Chapter 7: Bitcoin
Bitcoin, which is abbreviated as BTC and has the symbol ?, is the first cryptocurrency that is decentralized. Bitcoin, which was created in 2008 by an unknown entity using the pseudonym Satoshi Nakamoto, was founded on the principle of free market economics for the first time. 2009 marked the beginning of the use of bitcoin as a money, during which time its open-source implementation was made available. Twenty-one years later, in 2021, El Salvador made it a legal tender. The majority of people consider it to be an investment, and some academics have even referred to it as an explosion in the economy. Because of the pseudonymous nature of bitcoin, its use by criminals has garnered the attention of regulators, which has resulted in the ban of bitcoin in a number of nations beginning in 2021.
The peer-to-peer bitcoin network is made up of computers, each of which functions as a node. Bitcoin is accomplished through the collaboration of these computers. Without the need for centralized control, every node in the network is responsible for maintaining its own independent copy of a public distributed ledger of transactions known as a blockchain. Transactions are authenticated through the use of cryptography, which makes it nearly difficult for one person to spend another person's bitcoin. This is the case so long as the owner of the bitcoin maintains the confidentiality of certain sensitive data.
With the help of a computationally demanding process known as mining, which is based on proof of work, consensus can be reached between nodes regarding the content of the blockchain. Mining is normally carried out by machines that have been specifically designed for the purpose of mining. Although these miners do not perform the function of nodes directly, they do connect with nodes. The mining process is primarily designed to prevent double spending and to ensure that all nodes are in agreement regarding the content of the blockchain. However, it also has some desirable side effects, such as making it impossible for adversaries to stifle valid transactions or alter the historical record of transactions. This is because it is typically necessary for the adversary to have access to more mining power than the rest of the network combined. Additionally, it is utilized to monitor and control the rate at which new bitcoins are generated and put into circulation. The mining industry has been criticized for its negative influence on the environment and for the vast amounts of electricity that it consumes.
There were a number of digital cash technologies that were released prior to the introduction of bitcoin, beginning with David Chaum's ecash in the 1980s. Cryptographers Cynthia Dwork and Moni Naor were the ones who initially put out the concept that the answers to computational puzzles might have some value. This idea was first stated in the year 1992. Adam Back was the one who independently found the notion. In 1997, he invented Hashcash, which is a proof-of-work system for controlling spam. Cypherpunks Wei Dai (founder of b-money) and Nick Szabo (founder of bit gold) were the ones who initially proposed the concept of distributed digital scarcity-based cryptocurrencies in the year 1998. Reusable proof of work was the foundation upon which Hal Finney built the first currency in the year 2004. There were a number of other attempts that were unsuccessful: Chaum's notion required centralized authority, and no banks were willing to sign on; Hashcash did not have any security against double spending; and b-money and bit gold were not resistant to Sybil assaults.
The official registration of the domain name bitcoin.org took place on August 18, 2008. An email that contained a link to a white paper written by Satoshi Nakamoto and titled Bitcoin: A Peer-to-Peer Electronic Cash System was sent out to a mailing group that was dedicated to cryptography on October 31, 2008. The Bitcoin program was initially created by Nakamoto as open-source code, and it was presented to the public in January of 2009. Currently, the identity of Nakamoto is unavailable. As far as the computer scientist Arvind Narayanan is concerned, each and every component of bitcoin can be traced back to older academic publications. Nakamoto's innovation was the complicated interaction between them, which resulted in the first decentralized, Sybil-resistant, Byzantine fault-tolerant digital payment system. This system would later be referred to as the first blockchain. Nakamoto's article was not subjected to peer review, and academics first disregarded it because they believed it was impossible for it to be successful.
The Bitcoin network was established on January 3, 2009, when Nakamoto mined the genesis block, which is the first block in the chain. This block is also known as the starting block. The text "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" was incorporated into this block. This text is the date and title of an edition of The Times newspaper, which was published on January 3, 2009. Hal Finney was the recipient of the first bitcoin transaction, which was 10 bitcoins from Nakamoto. This occurred nine days later. Additionally, Wei Dai and Nick Szabo were among the early backers. The first documented commercial transaction involving bitcoin took place on May 22, 2010, when a programmer named Laszlo Hanyecz purchased two pizzas from Papa John's for a total of ?10,000. This event, which would subsequently be commemorated as "Bitcoin Pizza Day," was the first occurrence of its kind.
It is estimated by blockchain specialists that Nakamoto had mined approximately one million bitcoins prior to his disappearance in 2010. This occurred in 2010, when he handed over control of the code repository and the network alert key to Gavin Andresen. Later on, Andresen was promoted to the position of lead developer at the Bitcoin Foundation, which was established in September 2012 with the purpose of promoting bitcoin.
Following the initial "proof-of-concept" transactions, the first businesses to make significant use of bitcoin were underground markets like the Silk Road on the dark web. During its thirty months of operation, which began in February 2011, Silk Road alone took bitcoins as a form of payment, and it conducted transactions totaling ?9.9 million, which is equivalent to around $214 million.
In March of 2013, the United States Financial Crimes Enforcement Network (FinCEN) established regulatory guidelines for "decentralized virtual currencies" such as bitcoin. These guidelines classified American bitcoin miners who sell their generated bitcoins as money services businesses, which means that they are subject to registration and other legal obligations. Mount Gox, an unregulated cryptocurrency exchange, was taken over by authorities in the United States in May of 2013. The Drug Enforcement Administration of the United States of America confiscated ?11.02 from a person who was attempting to use them to acquire illegal substances in the month of June in 2013. At this point, a government agency had successfully seized bitcoins for the very first time. Following the arrest of Silk Road's founder, Ross Ulbricht, in October 2013, the Federal Bureau of Investigation (FBI) recovered around ?30,000 from the online marketplace known as Silk Road.
Following a decision made by the People's Bank of China in December 2013, Chinese financial institutions were forbidden from using bitcoin. Following the news, the value of bitcoin experienced a decline, and Baidu was no longer accepting bitcoins for the payment of certain services. Since at least 2009, it was against the law in China to purchase materials from the real world using any form of virtual currency.
During the year 2017, it was projected by research conducted by the University of Cambridge that there were between 2.9 and 5.8 million unique users that utilized a cryptocurrency wallet, with the majority of these users utilizing bitcoin. The SegWit software upgrade was officially activated in the month of August in 2017. Segwit was born with the intention of bolstering scalability while also providing support for the Lightning Network. Opponents of SegWit, who advocated for larger blocks as a means of achieving scalability, splintered the cryptocurrency to create Bitcoin Cash, which is one of the many forks of bitcoin.
Futures contracts for bitcoin were initially offered by the Chicago Mercantile Exchange (CME) in the month of December in the year 2017.
The price of bitcoin plummeted in February of 2018, following China's decision to abolish all trade in the cryptocurrency. Over ninety percent of bitcoin transactions in the Chinese RMB were conducted in September 2017, but by June 2018, that number had dropped to less than one percent. In the same year, there were other instances of thefts or hacks that occurred on cryptocurrency exchanges, which had a negative impact on the price of bitcoin.
The year 2020 saw the beginning of the acquisition of bitcoin by a number of significant corporations and organizations, including MicroStrategy, which invested $250 million in bitcoin as a treasury reserve asset, Square, Inc., which spent $50 million, and MassMutual, which invested $100 million. In the United States, PayPal began offering support for bitcoin in November of 2020.
In February of 2021, the market capitalization of bitcoin reached a threshold of one trillion dollars for the very first time. Activation of the Taproot soft-fork upgrade took place in November 2021. This upgrade included the addition of support for Schnorr...
