Bitcoin (sign: BTC) is a
decentralized
digital currency[8][9]
based on an
open-source,[10]
peer-to-peer
internet protocol. It was introduced by a
pseudonymous
developer named
Satoshi Nakamoto in 2009.[11]
Internationally, bitcoins can be exchanged by
personal computer directly through a wallet
file or a
website
without an intermediate financial institution.[12]
In trade, one bitcoin is subdivided into 100 million smaller units
called satoshis, defined by eight decimal places.[4]
Bitcoin does not operate like typical
currencies: it has no
central bank and it solely relies on an internet-based peer-to-peer
network. The money supply is automated, limited, divided and scheduled,
and given to servers or "bitcoin miners" that verify bitcoin
transactions and add them to a decentralized and archived
transaction log every 10 minutes. The log is authenticated by hashed
ECDSA
digital signatures and verified by the intense process of
bruteforcing
SHA256
hash functions of varying difficulty by competing "bitcoin miners."
Transaction fees may apply to new transactions depending on the
strain put on the network's resources.
Each 10-minute portion or "block" of the transaction log has an
assigned money supply. The amount per block depends on how long the
network has been running and how much in transaction fees has been paid.
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.[1][11]
Bitcoin is the most widely used
alternative currency.[3][13]
As of March 2013, the
monetary base of bitcoin is valued at over $1 billion
USD.[14][15]
The large fluctuation in the dollar value of a bitcoin has evoked
criticism of bitcoin's economic suitability as a currency.[16]
Transactions
Bitcoins are sent and received through websites and apps called
wallets. Wallets interface with bitcoins stored locally or with a
service. They use a system of
ECDSA
digital signatures to make and verify transactions.
List of
bitcoin wallets
Addresses
A bitcoin transaction log showing addresses.
Based on
digital signatures, payments are made to bitcoin "addresses" or
"public keys": human-readable strings of numbers and letters around 33
characters in length, always beginning with the digit 1 or 3, as in the
example of 175tWpb8K1S7NmH4Zx6rewF9WQrcZv245W.
Users obtain new bitcoin addresses as necessary; these are stored in
a wallet file with links to cryptographic passwords or "private keys"
that enable access to and transfer of bitcoins. A file or "wallet"
containing bitcoin addresses is usually
encrypted with an additional password.
Verification
The network's software confirms a transaction when it records it in
the peer-to-peer network. Further verification of transaction records
make the transaction increasingly permanent in the network's log. After
six records (or "blocks"), a transaction is considered confirmed beyond
reasonable doubt.
The network must store the whole transaction history inside a log
called the blockchain, which grows constantly as new records are added
and never removed. Nakamoto conceived that as the database became
larger, users would desire wallet software that didn't store the entire
database on their computers. To enable this, the network uses
Merkle trees to organize the transaction records in such a way that
client software can locally delete portions of its own database it knows
it will never need, such as earlier transaction records of bitcoins that
have changed ownership multiple times.
Initiators of a Bitcoin transaction may voluntarily pay a transaction
fee. This fee can be collected by the operator of the Bitcoin network
server(s) processing the transaction. However, transaction fees seldom
compare to even the electrical power cost of operating a
Bitcoin mining server, which verifies transactions.[citation
needed]
Banknotes and
coins
Various vendors offer
banknotes and
coins denominated in bitcoins; a bitcoin private key is sold as part
of a coin or banknote. Usually, a seal has to be broken to access the
key, while the receiving address remains visible on the outside so that
the balance can be verified.[citation
needed]
A 1-BTC Casascius Coin was shown in the
British Museum in
London
to represent bitcoin.[17]
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 published a paper on The Cryptography
Mailing list at metzdowd.com describing the bitcoin protocol.[11][1][18][19]
- 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.[11][20][21][22]
2010
- The initial prices for bitcoins were set by individuals on the
bitcointalk forums. The most significant transaction involved a
10,000 BTC pizza.[11]
The Mt.Gox bitcoin exchange was soon established.
- On 6 August, a major vulnerability in the bitcoin protocol was
found. Transactions weren't properly verified before they were
included in the transaction log or "blockchain" which allowed for
users to bypass bitcoin's economic restrictions and create an
indefinite amount of bitcoins.
- On 15 August, the major vulnerability was exploited. Over 184
billion bitcoins were generated in a transaction, and sent to two
addresses on the network. Within hours, the transaction was spotted
and erased from the transaction log after the bug was fixed and the
network forked to an updated version of the bitcoin protocol. This
was the only major security flaw found and exploited in bitcoin's
history.[23][24]
2011–2012
- In June 2011,
Wikileaks[25]
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."[26]
- In October 2012, BitPay reported having over 1000 merchants
accepting Bitcoin under its payment processing service.[27]
2013–
February
- The bitcoin-based
payment processor Coinbase reported selling $1 million in
bitcoins in a single month, with a bitcoin being worth over $22.[28]
- 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.[29]
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[30][31]
before recovering to their previous level in the following hours, a
price of approximately $48.[32]
- In the
US, the
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 stand
under registration and other legal obligations.[33][35]
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.[11]
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.[11]
In April 2011, Satoshi communicated to a bitcoin contributor saying
he had “moved on to other things.”[36]
Identity
Investigations into the real
identity of Satoshi Nakamoto have been attempted by
The New Yorker and
Fast Company. Fast Company's investigation brought up
circumstantial evidence that indicated a link between an
encryption
patent
application filed by Neal King, Vladimir Oksman and Charles Bry on 15
August 2008, and the bitcoin.org domain name which was registered 72
hours later. The patent application (#20100042841)
contained networking and encryption technologies similar to bitcoin's.
After
textual analysis, the phrase "...computationally impractical to
reverse" was found in both the patent application and bitcoin's
whitepaper.[1]
All three inventors explicitly denied being Satoshi Nakamoto.[37][38]
The fork of
March 2013
On 12 March 2013, a bitcoin server (also called a "miner") running
the more recent "version 0.8.0" of the bitcoin protocol created a large
record in bitcoin's transaction log (called the blockchain) that was
incompatible with earlier versions of the bitcoin protocol due to its
size. This created a split or "fork" in the transaction log. Users ran
the more recent version of the protocol while accepting and building on
the diverging log as other users ran older versions of the bitcoin
protocol and rejected it. This split resulted in two separate
transaction logs being formed without clear consensus, which allows for
the same funds on both chains to be
double-spent. In response, the Mt.Gox bitcoin exchange temporarily
halted bitcoin deposits.[39]
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.[30][31]
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.[40]
The network reached consensus and continued to operate as normal a few
hours after the split.[41]
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.[35]
It classified digital currencies and other digital payment systems such
as bitcoin as "virtual currencies" due to them not being
legal tender under any sovereign
jurisdiction. FinCEN cleared American users of bitcoin of legal
obligations by saying, "A user of virtual currency is not an MSB under
FinCEN’s regulations and therefore is not subject to MSB registration,
reporting, and recordkeeping regulations." However, it held that
American entities who generate "virtual currency" such as bitcoins are
money transmitters or MSBs if they sell their generated currency for
national currency: "...a person that creates units of convertible
virtual currency and sells those units to another person for real
currency or its equivalent is engaged in transmission to another
location and is a money transmitter." This specifically extends to
"miners" of the bitcoin network who may have to register as an MSB and
abide by the respective requirements of being a money transmitter if
they sell their generated bitcoins for
national currency and are within the
United States.[33]
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."[35]
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".[42]
Distribution
Unlike
fiat currency, Bitcoin has no centralized issuing authority.[43][44][45]
The network is programmed to increase the money supply as a
geometric series until the total number of bitcoins reaches 21
million BTC, by issuing them to nodes that verify transaction records
through intense bruteforce hashing with computing power.[3]
Currently, 25 bitcoins are generated every 10 minutes. This will be
halved to 12.5 BTC within the year 2017 and halved continuously every 4
years after until a hard-limit of 21 million bitcoins is reached within
the year 2140.[1][11]
As of March 2013 over 10.5 million of the total 21 million BTC had been
created; the current total number created is available online.[46]
In November 2012, half of the total supply was generated, and by end of
2016, three-quarters will have been generated. By 2140, all bitcoins
will have been generated with the last one consisting of fractional
parts. To ensure this granularity of the
money supply, clients can divide each BTC unit down to eight decimal
places (a total of 2.1 × 1015 or 2.1 quadrillion units).[47]
Exchange
Through various exchanges, bitcoins are bought and sold at a variable
price against the value of other currency.
In March 2013, 1 BTC traded from $40–$93. Taking into account the
total number of bitcoins mined, the
monetary base of the bitcoin network stands at over $1 billion
USD.[48][15]
According to
Reuters,
undisclosed documents indicate that
banks
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.[49]
Hedge funds
Financial laws can limit the type of assets
institutional investors can buy, including
alternative assets like bitcoin. However, assets stored in a
licensed product can usually be bought by regulated entities.
Exante Ltd., a
Malta-based
investment firm, launched a bitcoin
hedge fund marketed towards
institutional investors and high net-worth individuals. Bitcoin
shares are currently traded through the Exante Hedge Fund Marketplace
platform and authorized and regulated by the
Malta Financial Services Authority. As of March 2013, Exante holds
$3.2 million (2.5€ million) in bitcoin assets.[50]
Protocol
Summary
Bitcoin is a solution to the
double-spending problem of using a peer-to-peer network to manage
transactions. The network
timestamps transactions by hashing them into an ongoing chain of
hash-based
proof-of-work, forming a record or chain that cannot be changed
without redoing the proof-of-work. The longest chain of records (called
blocks) not only serves as proof of the sequence of events witnessed,
but 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.[1][2]
Bitcoins
A bitcoin is defined by its chain of
ECDSA
digital signatures. Each owner transfers the coin to the next by
digitally signing a hash of the previous transaction and the public key
(or address) of the next owner and adding these to the end of the coin.
A payee can verify the signatures to verify the chain of ownership.
A diagram of a bitcoin transfer.
Although it would be possible to handle coins individually, it would
be unwieldy to make a separate transaction for every cent in a transfer.
To allow value to be split and combined, transactions contain multiple
inputs and outputs. Normally there will be either a single input from a
larger previous transaction or multiple inputs combining smaller
amounts, and at most two outputs: one for the payment, and one returning
the change, if any, back to the sender.
It should be noted that fan-out, where a transaction depends on
several transactions, and those transactions depend on many more, is not
a problem here. There is never the need to extract a complete standalone
copy of a transaction's history.
Hashes and
signatures
Two
SHA-256 hashes on top of each are used for transaction verification;
however,
RIPEMD-160 is used on top of a SHA256 hash for bitcoin digital
signatures or "addresses". A bitcoin address is specifically the hash of
a ECDSA public-key, computed this way:
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.[2]
This is often called bitcoin mining.
The mining process or proof-of-work process involves scanning for a
value that when hashed with
SHA-256, the
hash begins with a number of zero bits. The average work required is
exponential in the number of zero bits required and can be verified by
executing a single hash.
For the bitcoin timestamp network, it implements the mining process
or "proof-of-work" by incrementing a
nonce in the record or "block" until a value is found that gives the
block's hash the required zero bits. Once the
hashing effort has been expended to make it satisfy the
proof-of-work, the block cannot be changed without redoing the work. As
later records or "blocks" are chained after it, the work to change the
block would include redoing all the blocks after it.
The main chain (black) consists of the longest series of
transaction records from the genesis block (green) to the
current block or record. Orphaned records (purple) exist
outside of the main chain.
The majority decision is represented by the longest chain, which has
the greatest proof-of-work effort invested in it. If a majority of
computing power is controlled by honest nodes, the honest chain will
grow the fastest and outpace any competing chains. To modify a past
block, an attacker would have to redo the proof-of-work of the block and
all blocks after it and then catch up with and surpass the work of the
honest nodes. The probability of a slower attacker catching up
diminishes exponentially as subsequent blocks are added.[2]
To compensate for increasing hardware speed and varying interest in
running nodes over time, the proof-of-work difficulty is determined by a
moving average targeting an average number of blocks per hour. If
they're generated too fast, the difficulty increases.[2]
Process
The steps to run the network and generate or "mine" bitcoins are as
follows:[2]
- 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,[2]
and provides a way to initially distribute coins into circulation, since
there is no central authority to issue them.
The steady addition of a constant of amount of new coins is analogous
to gold miners expending resources to add gold to circulation.[2]
In this case, it is computing power and electricity that is expended.
The incentive can also be funded with transaction fees. If the output
value of a transaction is less than its input value, the difference is a
transaction fee that is added to the incentive value of the block
containing the transaction. Once a predetermined number of coins have
entered circulation, the incentive can transition entirely to
transaction fees and be completely inflation free.[2]
Local system
resources
Once the latest transaction of a coin is buried under enough blocks,
the spent transactions which preceded it can be discarded in order to
save disk space. To facilitate this without breaking the block's hash,
transactions are hashed in a
Merkle tree, with only the root included in the block's hash. Old
blocks can then be compacted by stubbing off branches of the tree. The
interior hashes need not be stored.
A block header with no transactions would be about 80 bytes.
Supposing that blocks are generated every 10 minutes, 80 bytes × 6 × 24
× 365 = 4.2MB per year. With computer systems typically selling with 2GB
of RAM as of 2008, and
Moore's law predicting current growth of 1.2GB per year, storage
should not be a problem even if the block headers need to be kept in
memory.
Payment
verification
Diagram showing how bitcoin transactions are verified.
It is possible to verify bitcoin payments without running a full
network node. A user only needs to keep a copy of the block headers of
the longest proof-of-work chain, which he can get by querying network
nodes until he's convinced he has the longest chain, and obtain the
Merkle branch linking the transaction to the block it's timestamped in.
He can't check the transaction for himself, but by linking it to a place
in the chain, he can see that a network node has accepted it, and blocks
added after it further confirm the network has accepted it.
As such, the verification is reliable as long as honest nodes control
the network, but is more vulnerable if the network is overpowered by an
attacker. While network nodes can verify transactions for themselves,
the simplified method can be fooled by an attacker's fabricated
transactions for as long as the attacker can continue to overpower the
network. To protect against this, alerts from network nodes detecting an
invalid block prompt the user's software to download the full block and
verify alerted transactions to confirm their inconsistency. Businesses
that receive frequent payments will probably still want to run their own
nodes for more independent security and quicker verification.
Applications
The bitcoin protocol introduces various technologies and economic
properties that have numerous applications.
Financial haven
Financial journalists and analysts have stipulated that there was a
correlation between higher bitcoin usage in
Spain and
the
2012–2013 Cypriot financial crisis, through which
bank deposit levies as high as 40% could have been placed on bank
deposits; conceding that bitcoin is serving as a sort of financial haven
for some European savers.[51][52][53]
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...”[54]
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.[55]
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
![[icon]](http://upload.wikimedia.org/wikipedia/commons/thumb/1/1c/Wiki_letter_w_cropped.svg/20px-Wiki_letter_w_cropped.svg.png) |
This
section requires
expansion. (March 2013) |
The large fluctuation in the dollar value of a bitcoin has evoked
criticism of bitcoin's economic suitability as a currency.[16]
As an investment
Although it is considered a digital currency,
virtual currency, or "payment scheme", it is often traded as an
investment[56]
and accused of being a form of investment fraud known as a
Ponzi scheme.[49][57]
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.[58]
In contrast, The Bitcoin Project describes bitcoin exclusively as an
"experimental digital currency." and does not to refer to it as an
investment.[59]
Reuben Grinberg has claimed some of bitcoin's supporters have argued
that bitcoin is neither a security nor an investment because it fails to
meet the criteria for either category.[60]
Privacy
Because transactions are broadcast to the entire network, they are
inherently public. Unlike regular banking,[61]
which preserves customer privacy by keeping transaction records private,
loose transactional privacy is accomplished in bitcoin by using many
unique addresses for every wallet, while at the same time publishing all
transactions.
Despite this, it can still be difficult to associate bitcoin
identities with real-life identities.[62]
This property makes bitcoin transactions attractive to sellers of
illegal products. Bitcoin is the medium of exchange on the
Silk Road for this reason,[63][64]
although many bitcoin hobbyists criticize such usage.[65]
Botnet mining
In June 2011,
Symantec warned about the possibility of
botnets
engaging in covert "mining" of bitcoins,[66][67]
consuming computing cycles, using extra electricity and possibly
increasing the temperature of the computer. Some malware also used the
parallel processing capabilities of the
GPUs built into many modern-day
video cards.[68]
Later that month, the
Australian Broadcasting Corporation caught an employee using the
company's servers to generate Bitcoins without permission.[69]
In mid August 2011, Bitcoin miner botnets were found again,[70]
less than three months later bitcoin-mining trojans infecting Mac OS X
were also discovered.[71]
Incidents of theft
There have been incidents of theft of bitcoin balances:
- On 19 June 2011, a security breach of the Mt.Gox bitcoin
exchange caused the nominal price of a bitcoin to fraudulently drop
to one cent on the Mt.Gox exchange, after a hacker allegedly used
credentials from a Mt.Gox auditor's compromised computer to
illegally transfer a large number of bitcoins to himself. He used
the exchange's software to nominally sell them all, creating a
massive "ask" order at any price. Within minutes the price corrected
to its correct user-traded value.[72][73][74][75][76][77]
Accounts with the equivalent of more than USD 8,750,000 were
affected.[74]
- 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.[78]
- 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.[79][80]
- 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.[81][82]
- 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.[83][84][85][86]
In September 2012, it was reported that
U.S. Securities and Exchange Commission has started an
investigation on the case.[87]
- 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.[88][89]
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.[90]
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."[91]
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."[91]
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."[91]
Reception
Al Gore
In late March 2013, at an electronic payments conference at
Harvard University, former
US Vice President
Al Gore
commented on bitcoin in response to a question: "When Bitcoin currency
is converted from currency into cash, that interface has to remain under
some regulatory safeguards. I think the fact that within the Bitcoin
universe an algorithm replaces the functions of [the government] ... is
actually pretty cool." He further commented on virtual currency in
general: "I know that there are a lot of innovators that are out there
that are trying to think up ... new models and I look forward to that."[92]
Alex Jones
In March 2013,
Alex Jones, radio host, interviewed
Max
Keiser on his radioshow about bitcoin, accusing him of being Satoshi
Nakamoto and inventing bitcoin. Keiser, on air, claimed that bitcoin
could "capture 1%-10% of the [foreign exchange currency markets]."
[93]
ConvergEx
In March 2013,
Nick Colas a Chief Market Strategist at
ConvergEx Group – a
Bank of New York Mellon
investment firm – analyzed bitcoin, saying "there is much to learn
from [bitcoin] in the world of stateless currencies," and that
"confidence in money as a store of value is the ultimate driver of its
value, both in the cyber and real worlds. I have no idea which way
[bitcoins] will trade in the next 2 days or 2 years, but the whole
process of starting a new Internet currency is a great case study in how
real people use real currency."[94]
Paul Krugman
In 2011,
Paul Krugman, a
Keynesian
economist, reviewed bitcoin saying that "[bitcoin] has fluctuated
sharply, but overall it has soared. So buying into [bitcoin] has, at
least so far, been a good investment. But does that make the experiment
a success? Um, no. What we want from a monetary system isn’t to make
people holding money rich; we want it to facilitate transactions and
make the economy as a whole rich. And that’s not at all what is
happening in [bitcoin]."[16]
Popular culture
The Good Wife
Bitcoin was a featured subject in
The Good Wife
television series, in an episode titled "Bitcoin for Dummies".
The CNBC
host of
Mad
Money,
Jim
Cramer, was shown in a courtroom scene in which he claims he doesn’t
consider bitcoin a true currency: “There’s no central bank to regulate
it; it’s digital and functions completely peer to peer.”[95]
See also