Bitcoin

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Bitcoin
Prevailing bitcoin logo
Denominations
Pluralbitcoins
Symbol₿ (Unicode: U+20BF BITCOIN SIGN (HTML ₿))[a]
Precision10−8
Subunits
 ​11000millibitcoin
 ​11000000microbitcoin
 ​1100000000satoshi[2]
Development
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 (12 years ago) (2009-01-09)
Latest release22.0 / 13 September 2021 (2 months ago) (2021-09-13)[3]
Code repositorygithub.com/bitcoin/bitcoin
Development statusActive
Websitebitcoin.org
Ledger
Ledger start3 January 2009 (12 years ago) (2009-01-03)
Timestamping schemeProof-of-work (partial hash inversion)
Hash functionSHA-256 (two rounds)
Issuance scheduleDecentralized (block reward)
Initially ₿50 per block, halved every 210,000 blocks[8]
Block reward₿6.25[b]
Block time10 minutes
Circulating supply₿18,830,000[c][5]
Supply limit₿21,000,000[6][d]
Valuation
Market capUS$1.149 trillion[e]
  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. May 2020 to approximately 2024, halved approximately every four years
  3. Approximate supply as of 2021-09-30
  4. The supply will approach, but never reach, ₿21 million. Issuance will permanently halt c. 2140 at ₿20,999,999.9769.[7]:ch. 8
  5. As of October 22, 2021
This article contains special characters. Without proper rendering support, you may see question marks, boxes, or other symbols.

Bitcoin [a] () is a digital and global money system cryptocurrency. It allows people to send or receive money across the internet, even to someone they don't know or don't trust. It is the first of its kind technology that allows the transfer of digital scarcity across the internet without needing a third party. Money can be exchanged without being linked to a real identity. The mathematical field of cryptography is the basis for Bitcoin's security.

Bitcoin was invented by someone using the name Satoshi Nakamoto.[14] A Bitcoin address, or simply address, is an identifier of 26-35 letters and numbers, beginning with the number 1, 3, or bc1, that represents a possible destination for a bitcoin payment. Addresses can be generated at no cost by any user of Bitcoin. For example, using Bitcoin Core, one can click "New Address" and be assigned an address. It is also possible to get a Bitcoin address using an account at an exchange or online wallet service.

There are currently three address formats in common use:

Common P2PKH which begin with the number 1; e.g.: 1BvBMSEstWetqTFn5Au4m4GFg7xJaNVN2.

Newer P2SH type starting with the number 3; e.g.: 3MXknxVapwv6QkMoQv99MBuXZ2XpPewHn9.

The preferred Bech32 type starting with bc1; e.g.: bc1quqq27xwxstclj9xqlv70k63xcy4xt8kslyvhq8.

History[change | change source]

Creation[change | change source]

The domain name "bitcoin.org" was registered on 18 August 2008.[15] 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.[16]

In June 2021, El Salvador became the first country in the world to make Bitcoin a legal tender.[17]

Pseudonymous[change | change source]

One of the differences between using bitcoin and using regular money online is that bitcoin can be used without having an internet connection to link any sort of real-world identity to it. Unless someone chooses to link their name to a bitcoin address, it is hard to tell who owns the address. Bitcoin does not keep track of users; it keeps track of addresses where the money is. Each address has two important pieces of cryptographic information, or keys: a public one and a private one.

The public key, which is what the "bitcoin address" is created from, is similar to an email address; anyone can look it up and send bitcoins to it. The private address, or private key, is similar to an email password; only with it can the owner send bitcoins from it. Because of this, it is very important that this private key is kept secret. To send bitcoins from an address, you prove to the network that you own the private key that belongs to the address, without revealing the private key. This is done with a branch of mathematics known as public-key cryptography.

Public Key[change | change source]

A public key is what determines the ownership of bitcoins, and is very similar to an ID number. If someone wanted to send you bitcoins, all you would need to do is supply them your bitcoin address, which is a version of your public key that is easier to read and type. For example, if Bob has 1 bitcoin at the bitcoin address "ABC123," and Alice has no bitcoins at the bitcoin address "DEF456," Bob can send 0.5 bitcoins to "DEF456." As soon as the transaction is processed, Alice and Bob both have 0.5 bitcoins. Anyone using the system can see how much money "ABC123" has and how much money "DEF456" has, but they cannot tell anything about who owns the address.

Private Key[change | change source]

In the example above, "ABC123" and "DEF456" are the bitcoin addresses of Bob and Alice. But Bob and Alice each have a second key which only they individually know. This is the private key, and it is the "other half" of a Bitcoin address. The private key is never shared, and allows the owner of the bitcoins to control them. However, if the private key is not kept secret, then anyone who sees it can also control and take the bitcoins there. This happened on live TV when Bloomberg's Matt Miller accidentally showed a private key to viewers.[18] The money was taken immediately. The person who took it, told others about it later, saying "I'll send it back once Matt gives me a new address, since someone else can sweep [empty] out the old one."

Technical Details[change | change source]

Blockchain[change | change source]

Sites or users using the Bitcoin system are required to use a global database called blockchain. Blockchain is a record of all transactions that have taken place in the Bitcoin network. It also keeps track of new bitcoins as they are generated. With these two facts, the blockchain can keep track of who has how much money at all times.[source?]

Mining[change | change source]

To generate a bitcoin, a miner must solve a math problem. However, the difficulty of the math problem depends on how many people are mining for bitcoin at the moment. Because of how complicated the math problems usually are, they must be calculated with very powerful processors.[source?]

These processors can be found in CPUs, graphics cards, or specialized machines called ASICs. The process of generating the bitcoins is called mining.[19] People who use these machines to mine bitcoins are called miners. Miners either compete with one another or work together in groups to solve a mathematical puzzle. The first miner or group of miners to solve the particular puzzle are rewarded with new bitcoins.

The puzzle is determined by the transactions being sent at the time and the previous puzzle solution. This means the solution to one puzzle is always different from the puzzles before. Attempting to change an earlier transaction, maybe to fake bitcoins being sent or change the number of someone's bitcoins, requires solving that puzzle again, which takes a lot of work, and also requires solving each of the following puzzles, which takes even more work. This means a bitcoin cheater needs to outpace all the other bitcoin miners to change the bitcoin history. This makes the bitcoin blockchain very safe to use.

When miners mine a block of bitcoin, they receive a reward. This reward gets cut in half every 210,000 blocks, which occurs roughly once every 4 years .[20] During Bitcoin's inception, the block reward was 50 BTC. It was halved to 25 BTC on November 28th, 2012, and to 12.5 BTC on July 9th, 2016. As of May 11th, 2020, the block reward has been 6.25 BTC. [21]

QR Codes[change | change source]

A paper printable bitcoin wallet consisting of one bitcoin address for receiving and the corresponding private key for spending.

A popular image associated with Bitcoin is a QR code. QR codes are a group of black and white boxes that are similar to barcodes. Barcodes are a row of lines, and QR codes are a grid of squares. Bitcoin uses QR codes because they can store more information in a small space, and a camera such as a smartphone can read them. The two QR codes on the Bitcoin note are the public and private addresses, and can be scanned with a number of online tools.

Exchanges[change | change source]

An actual bitcoin transaction from a web based cryptocurrency exchange to a hardware wallet.

Everyone in the Bitcoin network is considered a peer, and all addresses are created equal. All transactions can take place solely from peer to peer, but a number of sites exist to make these transactions simpler. These sites are called exchanges. Exchanges provide tools for dealing in Bitcoin. Some allow the purchase of Bitcoin from external accounts, and others allow trading with other cryptography-based currencies like Bitcoin. Most exchanges also provide a basic "wallet" service.

Wallets[change | change source]

Wallets provide a handy way to keep track of all of a user's public and private addresses. Because addresses are pseudo-anonymous, anyone can have as many addresses as they want.[source?] This is useful for dealing with multiple people, but it can get complicated to manage multiple accounts. A wallet holds all of this information in a convenient place, just like a real wallet would. A backup of a wallet prevents 'losing' the bitcoins.

Popularity[change | change source]

Bitcoin adoption and use continues to grow a lot every year. Since 2012, Bitcoin has gained the attention of the mainstream media; one way is the WannaCry ransomware created in May 2017.[22] Adoption growth has not only happened for consumers,[23] but also for many companies, who are looking to make use of all of the advantages of Bitcoin. Among Millennials, cryptocurrencies were a popular choice to invest $10,000 in, in a March 2018[source?] survey of 1,000 Americans. Specifically, the survey found that 9.19% of Millennials (18-34) would invest the $10,000 in cryptocurrencies, compared to 4.04% of Generation Xers (35-54) and 3.08% of Baby Boomers (55+).

Bitcoin remains by far the most popular choice, followed by Ethereum and Litecoin. Specifically, 76% of the Millennials in the survey said that they would invest the $10,000 in Bitcoin, 12% in Ethereum and 12% in Litecoin. [24] Although the real time price and trading in bitcoin varies with market demand.

As of 2021, El Salvador is the first country in the world to adopt the Bitcoin as a legal tender.[25]

Criticism[change | change source]

Bitcoin has often been criticized for its unstable price, its network's high electricity consumption, and for its high transaction fees. Additionally, it has been criticized for having characteristics in common with Ponzi and pyramid schemes.

Notes[change | change source]

  1. The word bitcoin first occurred and was defined in the white paper[4] published 31 October 2008;[9] it is a compound of the words bit and coin.[10] No uniform convention for bitcoin capitalization exists; some sources use Bitcoin, capitalized, to refer to the technology and network and bitcoin, lowercase, to refer to the unit of account.[11] The Wall Street Journal,[12] The Chronicle of Higher Education,[13] and the Oxford English Dictionary[10] advocate use of lowercase bitcoin in all cases, a convention followed throughout this article.

References[change | change source]

  1. "Unicode 10.0.0". Unicode Consortium. 20 June 2017. Archived from the original on 20 June 2017. Retrieved 20 June 2017.
  2. Mick, Jason (12 June 2011). "Cracking the Bitcoin: Digging Into a $131M USD Virtual Currency". Daily Tech. Archived from the original on 20 January 2013. Retrieved 30 September 2012.
  3. "Bitcoin Core 22.0". Retrieved 14 September 2021.
  4. 4.0 4.1 4.2 Nakamoto, Satoshi (31 October 2008). "Bitcoin: A Peer-to-Peer Electronic Cash System" (PDF). bitcoin.org. Archived (PDF) from the original on 20 March 2014. Retrieved 28 April 2014.
  5. "Bitcoin". 30 September 2021.
  6. Nakamoto; et al. (1 April 2016). "Bitcoin source code - amount constraints". GitHub. Archived from the original on 1 July 2018.
  7. Antonopoulos, Andreas M. (April 2014). Mastering Bitcoin: Unlocking Digital Crypto-Currencies. O'Reilly Media. ISBN 978-1-4493-7404-4.
  8. "Statement of Jennifer Shasky Calvery, Director Financial Crimes Enforcement Network United States Department of the Treasury Before the United States Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on National Security and International Trade and Finance Subcommittee on Economic Policy" (PDF). fincen.gov. Financial Crimes Enforcement Network. 19 November 2013. Archived (PDF) from the original on 9 October 2016. Retrieved 1 June 2014.
  9. Vigna, Paul; Casey, Michael J. (January 2015). The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order (1 ed.). New York: St. Martin's Press. ISBN 978-1-250-06563-6.
  10. 10.0 10.1 "bitcoin". OxfordDictionaries.com. Archived from the original on 2 January 2015. Retrieved 28 December 2014.
  11. Bustillos, Maria (2 April 2013). "The Bitcoin Boom". The New Yorker. Condé Nast. Archived from the original on 27 July 2014. Retrieved 22 December 2013. Standards vary, but there seems to be a consensus forming around Bitcoin, capitalized, for the system, the software, and the network it runs on, and bitcoin, lowercase, for the currency itself.
  12. Vigna, Paul (3 March 2014). "BitBeat: Is It Bitcoin, or bitcoin? The Orthography of the Cryptography". WSJ. Archived from the original on 19 April 2014. Retrieved 21 April 2014.
  13. Metcalf, Allan (14 April 2014). "The latest style". Lingua Franca blog. The Chronicle of Higher Education (chronicle.com). Archived from the original on 16 April 2014. Retrieved 19 April 2014.
  14. S., L. (2 November 2015). "Who is Satoshi Nakamoto?". The Economist. The Economist Newspaper Limited. Archived from the original on 21 August 2016. Retrieved 23 September 2016.
  15. Bernard, Zoë (2 December 2017). "Everything you need to know about Bitcoin, its mysterious origins, and the many alleged identities of its creator". Business Insider. Archived from the original on 15 June 2018. Retrieved 15 June 2018.
  16. Finley, Klint (31 October 2018). "After 10 Years, Bitcoin Has Changed Everything—And Nothing". Wired. Archived from the original on 5 November 2018. Retrieved 9 November 2018.
  17. Hart, Robert (9 June 2021). "El Salvador Makes History As World's First Country To Make Bitcoin Legal Tender". Forbes. Retrieved 9 June 2021.
  18. Ro, Sam. "A Bloomberg TV Host Gifted Bitcoin On Air And It Immediately Got Stolen". Business Insider. Retrieved 30 June 2020.
  19. Jack, Tommy. "Bitcoin Mining Difficulty Rises By Almost 15%, The Highest Level in Over Two Years". Coin Journal. Retrieved 25 March 2005.
  20. Frankenfield, James. "What is a block reward?". Investopedia.com. Dotdash. Retrieved 17 September 2021.
  21. "Bitcoin Block Reward Halving Countdown". bitcoinblockhalf.com. Retrieved 17 September 2021.
  22. "Google Trends". Google Trends.
  23. Sarah, Ruby. "Bitcoin's Adoption Increases at Unprecedented Levels". ForexBrokers.
  24. Mourdoukoutas, Panos. "Bitcoin, Ethereum And Litecoin Are The Most Popular Cryptocurrency Investments Among Millennials". Forbes.
  25. Sunil, Jagtiani. "El Salvador President Says Nation Adopts Bitcoin as Legal Tender". Bloomberg.

Other websites[change | change source]