View source for Bitcoin

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<!-- Do not remove sources citing inflation rates and introduction dates. They are indeed secondary and are the only portal into the bitcoin network's statistics. Independent sources can be added when found. -->
{{ infobox currency
| image_1 = Electrum Bitcoin Wallet.png
| image_title_1 = A digital bitcoin wallet
| image_2 = 
| image_title_2 = 
|image_width_2 = 
| iso_code = Not designated. Not recognized as a currency by [[SIX Interbank Clearing]].
|issuing_authority =The majority of the bitcoin [[peer-to-peer]] network regulates transactions and balances.<ref name="whitepaper"/><ref name=UCPaper>{{cite journal
|title=Bitter to Better — how to make Bitcoin a better currency
|journal=Financial Cryptography and Data Security
|url=http://crypto.stanford.edu/~xb/fc12/bitcoin.pdf
|publisher=Springer
|year=2012
|author=Barber, Simon; Boyen, Xavier; Shi, Elaine and Uzun, Esrin 
}}</ref>
|date_of_introduction = 3 January 2009
|date_of_introduction_source = [http://blockexplorer.com/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f Bitcoin Genesis Block]
|using_countries = International
|inflation_rate = Limited release
|inflation_source_date = [http://blockchain.info/charts/total-bitcoins Total BTC in Circulation]
|inflation_method = The rate of inflation will be halved every 4 years until there are 21 million BTC<ref name="Quantitative Analysis of the Full Bitcoin Transaction Graph">{{cite web|title=Quantitative Analysis of the Full Bitcoin Transaction Graph|url=http://eprint.iacr.org/2012/584.pdf|publisher=Cryptology ePrint Archive|accessdate=18 October 2012|author=Ron Dorit|coauthors=Adi Shamir|page=17|year=2012}}</ref>
| symbol = BTC, [[File:Bitcoin BTC symbol.svg|9px]], ฿,<ref name="SatoshiDice Forbes">{{cite web|last=Matonis|first=Jon|title=Bitcoin Casinos Release 2012 Earnings|url=http://www.forbes.com/sites/jonmatonis/2013/01/22/bitcoin-casinos-release-2012-earnings/|publisher=Forbes|date=22 January 2013|quote=Responsible for more than 50% of daily network volume on the Bitcoin blockchain, SatoshiDice reported first year earnings from wagering at an impressive ฿33,310. |archiveurl=http://archive.is/JHWHM |archivedate=2013-02-16 |deadurl=no}}</ref> Ƀ
|subunit_ratio_1 = .001
|subunit_name_1 = mBTC (millicoin)
|subunit_ratio_2 = .000001
|subunit_name_2 = μBTC (microcoin)
|subunit_ratio_3 = .00000001
|subunit_name_3 = satoshi<ref name="satoshi unit" />
}}

[[File:Bitcoin logo.svg|thumb|260px|A common bitcoin logo.]]

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BELOW IS THE LEAD TO THE ARTICLE. IT SHOULD BRIEFLY, VERY BRIEFLY SUMMARIZE THE ENTIRE ARTICLE. EXCESS DETAIL, ANECDOTES, EXAMPLES AND TECHNICAL PRECISION ARE NOT APPROPRIATE HERE. FEEL FREE TO ADD LARGE CONTRIBUTIONS TO THE MAIN ARTICLE.

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'''Bitcoin''' ('''BTC''') is a [[digital currency]] first described in a 2008 paper by [[pseudonym]]ous [[software developer|developer]] Satoshi Nakamoto, who called it a [[peer-to-peer]], electronic cash system.<ref name=whitepaper /><ref>Sidel, Robin. (16 April 2013) {{cite web |url=http://online.wsj.com/article/SB10001424127887324345804578426692340390104.html?mod=googlenews_wsj |title=Bitcoin Investors Hang On for the Ride – WSJ.com |archiveurl=http://archive.is/GuDKU |archivedate=2013-04-29 |deadurl=no}}. Online.wsj.com. Retrieved on 20 April 2013.</ref><ref>{{cite web |url=http://www.economist.com/news/finance-and-economics/21576149-even-if-it-crashes-bitcoin-may-make-dent-financial-world-mining-digital |title=Virtual currencies: Mining digital gold |archiveurl=http://archive.is/TjiXA |archivedate=2013-04-29 |deadurl=no}}. The Economist (13 April 2013). Retrieved on 20 April 2013.</ref> Bitcoin creation and transfer is based on an [[open source]] [[cryptographic protocol]] and is not managed by any central authority. Each bitcoin is subdivided into 100 million smaller units called satoshis, defined by eight decimal places.<ref name="satoshi unit">{{cite web|title=Cracking the Bitcoin: Digging Into a $131M USD Virtual Currency|url=http://www.dailytech.com/Cracking+the+Bitcoin+Digging+Into+a+131M+USD+Virtual+Currency/article21878.htm|publisher=Daily Tech|date=12 June 2011|accessdate=30 September 2012 |archiveurl=http://archive.is/oeqh9 |archivedate=2013-01-20 |deadurl=no}}</ref> Bitcoins can be transferred through a [[personal computer|computer]] or [[smartphone]] without an intermediate financial institution.<ref>{{cite journal|last1= Hough |first1= Jack |date=3 June 2011 |title= The Currency That's Up 200,000% |journal= [[SmartMoney]] |publisher= Dow Jones & Company |url= http://www.smartmoney.com/invest/stocks/the-currency-thats-up-200000-1307029053200/ |accessdate= 18 February 2013  |archiveurl=http://archive.is/6N2Cz |archivedate=2013-04-11 |deadurl=no}}</ref> 

The creation of new bitcoins is automated and accomplished by [[Server (computing)|servers]], called ''bitcoin miners'' that run on an internet-based network and confirm bitcoin transactions by adding codes to a decentralized log, which is updated and archived periodically.<ref name=UCPaper /> The number of newly created bitcoins per period depends on how long the network has been running. Currently, 25 new 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.<ref name=whitepaper /><ref name=Wired:RFB />

Bitcoin is accepted in trade by various merchants and individuals in many parts of the world. A large share of such commercial use is believed to be for illicit drug and gambling transactions.<ref name="Guardian Ball">{{cite web|last=Ball|first=James|title=Silk Road: the online drug marketplace that officials seem powerless to stop|url=http://www.guardian.co.uk/world/2013/mar/22/silk-road-online-drug-marketplace|publisher=The Guardian|date=22 March 2013 |archiveurl=http://archive.is/wNXAj |archivedate=2013-04-29 |deadurl=no}}</ref><ref>{{cite web |url=https://www.spendbitcoins.com/places/ |title=Places that accept bitcoins |archiveurl=http://archive.is/8dibE |archivedate=2013-04-29 |deadurl=no}}. Spendbitcoins.com. Retrieved on 20 April 2013.</ref><ref>Browdie, Brian. (29 October 2012) {{cite web |url=http://www.americanbanker.com/issues/177_209/bitcoin-merchants-plan-own-version-of-black-friday-1053951-1.html |title=Bitcoin Merchants Plan Their Own Version of Black Friday |archiveurl=http://archive.is/LHWOn |archivedate=2013-04-29 |deadurl=no}}. American Banker Article. Retrieved on 20 April 2013.</ref><ref name="foxnews1">{{cite web |url=http://www.foxnews.com/tech/2013/04/11/bitcoin-electronic-cash-beloved-by-hackers/ |title=Bitcoin, the nationless electronic cash beloved by hackers, bursts into financial mainstream |archiveurl=http://archive.is/YwB03 |archivedate=2013-04-29 |deadurl=no}}. Fox News (11 April 2013). Retrieved on 20 April 2013.</ref> Although bitcoin is promoted as a digital currency, many commentators have criticized Bitcoin's volatile market value, relatively inflexible supply, and minimal use in trade.<ref>{{cite web |url=http://www.forbes.com/sites/louiswoodhill/2013/04/11/bitcoins-are-digital-collectibles-not-real-money/ |title=Bitcoins are not real money |archiveurl=http://archive.is/AYBC5 |archivedate=2013-04-29 |deadurl=no}}. Forbes (18 April 2012). Retrieved on 20 April 2013.</ref><ref>{{cite web |url=http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/11/yes-bitcoin-is-volatile-its-still-got-defenders/ |title=Yes, Bitcoin is volatile. But it’s still got defenders |archiveurl=http://archive.is/cnWeq |archivedate=2013-04-29 |deadurl=no}}. Washingtonpost.com (11 April 2013). Retrieved on 20 April 2013.</ref><ref name=Bloomber89>{{cite web|last=Zeitlin|first=Matthew|title=Bitcoin's Wild Ride Shows It's Not Real Money|url=http://www.bloomberg.com/news/2013-04-11/bitcoin-s-wild-ride-shows-its-not-real-money.html|publisher=Bloomberg|date=11 April 2013 |archiveurl=http://archive.is/qfgrN |archivedate=2013-04-29 |deadurl=no}}</ref><ref name=Krugman1 />

==Transactions==
{{Cleanup|reason=This section contains unsourced, incomplete, and confusing content|date=April 2013}}
Bitcoins can be sent and received through various websites and apps after being bought on an exchange.

===Addresses===
[[File:Capture-Electrum.png|thumb|350px|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<!-- Do not change this intentionally invalid address. Address chosen by consensus (see [[Talk:Bitcoin]]), it is SHA1("Bitcoin") in base58 with an invalid checksum character added --> ''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.

===Confirmation===

The network's software confirms transactions when it records them in the transaction log or "blockchain" stored across the peer-to-peer network every 10-minutes. Confirmation of future transaction records makes the ones before it increasingly permanent. After six confirmed records or "blocks" (usually one hour), a transaction is usually considered confirmed beyond reasonable doubt.

Initiators of a bitcoin transaction may voluntarily pay a transaction fee for the confirmation of these records. Any fees are collected by the operators of bitcoin servers – often called nodes or "bitcoin miners". The transaction fee acts as an incentive to the miners to expend computational resources verifying transactions; without it the miners could choose not to do so and the transaction would not go through. However, transaction fees may not cover the cost of [[electrical power]] required to operate a [[Bitcoin mining|bitcoin miner]]. As a result the network server operators often rely on "mined" bitcoins as their only significant revenue.<ref name="Network Transaction Cost Deficit Historical Time Series">{{cite web|title=Network Deficit|url=http://blockchain.info/charts/network-deficit|publisher=blockchain.info|accessdate=1 April 2013 |archiveurl=http://archive.is/slVcR |archivedate=2013-04-12 |deadurl=no}}</ref> 

[[File:Bitcoin-coin2.jpg|thumb|100px|Bitcoin-based coin]]

===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|date=January 2013}}

A 1-BTC Casascius Coin was shown in the [[British Museum]] in [[London]] to represent bitcoin.<ref name="The British Museum">{{cite web|title=The British Museum – Token|url=http://www.britishmuseum.org/research/search_the_collection_database/search_object_image.aspx?objectId=3451294&partId=1&searchText=g68%2f18&orig=%2fresearch%2fsearch_the_collection_database.aspx&numPages=10&currentPage=1&asset_id=1156712|publisher=Trustees of the British Museum|accessdate=23 January 2013 |archiveurl=http://archive.is/4aqYq |archivedate=2013-04-14 |deadurl=no}}</ref>

==History==

Bitcoin is one of the first implementations of a concept called "crypto-currency". 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 posted a paper describing the bitcoin protocol on the internet.<ref name="whitepaper">{{cite web |last= Nakamoto |first= Satoshi |title= Bitcoin: A Peer-to-Peer Electronic Cash System |url= http://bitcoin.org/bitcoin.pdf |accessdate = 20 December 2012 |date= 24 May 2009}}</ref><ref name=Wired:RFB /><ref>{{cite web |url= http://article.gmane.org/gmane.comp.encryption.general/12588/ |title= Bitcoin P2P e-cash paper|date=31 October 2008 |archiveurl=http://archive.is/FKta |archivedate=2012-12-28 |deadurl=no}}</ref><ref>{{cite web|url=http://www.mail-archive.com/search?l=cryptography@metzdowd.com&q=from:%22Satoshi+Nakamoto%22 |title=Satoshi's posts to Cryptography mailing list |publisher=Mail-archive.com |accessdate=26 March 2013 |archiveurl=http://archive.is/ljVHR |archivedate=2013-01-03 |deadurl=no}}</ref>

* 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.<ref name=Wired:RFB /><ref>{{cite web |title=Block 0 – Bitcoin Block Explorer |url=http://blockexplorer.com/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f  |archiveurl=http://archive.is/mLnC |archivedate=2012-07-09 |deadurl=no}}</ref><ref>{{cite web |url=http://www.mail-archive.com/cryptography@metzdowd.com/msg10142.html|author= Nakamoto, Satoshi |date=9 January 2009 |title=Bitcoin v0.1 released |archiveurl=http://archive.is/KBoi |archivedate=2012-09-04 |deadurl=no}}</ref><ref>{{cite web |url=http://sourceforge.net/news/?group_id=244765 |title=SourceForge.net: Bitcoin |archiveurl=http://archive.is/jC5M |archivedate=2012-07-16 |deadurl=no}}</ref>

====2010====
* The initial prices for bitcoins were set by individuals on the bitcointalk forums. One notable transaction involved a 10,000 BTC pizza.<ref name=Wired:RFB>{{cite web|author=Wallace, Benjamin|title=The Rise and Fall of Bitcoin|url=http://www.wired.com/magazine/2011/11/mf_bitcoin/|publisher=Wired|date=23 November 2011|accessdate=13 October 2012 |archiveurl=http://archive.is/oODpb |archivedate=2013-02-09 |deadurl=no}}</ref> 

* 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 number of bitcoins.<ref name=Monetarism1 /><ref name=NIST1 />

* 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{{who|date=April 2013}} 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.<ref name=Monetarism1>{{cite web|last=Sawyer|first=Matt|title=The Beginners Guide To Bitcoin – Everything You Need To Know|url=http://www.monetarism.co.uk/the-beginners-guide-to-bitcoin-everything-you-need-to-know/|publisher=Monetarism|date=26 February 2013 |archiveurl=http://archive.is/3JU4w |archivedate=2013-04-29 |deadurl=no}}</ref><ref name=NIST1>{{cite web|title=Vulnerability Summary for CVE-2010-5139|url=https://web.nvd.nist.gov/view/vuln/detail?vulnId=CVE-2010-5139|publisher=National Vulnerability Database|accessdate=22 March 2013|date=8 June 2012 |archiveurl=http://archive.is/mgLGp |archivedate=2013-04-09 |deadurl=no}}</ref>

====2011–2012====
* In June 2011, [[Wikileaks]]<ref>{{cite news |last= Greenberg |first= Andy |url= http://blogs.forbes.com/andygreenberg/2011/06/14/wikileaks-asks-for-anonymous-bitcoin-donations/
 |title= WikiLeaks Asks For Anonymous Bitcoin Donations  |publisher= logs.forbes.com | date= 14 June 2011 |accessdate = 22 June 2011 |archiveurl=http://archive.is/wwVC |archivedate=2012-07-07 |deadurl=no}}</ref> 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."<ref>{{cite web |url= https://www.eff.org/deeplinks/2011/06/eff-and-bitcoin |title= EFF and Bitcoin &#124; Electronic Frontier Foundation |publisher= Eff.org |date= 14 June 2011 |accessdate = 22 June 2011 |archiveurl=http://archive.is/sAV7 |archivedate=2012-12-09 |deadurl=no}}</ref>

* In late-2011, the bitcoin price crashed from $30 to below $2. Some{{who|date=April 2013}} claimed the crash was due to a lower cost in producing bitcoins through cheaper computing power.<ref name=Guardian78>{{cite web|last=Arthur|first=Charles|title=Bitcoin value crashes below cost of production as broader use stutters|url=http://www.guardian.co.uk/technology/2011/oct/18/bitcoin-value-crash-cryptocurrency|publisher=The Guardian|date=18 October 2011 |archiveurl=http://archive.is/hBfhT |archivedate=2013-04-29 |deadurl=no}}</ref> 

* In October 2012, BitPay reported having over 1000 merchants accepting Bitcoin under its payment processing service.<ref>{{cite web|title=BitPay Signs 1,000 Merchants to Accept Bitcoin Payments|url=http://www.americanbanker.com/issues/177_176/bitpay-signs-1000-merchants-to-accept-bitcoin-payments-1052538-1.html|publisher=American Banker|date=11 September 2012|author= Browdie, Brian  |archiveurl=http://archive.is/BMAA4 |archivedate=2013-01-01 |deadurl=no}}</ref>



====2013====

=====February=====

* The bitcoin-based [[payment processor]] Coinbase reported selling $1 million in bitcoins in a single month at over $22 per bitcoin.<ref name=$1MBitcoinamonth>{{cite web|last=Ludwig|first=Sean|title=Y Combinator-backed Coinbase now selling over $1M Bitcoin per month|url=http://venturebeat.com/2013/02/08/coinbase-bitcoin/|publisher=VentureBeat|date=8 February 2013 |archiveurl=http://archive.is/3sXNi |archivedate=2013-04-12 |deadurl=no}}</ref>

* 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.<ref name=paritynews>{{cite web|last=Mandalia|first=Ravi|title=The Internet Archive Starts Accepting Bitcoin Donations|url=http://www.paritynews.com/web-news/item/690-the-internet-archive-starts-accepting-bitcoin-donations|publisher=Parity News|date=22 February 2013|accessdate=28 February 2013 |archiveurl=http://archive.is/GQE64 |archivedate=2013-04-11 |deadurl=no}}</ref>

=====March=====

* The bitcoin transaction log or "blockchain" temporarily forked into two independent logs with differing rules on how transactions could be accepted. The Mt.Gox bitcoin exchange briefly halted bitcoin deposits. Bitcoin prices briefly dipped by 23% to $37 as the event occurred<ref name=ArsFork /><ref name=VergeFork /> before recovering to their previous level in the following hours, a price of approximately $48.<ref>{{cite web|title=Bitcoin Charts|url=http://bitcoincharts.com/charts/mtgoxUSD#rg60zczsg2013-03-12zeg2013-03-15ztgSzm1g10zm2g25zv |archiveurl=http://archive.is/0QOAS |archivedate=2013-04-19 |deadurl=no}}</ref>

* In the [[United States of America|US]], the [[FinCEN|Financial Crimes Enforcement Network (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 be subject to registration and other legal obligations.<ref name=ArsFinCEN /><ref name=Finextra1 /><ref name=FinCEN1 />

=====April=====

* Payment processor BitInstant and [[Mt.Gox]] experienced processing delays due to insufficient capacity.<ref>Roose, Kevin (8 April 2013) {{cite web |url=http://nymag.com/daily/intelligencer/2013/04/inside-the-bitcoin-bubble-bitinstants-ceo.html |title=Inside the Bitcoin Bubble: BitInstant’s CEO – Daily Intelligencer |archiveurl=http://archive.is/yAyxl |archivedate=2013-04-29 |deadurl=no}}. Nymag.com. Retrieved on 20 April 2013.</ref>

* On the 10th, bitcoin dropped from a price of $266 to $105 before returning to a price of $160 within six hours.<ref name=ArstechnicaCrash2013>{{cite web|last=Farivar|first=Cyrus|title=Bitcoin crashes, losing nearly half of its value in six hours|url=http://arstechnica.com/business/2013/04/bitcoin-crashes-losing-nearly-half-of-its-value-in-six-hours/|publisher=Arstechnica|date=11 April 2013 |archiveurl=http://archive.is/jGzjh |archivedate=2013-04-29 |deadurl=no}}</ref>

===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.<ref name=Wired:RFB>{{cite web|title=The Rise and Fall of Bitcoin|url=http://www.wired.com/magazine/2011/11/mf_bitcoin/|publisher= Wired |date=23 November 2011|accessdate= 13 October 2012 |archiveurl=http://archive.is/oODpb |archivedate=2013-02-09 |deadurl=no}}</ref> 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.<ref name=Wired:RFB>{{cite web|title=The Rise and Fall of Bitcoin |url= http://www.wired.com/magazine/2011/11/mf_bitcoin/ |publisher= [[Wired (website)|Wired]] |date=23 November 2011|accessdate= 13 October 2012 |archiveurl=http://archive.is/oODpb |archivedate=2013-02-09 |deadurl=no}}</ref>

In April 2011, Satoshi communicated to a bitcoin contributor saying he had “moved on to other things.”<ref>{{cite web|last= Davis|first= Joshua |title= The Crypto-Currency |url= http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_davis |publisher= [[The New Yorker]] |date=10 October 2011|accessdate= 16 February 2013 |archiveurl=http://archive.is/JKMS |archivedate=2012-12-17 |deadurl=no}}</ref>

====Identity====

Investigations into the real [[wikt:identity|identity]] of Satoshi Nakamoto have been attempted by ''[[The New Yorker]]'' and ''[[Fast Company (magazine)|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 ([http://patent.ipexl.com/U2S/20100042841.html #20100042841]) contained networking and encryption technologies similar to bitcoin's. After [[Content analysis|textual analysis]], the phrase "...computationally impractical to reverse" was found in both the patent application and bitcoin's whitepaper.<ref name=whitepaper /> All three inventors explicitly denied being Satoshi Nakamoto.<ref>{{cite web|last= Penenberg |first= Adam |title= The Bitcoin Crypto-Currency Mystery Reopened |url= http://www.fastcompany.com/1785445/bitcoin-crypto-currency-mystery-reopened |publisher= [[FastCompany]] |accessdate= 16 February 2013 |archiveurl=http://archive.is/97HqS |archivedate=2013-04-09 |deadurl=no}}</ref><ref>{{cite web|last= Greenfield |first= Rebecca |title= The Race to Unmask Bitcoin's Inventor(s) |url= http://www.theatlanticwire.com/technology/2011/10/race-unmask-bitcoins-inventors/43535/ |publisher= [[The Atlantic]] |date=11 October 2011|accessdate= 16 February 2013 |archiveurl=http://archive.is/RHThA |archivedate=2013-04-12 |deadurl=no}}</ref>

===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. Some users ran the more recent version of the protocol, accepting and building on the diverging log, whereas 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-spending|double-spent]]. In response, the Mt.Gox bitcoin exchange temporarily halted bitcoin deposits.<ref name=Mtgoxforkchain>{{cite web|last=Karpeles|first=Mark|title=Bitcoin blockchain issue – bitcoin deposits temporarily suspended|url=https://mtgox.zendesk.com/entries/21477395-Bitcoin-blockchain-issue-bitcoin-deposits-temporarily-suspended|publisher=Mt.Gox|accessdate=12 March 2013 |archiveurl=http://archive.is/LzeKd |archivedate=2013-04-12 |deadurl=no}}</ref> 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.<ref name=ArsFork>{{cite web|last=Lee|first=Timothy|title=Major glitch in Bitcoin network sparks sell-off; price temporarily falls 23%|url=http://arstechnica.com/business/2013/03/major-glitch-in-bitcoin-network-sparks-sell-off-price-temporarily-falls-23/|publisher=Arstechnica|date=12 March 2013 |archiveurl=http://archive.is/kj9PR |archivedate=2013-04-17 |deadurl=no}}</ref><ref name=VergeFork>{{cite web|last=Blagdon|first=Jeff|title=Technical problems cause Bitcoin to plummet from record high, Mt. Gox suspends deposits|url=http://www.theverge.com/2013/3/12/4092898/technical-problems-cause-bitcoin-to-plummet-from-record-high|publisher=The Verge|date=12 March 2013 |archiveurl=http://archive.is/VmI8N |archivedate=2013-04-12 |deadurl=no}}</ref>

Developers at bitcoin.org attempted to resolve the split by recommending that users downgrade 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.<ref name=ChainFork1>{{cite web|title=11/12 March 2013 Chain Fork Information|url=http://bitcoin.org/chainfork.html|publisher=Bitcoin Project|accessdate=12 March 2013 |archiveurl=http://archive.is/Fo4tS |archivedate=2013-04-14 |deadurl=no}}</ref> The network reached consensus and continued to operate as normal a few hours after the split.<ref>{{cite web|title=Bitcoin software bug has been rapidly resolved|url=http://ecurrency.ec/2013/03/bitcoin-bug-resolved/|publisher=ecurrency|date=12 March 2013 |archiveurl=http://archive.is/cyTYJ |archivedate=2013-04-12 |deadurl=no}}</ref>

===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.<ref name=FinCEN1 /> It classified digital currencies and other digital payment systems such as bitcoin as "virtual currencies" because they are not [[legal tender]] under any sovereign [[jurisdiction (area)|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]].<ref name=ArsFinCEN>{{cite web|last=Lee|first=Timothy|title=http://arstechnica.com/tech-policy/2013/03/us-regulator-bitcoin-exchanges-must-comply-with-money-laundering-laws/|url=http://arstechnica.com/tech-policy/2013/03/us-regulator-bitcoin-exchanges-must-comply-with-money-laundering-laws/|publisher=Arstechnica|date=20 March 2013|quote=Bitcoin miners must also register if they trade in their earnings for dollars. |archiveurl=http://archive.is/ozDCh |archivedate=2013-04-07 |deadurl=no}}</ref>

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."<ref name=Finextra1>{{cite web|title=US govt clarifies virtual currency regulatory position|url=http://www.finextra.com/News/FullStory.aspx?newsitemid=24645|publisher=Finextra|date=19 March 2013 |archiveurl=http://archive.is/W176A |archivedate=2013-04-09 |deadurl=no}}</ref><ref name=FinCEN1>{{cite web|title=Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies|url=http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.pdf|publisher=Department of the Treasury Financial Crimes Enforcement Network|accessdate=19 March 2013}}</ref>

In summary, FinCEN's decision would require Bitcoin exchanges where bitcoins are traded for traditional currencies to disclose large transactions and suspicious activity, comply with [[money laundering]] regulations, and collect information about their customers as traditional [[financial institutions]] are required to do.<ref name=Forbes1>{{cite web|last=Lee|first=Timothy|title=New Money Laundering Guidelines Are A Positive Sign For Bitcoin|url=http://www.forbes.com/sites/timothylee/2013/03/19/new-money-laundering-guidelines-are-a-positive-sign-for-bitcoin/|publisher=Forbes|date=19 March 2013 |archiveurl=http://archive.is/dlI9t |archivedate=2013-04-10 |deadurl=no}}</ref><ref name=JapanTimes>{{cite web|title=The rise of the bitcoin: Virtual gold or cyber-bubble?|url=http://articles.washingtonpost.com/2013-04-04/world/38280106_1_bitcoin-satoshi-nakamoto-monetary-policy|publisher=Washington Post|date=4 April 2013 |archiveurl=http://archive.is/pWxnr |archivedate=2013-04-29 |deadurl=no}}</ref>

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".<ref name=BTCFoundationFinCEN1>{{cite web|last=Murck|first=Patrick|title=Today, we are all money transmitters... (no, really!)|url=https://bitcoinfoundation.org/blog/?p=152|publisher=Bitcoin Foundation|date=19 March 2013 |archiveurl=http://archive.is/eWcYH |archivedate=2013-04-14 |deadurl=no}}</ref>

===2013 values===

The USD value of a bitcoin increased ten-fold in early 2013 from $13/BTC on 1 January to $190/BTC on 9 April, three months later. Suggested reasons for the rise in price included the [[European sovereign-debt crisis]] – particularly the [[2012–2013 Cypriot financial crisis]] – statements by FinCEN improving the currency's legal standing and rising media and Internet interest.<ref name=NewYorker1>{{cite web|last=Traverse|first=Nick|title=Bitcoin's Meteoric Rise|url=http://www.newyorker.com/online/blogs/newsdesk/2013/04/the-number-141.html|date=3 April 2013 |archiveurl=http://archive.is/gfRcQ |archivedate=2013-04-29 |deadurl=no}}</ref><ref name=NewYorker2>{{cite web|last=Bustillos|first=Maria|title=The Bitcoin Boom|url=http://www.newyorker.com/online/blogs/elements/2013/04/the-future-of-bitcoin.html|date=2 April 2013 |archiveurl=http://archive.is/s4wpw |archivedate=2013-04-29 |deadurl=no}}</ref><ref name=Quartz1>{{cite web|last=Seward|first=Zachary|title=Bitcoin, up 152% this month, soaring 57% this week|url=http://qz.com/68328/bitcoin-up-152-this-month-tops-1-billion-in-total-value/|accessdate=9 April 2013|date=28 March 2013 |archiveurl=http://archive.is/u9QqU |archivedate=2013-04-29 |deadurl=no}}</ref><ref name=Economist1>{{cite news|title=A Bit expensive|url=http://www.economist.com/blogs/graphicdetail/2013/03/daily-chart-12|date=1 March 2013 |archiveurl=http://archive.is/xfasi |archivedate=2013-04-29 |deadurl=no}}</ref> 

As the market value of the total bitcoin supply approached $1 billion USD, financial commentators described bitcoin prices as a [[economic bubble|bubble]].<ref name=Atlantic1>{{cite web|last=Estes|first=Adam|title=Bitcoin Is Now A Billion Dollar Industry|url=http://www.theatlanticwire.com/business/2013/03/bitcoin-now-billion-dollar-industry/63667/|date=28 March 2013 |archiveurl=http://archive.is/mvPg0 |archivedate=2013-04-29 |deadurl=no}}</ref><ref name="FelixSalmon1">{{cite web|last=Salmon|first=Felix|title=The Bitcoin Bubble and the Future of Currency|url=https://medium.com/money-banking/2b5ef79482cb|accessdate=9 April 2013 |archiveurl=http://archive.is/K6uFF |archivedate=2013-04-29 |deadurl=no}}</ref><ref name="ArtCashin1">{{cite web|last=Ro|first=Sam|title=Art Cashin: The Bitcoin Bubble|url=http://www.businessinsider.com/art-cashin-the-bitcoin-bubble-2013-4|date=3 April 2013 |archiveurl=http://archive.is/Am9un |archivedate=2013-04-29 |deadurl=no}}</ref> On 10 April 2013, Bitcoin dropped from a price of $266 to $105 before returning to a value of $160 within six hours.<ref name="ArstechnicaCrash2013" />

==Distribution==
[[File:Total bitcoins over time.png|thumb|right|300px|Total bitcoins over time]]

Unlike [[fiat currency]], bitcoin has no centralized issuing authority.<ref name="ars-06-08-11">{{Cite news |first= Thomas |last= Lowenthal |title= Bitcoin: inside the encrypted, peer-to-peer digital currency |newspaper= Ars Technica |date= 8 June 2011 |url= http://arstechnica.com/tech-policy/news/2011/06/bitcoin-inside-the-encrypted-peer-to-peer-currency.ars |archiveurl=http://archive.is/NYkv |archivedate=2012-12-09 |deadurl=no}}</ref><ref>{{cite news|url= http://www.economist.com/blogs/babbage/2011/06/virtual-currency
 |title= Virtual currency: Bits and bob |publisher= The Economist |date=13 June 2011 |accessdate = 22 June 2011 |archiveurl=http://archive.is/1JvB |archivedate=2012-12-08 |deadurl=no}}</ref><ref>{{cite web |last= Geere |first= Duncan |url= http://www.wired.co.uk/news/archive/2011-05/16/bitcoin-p2p-currency |title= Peer-to-peer currency Bitcoin sidesteps financial institutions (Wired UK) |publisher= Wired.co.uk |date=16 May 2011 |accessdate = 22 June 2011 |archiveurl=http://archive.is/ZPSM0 |archivedate=2013-01-14 |deadurl=no}}</ref> 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.<ref name="Quantitative Analysis of the Full Bitcoin Transaction Graph"/> These nodes can then sell their earned bitcoins on exchanges or trade them at their discretion. 

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.<ref name=whitepaper /><ref name=Wired:RFB /> {{As of|2013|3}} over 10.5 million of the total 21 million BTC had been created; the current total number created is available online.<ref>{{cite web |title= Total Number of Bitcoins in Existence |url= http://blockexplorer.com/q/totalbc |work= Bitcoin Block Explorer |accessdate = 3 October 2012 |archiveurl=http://archive.is/WzLNi |archivedate=2013-04-29 |deadurl=no}}</ref> 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&nbsp;×&nbsp;10<sup>15</sup> or 2.1 quadrillion units).<ref name="lwn">{{Cite news |author= Nathan Willis |date= 10 November 2010 |title= Bitcoin: Virtual money created by CPU cycles |publisher= [[LWN.net]] |url= http://lwn.net/Articles/414452/ |archiveurl=http://archive.is/vGMu |archivedate=2012-12-05 |deadurl=no}}</ref>

===Exchange===
Through various exchanges, bitcoins are bought and sold at a variable price against the value of other currency. Bitcoin has appreciated rapidly in relation to existing fiat currencies including the [[US dollar]], [[euro]] and [[British pound]].{{citation needed|date=April 2013}}

In April 2013, 1 BTC traded from $100–$260. Taking into account the total number of bitcoins mined, the [[monetary base]] of the bitcoin network stands at over $1 billion [[USD]].<ref name=Monetarybase1>{{cite web|title=Market Capitalization|url=http://blockchain.info/charts/market-cap|publisher=Blockchain.info|accessdate=28 October 2012 |archiveurl=http://archive.is/HeUf |archivedate=2012-07-07 |deadurl=no}}</ref><ref name="Mt.Gox data">{{cite web|title=Mt.Gox data|url=http://bitcoincharts.com/markets/mtgoxUSD.html|publisher=Bitcoincharts |archiveurl=http://archive.is/lnS1w |archivedate=2013-01-02 |deadurl=no}}</ref>

According to [[Reuters]], undisclosed documents indicate that [[bank]]s such as [[Morgan Stanley]] and [[Goldman Sachs]] have visited bitcoin exchanges as often as 30 times a day. Employees of international banks and major financial organizations have shown interest in the bitcoin markets as well.<ref name=Reuters1>{{cite web|last=O'Leary|first=Naomi|title=Bitcoin, the City traders' anarchic new toy|url=http://www.reuters.com/article/2012/04/01/traders-bitcoin-idUSL6E8ET5K620120401|publisher=Reuters|date=1 April 2012|quote=Workers at Morgan Stanley and Goldman Sachs in London and New York have been visiting online Bitcoin exchanges as often as 30 times a day, according to documents seen by Reuters. Neither bank wanted to comment. Employees at almost all the major international banks and numerous trading and investment firms have shown interest. |archiveurl=http://archive.is/52sM |archivedate=2012-09-09 |deadurl=no}}</ref>

====Hedge funds====
[[Financial laws]] can limit the type of assets [[institutional investors]] can buy, including [[alternative asset]]s like bitcoin. However, assets stored in a licensed product can usually be bought by regulated entities. [[Exante Ltd.]], a [[Malta|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.<ref name=BitcoinHedge1>{{cite web|last=Matonis|first=Jon|title=First Bitcoin Hedge Fund Launches From Malta|url=http://www.forbes.com/sites/jonmatonis/2013/03/08/first-bitcoin-hedge-fund-launches-from-malta/|publisher=Forbes|date=8 March 2013 |archiveurl=http://archive.is/V0Gyf |archivedate=2013-04-10 |deadurl=no}}</ref>

====Derivatives====

[[Financial derivatives|Derivatives]] on bitcoins are thinly available:

* iCBIT [https://icbit.se/] offers [[futures contracts]] on bitcoins against multiple currencies.<ref name=Quartz2>{{cite web|last=Foxman|first=Simone|title=How to short bitcoins (if you really must)|url=http://qz.com/69630/how-to-short-bitcoins-if-you-really-must/|publisher=Quartz|date=2 April 2013 |archiveurl=http://archive.is/B9Krp |archivedate=2013-04-29 |deadurl=no}}</ref>

* In April 2013, [[IG Group]] began to offer [[binary options]] on the price of bitcoins at a given date.<ref name=IGMarket1>{{cite web|title=IG Market Index (Search "Bitcoin")|url=https://demo.igmarkets.com/dealing/pd/index.htm?201303201837|publisher=IG Markets|accessdate=9 April 2013 |archiveurl=http://archive.is/OYpD5 |archivedate=2013-04-29 |deadurl=no}}</ref>

==Protocol==
<!-- The following content may be taken from the Satoshi Whitepaper which was released under a free, compatible license, the MIT license. It is compatible with Wikipedia and the Creative Commons licensing, and can be reproduced as followed. See the MIT License for details: http://opensource.org/licenses/mit-license.php -->

===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) serves not only as proof of the sequence of
events witnessed but also as 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.<ref name=whitepaper /><ref name=UCPaper />

===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.

[[File:Bitcoin Transaction Visual.png|thumb|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:

 Bitcoin address/Public-key = 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)

===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.<ref name=UCPaper>{{cite web|quote=The rate of block, hence money, creation is limited by a proof of work of adaptive difficulty, that strives to maintain a creation rate of one block every 10 minutes across the whole network.}}</ref> This is often called bitcoin mining.

[[File:AustrianBitCoinMiningRig.jpg|thumb|A [[GPU]]-based bitcoin miner]]

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

For the bitcoin timestamp network, it implements the mining process or "proof-of-work" by incrementing a [[Cryptographic nonce|nonce]] in the record or "block" until a value is found that gives the block's hash the required zero bits. Once the [[hash function|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.

[[File:Blockchain.png|thumb|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.<ref name=UCPaper />

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.<ref name=UCPaper /> 

Today, bitcoin mining is a competitive field. An [[arms race]] has been observed through the various hashing technologies that are used to mine bitcoins and confirm transactions: High-end GPUs ([[Graphical Processing Unit]]s) common in many [[gaming computer]]s, FPGAs ([[Field Programmable Gate Array]]s) and ASICs ([[Application-specific integrated circuit]]s) all have been used. The newest addition, ASICS, are built into specialized servers that can cost nearly $3000 [[USD]] a unit.<ref name=TheGuardian79>{{cite web|last=Tindell|first=Ken|title=Geeks Love The Bitcoin Phenomenon Like They Loved The Internet In 1995|url=http://www.businessinsider.com/how-bitcoins-are-mined-and-used-2013-4|publisher=The Guardian|date=5 April 2013 |archiveurl=http://archive.is/1M4QL |archivedate=2013-04-29 |deadurl=no}}</ref> 

Computing power is often bundled together from various servers or "pooled" into a central server to more effectively confirm blocks of transactions. Single servers often have to wait relatively long periods of time to confirm a block of transactions and receive payment for their "work" or hashing. When resources are "pooled", all participating servers receive a proportional number of the bitcoins earned every time any one participating server resolves a block.<ref name=Techcrunch12>{{cite web|last=Biggs|first=John|title=How To Mine Bitcoins|url=http://techcrunch.com/2013/04/08/how-to-mine-bitcoins/|publisher=Techcrunch|date=8 April 2013 |archiveurl=http://archive.is/eBJ3r |archivedate=2013-04-29 |deadurl=no}}</ref>

====Process====

The steps to run the network and generate or "mine" bitcoins are:<ref name=UCPaper />

# New transactions are broadcast to all nodes.
# Each node collects new transactions into a block.
# Each node works on finding a difficult proof-of-work for its block.
# When a node finds a proof-of-work, it broadcasts the block to all nodes.
# Bitcoins are successfully collected or "mined" by the receiving node which found the proof-of-work.
# Nodes accept the block only if all transactions in it are valid and not already spent.
# 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.
# 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,<ref name=UCPaper /> and provides a way to initially distribute coins into circulation, since there is no central authority to issue them.

The continual and steady addition of new coins is analogous to gold miners expending resources to add gold to circulation.<ref name=UCPaper /> 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.

===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 = 4.2&nbsp;MB per year. With computer systems typically selling with 2&nbsp;GB of RAM as of 2008, and [[Moore's law]] predicting current growth of 1.2&nbsp;GB per year, storage should not be a problem even if the block headers need to be kept in memory.

===Payment verification===
[[File:Bitcoinpaymentverification.png|333px|thumb|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 is convinced he has the longest chain, and obtain the Merkle branch linking the transaction to the block it is timestamped in. He can not 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 speculated that there was a correlation between higher bitcoin usage in [[Spain]] and the [[2012–2013 Cypriot financial crisis]], through which [[bank deposit levy|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.<ref name=CNBCBit1>{{cite web|last=Cox|first=Jeff|title=Bitcoin Bonanza: Cyprus Crisis Boosts Digital Dollars|url=http://www.cnbc.com/id/100597242|publisher=CNBC|date=27 March 2013 |archiveurl=http://archive.is/7HYtm |archivedate=2013-04-10 |deadurl=no}}</ref><ref name=WiredCrisis>{{cite web|last=Steadman|first=Ian|title=Technology Bitcoin interest spikes in Spain as Cyprus financial crisis grows|url=http://www.wired.co.uk/news/archive/2013-03/20/bitcoin-spain-currency-run|publisher=Wired|date=20 March 2013 |archiveurl=http://archive.is/ss4gO |archivedate=2013-04-29 |deadurl=no}}</ref><ref name=BloombergCyprus>{{cite web|last=Salyer|first=Kirsten|title=Fleeing the Euro for Bitcoins|url=http://www.bloomberg.com/news/2013-03-20/fleeing-the-euro-for-bitcoins-.html|publisher=Bloomberg|date=21 March 2013 |archiveurl=http://archive.is/TJbl6 |archivedate=2013-04-10 |deadurl=no}}</ref> 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...”<ref name=BWSpain1>{{cite web|last=Warner|first=Bernhard|title=Jittery Spaniards Seek Safety in Bitcoins|url=http://www.businessweek.com/articles/2013-03-20/jittery-spaniards-seek-safe-haven-in-bitcoins|publisher=Business Week|date=20 March 2013 |archiveurl=http://archive.is/JP1aP |archivedate=2013-04-07 |deadurl=no}}</ref>

===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.<ref>{{cite web|last=Gallagher |first=Sean |url=http://arstechnica.com/tech-policy/2011/11/anonymous-bit-dimnet-tries-to-be-a-hedge-against-dns-censorship/ |title=Anonymous "dimnet" tries to create hedge against DNS censorship |publisher=Ars Technica |date=18 November 2011 |accessdate=26 March 2013 |archiveurl=http://archive.is/NbYY |archivedate=2012-12-06 |deadurl=no}}</ref> Each user has its own copy of the full [[database]], which attempts to reduce censorship on the DNS level. 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]].

==Implications==

===As a currency===
{{POV-section|date=April 2013}}
[[File:BitcoinEuroFebMarch2013.jpg|thumb|How many euros it took to buy a single bitcoin, February–March 2013; x-axis ranges from €1to €60]]

The large fluctuations in the dollar value of bitcoin has evoked criticism of bitcoin's economic suitability and legitimacy as a currency.<ref name=Krugman1 /><ref name=Guardian77>{{cite web|last=Moore|first=Heidi|title=Confused about Bitcoin? It's 'the Harlem Shake of currency'|url=http://www.guardian.co.uk/commentisfree/2013/apr/03/bitcoin-currency-bubble-crash-not-rocking-financial-markets|publisher=The Guardian|accessdate=8 April 2013 |archiveurl=http://archive.is/FhJtu |archivedate=2013-04-29 |deadurl=no}}</ref> An April 2013 article in The Atlantic stated that although bitcoin is purported to be a currency, it cannot be a currency due to its deflationary bias, which encourages hoarding.<ref>{{cite web|last=O'Brien|first=Matthew|title=Bitcoin Is No Longer a Currency|url=http://www.theatlantic.com/business/archive/2013/04/bitcoin-is-no-longer-a-currency/274859/|publisher=The Atlantic|date=11 April 2013 |archiveurl=http://archive.is/Hm3uS |archivedate=2013-04-29 |deadurl=no}}</ref> Forbes contributor Louis Woodhill stated that bitcoins are the cyber equivalent of rare postage stamps, or collectibles and can never be money.<ref>{{cite web |url=http://www.forbes.com/sites/louiswoodhill/2013/04/11/bitcoins-are-digital-collectibles-not-real-money/ |title=botcoins are digital collectibles not real money |archiveurl=http://archive.is/AYBC5 |archivedate=2013-04-29 |deadurl=no}}. Forbes (18 April 2012). Retrieved on 20 April 2013.</ref> It has been noted that as a currency not under sovereign control, bitcoin is currently being used on the black-market [[Silk Road (marketplace)|Silk Road]] website (despite bitcoin's volatility<ref>{{cite web |url=http://www.forbes.com/sites/andygreenberg/2013/04/16/founder-of-drug-site-silk-road-says-bitcoin-booms-and-busts-wont-kill-his-black-market/ |title=Founder Of Drug Site Silk Road Says Bitcoin Booms And Busts Won't Kill His Black Market |archiveurl=http://archive.is/jO26U |archivedate=2013-04-29 |deadurl=no}}. Forbes (18 April 2012). Retrieved on 20 April 2013.</ref>) and is used by Iranians to evade foreign currency sanctions.<ref>{{cite journal|last=Raskin|first=Max|title=Dollar-Less Iranians Discover Virtual Currency|journal=BloombergBusinessWeek|date=29 November 2012|url=http://www.businessweek.com/articles/2012-11-29/dollar-less-iranians-discover-virtual-currency|accessdate=15 April 2013 |archiveurl=http://archive.is/ncmdv |archivedate=2013-04-17 |deadurl=no}}</ref> 

Conversely, there is also some evidence that it is being accepted by some mainstream businesses<ref>{{cite web |url=http://www.guardian.co.uk/business/2013/mar/04/bitcoin-currency-of-vice |title=Bitcoin: more than just the currency of digital vice  Technology  guardian.co.uk |archiveurl=http://archive.is/kRH7B |archivedate=2013-04-29 |deadurl=no}}. Guardian (4 March 2013). Retrieved on 20 April 2013.</ref> and hoarded by some individuals.<ref>Popper, Nathaniel. (13 December 2012) {{cite web |url=http://dealbook.nytimes.com/2013/04/11/as-big-investors-emerge-bitcoin-gets-ready-for-its-close-up/ |title=Never Mind Facebook; Winklevoss Twins Rule in Digital Money |archiveurl=http://archive.is/85HVC |archivedate=2013-04-29 |deadurl=no}}. Dealbook.nytimes.com. Retrieved on 20 April 2013.</ref> There has also been growing awareness of its usage in black market transactions, frustrating its promoters. In 2013, the U.S. Treasury extended its anti-money laundering regulations to processors of bitcoin transactions.<ref name="foxnews1">{{cite web |url=http://www.foxnews.com/tech/2013/04/11/bitcoin-electronic-cash-beloved-by-hackers/ |title=Bitcoin, the nationless electronic cash beloved by hackers, bursts into financial mainstream |archiveurl=http://archive.is/YwB03 |archivedate=2013-04-29 |deadurl=no}}. Fox News (11 April 2013). Retrieved on 20 April 2013.</ref><ref>{{cite web |url=http://blog.aarp.org/2013/04/11/bitcoin-currency-hackers-make-money-investing-in-bitcoins-scams/ |title=Bitcoin Currency, Hackers Make Money, Investing in Bitcoins, Scams – AARP |archiveurl=http://archive.is/98mWj |archivedate=2013-04-29 |deadurl=no}}. Blog.aarp.org (19 March 2013). Retrieved on 20 April 2013.</ref> Bitcoins have gained traction in Argentina as an alternative to the official currency.<ref>{{cite web |url=http://blogs.ft.com/beyond-brics/2013/04/16/bitcoins-gain-traction-in-argentina/ |title=Bitcoins gain traction in Argentina  beyondbrics |archiveurl=http://archive.is/LxHxE |archivedate=2013-04-29 |deadurl=no}}. Blogs.ft.com (16 April 2013). Retrieved on 20 April 2013.</ref>

===As an investment===
Although it is considered by supporters to be a digital currency, [[virtual currency]], or "payment scheme", it is often traded as an investment<ref name="cnbc">{{cite web | url=http://www.cnbc.com/id/45030812/The_Pros_And_Cons_Of_Biting_on_Bitcoins | title=The Pros And Cons Of Biting on Bitcoins | publisher=[[CNBC]] | date=23 November 2011 | accessdate=4 December 2012 | author=Gustke, Constance |archiveurl=http://archive.is/oH9Sz |archivedate=2013-01-19 |deadurl=no}}</ref> and accused of being a form of investment fraud known as a [[Ponzi scheme]].<ref name=Reuters1>{{cite web |url=http://uk.reuters.com/article/2012/04/01/uk-traders-bitcoin-idUKBRE8300JL20120401 |title=Bitcoin, the City traders' anarchic new toy |last1=O'Leary |first1=Naomi |date=2 April 2012 |publisher=Reuters |accessdate=14 November 2012 |archiveurl=http://archive.is/6V5vk |archivedate=2013-02-01 |deadurl=no}}</ref><ref name=USSenatebitcoin>{{cite web |url=http://www.theregister.co.uk/2011/06/08/bitcoin_under_attack/ |title=US senators draw a bead on Bitcoin |last1=Chirgwin |first1=Richard |date=8 June 2011 |publisher=The Register |accessdate=14 November 2012 |archiveurl=http://archive.is/ap9W |archivedate=2012-09-14 |deadurl=no}}</ref> 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.<ref name="ecbreport">{{cite web | url=http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf | title=Virtual Currency Schemes | publisher=[[European Central Bank]] | date=October 2012 | accessdate=4 December 2012}}</ref>

In contrast, The Bitcoin Project describes bitcoin exclusively as an "experimental digital currency" and does not refer to it as an investment.<ref name=BitcoinProject>{{cite web|title=Bitcoin – P2P digital currency|url=http://bitcoin.org/|publisher=Bitcoin Project|accessdate=10 January 2013|quote=© Bitcoin Project 2009–2012 |archiveurl=http://archive.is/B7OX |archivedate=2012-05-30 |deadurl=no}}</ref> Like many things considered to be investments, Bitcoins are also subject to [[#Incidents of theft|theft]].  In addition, a study indicated that 45 percent of Bitcoin exchanges end up closing with many customers losing their money.<ref name=Wired.co.UK>{{cite web|title=Study: 45 percent of Bitcoin exchanges end up closing
|url=http://www.wired.co.uk/news/archive/2013-04/26/large-bitcoin-exchanges-attacks|accessdate=28 April 2013|quote=© Condé Nast UK 2013 |archiveurl=http://www.wired.co.uk/news/archive/2013-04/26/large-bitcoin-exchanges-attacks|archivedate=2013-04-26 |deadurl=no}} Wired.co.uk (26 April 2013). </ref> Bitcoins, as an investment, have been described as lacking [[Intrinsic value (finance)|intrinsic value]] because their value depends only on the [[Subjective theory of value|willingness of users]] to accept it.<ref name=WSJ1Bit>{{cite web|last=Hough|first=Jack|title=The Bitcoin Triples Again|url=http://online.wsj.com/article/SB70001424052702304392704576375590306494106.html|publisher=The Wall Street Journal|date=10 June 2011|quote=To recap, it's is a purely online currency with no intrinsic value; its worth is based solely on the willingness of holders and merchants to accept it in trade. |archiveurl=http://archive.is/cqU53 |archivedate=2013-04-12 |deadurl=no}}</ref><ref name=justinfox>Fox, Justin (9 April 2013). {{cite web |url=http://blogs.hbr.org/fox/2013/04/building-a-better-bitcoin.html |title=Building a Better Bitcoin |archiveurl=http://archive.is/1ulMp |archivedate=2013-04-29 |deadurl=no}}. [[Harvard Business Review]]. Accessed 9 April 2013.</ref><ref>Planes, Alex. (11 April 2013) {{cite web |url=http://www.fool.com/investing/general/2013/04/11/what-the-bitcoin-crash-can-teach-us-about-money-an.aspx |title=What the Bitcoin Crash Can Teach Us About Money and Investing |archiveurl=http://archive.is/PIlAq |archivedate=2013-04-29 |deadurl=no}}. Fool.com. Retrieved on 20 April 2013.</ref>

===Privacy===
Bitcoin transactions are seen as relatively anonymous.<ref name=economist>{{cite web |url=http://www.economist.com/node/21563752 |title=Monetarists Anonymous |archiveurl=http://archive.is/j6sDZ |archivedate=2013-01-02 |deadurl=no}}. The Economist (29 September 2012). Accessed 1 April 2013.</ref> Bitcoin is the medium of exchange on the [[Silk Road (marketplace)|Silk Road]], an online [[black market]].<ref name="Forbes">Greenberg, Andy  (20 April 2011). {{cite web |url=http://www.forbes.com/forbes/2011/0509/technology-psilocybin-bitcoins-gavin-andresen-crypto-currency.html |title=Crypto Currency |archiveurl=http://archive.is/KDAp |archivedate=2012-12-08 |deadurl=no}}. Forbes Magazine.</ref><ref>{{cite web |last= Madrigal |first= Alexis |title= Libertarian Dream? A Site Where You Buy Drugs With Digital Dollars |publisher= [[The Atlantic Monthly]] |date= 1 June 2011 |url= http://www.theatlantic.com/technology/archive/2011/06/libertarian-dream-a-site-where-you-buy-drugs-with-digital-dollars/239776/ |accessdate = 5 June 2011 |archiveurl=http://archive.is/INs7 |archivedate=2012-12-09 |deadurl=no}}</ref> Some proponents of Bitcoin are concerned that such an association may bring about a negative perception of the currency.<ref>Chen, Adrian (1 June 2011). {{cite web |url=http://gawker.com/5805928/the-underground-website-where-you-can-buy-any-drug-imaginable |title=The Underground Website Where You Can Buy Any Drug Imaginable |archiveurl=http://archive.is/hQa2 |archivedate=2012-07-26 |deadurl=no}}. Gawker.</ref>

The privacy of Bitcoin is a field of active academic research.<ref>Androulaki, Elli ''et al.'' (2012) [http://eprint.iacr.org/2012/596.pdf Evaluating User Privacy in Bitcoin]. eprint.iacr.org</ref> Because Bitcoin transactions are broadcast to the entire network, they are inherently public. Using external information, it is possible, though usually difficult, to associate Bitcoin identities with real-life identities.<ref name="An Analysis of Anonymity in the Bitcoin System">Fergal Reid and Martin Harrigan (24 July 2011). {{cite web |url=http://anonymity-in-bitcoin.blogspot.com/2011/07/bitcoin-is-not-anonymous.html |title=An Analysis of Anonymity in the Bitcoin System |archiveurl=http://archive.is/7IPTk |archivedate=2013-04-14 |deadurl=no}}. An Analysis of Anonymity in the Bitcoin System.</ref><ref>The Economist. {{cite web |url=http://www.economist.com/node/21563752 |title=Monetarists Anonymous |archiveurl=http://archive.is/j6sDZ |archivedate=2013-01-02 |deadurl=no}}. 29 September 2012. Accessed 1 April 2013.</ref> Unlike regular banking,<ref>{{cite web |url= http://spectrum.ieee.org/computing/software/bitcoin-the-cryptoanarchists-answer-to-cash/0 |title= Bitcoin: The Cryptoanarchists' Answer to Cash |publisher= IEEE.org |date= June 2012 |accessdate = 5 June 2012 |archiveurl=http://archive.is/75DuQ |archivedate=2013-01-13 |deadurl=no}}</ref> 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. An [[IEEE]] paper proposing a cryptographic extension to Bitcoin, [[Zerocoin]], has been published.<ref>Miers, Ian. [http://spar.isi.jhu.edu/~mgreen/ZerocoinOakland.pdf Zerocoin: Anonymous Distributed E-Cash from Bitcoin]. isi.jhu.edu</ref><ref>{{cite web |url=http://blog.cryptographyengineering.com/2013/04/zerocoin-making-bitcoin-anonymous.html |title=A Few Thoughts on Cryptographic Engineering: Zerocoin: making Bitcoin anonymous |archiveurl=http://archive.is/wkZfe |archivedate=2013-04-29 |deadurl=no}}. Blog.cryptographyengineering.com (11 April 2013). Retrieved on 20 April 2013.</ref>

===Botnet mining===
In June 2011, [[Symantec]] warned about the possibility of [[botnet]]s engaging in covert "mining" of bitcoins,<ref>{{cite web|author=Peter Coogan |url=http://www.symantec.com/connect/blogs/bitcoin-botnet-mining |title=Bitcoin Botnet Mining |work=Symantec.com |date=17 June 2011 |accessdate = 24 January 2012 |archiveurl=http://archive.is/uusZ |archivedate=2012-09-14 |deadurl=no}}</ref><ref>{{cite web|url=http://www.zdnet.com/blog/security/researchers-find-malware-rigged-with-bitcoin-miner/8934 |title=Researchers find malware rigged with Bitcoin miner |publisher=ZDNet |date=29 June 2011 |accessdate = 24 January 2012 |archiveurl=http://archive.is/7Uhft |archivedate=2013-01-05 |deadurl=no}}</ref> consuming computing cycles, using extra electricity and possibly increasing the temperature of the computer. Some malware also used the [[parallel computing|parallel processing]] capabilities of the [[GPU]]s built into many modern-day [[video card]]s.<ref>{{Cite news |url=http://www.theregister.co.uk/2011/08/16/gpu_bitcoin_brute_forcing/ |title=Malware mints virtual currency using victim's GPU |date=16 August 2011|first=Dan |last=Goodin  |archiveurl=http://archive.is/oDCb |archivedate=2012-12-23 |deadurl=no}}</ref>

Later that month, the [[Australian Broadcasting Corporation]] caught an employee using the company's servers to generate Bitcoins without permission.<ref>{{cite web|url=http://thenextweb.com/au/2011/06/23/abc-employee-caught-mining-for-bitcoins-on-company-servers/ |title=ABC employee caught mining for Bitcoins on company servers |publisher=The Next Web |date=23 June 2011 |accessdate = 24 January 2012 |archiveurl=http://archive.is/JwrjC |archivedate=2013-01-05 |deadurl=no}}</ref>

In mid-August 2011, Bitcoin miner botnets were found again,<ref>{{cite web|url=http://www.infosecurity-magazine.com/view/20211/researcher-discovers-distributed-bitcoin-cracking-trojan-malware/ |title=Infosecurity – Researcher discovers distributed bitcoin cracking trojan malware |publisher=Infosecurity-magazine.com |date=19 August 2011 |accessdate = 24 January 2012 |archiveurl=http://archive.is/TliPM |archivedate=2013-01-03 |deadurl=no}}</ref> less than three months later bitcoin-mining trojans infecting Mac OS X were also discovered.<ref>{{cite web|url=http://www.techworld.com.au/article/405849/mac_os_x_trojan_steals_processing_power_produce_bitcoins |title=Mac OS X Trojan steals processing power to produce Bitcoins – sophos, security, malware, Intego – Vulnerabilities – Security |publisher=Techworld |date=1 November 2011 |accessdate = 24 January 2012 |archiveurl=http://archive.is/SDT4 |archivedate=2012-09-18 |deadurl=no}}</ref>

===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 illegally to transfer a large number of bitcoins to himself. He used the exchange's software to sell them all nominally, creating a massive "ask" order at any price. Within minutes the price corrected to its correct user-traded value.<ref>{{cite web|last= Karpeles |first= Mark |title= Clarification of Mt Gox Compromised Accounts and Major Bitcoin Sell-Off |date= 30 June 2011 |url= https://mtgox.com/press_release_20110630.html |publisher= Tibanne Co. Ltd.  |archiveurl=http://archive.is/2DHQ |archivedate=2012-12-08 |deadurl=no}}</ref><ref>{{cite web|date= 19 June 2011 |url= http://www.youtube.com/watch?v=T1X6qQt9ONg  |title= Bitcoin Report Volume 8 – (FLASHCRASH) |publisher= YouTube BitcoinChannel}}</ref><ref name="mick">{{cite web|last= Mick |first= Jason |title= Inside the Mega-Hack of Bitcoin: the Full Story |date= 19 June 2011 |url= http://www.dailytech.com/Inside+the+MegaHack+of+Bitcoin+the+Full+Story/article21942.htm |publisher= [[DailyTech]]  |archiveurl=http://archive.is/fsllb |archivedate=2013-01-02 |deadurl=no}}</ref><ref>Lee, Timothy B.  (19 June 2011) {{cite web |url=http://arstechnica.com/tech-policy/news/2011/06/bitcoin-price-plummets-on-compromised-exchange.ars |title=Bitcoin prices plummet on hacked exchange |archiveurl=http://archive.is/Oa40 |archivedate=2012-07-09 |deadurl=no}}, Ars Technica</ref><ref>Karpeles, Mark (20 June 2011) [https://support.mtgox.com/entries/20208066-huge-bitcoin-sell-off-due-to-a-compromised-account-rollback Huge Bitcoin sell off due to a compromised account – rollback], Mt.Gox Support {{Dead link|url=https://support.mtgox.com/entries/20208066-huge-bitcoin-sell-off-due-to-a-compromised-account-rollback|date=April 2013}}</ref><ref name="register1">{{Cite news|title= Bitcoin collapses on malicious trade – Mt Gox scrambling to raise the Titanic |url= http://www.theregister.co.uk/2011/06/19/bitcoin_values_collapse_again/|date=19 June 2011 |author= Chirgwin, Richard |publisher= The Register  |archiveurl=http://archive.is/X2SOt |archivedate=2013-01-14 |deadurl=no}}</ref> Accounts with the equivalent of more than USD 8,750,000 were affected.<ref name="mick" />
* 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.<ref>Dotson, Kyt (1 August 2011)  {{cite web |url=http://siliconangle.com/blog/2011/08/01/third-largest-bitcoin-exchange-bitomat-lost-their-wallet-over-17000-bitcoins-missing/ |title=Third Largest Bitcoin Exchange Bitomat Lost Their Wallet, Over 17,000 Bitcoins Missing |archiveurl=http://archive.is/6hfI |archivedate=2012-07-30 |deadurl=no}}. SiliconAngle</ref>
* 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.<ref>Jeffries, Adrianne (8 August 2011) {{cite web |url=http://betabeat.com/2011/08/mybitcoin-spokesman-finally-comes-forward-what-did-you-think-we-did-after-the-hack-we-got-shitfaced/ |title=MyBitcoin Spokesman Finally Comes Forward: “What Did You Think We Did After the Hack? We Got Shitfaced” |archiveurl=http://archive.is/epilS |archivedate=2013-01-18 |deadurl=no}}. BetaBeat</ref><ref>Jeffries, Adrianne (19 August 2011) {{cite web |url=http://betabeat.com/2011/08/search-for-owners-of-mybitcoin-loses-steam/ |title=Search for Owners of MyBitcoin Loses Steam |archiveurl=http://archive.is/yRvWb |archivedate=2013-01-18 |deadurl=no}}. BetaBeat</ref>
* 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.<ref>Geuss, Megan (12 August 2012) {{cite web |url=http://arstechnica.com/tech-policy/2012/08/bitcoinica-users-sue-for-460k-in-lost-bitcoins/ |title=Bitcoinica users sue for $460k in lost bitcoins |archiveurl=http://archive.is/5nN6V |archivedate=2013-01-17 |deadurl=no}}. Arstechnica</ref><ref>Peck, Morgen (15 August 2012) {{cite web |url=http://spectrum.ieee.org/tech-talk/computing/networks/first-bitcoin-lawsuit-filed-in-san-francisco |title=First Bitcoin Lawsuit Filed In San Francisco |archiveurl=http://archive.is/QHa2m |archivedate=2013-04-15 |deadurl=no}}. IEEE Spectrum</ref>
* 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]].<ref>{{cite web|title= Bitcoin ponzi scheme – investors lose $5 million USD in online hedge fund |url= http://rt.com/usa/news/investors-currency-digital-fund-868/|date=29 August 2012  |publisher= [[RT (TV network)|RT]]  |archiveurl=http://archive.is/cAPZ |archivedate=2012-12-06 |deadurl=no}}</ref><ref>{{cite web|last= Jeffries |first= Adrianne |title= Suspected multi-million dollar Bitcoin pyramid scheme shuts down, investors revolt |url= http://www.theverge.com/2012/8/27/3271637/bitcoin-savings-trust-pyramid-scheme-shuts-down |publisher= [[The Verge]] |date=27 August 2012 |archiveurl=http://archive.is/4SplF |archivedate=2013-01-05 |deadurl=no}}</ref><ref>{{cite web|last= Mick |first= Jason |title= "Pirateat40" Makes Off $5.6M USD in BitCoins From Pyramid Scheme |date= 28 August 2012 |url= http://www.dailytech.com/Pirateat40+Makes+Off+56M+USD+in+BitCoins+From+Pyramid+Scheme/article25538.htm |publisher= [[DailyTech]]  |archiveurl=http://archive.is/N8bzd |archivedate=2013-01-02 |deadurl=no}}</ref><ref>{{cite web|last= Mott |first= Nathaniel |title= Bitcoin: How a Virtual Currency Became Real with a $5.6M Fraud |date= 31 August 2012 |url= http://pandodaily.com/2012/08/31/bitcoin-how-a-virtual-currency-became-real-with-a-5-6m-fraud/ |publisher= [[PandoDaily]]  |archiveurl=http://archive.is/YvTD8 |archivedate=2013-01-31 |deadurl=no}}</ref> In September 2012, it was reported that [[U.S. Securities and Exchange Commission]] has started an investigation on the case.<ref>Foxton, Willard (2 September 2012)  {{cite web |url=http://blogs.telegraph.co.uk/technology/willardfoxton2/100007836/bitcoin-pirate-scandal-sec-steps-in-amid-allegations-that-the-whole-thing-was-a-ponzi-scheme/ |title=Bitcoin 'Pirate' scandal: SEC steps in amid allegations that the whole thing was a Ponzi scheme |archiveurl=http://archive.is/kO3uI |archivedate=2013-04-21 |deadurl=no}}. The Telegraph</ref>
* 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.<ref>{{Cite news|title= Bitcoin theft causes Bitfloor exchange to go offline |url= http://www.bbc.co.uk/news/technology-19486695 |date= 25 September 2012 |publisher= BBC News  |archiveurl=http://archive.is/LvdDP |archivedate=2013-04-19 |deadurl=no}}</ref><ref>{{cite web|last= Goddard |first= Louis |title= Bitcoin exchange BitFloor suspends operations after $250,000 theft |date= 5 September 2012 |url= http://www.theverge.com/2012/9/5/3293375/bitfloor-bitcoin-exchange-suspended-theft |publisher= [[The Verge]]  |archiveurl=http://archive.is/4h4JX |archivedate=2013-02-04 |deadurl=no}}</ref> 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.<ref>{{Cite news|title= Bitcoin exchange back online after hack |url= http://www.pcworld.com/article/2010586/bitcoin-exchange-back-online-after-hack.html?tk=rel_news |date= 25 September 2012 |last= Chirgwin |first= Richard |publisher= [[PC World]]  |archiveurl=http://archive.is/Y87fW |archivedate=2013-01-31 |deadurl=no}}</ref>
* On 3 April 2013, Instawallet, a web-based wallet provider, was hacked,<ref>{{cite web|last= Cutler |first= Kim-Mai |title= Another Bitcoin Wallet Service, Instawallet, Suffers Attack, Shuts Down Until Further Notice |date= 3 April 2013 |url= http://techcrunch.com/2013/04/03/bitcoin-instawallet/ |publisher= [[TechCrunch]] |accessdate= 12 April 2013  |archiveurl=http://archive.is/qOW7p |archivedate=2013-04-29 |deadurl=no}}</ref> resulting in the theft of over 35,000 bitcoins<ref>{{cite web |url=http://blockchain.info/tx/5c265c7f63176a07d8c1a90c336e8faac133e69b95eb29e69026377781ebdd1e |title=Transaction details for bitcoins stolen from Instawallet |archiveurl=http://archive.is/2ehIK |archivedate=2013-04-29 |deadurl=no}}. Blockchain.info (3 April 2013). Retrieved on 20 April 2013.</ref> ($129.90 at the time of trade, or nearly $4.6 million USD.) Instawallet suspended operations.

===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."<ref name="BitCoin Tax issues Oct 2012">{{cite journal | title=2012 TNT 209-4 NEWS ANALYSIS: VIRTUAL CURRENCY: A NEW WORRY FOR TAX ADMINISTRATORS?. (Release Date: OCTOBER 17, 2012) (Doc 2012-21516) | author=Stewart, David D. and Soong Johnston, Stephanie D. | journal=Tax Notes Today | year=2012 | month=29 October | volume=2012 TNT 209-4 | issue=2012 TNT 209–4}}</ref> 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."<ref name="BitCoin Tax issues Oct 2012" /> 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."<ref name="BitCoin Tax issues Oct 2012">{{cite journal | title=2012 TNT 209-4 NEWS ANALYSIS: VIRTUAL CURRENCY: A NEW WORRY FOR TAX ADMINISTRATORS?. (Release Date: OCTOBER 17, 2012) (Doc 2012-21516) | author=Stewart, David D. and Soong Johnston, Stephanie D. | journal=Tax Notes Today| date=29 October 2012 | volume=2012 TNT 209-4 | issue=2012 TNT 209–4}}</ref>

===Energy use and environmental impact===

An April 2013 estimate<ref>{{Cite news|title=Virtual Bitcoin Mining Is a Real-World Environmental Disaster |url= http://www.bloomberg.com/news/2013-04-12/virtual-bitcoin-mining-is-a-real-world-environmental-disaster.html | date=Apr 12 2013 |publisher=[[Bloomberg]] | accessdate=Apr 19 2013  |archiveurl=http://archive.is/EGhkM |archivedate=2013-04-29 |deadurl=no}}</ref> showed that the amount of energy being used every day to mine bitcoins was equivalent to the amount capable of powering about 31,000 American homes. This was estimated to be about USD $147,000 worth of energy. In comparison, profits made from a day's worth of bitcoin mining were given at about $681,000.

==Reception==
{{copy edit-section|date=April 2013}}
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]."<ref name=Krugman1>{{cite web|last=Krugman|first=Paul|title=Golden Cyberfetters|url=http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/|publisher=New York Times|date=7 September  2011 |archiveurl=http://archive.is/jzUoz |archivedate=2013-04-11 |deadurl=no}}</ref> In 2013, Krugman stated that unlike gold or paper fiat currencies, bitcoin derives its value solely from a self-fulfilling expectation that others will accept it as payment.<ref>{{cite news|last=Krugman|first=Paul|title=The Antisocial Network|url=http://www.nytimes.com/2013/04/15/opinion/krugman-the-antisocial-network.html|newspaper=New York Times|date=14 April 2013 |archiveurl=http://archive.is/jdAYc |archivedate=2013-04-29 |deadurl=no}}</ref> He also stated that it is unnecessarily wasteful to consume real resources, such as electric power, on the creation of bitcoins.<ref>{{cite news|last=Krugman|first=Paul|title=Adam Smith Hates Bitcoin|url=http://krugman.blogs.nytimes.com/2013/04/12/adam-smith-hates-bitcoin/|newspaper=New York Times|date=12 April 2013 |archiveurl=http://archive.is/TAgyQ |archivedate=2013-04-29 |deadurl=no}}</ref> 

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."<ref name=BIConvergEx>{{cite web|last=Boesler|first=Matthew|title=ANALYST: The Rise Of Bitcoin Teaches A Tremendous Lesson About Global Economics|url=http://www.businessinsider.com/global-economics-lesson-from-bitcoin-2013-3|publisher=Business Insider|date=7 March 2013 |archiveurl=http://archive.is/YqHXP |archivedate=2013-04-10 |deadurl=no}}</ref>

In April 2013, an analysis by financial journalist [[Felix Salmon]]—formerly of ''[[Conde Nast Portfolio|Portfolio Magazine]]'', ''[[Euromoney]]'' and a blogging editor for [[Reuters]]—considered the current of price of bitcoins to be a [[Economic bubble|bubble]]. He noted that while the value of bitcoins is strongly affected by [[news media]] exposure and that they are an "uncomfortable combination of commodity and currency," Bitcoin was "in many ways the best and cleanest payments mechanism the world has ever seen."<ref>{{cite web |url=https://medium.com/money-banking/2b5ef79482cb |title=The Bitcoin Bubble and the Future of Currency, Felix Salmon, Financial blogger at Reuters 3 April 2013 |archiveurl=http://archive.is/K6uFF |archivedate=2013-04-29 |deadurl=no}}. Medium.com (3 April 2013). Retrieved on 20 April 2013.</ref>

Economist [[John Quiggin]] has claimed that "Bitcoin is perhaps the finest example of a pure bubble", and that it provides a conclusive refutation of the [[Efficient Markets Hypothesis]] (EMH).<ref name="QuigginNI">{{cite news|url=http://nationalinterest.org/commentary/the-bitcoin-bubble-bad-hypothesis-8353|title=The Bitcoin Bubble and a Bad Hypothesis|last=Quiggin|first=John|work=The National Interest|date=16 April 2013 |archiveurl=http://archive.is/IQVny |archivedate=2013-04-29 |deadurl=no}}</ref> While other assets used as currency—such as gold, tobacco and U.S. dollars—have value independent of people's willingness to accept them as payment, Quiggin argues that "in the case of Bitcoin there is no source of value whatsoever" and that: 

<blockquote>
Since Bitcoins do not generate any actual earnings, they must appreciate in value to ensure that people are willing to hold them. But an endless appreciation, with no flow of earnings or liquidation value, is precisely the kind of bubble the EMH says can’t happen.
</blockquote>

Heidi Moore, US finance and economics editor at ''[[The Guardian]]'' stated that Bitcoin is not a legitimate currency.<ref name="Guardian">{{cite news|url=http://www.guardian.co.uk/commentisfree/2013/apr/03/bitcoin-currency-bubble-crash-not-rocking-financial-markets|title=Confused about Bitcoin? It's 'the Harlem Shake of currency'|last=Moore|first=Heidi|date=3 April 2013|work=The Guardian|accessdate=13 April 2013 |archiveurl=http://archive.is/FhJtu |archivedate=2013-04-29 |deadurl=no}}</ref> She writes:

<blockquote>
An obscure digital currency, used mostly for running drugs and laundering money for dictators... Bitcoin is a currency created years ago by an obscure hacker in the spirit of subversion, to trade goods while dodging the gimlet eye of financial regulators. While theoretically it can be used for respectable online purchases, it is too complicated to buy and maintain for people who aren't online 18 hours a day, so it is used primarily to fuel a shadow economy of vice.<ref name="Guardian"/>
</blockquote>

Carnegie Mellon Professor Nicholas Christin studied online black market Silk Road and concluded that law enforcement authorities could stop it by disrupting its use of bitcoin for anonymous transactions.<ref name="Guardian Ball">{{cite web|last=Ball|first=James|title=Silk Road: the online drug marketplace that officials seem powerless to stop|url=http://www.guardian.co.uk/world/2013/mar/22/silk-road-online-drug-marketplace|publisher=The Guardian|date=22 March 2013 |archiveurl=http://archive.is/wNXAj |archivedate=2013-04-29 |deadurl=no}}</ref> As of September 2012, Christin estimated that on Silk Road, where all transactions are required to use bitcoin, volume amounted to approximately $1.9 million per month.<ref name="Economist Anonymous">{{cite news|title=Monetarists Anonymous|url=http://www.economist.com/node/21563752|date=29 Sep 2012|newspaper=The Economist |archiveurl=http://archive.is/j6sDZ |archivedate=2013-01-02 |deadurl=no}}</ref> Online arms merchant Executive Outcomes, which deals in illicit goods, accepts only bitcoin in payment to ensure anonymity according to its site administrator. Christin stated that bitcoin increases the level of anonymity in such transactions, possibly making it more difficult to identify the buyer of a weapon used to commit a crime.<ref name="Huffington Gun Trade">{{cite web|last=Smith|first=Gerry|title=How Bitcoin Sales Of Guns Could Undermine New Rules|url=http://www.huffingtonpost.com/2013/04/15/bitcoin-guns_n_3070828.html|publisher=Huffington Post|date=15 April 2013 |archiveurl=http://archive.is/kgfYT |archivedate=2013-04-29 |deadurl=no}}</ref>

==Popular culture==

===''The Good Wife''===
Bitcoin was featured as a subject within a fictionalized trial on the [[CBS]] legal drama ''[[The Good Wife]]'' in the third season episode "[[The Good Wife (season 3)#Episodes|Bitcoin for Dummies]]". The host of [[CNBC]]'s ''[[Mad Money]]'', [[Jim Cramer]], played himself in a courtroom scene where he testifies that he doesn’t consider bitcoin a true currency, saying “There’s no central bank to regulate it; it’s digital and functions completely peer to peer.”<ref name="The Good Wife">{{cite web|last=Toepfer|first=Susan|title='The Good Wife' Season 3, Episode 13, 'Bitcoin for Dummies': TV Recap|url=http://blogs.wsj.com/speakeasy/2012/01/16/the-good-wife-season-3-episode-13-bitcoin-for-dummies-tv-recap/|publisher=The Wall Street Journal|date=16 January 2012 |archiveurl=http://archive.is/WyMXp |archivedate=2013-04-12 |deadurl=no}}</ref>

==See also==
{{Commons category|Bitcoin}}
{{Portal| Anarchism| Cryptography | Economics| Internet}}
* [[Anonymous Internet banking]]
* [[Complementary currency]]
* [[Crypto-anarchism]]
* [[Digital currency exchanger]]
* [[Internet privacy]]
* [[Private currency]]
* [[Litecoin]]
* [[PPCoin]]
* [[Ripple monetary system]]
* [[Ven (currency)]]

==References==
{{Reflist|30em}}

==External links==
* [http://bitcoin.org/bitcoin.pdf Satoshi Nakamoto's original paper, ''Bitcoin: A Peer-to-Peer Electronic Cash System'']
* [http://www.technollama.co.uk/we-need-decentralized-cryptocurrencies-we-just-dont-need-bitcoin A cogent critique of Bitcoin, with suggestions for an improved cryptocurrency]
* [http://www.forbes.com/sites/timothylee/2013/04/11/an-illustrated-history-of-bitcoin-crashes/?utm_campaign=forbestwittersf&utm_source=twitter&utm_medium=social An illustrated history of Bitcoin crashes from Forbes]
* [http://www.economist.com/news/leaders/21576104-regulators-should-keep-their-hands-new-forms-digital-money-such-bitcoin-new-specie An appreciation from The Economist of Bitcoin as a new specie]
* [https://docs.google.com/viewer?a=v&q=cache:n9LqwtPKnBoJ:crypto.stanford.edu/~xb/fc12/bitcoin.pdf+&hl=en&gl=us&pid=bl&srcid=ADGEESiM-rUGI3pOu5oXGzBYoPSZPYxik4YiaL2RFlnNbsl9-lxGFwUDiG2l3CWfT_UgENpM7xX5S8F9y77-NEK1HboPUzVSuq0sxIU3ZTmIYRuU9vGl8NAHROGewB14lakD3ob2hE7C&sig=AHIEtbSR5SEC2UQsUhluXOrTcMTABeA89Q A paper from Stanford University]
* [https://en.bitcoin.it/ Bitcoin Wiki]

[[Category:Alternative currencies]]
[[Category:Application layer protocols]]
[[Category:Electronic currencies]]
[[Category:Payment systems]]
[[Category:Peer-to-peer computing]]
[[Category:Cryptography]]