way to separate money from the state."[135]The Economist describes bitcoin as "a techno-anarchist project to create an online version of cash, a way for people to transact without the possibility of interference from malicious governments or banks".[138] Economist Paul Krugman argues that cryptocurrencies like bitcoin are "something of a cult" based in "paranoid fantasies" of government power.[139]

Nigel Dodd argues in The Social Life of Bitcoin that the essence of the bitcoin ideology is to remove money from social, as well as governmental, control.[141] 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."[141][140]

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.[142]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."[143]

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Data structure of blocks in the ledger.
Simplified chain of ownership as illustrated in the bitcoin whitepaper.[4] In practice, a transaction can have more than one input and more than one output.[85]

Later amateurs mined bitcoins with specialized FPGA and ASIC chips.

The chips pictured have become obsolete due to increasing difficulty.

Today, bitcoin mining companies dedicate facilities to housing and operating large amounts of high-performance mining hardware.[92]

A paper wallet with the address visible for adding or checking stored funds.

The part of the page containing the private key is folded over and sealed.

A hardware wallet peripheral which processes bitcoin payments without exposing any credentials to the computer.