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Definition: Bitcoin


(1) For a comparison of the two largest blockchain platforms, see Bitcoin vs. Ethereum.

(2) The largest cryptocurrency by market capitalization. In 2009, Bitcoin was launched as a "peer-to-peer electronic cash system" by a person with the alias Satoshi Nakamoto. The first cryptocurrency, Bitcoin spawned a revolution in finance (see Web3). Although merchants increasingly accept bitcoins as payment, many people buy and hold for speculation because the current price per coin is based on market demand (see hodling). Since its inception, the value of a single coin has skyrocketed, and thousands of other cryptocurrencies have been created. For a complete list, visit www.CoinmarketCap.com or www.CryptoCompare.com. See crypto craze, Bitcoin pizza and blockchain.





Three Distinct Features
Three things set Bitcoin and other cryptocurrencies apart from other information systems as follows:




Decentralized
First is Bitcoin's architecture. Bitcoin is a decentralized, transparent ledger of coin ownership that has no bank or government middleman. Anyone can view all the Bitcoin transactions that have ever taken place.

Cryptography Enables Privacy and Immutability
Secondly, Bitcoin adds privacy by using cryptography to partially hide both parties' identities. The transaction is public; for example, on June 1, 2018, Bitcoin address A sent 2.5 bitcoins to Bitcoin address B. However, although the names of both parties are not public, their addresses are public, and given time and effort, addresses can be traced to owners (see Bitcoin address).

Bitcoin's blockchain architecture also uses cryptography to tie transactions together in such a way that if any were maliciously altered, it would be immediately known. Thousands of volunteers are constantly validating the integrity of the chain. Once a Bitcoin transaction has been confirmed, it is considered immutable. See Bitcoin confirmation and cryptographic hash function.

Bitcoin Is Inflation Proof
Lastly, there is a maximum number of bitcoins that come into existence every year, and as of 2022, there are approximately 18 million. When Bitcoin reaches 21 million coins in 2140, coin creation ceases, making Bitcoin extremely inflation proof. Bitcoin is called "digital gold," because gold is said to be a hedge against inflation. However, the future amount of gold in the world is unknown; whereas, Bitcoin's limit is known. See Bitcoin mining and public key cryptography.

Underground and Above Board
Although used for clandestine transactions on the Dark Web, thousands of legitimate businesses worldwide accept Bitcoin. In 2021, Tesla added Bitcoin to its order form but removed it soon after claiming it uses too much of the world's electricity (see Bitcoin mining). See ransomware and Dark Web.

Anyone Can Buy, Transfer and Sell Bitcoins
Users access their coins from a digital wallet in their own device or employ the services of a crypto exchange the same as opening a bank or brokerage account. Coins are bought with national currencies, and a fee is paid for every transaction. See Bitcoin wallet, Bitcoin exchange and Bitcoin ATM.




A Roller Coaster Ride
The value of bitcoins fluctuates on the crypto exchanges with huge volatility. From virtually nothing to more than $60,000 in 10 years, Bitcoin created a market cap of more than $1 trillion. The huge rise in 2017 caught the world's attention.




Bitcoin Split
In 2017, Bitcoin split into three versions, and the original Bitcoin was enhanced for performance (see Bitcoin Cash, Bitcoin Gold and SegWit).

Bitcoins Are Mined!
The unusual thing about bitcoins is the way they come into existence. Bitcoin "miners" compete with each other to update the blockchain with new transactions, and they are rewarded with bitcoins created "out of the blue" for their own account. See Bitcoin mining.

Traction - Then Hacking
In late 2010, Bitcoin was becoming popular in the open source and underground communities. By mid-2011, there was an attack on the Japan-based Mt. Gox exchange, and a hacker extracted coins worth nearly $450 million. See Mt. Gox.

Who Is Satoshi Nakamoto?
Nakamoto's true identity has never been disclosed. However, no matter who Satoshi Nakamoto is, in order to commemorate the developer, the smallest fraction of a bitcoin is called a "Satoshi." See Satoshi and Satoshi Nakamoto.

Government Printing vs. Bitcoin Generation
Bitcoins have nothing to back them up but the faith of the people using them. Although the same might be said of U.S. currency after it was divorced from the gold standard in 1971, the U.S. has the IRS to ensure that people pay taxes. Nevertheless, proponents claim that Bitcoin and other blockchain networks are revolutionizing money worldwide. See BIP, Bitcoin transaction, Bitcoin vs. Ethereum, stablecoin, Silk Road and crypto glossary.

Nakamoto's Own Words
Perhaps nobody can describe Bitcoin better than its inventor. The following abstract appeared online on October 31, 2008, shortly before Bitcoin was launched.

Bitcoin: A Peer-to-Peer Electronic Cash System
"A purely peer-to-peer version of electronic cash would allow online payments to be sent from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain 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." See double spending.




Essential Reading for Enthusiasts
Books by Andreas Antonopoulos are incredibly thorough, and this one is no exception. If you want to know the ins and outs of Bitcoin, this is must reading.