what is bitcoin

Bitcoin is a cryptocurrency where the creation and transfer of bitcoins is based on an open-source cryptographic protocol that is independent of any central authority.Bitcoins can be transferred through a computer or smartphone without an intermediate financial institution.The concept was introduced in a 2008 paper by a pseudonymous developer known only as "Satoshi Nakamoto", who called it a peer-to-peer, electronic cash system.

The processing of Bitcoin transactions is secured by servers called bitcoin miners. These servers communicate over an internet-based network and confirm transactions by adding them to a ledger which is updated and archived periodically using peer-to-peer filesharing technology.In addition to archiving transactions, each new ledger update creates some newly minted bitcoins. The number of new bitcoins created in each update is halved every 4 years until the year 2140 when this number will round down to zero. At that time no more bitcoins will be added into circulation and the total number of bitcoins will have reached a maximum of 21 million bitcoins.To accommodate this limit, each bitcoin is subdivided down to eight decimal places; forming 100 million smaller units called satoshis per bitcoin.

In August 2013 Germany's Finance Ministry subsumed Bitcoins under the term "unit of account"—a financial instrument—though not as e-money or a functional currency.Although bitcoin is promoted as a digital currency, many commentators have criticized bitcoin's volatile exchange rate, relatively inflexible supply, high risk of loss, and minimal use in trade.


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; Satoshi Nakamoto integrated many existing ideas from the cypherpunk community when creating Bitcoin.

In 2008, Satoshi Nakamoto posted a paper describing the Bitcoin protocol on the internet.

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.

The prices for the first bitcoin transactions were negotiated by individuals on the bitcointalk forums. One notable transaction involved a 10,000 BTC pizza.

On 6 August, 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 allowed for users to bypass Bitcoin's economic restrictions and create an indefinite number 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[who?] 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.

In June 2011, Wikileaks and other organizations began to accept bitcoins for donations. The Electronic Frontier Foundation temporarily suspended bitcoin acceptance, 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."The EFF's decision was changed in 17 May 2013.

In late-2011, the exchange rate of bitcoin crashed from over $30 in June to below $2 in October.

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 $1 million in bitcoins in a single month at over $22 per bitcoin.

The Internet Archive announced that it is ready to accept donations as bitcoins and that it intends to give employees the option to receive portions of their salaries in Bitcoin currency.

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.

Payment processor BitInstant and Mt.Gox experienced processing delays due to insufficient capacity.

On 10 April, the bitcoin exchange rate dropped from $266 to $76 before returning to $160 within six hours.

Bitcoin gained greater recognition when services such as OkCupid and Foodler began accepting it for payment.

On 15 May 2013, the US authorities seized accounts associated with Mt. Gox after discovering that it had not registered as a money transmitter with FinCEN in the US.

A project underway in Kenya is linking Bitcoin with M-Pesa, a popular mobile payments system, in an experiment designed to spur innovative payments in Africa.

July 30, 2013—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.

As of July 2013, BitPay handled bitcoin transactions for more than 4,500 companies.

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.The case, brought by the U.S. Securities and Exchange Commission, is ongoing.