Bitcoin (₿) is a cryptocurrency, a form of electronic cash.[8] It is the first decentralized digital currency: the system was designed to work without a central bank or single administrator
Many economists and investors consider the bitcoin market to be a bubble. Bitcoin has also been criticized for its use in illegal transactions, its high electricity consumption, price volatility, and thefts from exchanges.[10]
Bitcoins are sent from user to user on the peer-to-peer bitcoin network directly, without the need for intermediaries, though most transactions are made through a cryptocurrency exchange market. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people using the name Satoshi Nakamoto[11] and released as open-source software in 2009.[12]
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies,[13] products, and services. Research produced by the University of Cambridge estimates that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
Ideology
Bitcoin is seen as having been politically or ideologically motivated starting from the white paper written by Satoshi Nakamoto. There he stated "The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust."[15]
Early bitcoin supporters were considered to be libertarian or anarchist trying to remove currency from the control of governments. Roger Ver said "At first, almost everyone who got involved did so for philosophical reasons. We saw bitcoin as a great idea, as a way to separate money from the state."[15]
Nigel Dodd argues in "The Social Life of Bitcoin" that the essence of the bitcoin ideology is to remove money from social, as well as governmental, control, and that "Bitcoin will succeed as money to the extent that it fails as an ideology. The currency relies on that which the ideology underpinning it seeks to deny, namely, the dependence of money upon social relations, and upon trust.[16]
External video
The Declaration Of Bitcoin's Independence, BraveTheWorld, 4:38[17]
Dodd shows the intensity of the ideological and political motivation for bitcoin by quoting a YouTube video, with Roger Ver, Jeff Berwick, Kristov Atlas, Trace Meyer and other leaders of the bitcoin movement reading The Declaration of Bitcoin's Independence. The declaration includes the words "Bitcoin is inherently anti-establishment, anti-system, and anti-state. Bitcoin undermines governments and disrupts institutions because bitcoin is fundamentally humanitarian."[16][17]
David Golumbia traces the influences on bitcoin ideology back to right-wing extremists such as the Liberty Lobby and the John Birch Society and their anti-Central Bank rhetoric. More recent influences include Ron Paul and Tea Party-style libertarianism.[18] Steve Bannon who owns a "good stake" in bitcoin, considers it to be "disruptive populism. It takes control back from central authorities. It’s revolutionary."[19]
History
Main article: History of bitcoin
Creation
The domain name "bitcoin.org" was registered on 18 August 2008.[20] In November 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. Nakamoto implemented the bitcoin software as open source code and released it in January 2009.[21][22][12] The identity of Nakamoto remains unknown.[11]
In January 2009, the bitcoin network was created when Nakamoto mined the first block of the chain, known as the genesis block.[23][24] Embedded in the coinbase of this block was the following text:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.[12]
This note has been interpreted as both a timestamp and a comment on the instability caused by fractional-reserve banking.[25]:18
The receiver of the first bitcoin transaction was cypherpunk Hal Finney, who created the first reusable proof-of-work system (RPOW) in 2004.[26] Finney downloaded the bitcoin software on its release date, and received 10 bitcoins from Nakamoto.[27][28] Other early cypherpunk supporters were creators of bitcoin predecessors: Wei Dai, creator of b-money, and Nick Szabo, creator of bit gold.[29]
Nakamoto is estimated to have mined 1 million bitcoins.[30] before disappearing in 2010, when he handed the network alert key and control of the Bitcoin Core code repository over to Gavin Andresen. Andresen later became lead developer at the Bitcoin Foundation.[31][32] Andresen then sought to decentralize control. This left opportunity for controversy to develop over the future development path of bitcoin.[33][32]
2011 - 2012
Prices were extremely volatile in 2011, starting at $0.30 per bitcoin, growing 1,656% for the year to $5.27. Prices rose to $31.50 on June 8, a 10,500% increase from January 1. Within a month the price had crashed to $11.00, a 65% decline. The next month if fell to $7.80, and in another month to $4.77, for an overall 85% decline in the ninety days from the June 8 high.[34][35]
Litecoin was an early bitcoin spinoff or altcoin, starting in October 2011. Many altcoins have been created since.
In 2012 bitcoin prices started at $5.27 growing 153% to $13.30 for the year.[35] By January 9 the price had risen to $7.38, but then crashed by 49% over the next 16 days. The price then rose to $16.41 on August 17, but fell by 57% over the next three days.[36]
The Bitcoin Foundation was founded in September 2012 to "accelerate the global growth of bitcoin through standardization, protection, and promotion of the open source protocol". The founders included Gavin Andresen and Charlie Shrem.[37]
2013 - 2016
In 2013 prices started at $13.30 rising 5,691% to $770 by January 1, 2014.[35]
In March 2013 the blockchain temporarily split into two independent chains with different rules. The two blockchains operated simultaneously for six hours, each with its own version of the transaction history. Normal operation was restored when the majority of the network downgraded to version 0.7 of the bitcoin software.[38] The Mt. Gox exchange briefly halted bitcoin deposits and the price dropped by 23% to $37[39][40] before recovering to previous level of approximately $48 in the following hours.[41]
The US Financial Crimes Enforcement Network (FinCEN) established regulatory guidelines for "decentralized virtual currencies" such as bitcoin, classifying American bitcoin miners who sell their generated bitcoins as Money Service Businesses (MSBs), that are subject to registration or other legal obligations.[42][43][44]
In April, payment processors BitInstant and Mt. Gox experienced processing delays due to insufficient capacity[45] resulting in the bitcoin price dropping from $266 to $76 before returning to $160 within six hours.[46]
The bitcoin price rose to $259 on April 10, but then crashed by 83% over the next 3 days.[36]
On 15 May 2013, the US authorities seized accounts associated with Mt. Gox after discovering that it had not registered as a money transmitter with FinCEN in the US.[47][48]
On 23 June 2013, the US Drug Enforcement Administration listed 11.02 bitcoins as a seized asset in a United States Department of Justice seizure notice pursuant to 21 U.S.C. § 881.[49] This marked the first time a government agency seized bitcoin.[50][51]
The FBI seized about 26,000 bitcoins in October 2013 from darknet website Silk Road during the arrest of Ross William Ulbricht.[52][53][54]
Bitcoin's price rose to $755 on 19 November and crashed by 50% to $378 the same day. On 30 November 2013 the price reached $1,163 before starting a long-term crash, declining by 87% to $152 in January 2015.[36]
On 5 December 2013, the People's Bank of China prohibited Chinese financial institutions from using bitcoins.[55] After the announcement, the value of bitcoins dropped,[56] and Baidu no longer accepted bitcoins for certain services.[57] Buying real-world goods with any virtual currency had been illegal in China since at least 2009.[58]
In 2014 prices started at $770 and fell 59% to $314 for the year.[35]
In February 2014 the Mt. Gox exchange, the largest bitcoin exchange at the time, said that 850,000 bitcoins had been stolen from its customers, amounting to almost $500 million. Bitcoin's price fell by almost half, from $867 to $439 (a 49% drop). Prices remained low until late 2016.
In 2015 prices started at $314 and rose 38% to $434 for the year. In 2016 prices rose 130% to $998 on January 1, 2017.[35]
2017 - 2018
Bitcoin prices in 2017 were exceptionally volatile, starting at $998 and rising 1,245% to $13,412.44 on January 1, 2018.[35] On December 17 bitcoin's price reached an all time high of $19,666 and then fell 70% to $5,920 on February 6, 2018.[36]
China banned trading in bitcoin, with the first steps taken in September 2017, and a complete ban starting 1 February 2018. Bitcoin prices then fell from $9,052 to $6,914 on 5 February 2018. The percentage of bitcoin trading in renminbi fell from over 90% in September 2017 to less than 1% in June.[59]
Throughout the rest of the first half of 2018, bitcoin's price fluctuated between $11,480 and $5,848. On July 1, 2018 bitcoin's price was $6,469.[60][61]
Bitcoin prices were negatively affected by several hacks or thefts from cryptocurrency exchanges, including thefts from Coincheck in January 2018, Coinrail and Bithumb in June, and Bancor in July. For the first six months of 2018, $761 million worth of cryptocurrencies was reported stolen from exchanges.[62] Bitcoin's price was affected even though other cryptocurrencies were stolen at Coinrail and Bancor, as investors worried about the overall security of cryptocurrencies.[63][64][65]
Forks
See also: Fork (blockchain) and List of bitcoin forks
On 1 August 2017, a hard fork of bitcoin was created, known as Bitcoin Cash.[66] Bitcoin Cash has a larger block size limit and had an identical blockchain at the time of fork. On 24 October 2017 another hard fork, Bitcoin Gold, was created. Bitcoin Gold changes the proof-of-work algorithm used in mining.[67]
Scaling Debates
As disagreements around scaling bitcoin heated up, several hard forks were proposed. Bitcoin XT was one proposal that aimed for 24 transactions per second. In order to accomplish this, it proposed increasing the block size from 1 megabyte to 8 megabytes. When Bitcoin XT was declined, some community members still wanted block sizes to increase. In response, a group of developers launched Bitcoin Classic, which intended to increase the block size to only 2 megabytes. Bitcoin Unlimited set itself apart by allowing miners to decide on the size of their blocks, with nodes and miners limiting the size of blocks they accept, up to 16 megabytes.
Segwit Soft-fork
Bitcoin Core developer Peter Wuille presented the idea of Segregated Witness (SegWit) in late 2015. Put simply, SegWit is a backward-compatible soft-fork that aims to reduce the size of each bitcoin transaction, thereby allowing more transactions to take place at once. Segwit activated on 1 August 2017.[citation needed]
In response to SegWit, some developers and users decided to initiate a hard fork in order to avoid the protocol updates it brought about. Bitcoin Cash was the result, which increased the block size to 8 megabytes.[68] There was another proposed hard fork called Segwit2x, which would have increased the block size to 2 megabytes. After a number of companies and individuals in the community decided to back out of the hard fork, the team behind SegWit2x cancelled their planned hard fork in November 2017.
New Features
Bitcoin Gold was a hard fork that followed several months later in October 2017 that changed the proof-of-work algorithm with the aim of restoring mining functionality to basic graphics processing units (GPU), as the developers felt that mining had become too specialized.[69] Bitcoin Private, launched in March 2018, added the ability to keep certain details private in a transaction, in contrast to bitcoin which has a transparent transaction history.[citation needed]
Design
Blockchain
For a broader coverage of this topic, see Blockchain.
Number of unspent transaction outputs
The blockchain is a public ledger that records bitcoin transactions.[70] It is implemented as a chain of blocks, each block containing a hash of the previous block up to the genesis block[a] of the chain. A novel solution was designed to do this without any trusted central authority: the maintenance of the blockchain is performed by a network of communicating nodes running bitcoin software.[8] Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications. Nevertheless, the "trustless" design requires "each and every user to download and verify the history of all transactions ever made, including amount paid, payer, payee and other details." [71]
Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin amount, each network node stores its own copy of the blockchain.[72] Approximately once every 10 minutes, a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.[3]:ch. 5
Transactions
See also: Bitcoin network
Number of bitcoin transactions per month (logarithmic scale)[73]
Transactions are defined using a Forth-like scripting language.[3]:ch. 5 Transactions consist of one or more inputs and one or more outputs. When a user sends bitcoins, the user designates each address and the amount of bitcoin being sent to that address in an output. To prevent double spending, each input must refer to a previous unspent output in the blockchain.[74] The use of multiple inputs corresponds to the use of multiple coins in a cash transaction. Since transactions can have multiple outputs, users can send bitcoins to multiple recipients in one transaction. As in a cash transaction, the sum of inputs (coins used to pay) can exceed the intended sum of payments. In such a case, an additional output is used, returning the change back to the payer.[74] Any input satoshis not accounted for in the transaction outputs become the transaction fee.[74]
Units
The unit of account of the bitcoin system is a bitcoin. Ticker symbols used to represent bitcoin are BTC[b] and XBT.[c] Its Unicode character is ₿.[79]:2 Small amounts of bitcoin used as alternative units are millibitcoin (mBTC),[80] and satoshi (sat). Named in homage to bitcoin's creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoins, one hundred millionth of a bitcoin.[2] A millibitcoin equals 0.001 bitcoins, one thousandth of a bitcoin or 100,000 satoshis.[81]
Transaction fees
An actual bitcoin transaction including the fee from a webbased cryptocurrency exchange to a hardware wallet.
Though transaction fees are optional, miners can choose which transactions to process and prioritize those that pay higher fees.[74] Miners may choose transactions based on the fee paid relative to their storage size, not the absolute amount of money paid as a fee. These fees are generally measured in satoshis per byte (sat/b). The size of transactions is dependent on the number of inputs used to create the transaction, and the number of outputs.[3]:ch. 8
Ownership
Simplified chain of ownership.[4] In reality, a transaction can have more than one input and more than one output.
In the blockchain, bitcoins are registered to bitcoin addresses. Creating a bitcoin address is nothing more than picking a random valid private key and computing the corresponding bitcoin address. This computation can be done in a split second. But the reverse (computing the private key of a given bitcoin address) is mathematically unfeasible and so users can tell others and make public a bitcoin address without compromising its corresponding private key. Moreover, the number of valid private keys is so vast that it is extremely unlikely someone will compute a key-pair that is already in use and has funds. The vast number of valid private keys makes it unfeasible that brute force could be used for that. To be able to spend the bitcoins, the owner must know the corresponding private key and digitally sign the transaction. The network verifies the signature using the public key.[3]:ch. 5
If the private key is lost, the bitcoin network will not recognize any other evidence of ownership;[8] the coins are then unusable, and effectively lost. For example, in 2013 one user claimed to have lost 7,500 bitcoins, worth $7.5 million at the time, when he accidentally discarded a hard drive containing his private key.[82] A backup of his key(s) would have prevented this.
About 20% of all bitcoins are believed to be lost. The lost coins would have a market value of about $20 billion at July 2018 prices.[83][84] . Approximately 1 million bitcoins have been stolen, which would have a value of about $7 billion at July 2018 prices.[85]
Mining
Amateur bitcoin mining with a small ASIC. This was when difficulty was much lower, and is no longer feasible.
Semi-log plot of relative mining difficulty[d][73]
Mining is a record-keeping service done through the use of computer processing power.[e] Miners keep the blockchain consistent, complete, and unalterable by repeatedly grouping newly broadcast transactions into a block, which is then broadcast to the network and verified by recipient nodes.[70] Each block contains a SHA-256 cryptographic hash of the previous block,[70] thus linking it to the previous block and giving the blockchain its name.[3]:ch. 7[70]
To be accepted by the rest of the network, a new block must contain a so-called proof-of-work (PoW).[70] The system used is based on Adam Back's 1997 anti-spam scheme, Hashcash.[4][87] The PoW requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target.[3]:ch. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is the ascending natural numbers: 0, 1, 2, 3, ...[3]:ch. 8) before meeting the difficulty target.
Every 2,016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network.[3]:ch. 8 Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.[88]
The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted.[89] As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.[70]
Pooled mining
Main article: Mining pool
Computing power is often bundled together or "pooled" to reduce variance in miner income. Individual mining rigs often have to wait for long periods to confirm a block of transactions and receive payment. In a pool, all participating miners get paid every time a participating server solves a block. This payment depends on the amount of work an individual miner contributed to help find that block.[90]
Supply
Total bitcoins in circulation.[73]
The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees.[91] As of 9 July 2016,[92] the reward amounted to 12.5 newly created bitcoins per block added to the blockchain. To claim the reward, a special transaction called a coinbase is included with the processed payments.[3]:ch. 8 All bitcoins in existence have been created in such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins[f] will be reached c. 2140; the record keeping will then be rewarded by transaction fees solely.[93]
In other words, bitcoin's inventor Nakamoto set a monetary policy based on artificial scarcity at bitcoin's inception that there would only ever be 21 million bitcoins in total. Their numbers are being released roughly every ten minutes and the rate at which they are generated would drop by half every four years until all were in circulation.[94]
Wallets
For a broader coverage of this topic, see Cryptocurrency wallet.
Bitcoin Core wallet GUI
Electrum bitcoin wallet
A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold[95] or store bitcoins,[96] due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A better way to describe a wallet is something that "stores the digital credentials for your bitcoin holdings"[96] and allows one to access (and spend) them. Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated.[97] At its most basic, a wallet is a collection of these keys.
There are three modes which wallets can operate in. They have an inverse relationship with regards to trustlessness and computational requirements.
Full clients verify transactions directly by downloading a full copy of the blockchain (over 150 GB As of January 2018).[98] They are the most secure and reliable way of using the network, as trust in external parties is not required. Full clients check the validity of mined blocks, preventing them from transacting on a chain that breaks or alters network rules.[99] Because of its size and complexity, downloading and verifying the entire blockchain is not suitable for all computing devices.
Lightweight clients consult full clients to send and receive transactions without requiring a local copy of the entire blockchain (see simplified payment verification – SPV). This makes lightweight clients much faster to set up and allows them to be used on low-power, low-bandwidth devices such as smartphones. When using a lightweight wallet, however, the user must trust the server to a certain degree, as it can report faulty values back to the user. Lightweight clients follow the longest blockchain and do not ensure it is valid, requiring trust in miners.[100]
Third-party internet services called online wallets offer similar functionality but may be easier to use. In this case, credentials to access funds are stored with the online wallet provider rather than on the user's hardware.[101][102] As a result, the user must have complete trust in the wallet provider. A malicious provider or a breach in server security may cause entrusted bitcoins to be stolen. An example of such a security breach occurred with Mt. Gox in 2011.[103] This has led to the often-repeated meme "Not your keys, not your bitcoin".[104]
Bitcoin paper wallet
Trezor hardware wallet
Physical wallets store offline the credentials necessary to spend bitcoins.[96] One notable example was a novelty coin with these credentials printed on the reverse side.[105] Paper wallets are simply paper printouts.
Another type of wallet called a hardware wallet keeps credentials offline while facilitating transactions.[106]
Implementations
Further information: Bitcoin Core
The first wallet program – simply named "Bitcoin" – was released in 2009 by Satoshi Nakamoto as open-source code.[12] In version 0.5 the client moved from the wxWidgets user interface toolkit to Qt, and the whole bundle was referred to as "Bitcoin-Qt".[107] After the release of version 0.9, the software bundle was renamed "Bitcoin Core" to distinguish itself from the underlying network.[108][109] It is sometimes referred to as the "Satoshi client".
Bitcoin Core is, perhaps, the best known implementation or client. Alternative clients (forks of Bitcoin Core) exist, such as Bitcoin XT, Bitcoin Unlimited,[33] and Parity Bitcoin.[110]
Decentralization
Bitcoin was designed not to need a central authority[4] and the bitcoin network is considered to be decentralized.[6][9][111][112][113] However, researchers have pointed out a visible "trend towards centralization" by the means of miners joining large mining pools to minimise the variance of their income.[114] According to researchers, other parts of the ecosystem are also "controlled by a small set of entities", notably online wallets and simplified payment verification (SPV) clients.[115]
Because transactions on the network are confirmed by miners, decentralization of the network requires that no single miner or mining pool obtains 51% of the hashing power, which would allow them to double-spend coins, prevent certain transactions from being verified and prevent other miners from earning income.[115] As of 2013 just six mining pools controlled 75% of overall bitcoin hashing power.[115]
In 2014 mining pool Ghash.io obtained 51% hashing power which raised significant controversies about the safety of the network. The pool has voluntarily capped their hashing power at 39.99% and requested other pools to act responsibly for the benefit of the whole network.[116]
Privacy
Bitcoin is pseudonymous, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified, but all transactions on the blockchain are public. In addition, transactions can be linked to individuals and companies through "idioms of use" (e.g., transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses.[117] Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information.[118]
To heighten financial privacy, a new bitcoin address can be generated for each transaction.[119] For example, hierarchical deterministic wallets generate pseudorandom "rolling addresses" for every transaction from a single seed, while only requiring a single passphrase to be remembered to recover all corresponding private keys.[120] Researchers at Stanford University and Concordia University have also shown that bitcoin exchanges and other entities can prove assets, liabilities, and solvency without revealing their addresses using zero-knowledge proofs.[121] "Bulletproofs," a version of Confidential Transactions proposed by Greg Maxwell, have been tested by Professor Dan Boneh of Stanford.[122] Other solutions such Merkelized Abstract Syntax Trees (MAST), pay-to-script-hash (P2SH) with MERKLE-BRANCH-VERIFY, and "Tail Call Execution Semantics", have also been proposed to support private smart contracts.
Fungibility
Wallets and similar software technically handle all bitcoins as equivalent, establishing the basic level of fungibility. Researchers have pointed out that the history of each bitcoin is registered and publicly available in the blockchain ledger, and that some users may refuse to accept bitcoins coming from controversial transactions, which would harm bitcoin's fungibility.[123]
Scalability
Main article: Bitcoin scalability problem
The blocks in the blockchain were originally limited to 32 megabyte in size. The block size limit of one megabyte was introduced by Satoshi Nakamoto in 2010. Eventually the block size limit of one megabyte created problems for transaction processing, such as increasing transaction fees and delayed processing of transactions.[124]
On 24 August 2017 (at block 481,824), Segregated Witness (SegWit) went live. Transactions contain some data which is only used to verify the transaction, and does not otherwise effect the movement of coins. SegWit introduces a new transaction format that moves this data into a new field in a backwards-compatible way. The segregated data, the so-called witness, is not sent to non-SegWit nodes and therefore does not form part of the blockchain as seen by legacy nodes. This lowers the size of the average transaction in such nodes' view, thereby increasing the block size without incurring the hard fork implied by other proposals for block size increases. Thus, per computer scientist Jochen Hoenicke, the actual block capacity depends on the ratio of SegWit transactions in the block, and on the ratio of signature data. Based on his estimate, if the ratio of SegWit transactions is 50%, the block capacity may be 1.25 megabytes. According to Hoenicke, if native SegWit addresses from Bitcoin Core version 0.16.0 are used, and SegWit adoption reaches 90 to 95%, a block size of up to 1.8 megabytes is possible.
Economics
Main article: Economics of bitcoin
Classification
Bitcoin is a digital asset invented by Satoshi Nakamoto that was designed to work as a currency.[4][125] It is commonly referred to as digital currency, digital cash,[126] virtual currency,[2] electronic currency,[127] or cryptocurrency.[128]
Bitcoin does not necessarily work well as a currency.[128] Bitcoins have three qualities useful in a currency, according to The Economist in January 2015: they are "hard to earn, limited in supply and easy to verify".[129] Economists define money as a store of value, a medium of exchange, and a unit of account and agree that bitcoin does not meet all these criteria.[130] As of March 2014, the bitcoin market suffered from volatility, limiting the ability of bitcoin to act as a stable store of value, and retailers accepting bitcoin use other currencies as their principal unit of account.[130]
General use
Liquidity (estimated, USD/year, logarithmic scale).[73]
According to research by Cambridge University, between 2.9 million and 5.8 million unique users used a cryptocurrency wallet in 2017, most of them for bitcoin. The number of users has grown significantly since 2013, when there were 300,000 to 1.3 million users.[14]
Acceptance by merchants
The overwhelming majority of bitcoin transactions take place on an exchange, rather than being used in transactions with merchants.[131]
Merchants that accept bitcoin as payment may do so through bitcoin payment service providers such as Coinbase and BitPay.[132] This allows merchants to avoid the volatility risk of accepting bitcoin payments directly by converting the received bitcoins to fiat money through the payment service provider.
In 2017 and 2018 bitcoin's acceptance among major online retailers included only three out of the top 500 online merchants, down from five in 2016.[131] Reasons for this fall include high transaction fees due to bitcoin's scalability issues, long transaction times and a rise in value making consumers unwilling to spend it.[133]
