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Bitcoin:see virtual currencyvirtual currency,
a means of payment that is electronically created and stored, more specifically an unregulated electronic medium of exchange that operates like a currency but is created and controlled by computer software; also called digital currency.
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BitcoinA peer-to-peer digital currency and electronic payment system introduced by an anonymous person with the alias Satoshi Nakamoto in January 2009. Although many merchants on both the Web and Dark Web accept bitcoins as payment, many people buy and hold for investment, and its value has skyrocketed since inception. Naysayers claim Bitcoin is a Ponzi scheme, but proponents predict one coin will be worth $500,000 in the future. Bitcoin has also spawned hundreds of other digital currencies (for a complete list, visit www.coinmarketcap.com). See Dark Web.
In this encyclopedia, the Bitcoin system and related components are spelled with a capital "B," but the coins are spelled with a lower case "b" (bitcoins). This is not official and both cases are used interchangeably.
A Distributed Accounting System
There is no central Bitcoin repository. It is a "decentralized virtual currency" that is not controlled by any government. Also known as a "cryptocurrency," transactions are encrypted to keep the identities of the parties anonymous. However, the transaction itself is visible because it is published in a constantly expanding public ledger known as the "blockchain," which is duplicated in thousands of Bitcoin nodes (computers) throughout the Internet. Anyone is able to see the transfer of bitcoins starting with the first ever transaction, but the from: and to: parties are anonymous. See cryptocurrency, public key cryptography and blockchain.
Due to its blockchain architecture, if a Bitcoin transaction is altered, such tampering will be detected very quickly. As a result, hundreds of cryptocurrencies as well as other kinds of blockchain-based transactions have emerged worldwide. They are especially popular in countries that have little faith in their government. See Ethereum and blockchain.
Anyone Can Buy, Transfer and Sell Bitcoins
Users access their bitcoins from a digital wallet they manage in their computer or mobile device. The wallet is used to pay for merchandise or transfer bitcoins to another party. Once a wallet is established, coins are bought and sold for dollars, Euros and other national currencies at an online exchange or physical ATM, both of which take a commission (see Bitcoin wallet, Bitcoin exchange and Bitcoin ATM).
Public Key Cryptography
Bitcoin is known as a cryptocurrency because it uses public key cryptography, which is an encryption method that comprises a pair of keys, one public and one private. A Bitcoin transaction uses the private key of the sending account to authorize the release of the bitcoins and the public key of the receiving account. For details, see Bitcoin wallet and public key cryptography.
The value of a bitcoin fluctuates on various cryptocurrency exchanges like a share of stock with huge volatility. For example, on January 1, 2013, one bitcoin was worth USD $13. By the end of 2015, it was $422 but closed at $19,497 on December 16, 2017. By the end of 2018, a down year for most cryptocurrencies, bitcoins dropped more than 80%. However, by the end of 2019, bitcoins were in the USD $7,000 range only to more than quintuple in 2020.
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 strangest 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 that are created "out of the blue" for their own account. For details, 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 25,000 bitcoins worth nearly $500,000. In early 2014, Mt. Gox filed for bankruptcy, because it was revealed that the exchange concealed the loss of hundreds of thousands of bitcoins.
Who Is Satoshi Nakamoto?
Nakamoto's true identity was never disclosed; however, articles attributed to him are written in flawless English. Australian computer scientist Craig Wright claims that he and business partner Dave Kleiman are the inventors, although this is disputed. Cryptography pioneer Nick Szabo, who designed a decentralized digital currency in the 1990s has also been hailed as Nakamoto (NS initials possibly reversed?), but he denies it. No matter who Satoshi Nakamoto is, in order to commemorate the developer, fractions of bitcoins are called "Satoshis." One Satoshi is equal to 0.00000001 Bitcoin.
Government Printing vs. Bitcoin Generation
When people argue that bitcoins are no less valid than the U.S. dollar, there is a distinction. 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, the United States has the IRS and other federal agencies to ensure that people pay taxes. Nevertheless, proponents claim that Bitcoin and other blockchain-based platforms are going to revolutionize all kinds of transactions worldwide.
In 2013, Germany recognized Bitcoin as a financial instrument, and the U.S. Department of Justice said Bitcoin was a valid means of exchange even though members of Congress had previously tried to invalidate them. Senior officials in both the Bank of Canada and Bank of England have proposed the possibility of a blockchain-based digital currency for their respective countries. China is also close to creating a "digital yuan," and the Federal Reserve is reviewing the possibility for the U.S. For more information, visit www.bitcoin.org, www.bitcoincharts.com, www.blockchain.info and http://en.bitcoin.it. See BIP, Bitcoin transaction, Bitcoin mining, blockchain, Ethereum, stablecoin, Silk Road, Web payment service and digital wallet.
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