Bitcoin (abbreviation: BTC; sign: ₿) is the first decentralized cryptocurrency.

Based on a
free-market ideology, bitcoin was invented in 2008 by an unknown entity under the
pseudonym of Satoshi Nakamoto. Use of bitcoin as a currency began in 2009, with the
release of its open-source implementation.: ch. 1 In 2021, El Salvador adopted it as
legal tender. It is mostly seen as an investment and has been described by some
scholars as an economic bubble. As bitcoin is pseudonymous, its use by criminals has
attracted the attention of regulators, leading to its ban by several countries as of 2021.
Bitcoin works through the collaboration of computers, each of which acts as a node in
the peer-to-peer bitcoin network. Each node maintains an independent copy of a public
distributed ledger of transactions, called a blockchain, without central oversight.
Transactions are validated through the use of cryptography, making it practically
impossible for one person to spend another person's bitcoin, as long as the owner of
the bitcoin keeps certain sensitive data secret.: ch. 5
Consensus between nodes about the content of the blockchain is achieved using a
computationally intensive process based on proof of work, called mining, which is
typically performed by purpose-built computers called miners. These miners don't
directly act as nodes, but do communicate with nodes. The mining process is primarily
intended to prevent double-spending and get all nodes to agree on the content of the
blockchain, but it also has desirable side-effects such as making it infeasible for
adversaries to stifle valid transactions or alter the historical record of transactions,
since doing so generally requires the adversary to have access to more mining power
than the rest of the network combined.: ch. 12 It is also used to regulate the rate at
which new bitcoin is issued and enters circulation. Mining consumes large quantities of
electricity and has been criticized for its environmental impact.
== History ==
=== Background ===
Before bitcoin, several digital cash technologies were released, starting with David
Chaum's ecash in the 1980s. The idea that solutions to computational puzzles could
have some value was first proposed by cryptographers Cynthia Dwork and Moni Naor in
1992. The concept was independently rediscovered by Adam Back who developed
Hashcash, a proof-of-work scheme for spam control in 1997. The first proposals for
distributed digital scarcity-based cryptocurrencies came from cypherpunks Wei Dai
(b-money) and Nick Szabo (bit gold) in 1998. In 2004, Hal Finney developed the first
currency based on reusable proof of work. These various attempts were not successful:
Chaum's concept required centralized control and no banks wanted to sign on,
Hashcash had no protection against double-spending, while b-money and bit gold were
not resistant to Sybil attacks.
=== 2008–2009: Creation ===
The domain name bitcoin.org was registered on 18 August 2008. On 31 October 2008, a
link to a white paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer
Electronic Cash System was posted to a cryptography mailing list. Nakamoto
implemented the bitcoin software as open-source code and released it in January 2009.
Nakamoto's identity remains unknown. According to computer scientist Arvind
Narayanan, all individual components of bitcoin originated in earlier academic literature.
Nakamoto's innovation was their complex interplay resulting in the first decentralized,
Sybil resistant, Byzantine fault tolerant digital cash system, that would eventually be
referred to as the first blockchain. Nakamoto's paper was not peer reviewed and was
initially ignored by academics, who argued that it could not work.
On 3 January 2009, the bitcoin network was created when Nakamoto mined the starting
block of the chain, known as the genesis block. Embedded in this block was the text
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks", which is the
date and headline of an issue of The Times newspaper. Nine days later, Hal Finney
received the first bitcoin transaction: ten bitcoins from Nakamoto. Wei Dai and Nick
Szabo were also early supporters. On May 22, 2010, the first known commercial
transaction using bitcoin occurred when programmer Laszlo Hanyecz bought two Papa
John's pizzas for ₿10,000, in what would later be celebrated as "Bitcoin Pizza Day".
=== 2010–2012: Early growth ===
Blockchain analysts estimate that Nakamoto had mined about one million bitcoins
before disappearing in 2010 when he handed the network alert key and control of the
code repository over to Gavin Andresen. Andresen later became lead developer at the
Bitcoin Foundation, an organization founded in September 2012 to promote bitcoin.
After early "proof-of-concept" transactions, the first major users of bitcoin were black
markets, such as the dark web Silk Road. During its 30 months of existence, beginning
in February 2011, Silk Road exclusively accepted bitcoins as payment, transacting ₿9.9
million, worth about $214 million.: 222
=== 2013–2014: First regulatory actions ===
In March 2013, 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 services
businesses, subject to registration and other legal obligations. In May 2013, US
authorities seized the unregistered exchange Mt. Gox. In June 2013, the US Drug
Enforcement Administration seized ₿11.02 from an individual attempting to use them to
purchase illicit drugs. This marked the first time a government agency had seized
bitcoins. The FBI seized about ₿30,000 in October 2013 from Silk Road, following the
arrest of its founder Ross Ulbricht.
In December 2013, the People's Bank of China prohibited Chinese financial institutions
from using bitcoin. After the announcement, the value of bitcoin dropped, and Baidu no
longer accepted bitcoins for certain services. Buying real-world goods with any virtual
currency had been illegal in China since at least 2009.
=== 2015–2019 ===
Research produced by the University of Cambridge estimated that in 2017, there were
2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using
bitcoin. In August 2017, the SegWit software upgrade was activated. Segwit was
intended to support the Lightning Network as well as improve scalability. SegWit
opponents, who supported larger blocks as a scalability solution, forked to create
Bitcoin Cash, one of many forks of bitcoin.
In December 2017, the first futures on bitcoin was introduced by the Chicago Mercantile
Exchange (CME).
In February 2018, the price crashed after China imposed a complete ban on bitcoin
trading. The percentage of bitcoin trading in the Chinese renminbi fell from over 90% in
September 2017 to less than 1% in June 2018. During the same year, bitcoin prices were
negatively affected by several hacks or thefts from cryptocurrency exchanges.
=== 2020–present ===
In 2020, some major companies and institutions started to acquire bitcoin:
MicroStrategy invested $250 million in bitcoin as a treasury reserve asset, Square, Inc.,
$50 million, and MassMutual, $100 million. In November 2020, PayPal added support
for bitcoin in the US.
In February 2021, bitcoin's market capitalization reached $1 trillion for the first time. In
November 2021, the Taproot soft-fork upgrade was activated, adding support for
Schnorr signatures, improved functionality of smart contracts and Lightning Network.
Before, bitcoin only used a custom elliptic curve with the ECDSA algorithm to produce
signatures.: 101 In September 2021, bitcoin became legal tender in El Salvador,
alongside the US dollar. In October 2021, the first bitcoin futures exchange-traded fund
(ETF), called BITO, from ProShares was approved by the SEC and listed on the CME.
In early 2022, during the Canadian trucker protests opposing COVID-19 vaccine
mandates, organizers turned to bitcoin to receive donations after traditional financial
platforms restricted access to funding. Proponents highlighted bitcoin's use as a tool
for fundraising in situations where access to conventional financial systems may be
restricted. In May and June 2022, the bitcoin price fell following the collapses of
TerraUSD, a stablecoin, and the Celsius Network, a cryptocurrency loan company.
In 2023, ordinals—non-fungible tokens (NFTs)—on bitcoin, went live. As of June 2023,
River Financial estimated that bitcoin had 81.7 million users, about 1% of the global
population. In January 2024, the first 11 US spot bitcoin ETFs began trading, offering
direct exposure to bitcoin for the first time on American stock exchanges. In December
2024, bitcoin price reached $100,000 for the first time, as US president-elect Donald
Trump promised to make the US the "crypto capital of the planet" and to stockpile
bitcoin. The same month, BlackRock, the world's largest asset manager, recommended
investors to allocate up to 2% of their portfolio to bitcoin.
In 2025, US president Donald Trump signed an executive order to establish a strategic
bitcoin reserve.
== Design ==
=== Units and divisibility ===
The unit of account of the bitcoin system is the bitcoin. It is most commonly
represented with the symbol ₿ and the currency code BTC. However, the BTC code does
not conform to ISO 4217 as BT is the country code of Bhutan, and ISO 4217 requires the
first letter used in global commodities to be 'X'. XBT, a code that conforms to ISO 4217
though not officially part of it, is used by Bloomberg L.P.
No uniform capitalization convention exists; some sources use Bitcoin, capitalized, to
refer to the technology and network, and bitcoin, lowercase, for the unit of account. The
Cambridge Advanced Learner's Dictionary and the Oxford Advanced Learner's
Dictionary use the capitalized and lowercase variants without distinction.
One bitcoin is divisible to eight decimal places.: ch. 5 Units for smaller amounts of
bitcoin are the millibitcoin (mBTC), equal to 1⁄1000 bitcoin, and the satoshi (sat),
representing 1⁄100000000 (one hundred millionth) bitcoin, the smallest amount possible.
100,000 satoshis are one mBTC.
=== Blockchain ===
As a decentralized system, bitcoin operates without a central authority or single
administrator, so that anyone can create a new bitcoin address and transact without
needing any approval.: ch. 1 This is accomplished through a specialized distributed
ledger called a blockchain that records bitcoin transactions.
The blockchain is implemented as an ordered list of blocks. Each block contains a
SHA-256 hash of the previous block, chaining them in chronological order.: ch. 7 The
blockchain is maintained by a peer-to-peer network.: 215–219 Individual blocks, public
addresses, and transactions within blocks are public information, and can be examined
using a blockchain explorer.
Nodes validate and broadcast transactions, each maintaining a copy of the blockchain
for ownership verification. A new block is created every 10 minutes on average,
updating the blockchain across all nodes without central oversight. This process tracks
bitcoin spending, ensuring each bitcoin is spent only once. Unlike a traditional ledger
that tracks physical currency, bitcoins exist digitally as unspent outputs of transactions.:
ch. 5
=== Addresses and transactions ===
In the blockchain, bitcoins are linked to specific strings called addresses. Most often, an
address encodes a hash of a single public key. Creating such an address involves
generating a random private key and then computing the corresponding address. This
process is almost instant, but the reverse (finding the private key for a given address) is
nearly impossible.: ch. 4 Publishing such a bitcoin address does not risk its private key,
and it is extremely unlikely to accidentally generate a used key with funds. To use
bitcoins, owners need their private key to digitally sign transactions, which are verified
by the network using the public key, keeping the private key secret.: ch. 5 An address
may encode the hash of a bitcoin script that specifies more complex requirements to
spend the funds. One common example is "multisig", in which multiple distinct private
keys must mutually sign any transaction that attempts to spend the funds.: ch. 7
Bitcoin transactions use a Forth-like scripting language,: ch. 5 involving one or more
inputs and outputs. When sending bitcoins, a user specifies the recipients' addresses
and the amount for each output. This allows sending bitcoins to several recipients in a
single transaction. To prevent double-spending, each input must refer to a previous
unspent output in the blockchain. Using multiple inputs is similar to using multiple coins
in a cash transaction. As in a cash transaction, the sum of inputs can exceed the
intended sum of payments. In such a case, an additional output can return the change
back to the payer. Unallocated input satoshis in the transaction become the transaction
fee.
Losing a private key means losing access to the bitcoins, with no other proof of
ownership accepted by the protocol. For instance, in 2013, a user lost ₿7,500, valued at
US$7.5 million, by accidentally discarding a hard drive with the private key. It is
estimated that around 20% of all bitcoins are lost. The private key must also be kept
secret as its exposure, such as through a data breach, can lead to theft of the
associated bitcoins.: ch. 10 As of December 2017, approximately ₿980,000 had been
stolen from cryptocurrency exchanges.
=== Mining ===
The mining process in bitcoin involves maintaining the blockchain through computer
processing power. Miners group and broadcast new transactions into blocks, which are
then verified by the network. Each block must contain a proof of work (PoW) to be
accepted, involving finding a nonce number that, combined with the block content,
produces a hash numerically smaller than the network's difficulty target.: ch. 8 This
PoW is simple to verify but hard to generate, requiring many attempts.: ch. 8 PoW
forms the basis of bitcoin's consensus mechanism.
The difficulty of generating a block is deterministically adjusted based on the mining
power on the network by changing the difficulty target, which is recalibrated every 2,016
blocks (approximately two weeks) to maintain an average time of ten minutes between
new blocks. The process requires significant computational power and specialized
hardware.: ch. 8
Miners who successfully create a new block with a valid nonce can collect transaction
fees from the included transactions and a fixed reward in bitcoins. To claim this reward,
a special transaction called a coinbase is included in the block, with the miner as the
payee. All bitcoins in existence have been created through this type of transaction.: ch.
8 This reward is halved every 210,000 blocks until ₿21 million have been issued in total,
which is expected to occur around the year 2140. Afterward, miners will only earn from
transaction fees. These fees are determined by the transaction's size and the amount of
data stored, measured in satoshis per byte.: ch. 8
The proof of work system and the chaining of blocks make blockchain modifications
very difficult, as altering one block requires changing all subsequent blocks. As more
blocks are added, modifying older blocks becomes increasingly challenging. In case of
disagreement, nodes trust the longest chain, which required the greatest amount of
effort to produce. To tamper or censor the ledger, one needs to control the majority of
the global hashrate. The high cost required to reach this level of computational power
secures the bitcoin blockchain.
Bitcoin mining's environmental impact is controversial and has attracted the attention of
regulators, leading to restrictions or incentives in various jurisdictions. As of 2022, a
non-peer-reviewed study by the Cambridge Centre for Alternative Finance (CCAF)
estimated that bitcoin mining represented 0.4% of global electricity consumption.
Another 2022 non-peer-reviewed commentary published in Joule estimated that bitcoin
mining was responsible for 0.2% of world greenhouse gas emissions. About half of the
electricity used is generated through fossil fuels. Moreover, mining hardware's short
lifespan results in electronic waste. The amount of electrical energy consumed, and the
e-waste generated, is comparable to that of Greece and the Netherlands, respectively.
=== Privacy and fungibility ===
Bitcoin is pseudonymous, with funds linked to addresses, not real-world identities. While
the owners of these addresses are not directly identified, all transactions are public on
the blockchain. Patterns of use, like spending coins from multiple inputs, can hint at a
common owner. Public data can sometimes be matched with known address owners.
Bitcoin exchanges might also need to collect personal data as per legal requirements.
For enhanced privacy, users can generate a new address for each transaction.
In the bitcoin network, each bitcoin is treated equally, ensuring basic fungibility.
However, users and applications can choose to differentiate between bitcoins. While
wallets and software treat all bitcoins the same, each bitcoin's transaction history is
recorded on the blockchain. This public record allows for chain analysis, where users
can identify and potentially reject bitcoins from controversial sources. For example, in
2012, Mt. Gox froze accounts containing bitcoins identified as stolen.
=== Wallets ===
Bitcoin wallets were the first cryptocurrency wallets, enabling users to store the
information necessary to transact bitcoins.: ch. 1, glossary The first wallet program,
simply named Bitcoin, and sometimes referred to as the Satoshi client, was released in
2009 by Nakamoto as open-source software. Bitcoin Core is among the best known
clients. Forks of Bitcoin Core exist such as Bitcoin Unlimited. Wallets can be full clients,
with a full copy of the blockchain to check the validity of mined blocks,: ch. 1 or
lightweight clients, just to send and receive transactions without a local copy of the
entire blockchain. Third-party internet services, called online wallets or hot wallets, store
users' credentials on their servers, making them susceptible of hacks. Cold storage
protects bitcoins from such hacks by keeping private keys offline, either through
specialized hardware wallets or paper printouts.: ch. 4
=== Scalability and decentralization challenges ===
Nakamoto limited the block size to one megabyte. The limited block size and frequency
can lead to delayed processing of transactions, increased fees and a bitcoin scalability
problem. The Lightning Network, second-layer routing network, is a potential scaling
solution.: ch. 8
Research shows a trend towards centralization in bitcoin as miners join pools for stable
income.: 215, 219–222 : 3 If a single miner or pool controls more than 50% of the
hashing power, it would allow them to censor transactions and double-spend coins. In
2014, mining pool Ghash.io reached 51% mining power, causing safety concerns, but
later voluntarily capped its power at 39.99% for the benefit of the whole network. A few
entities also dominate other parts of the ecosystem such as the client software, online
wallets, and simplified payment verification (SPV) clients.
== Economics and usage ==
=== Bitcoin's theoretical roots and ideology ===
According to the European Central Bank, the decentralization of money offered by
bitcoin has its theoretical roots in the Austrian school of economics, especially with
Friedrich Hayek's The Denationalisation of Money, in which he advocates a complete
free market in the production, distribution and management of money to end the
monopoly of central banks.: 22 Sociologist Nigel Dodd argues that the essence of the
bitcoin ideology is to remove money from social, as well as governmental, control. The
Economist describes bitcoin as "a techno-anarchist project to create an online version
of cash, a way for people to transact without the possibility of interference from
malicious governments or banks". These philosophical ideas initially attracted
libertarians and anarchists. Economist Paul Krugman argues that cryptocurrencies like
bitcoin are only used by bank skeptics and criminals.
=== Recognition as a currency and legal status ===
Money serves three purposes: a store of value, a medium of exchange, and a unit of
account. According to The Economist in 2014, bitcoin functions best as a medium of
exchange. In 2015, The Economist noted that bitcoins had three qualities useful in a
currency: they are "hard to earn, limited in supply and easy to verify". However, a 2018
assessment by The Economist stated that cryptocurrencies met none of these three
criteria. Per some researchers, as of 2015, bitcoin functions more as a payment system
than as a currency. In 2014, economist Robert J. Shiller wrote that bitcoin has potential
as a unit of account for measuring the relative value of goods, as with Chile's Unidad de
Fomento, but that "Bitcoin in its present form... doesn't really solve any sensible
economic problem". François R. Velde, Senior Economist at the Chicago Fed, described
bitcoin as "an elegant solution to the problem of creating a digital currency". David
Andolfatto, Vice President at the Federal Reserve Bank of St. Louis, stated that bitcoin is
a threat to the establishment, which he argues is a good thing for the Federal Reserve
System and other central banks, because it prompts these institutions to operate sound
policies.
The legal status of bitcoin varies substantially from one jurisdiction to another. Because
of its decentralized nature and its global presence, regulating bitcoin is difficult.
However, the use of bitcoin can be criminalized, and shutting down exchanges and the
peer-to-peer economy in a given country would constitute a de facto ban. The use of
bitcoin by criminals has attracted the attention of financial regulators, legislative bodies,
and law enforcement. Nobel-prize winning economist Joseph Stiglitz says that bitcoin's
anonymity encourages money laundering and other crimes. This is the main justification
behind bitcoin bans. As of November 2021, nine countries applied an absolute ban
(Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia) while
another 42 countries had an implicit ban. Bitcoin is only legal tender in El Salvador.
=== Use for payments ===
As of 2018, bitcoin is rarely used in transactions with merchants, but it is popular to
purchase illegal goods online. Prices are not usually quoted in bitcoin and trades involve
conversions into fiat currencies. Commonly cited reasons for not using bitcoin include
high costs, the inability to process chargebacks, high price volatility, long transaction
times, and transaction fees (especially for small purchases). Bloomberg reported that
bitcoin was being used for large-item purchases on the site Overstock.com and for
cross-border payments to freelancers. As of 2015, there was little sign of bitcoin use in
international remittances despite high fees charged by banks and Western Union who
compete in this market. Despite associated risks and costs, in 2022, a growing use of
bitcoin, alongside cash and cards, was reported in restaurant business.
In September 2021, the Bitcoin Law made bitcoin legal tender in El Salvador, alongside
the US dollar. The adoption has been criticized internationally and within El Salvador. In
2022, the International Monetary Fund (IMF) urged El Salvador to reverse its decision.
As of 2022, the use of Bitcoin in El Salvador remains low: 80% of businesses refused to
accept it. In April 2022, the Central African Republic (CAR) adopted bitcoin as legal
tender alongside the CFA franc, but repealed the reform one year later.
Bitcoin is also used by some governments. For instance, the Iranian government initially
opposed cryptocurrencies, but later saw them as an opportunity to circumvent
sanctions. Since 2020, Iran has required local bitcoin miners to sell bitcoin to the
Central Bank of Iran, allowing the central bank to use it for imports. Some constituent
states also accept tax payments in bitcoin, including Colorado (US) and Zug
(Switzerland). As of 2023, the US government owned more than $5 billion worth of
seized bitcoin.
=== Use for investment and status as an economic bubble ===
As of 2018, the overwhelming majority of bitcoin transactions took place on
cryptocurrency exchanges. Since 2014, regulated bitcoin funds also allow exposure to
the asset or to futures as an investment. Bitcoin is used as a store of value: individuals
and companies such as the Winklevoss twins and Elon Musk's companies SpaceX and
Tesla have massively invested in bitcoin. Bitcoin wealth is highly concentrated, with
0.01% holding 27% of in-circulation currency, as of 2021. A 2024 survey from the Pew
Research Center found that 17% of American adults have invested in, traded or used a
cryptocurrency.
As of September 2023, El Salvador had $76.5 million worth of bitcoin in its international
reserves.
In 2018, research published in the Journal of Monetary Economics concluded that price
manipulation occurred during the Mt. Gox bitcoin theft and that the market remained
vulnerable to manipulation. Research published in The Journal of Finance also
suggested that trading associated with increases in the amount of the Tether
cryptocurrency and associated trading at the Bitfinex exchange accounted for about
half of the price increase in bitcoin in late 2017.
Bitcoin, along with other cryptocurrencies, has been described as an economic bubble
by several economists, including Nobel Prize in Economics laureates, such as Joseph
Stiglitz, James Heckman, and Paul Krugman. Another recipient of the prize, Robert
Shiller, argues that bitcoin is rather a fad that may become an asset class. He describes
its price growth as an "epidemic", driven by contagious narratives. In 2024, Jean Tirole,
also Nobel laureate, described bitcoin as a "pure bubble" as its intrinsic value is zero.
According to him, some bubbles are long-lasting such as gold and fiat currencies, and
it's impossible to predict whether bitcoin will collapse like other financial bubbles or
become the new gold. The same year, Federal Reserve Chair Jerome Powell described
bitcoin as a digital competitor to gold but not to the dollar as he argued it is a highly
volatile speculative asset not used as a form of payment.
According to research published in the International Review of Financial Analysis in
2018, bitcoin as an asset is highly volatile and does not behave like any other
conventional asset. According to one 2022 analysis published in The Journal of
Alternative Investments, bitcoin was less volatile than oil, silver, US Treasuries, and 190
stocks in the S&P 500 during and after the 2020 stock market crash. The term hodl was
created in December 2013 for holding bitcoin rather than selling it during periods of
volatility.
Other economists, investors, and the central bank of Estonia have described bitcoin as a
potential Ponzi scheme. Legal scholar Eric Posner disagrees, however, as "a real Ponzi
scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion". A 2014
World Bank report also concluded that bitcoin was not a deliberate Ponzi scheme.
== See also ==
Alternative currency
List of cryptocurrencies
== Notes ==
== References ==
== Further reading ==
Nakamoto, Satoshi (31 October 2008). "Bitcoin: A Peer-to-Peer Electronic Cash System"
(PDF). bitcoin.org. Archived from the original (PDF) on 20 March 2014. Retrieved 28
April 2014. |