From Wikipedia, the free encyclopedia - View original article
Bitcoin is the first cryptocurrency, a form of money that uses cryptography to control its creation and management, rather than relying on central authorities. However, not all of the technologies and concepts that make up Bitcoin are new; the presumed nom-de-plume Satoshi Nakamoto (the creator of Bitcoin, see below) integrated many existing ideas from the cypherpunk community when creating Bitcoin.
Prior to the release of Bitcoin, there were a number of precursor ecash technologies starting with the issuer based ecash protocols of David Chaum and Stefan Brands, and moving on to distributed digital scarcity based ecash protocols starting from Adam Back's hashcash, Wei Dai's b-money, Nick Szabo's bit-gold and Hal Finney's RPOW which build on hashcash.
Independently and at around the same time Wei Dai proposed b-money  and Nick Szabo proposed bit-gold. Subsequently Hal Finney implemented and deployed RPOW a reusable form of hashcash based on IBM secure TPM hardware and remote attestation (centralized but with no issuer inflation risk).
Since the initial bit-gold proposal which proposed a collectible market based mechanism for inflation control Nick Szabo also investigated some additional enabling aspects for decentralized asset registers including byzantine network issues.
In November 2008, a paper was posted on the internet under the name Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System. This paper detailed methods of using a peer-to-peer network to generate what was described as "a system for electronic transactions without relying on trust". In January 2009, the Bitcoin network came into existence with the release of the first open source Bitcoin client and the issuance of the first bitcoins, with Satoshi Nakamoto mining the first block of bitcoins ever (known as the "genesis block"), which had a reward of 50 bitcoins. The value of the first bitcoin transactions were negotiated by individuals on the bitcointalk forums with one notable transaction involving a 10,000 BTC pizza.
On 6 August 2010, a major vulnerability in the Bitcoin protocol was spotted. Transactions weren't properly verified before they were included in the transaction log or "block chain" which let users bypass Bitcoin's economic restrictions and create an indefinite number of bitcoins. On 15 August, the 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.
Wikileaks and other organizations began to accept bitcoins for donations. The Electronic Frontier Foundation began, and then temporarily suspended, bitcoin acceptance, citing concerns about a lack of legal precedent about new currency systems, saying that they "generally don't endorse any type of product or service." The EFF's decision was changed in 17 May 2013. On 23 December 2011, Douglas Feigelson of BitBills filed a patent application for “Creating And Using Digital Currency” with the United States Patent and Trademark Office, an action which was contested based on prior art in June 2013.
In January 2012, Bitcoin was featured as the main subject within a fictionalized trial on the CBS legal drama The Good Wife in the third season episode "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". In October 2012, BitPay reported having over 1,000 merchants accepting Bitcoin under its payment processing service.
In February 2013 the Bitcoin-based payment processor Coinbase reported selling US$1 million worth of Bitcoins in a single month at over $22 per Bitcoin. The Internet Archive announced that it was ready to accept donations as bitcoins and that it intends to give employees the option to receive portions of their salaries in Bitcoin currency.
In March the Bitcoin transaction log or "block chain" temporarily forked into two independent logs with differing rules on how transactions could be accepted. The Mt.Gox exchange briefly halted Bitcoin deposits and the exchange rate briefly dipped by 23% to $37 as the event occurred before recovering to previous level of approximately $48 in the following hours. In the US, the 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 (or MSBs), that may be subject to registration and other legal obligations.
In April, payment processor BitInstant and Mt.Gox experienced processing delays due to insufficient capacity resulting in the bitcoin exchange rate dropping from $266 to $76 before returning to $160 within six hours.
On 23 June 2013, it was reported that 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. It is the first time a government agency has claimed to have seized bitcoin.
In July 2013 a project began in Kenya linking Bitcoin with M-Pesa, a popular mobile payments system, in an experiment designed to spur innovative payments in Africa. During the same month the Foreign Exchange Administration and Policy Department in Thailand stated that Bitcoin lacks any legal framework and would therefore be illegal, which effectively banned trading on Bitcoin exchanges in the country. According to Vitalik Buterin, a writer for Bitcoin Magazine, "Bitcoin's fate in Thailand may give the electronic currency more credibility in some circles." But he was concerned it didn't bode well for Bitcoin in China.
In August, Federal Judge Amos Mazzant of the Eastern District of Texas of the Fifth Circuit ruled that bitcoins are "a currency or a form of money" (specifically securities as defined by Federal Securities Laws), and as such were subject to the court's jurisdiction, and Germany's Finance Ministry subsumed Bitcoins under the term "unit of account"—a financial instrument—though not as e-money or a functional currency, a classification nonetheless having legal and tax implications.
Two companies, Robocoin and Bitcoiniacs launched the world's first Bitcoin ATM on 29 October 2013 in Vancouver, BC, Canada, allowing clients to sell or purchase Bitcoin currency at a downtown coffee shop.
In November 2013, the University of Nicosia announced that it would be accepting Bitcoin as payment for tuition fees, with the university's chief financial officer calling it the "gold of tomorrow".
Among the factors which may have contributed to this rise were 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. The current all time high was set on 17 November 2013 at US$575.21 on the Mt. Gox exchange.
As the market valuation of the total stock of Bitcoins approached US$1 billion, some commentators called Bitcoin prices a bubble. In early April 2013, the price per Bitcoin dropped from $266 to around $50 and then rose to around $100. Over two weeks starting late June 2013 the price dropped steadily to $70. The price began to recover, peaking once again on 1 October at $140. On 2 October, The Silk Road was seized by the FBI. This seizure caused a flash crash to $110. The price quickly rebounded, returning to $200 several weeks later. The latest run went from $200 on 3 November to $900 on 18 November. Bitcoin passed a US$1000 all time high on 28 November at MtGox.
|Date||price for 1 BTC||Notes|
|Jan 2009 – Jan 2010||basically none||no exchanges or market, users were mainly cryptography fans, who were sending bitcoins for low or no value|
|Feb 2010 – May 2010||less than $0.01||user "laszlo" did first transaction – bought 2 pizzas for 10,000 BTC. User "SmokeTooMuch" auctioned 10,000 BTC for $50 (cumulatively), but no buyer was found.|
|June 2010||$0.08||in five days, the price grew 1000%, rising from $0.008 to $0.08 for 1 bitcoin|
|Feb 2011 – April 2011||$1||Bitcoin takes parity with US dollar |
|8 July 2011||$31||top of first "bubble", followed by the first price drop|
|Dec 2011||$2||minimum after few months|
|Dec 2012||$13||slowly rising for a year|
|April 11, 2013||$266||top of a price rally, during which the value was growing by 5-10% daily.|
|May 2013||$130||basically stable, again slowly rising.|
|June 2013||$100||in June slowly dropping to $70, but rising in July to $110|
|Nov 2013||$350 – $1100||from October $150–$200 in November exponentially rising to $400, then $600, eventually reaching $900 on 11/19/2013 and breaking $1000 threshold on 27 November 2013.|
"Satoshi Nakamoto" is a pseudonym for the unknown person or people who designed the original Bitcoin protocol in 2008 and launched the network in 2009. Nakamoto was responsible for creating the majority of the official Bitcoin software and was active in making modifications and posting technical information on the BitcoinTalk Forum. Satoshi is a male, Japanese given-name, whose meaning is variously given as "wise", "clear-thinking", "quick-witted" or "intelligent history", i.e. a person with intelligent ancestors. In Japanese, naka means "inside" or "relationship" and moto means "origin".
Investigations into the real identity of Satoshi Nakamoto have been attempted by The New Yorker and Fast Company. The New Yorker's investigation brought up at least two possible candidates: Michael Clear and Vili Lehdonvirta. Fast Company's investigation brought up circumstantial evidence linking 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, and textual analysis revealed that the phrase "...computationally impractical to reverse" appeared in both the patent application and bitcoin's whitepaper. All three inventors explicitly denied being Satoshi Nakamoto. In May 2013, Ted Nelson speculated that Japanese mathematician Shinichi Mochizuki is Satoshi Nakamoto. Later in 2013 the Israeli researchers, Dorit Ron and Adi Shamir, pointed to Silk Road-linked Ross William Ulbricht as the possible person behind the cover. The two researchers based their suspicion on an analysis of the network of bitcoin transactions. These allegations were contested.
Stefan Thomas, a Swiss coder and active community member, graphed the time stamps for each of Nakamoto's 500-plus bitcoin forum posts; the resulting chart showed a steep decline to almost no posts between the hours of 5 am and 11 am Greenwich Mean Time. Because this pattern held true even on Saturdays and Sundays, it suggested that Nakamoto was asleep at this time, and the hours of 5 am to 11 am GMT are midnight to 6 am Eastern Standard Time. Other clues suggested that Nakamoto was British: A newspaper headline he had encoded in the genesis block came from the UK-published Times of London, and both his forum posts and his comments in the bitcoin source code used such Brit spellings as optimise and colour.
An internet search by an anonymous blogger of texts similar in writing to the Bitcoin whitepaper suggests Nick Szabo's "bit gold" articles as having a similar author. Nick denies being Satoshi, and has stated his official opinion on Satoshi and Bitcoin in a May 2011 article.
On 12 March 2013, a Bitcoin miner running version 0.8.0 of the Bitcoin software created a large block that was incompatible with earlier versions of the Bitcoin software because of its size. This created a split or "fork" in the block chain since older versions of the software did not accept this block as valid. Computers with the recent version of the software accepted the block and continued to build on the diverging chain, whereas older versions of the software rejected it and continued extending the block chain without the offending block. This split resulted in two separate transaction logs being formed without clear consensus, which allowed for the same funds to be spent differently on each chain. In response, the Mt.Gox exchange temporarily halted Bitcoin deposits. The exchange rate fell 23% to $37 on the Mt.Gox exchange but rose most of the way back to its prior level of $48.
Developers at bitcoin.org resolved 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. The network reached consensus and continued to operate as normal a few hours after the split.
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. 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. 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 currency who may have to register as MSBs and abide by the legal requirements of being a money transmitter if they sell their generated bitcoins for national currency and are within the United States.
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."
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.
Jennifer Shasky Calvery, the director of FinCEN said, “Virtual currencies are subject to the same rules as other currencies. … Basic money-services business rules apply here.”
In its October 2012 study, Virtual currency schemes, the European Central Bank concluded that the growth of virtual currencies will continue, and, given the currencies' inherent price instability, lack of close regulation, and risk of illegal uses by anonymous users, the Bank warned that periodic examination of developments would be necessary to reassess risks.
In June 2013, Bitcoin Foundation board member Jon Matonis wrote in Forbes that he received a warning letter from California's Department of Financial Institutions accusing the foundation of unlicensed money transmission. Matonis denied that the foundation is engaged in money transmission and said he viewed the case as "an opportunity to educate state regulators."
In late July 2013, the industry group Committee for the Establishment of the Digital Asset Transfer Authority began to form to set best practices and standards, to work with regulators and policymakers to adapt existing currency requirements to digital currency technology and business models and develop risk management standards.
It is possible to steal bitcoins; theft has been documented on numerous occasions. At other times, Bitcoin exchanges have shut down, taking their clients' bitcoins with them. A Wired study showed that 45 percent of Bitcoin exchanges end up closing.
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. They used the exchange's software to sell them all nominally, creating a massive "ask" order at any price. Within minutes the price reverted to its correct user-traded value. Accounts with the equivalent of more than US$8,750,000 were affected.
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 US$220,000 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.
In August 2011, MyBitcoin, a now defunct Bitcoin transaction processor, declared that it was hacked, which caused it to be shut down, paying 49% on customer deposits, leaving more than 78,000 bitcoins (equivalent to roughly US$800,000 at that time) unaccounted for.
In early August 2012, a lawsuit was filed in San Francisco court against Bitcoinica — a Bitcoin trading venue — claiming about US$460,000 from the company. Bitcoinica was hacked twice in 2012, which led to allegations that the venue neglected the safety of customers' money and cheated them out of withdrawal requests.
In late August 2012, an operation titled Bitcoin Savings and Trust was shut down by the owner, allegedly leaving around US$5.6 million in Bitcoin-based debts; this led to allegations that the operation was a Ponzi scheme. In September 2012, the U.S. Securities and Exchange Commission had reportedly started an investigation on the case.
In September 2012, Bitfloor, a Bitcoin exchange, also reported being hacked, with 24,000 bitcoins (worth about US$250,000) stolen. As a result, Bitfloor suspended operations. The same month, Bitfloor resumed operations; its founder said that he reported the theft to FBI, and that he plans to repay the victims, though the time frame for repayment is unclear.
On 3 April 2013, Instawallet, a web-based wallet provider, was hacked, resulting in the theft of over 35,000 bitcoins which were valued at US$129.90 per bitcoin at the time, or nearly $4.6 million in total. As a result Instawallet suspended operations.
On 11 August 2013, the Bitcoin Foundation announced that a bug in a pseudorandom number generator within the Android operating system had been exploited to steal from wallets generated by Android apps; fixes were provided 13 August 2013.
A Bitcoin bank, operated from Australia but stored on servers in the USA, was hacked on 23 and 26 October 2013, causing a loss of 4100 bitcoins, worth over A$1 million.
In Hong Kong a Bitcoin trading platform owned by Global Bond Limited (GBL) vanished with 30 million yuan (US$5 million) from 500 investors on 26 October 2013.
In 2012, the Cryptocurrency Legal Advocacy Group (CLAG) stressed the importance for taxpayers to determine whether taxes are due on a Bitcoin-related transaction based on whether one has experienced a "realization event": 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."
In August 2013, the German Finance Ministry characterized Bitcoin as a unit of account, usable in multilateral clearing circles and subject to capital gains tax if held less than one year.
On 5 December 2013, the People's Bank of China announced in a press release regarding bitcoin regulation that whilst individuals in China are permitted to freely trade and exchange bitcoins as a commodity, it is prohibited for Chinese financial banks to operate using bitcoins or for bitcoins to be used as legal tender currency, and that entities dealing with bitcoins must track and report suspicious activity to prevent money laundering. The value of bitcoin dropped on various exchanges between 11 to 20 percent following the regulation announcement, before rebounding upward again.
The most valuable address contains funds seized by the FBI from 'Dread Pirate Roberts', creator of the popular anonymous black market site the Silk Road, which was taken offline by the Department of Justice in October 2013.
|1||$141,887,713.76||144,341.51959292||1FfmbHfnpaZjKFvyi1okTjJJusN455paPH||Oct 25, 2013 01:27:38 UTC|
|2||$109,225,658.89||111,114.60721354||1933phfhK3ZgFQNLGSDXvqCn32k2buXY8a||Feb 7, 2011 02:42:15 UTC|
|3||$89,446,119.00||90,993.00000000||1F4TKLa8ioAiZSE4T47ihXY1RK3jp9dNkz||Dec 4, 2013 09:10:52 UTC|
|4||$87,488,018.41||89,001.03601737||1CbR8da9YPZqXJJKm9ze1GYf67eKAUfXwP||Aug 21, 2012 23:18:40 UTC|
|5||$78,597,776.53||79,957.04631704||1FeexV6bAHb8ybZjqQMjJrcCrHGW9sb6uF||May 1, 2011 10:26:19 UTC|