Bitcoin is decentralized thus:
Conversely, researchers have pointed out a “trend towards centralization”. Although bitcoin can be sent directly from user to user, in practice intermediaries are widely used. Bitcoin miners join large mining pools to minimize the variance of their income. Because transactions on the network are confirmed by miners, decentralization of the network requires that no single miner or mining pool obtains 51% of the hashing power, which would allow them to double-spend coins, prevent certain transactions from being verified and prevent other miners from earning income. As of 2013 just six mining pools controlled 75% of overall bitcoin hashing power. In 2014 mining pool Ghash.io obtained 51% hashing power which raised significant controversies about the safety of the network. The pool has voluntarily capped its hashing power at 39.99% and requested other pools to act responsibly for the benefit of the whole network. Around the year 2017, over 70% of the hashing power and 90% of transactions were operating from China.
According to researchers, other parts of the ecosystem are also “controlled by a small set of entities”, notably the maintenance of the client software, online wallets, and simplified payment verification (SPV) clients.
Bitcoin is pseudonymous, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified, but all transactions on the blockchain are public. In addition, transactions can be linked to individuals and companies through “idioms of use” (e.g., transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses. Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information. To heighten financial privacy, a new bitcoin address can be generated for each transaction.
While the Bitcoin network treats each bitcoin the same, thus establishing the basic level of fungibility, applications and individuals who use the network are free to break that principle. For instance, wallets and similar software technically handle all bitcoins equally, none is different from another. Still, the history of each bitcoin is registered and publicly available in the blockchain ledger, and that can allow users of chain analysis to refuse to accept bitcoins coming from controversial transactions. For example, in 2012, Mt. Gox froze accounts of users who deposited bitcoins that were known to have just been stolen.
A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold or store bitcoins, due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A wallet is more correctly defined as something that “stores the digital credentials for your bitcoin holdings” and allows one to access (and spend) them. , glossary Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated. At its most basic, a wallet is a collection of these keys.
The first wallet program, simply named Bitcoin, and sometimes referred to as the Satoshi client, was released in 2009 by Satoshi Nakamoto as open-source software. In version 0.5 the client moved from the wxWidgets user interface toolkit to Qt, and the whole bundle was referred to as Bitcoin-Qt. After the release of version 0.9, the software bundle was renamed Bitcoin Core to distinguish itself from the underlying network. Bitcoin Core is, perhaps, the best known implementation or client. Forks of Bitcoin Core exist, such as Bitcoin XT, Bitcoin Unlimited, and Parity Bitcoin.
There are several modes in which wallets can operate. They have an inverse relationship with regard to trustlessness and computational requirements.
Third-party internet services called online wallets or webwallets offer similar functionality but may be easier to use. In this case, credentials to access funds are stored with the online wallet provider rather than on the user’s hardware. As a result, the user must have complete trust in the online wallet provider. A malicious provider or a breach in server security may cause entrusted bitcoins to be stolen. An example of such a security breach occurred with Mt. Gox in 2011.
Wallet software is targeted by hackers because of the lucrative potential for stealing bitcoins. A technique called “cold storage” keeps private keys out of reach of hackers; this is accomplished by keeping private keys offline at all times by generating them on a device that is not connected to the internet. The credentials necessary to spend bitcoins can be stored offline in a number of different ways, from specialized hardware wallets to simple paper printouts of the private key.
A hardware wallet is a computer peripheral that signs transactions as requested by the user. These devices store private keys and carry out signing and encryption internally, and do not share any sensitive information with the host computer except already signed (and thus unalterable) transactions. Because hardware wallets never expose their private keys, even computers that may be compromised by malware do not have a vector to access or steal them.
The user sets a passcode when setting up a hardware wallet. As hardware wallets are tamper-resistant the passcode will be needed to extract any money.
A paper wallet is created with a keypair generated on a computer with no internet connection; the private key is written or printed onto the paper[i] and then erased from the computer. The paper wallet can then be stored in a safe physical location for later retrieval.
Physical wallets can also take the form of metal token coins with a private key accessible under a security hologram in a recess struck on the reverse side. The security hologram self-destructs when removed from the token, showing that the private key has been accessed. Originally, these tokens were struck in brass and other base metals, but later used precious metals as bitcoin grew in value and popularity. Coins with stored face value as high as ₿1,000 have been struck in gold. The British Museum’s coin collection includes four specimens from the earliest series of funded bitcoin tokens; one is currently on display in the museum’s money gallery. In 2013, a Utah manufacturer of these tokens was ordered by the Financial Crimes Enforcement Network (FinCEN) to register as a money services business before producing any more funded bitcoin tokens.
The legal status of bitcoin varies substantially from country to country and is still undefined or changing in many of them. Regulations and bans that apply to bitcoin probably extend to similar cryptocurrency systems. Because of its decentralized nature and its trading on online exchanges located in many countries, regulation of bitcoin has been 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.
According to the Library of Congress, an “absolute ban” on trading or using cryptocurrencies applies in nine countries: Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, Vietnam, and the United Arab Emirates. An “implicit ban” applies in another 42 countries, which include Bahrain, Bangladesh, China, Colombia, the Dominican Republic, Indonesia, Kuwait, Lesotho, Lithuania, Macau, Oman, Qatar, Saudi Arabia and Taiwan. On 22 October 2015, the European Court of Justice ruled that bitcoin transactions would be exempt from Value Added Tax.
The U.S. Commodity Futures Trading Commission has issued four “Customer Advisories” for bitcoin and related investments. A July 2018 warning emphasized that trading in any cryptocurrency is often speculative, and there is a risk of theft from hacking, and fraud. In May 2014 the U.S. Securities and Exchange Commission warned that investments involving bitcoin might have high rates of fraud, and that investors might be solicited on social media sites. An earlier “Investor Alert” warned about the use of bitcoin in Ponzi schemes.
The European Banking Authority issued a warning in 2013 focusing on the lack of regulation of bitcoin, the chance that exchanges would be hacked, the volatility of bitcoin’s price, and general fraud. FINRA and the North American Securities Administrators Association have both issued investor alerts about bitcoin.
An official investigation into bitcoin traders was reported in May 2018. The U.S. Justice Department launched an investigation into possible price manipulation, including the techniques of spoofing and wash trades.
The U.S. federal investigation was prompted by concerns of possible manipulation during futures settlement dates. The final settlement price of CME bitcoin futures is determined by prices on four exchanges, Bitstamp, Coinbase, itBit and Kraken. Following the first delivery date in January 2018, the CME requested extensive detailed trading information but several of the exchanges refused to provide it and later provided only limited data. The Commodity Futures Trading Commission then subpoenaed the data from the exchanges.
State and provincial securities regulators, coordinated through the North American Securities Administrators Association, are investigating “bitcoin scams” and ICOs in 40 jurisdictions.
Academic research published in the Journal of Monetary Economics concluded that price manipulation occurred during the Mt Gox bitcoin theft and that the market remains vulnerable to manipulation. The history of hacks, fraud and theft involving bitcoin dates back to at least 2011.
Research by John M. Griffin and Amin Shams in 2018 suggests that trading associated with increases in the amount of the Tether cryptocurrency and associated trading at the Bitfinex exchange account for about half of the price increase in bitcoin in late 2017.
J.L. van der Velde, CEO of both Bitfinex and Tether, denied the claims of price manipulation: “Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of bitcoin or any other coin/token on Bitfinex.”
See also: Legality of cryptocurrency by country or territory and Bitcoin in El Salvador
In June 2021, the Legislative Assembly of El Salvador voted legislation to make bitcoin legal tender in El Salvador, alongside the US dollar. The law took effect on 7 September, making El Salvador the first country to do so. The implementation of the law has been met with protests and calls to make the currency optional, not compulsory. According to a survey by the Central American University, the majority of Salvadorans disagreed with using cryptocurrency as a legal tender, and a survey by the Center for Citizen Studies (CEC) showed that 91% of the country prefers the dollar over bitcoin. As of October 2021, the country’s government was exploring mining bitcoin with geothermal power and issuing bonds tied to bitcoin. According to a survey done by the Central American University 100 days after the Bitcoin Law came into force: 34.8% of the population has no confidence in bitcoin, 35.3% has little confidence, 13.2% has some confidence, and 14.1% has a lot of confidence. 56.6% of respondents have downloaded the government bitcoin wallet; among them 62.9% has never used it or only once whereas 36.3% uses bitcoin at least once a month. In 2022, the International Monetary Fund (IMF) urged El Salvador to reverse its decision after bitcoin lost half its value in two months. The IMF also warned that it would be difficult to get a loan from the institution. According to one report in 2022, 80% of businesses refused to accept bitcoin despite being legally required to.
In April 2022, the Central African Republic (CAR) adopted Bitcoin as legal tender alongside the CFA franc. After El Salvador, CAR is the second country to do so.
Ukraine is accepting donations in cryptocurrency, including bitcoin, to fund the resistance against the Russian invasion. According to the officials, 40% of the Ukraine’s military suppliers are willing to accept cryptocurrencies without converting them into euros or dollars. In March 2022, Ukraine has passed a law that creates a legal framework for the cryptocurrency industry in the country, including judicial protection of the right to own virtual assets. In the same month, a cryptocurrency exchange was integrated into the Ukrainian e-governance service Diia.
Iran announced pending regulations that would require bitcoin miners in Iran to sell bitcoin to the Central Bank of Iran, and the central bank would use it for imports. Iran, as of October 2020, had issued over 1,000 bitcoin mining licenses. The Iranian government initially took a stance against cryptocurrency, but later changed it after seeing that digital currency could be used to circumvent sanctions. The US Office of Foreign Assets Control listed two Iranians and their bitcoin addresses as part of its Specially Designated Nationals and Blocked Persons List for their role in the 2018 Atlanta cyberattack whose ransom was paid in bitcoin.
Bitcoin, along with other cryptocurrencies, has been described as an economic bubble by at least eight Nobel Memorial Prize in Economic Sciences laureates, including Robert Shiller, Joseph Stiglitz, and Richard Thaler. Economist and columnist Paul Krugman has described bitcoin as “a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology”, economist Nouriel Roubini of New York University has called bitcoin the “mother of all bubbles”, and University of Chicago economist James Heckman has compared it to the 17th-century tulip mania.
Journalists, economists, investors, and the central bank of Estonia have voiced concerns that bitcoin is a Ponzi scheme. Eric Posner, a law professor at the University of Chicago, states that “a real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion.” A 2014 report by the World Bank concluded that bitcoin was not a deliberate Ponzi scheme. Also in 2014, the Swiss Federal Council examined concerns that bitcoin might be a pyramid scheme, and concluded that “since in the case of bitcoin the typical promises of profits are lacking, it cannot be assumed that bitcoin is a pyramid scheme.
Bitcoin wealth is highly concentrated, with 0.01% holding 27% of in-circulation currency, as of 2021.
Further information: Cryptocurrency and crime and Bitcoin network § Alleged criminal activity
The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.
Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods. Nobel-prize winning economist Joseph Stiglitz says that bitcoin’s anonymity encourages money laundering and other crimes.
The environmental effects of bitcoin are considerable. One such environmental effect is that it worsens climate change. This is because bitcoins are made using electricity partially generated by gas and coal-fired power plants. When burned, coal and natural gas emit greenhouse gases, which heat the Earth and change the climate. As of 2022, such bitcoin mining is estimated to be responsible for 0.1% of world greenhouse gas emissions. A second environmental effect is the air pollution caused by coal-fired electricity generation, and a third is the e-waste due to the short life expectancy of bitcoin-mining equipment.
Bitcoin is a cryptocurrency made by proof-of-work, while some other cryptocurrencies, such as Ethereum, are made by proof-of-stake, which consumes less electricity. As of 2022, the Cambridge Centre for Alternative Finance (CCAF) estimates that bitcoin consumes around 100 TW⋅h (360 PJ) annually, and says bitcoin mining uses about as much electricity as Egypt. But it is difficult to find out how the electricity used for mining was generated, and thus bitcoin’s carbon footprint One study found that from 2016 to 2021, each US dollar worth of bitcoin mined caused 35 cents worth of climate damage, comparable to the beef industry and the gasoline industry.
As of 2021, bitcoin’s annual e-waste is estimated to be over 30,000 tonnes, which is comparable to the small IT equipment waste produced by the Netherlands. Creating one bitcoin generates 270 to 380 grams (9.5 to 13.4 oz) of e-waste. The average lifespan of bitcoin-mining devices is estimated to be about 1.3 years. Unlike most computing hardware, the used application-specific integrated circuits have no alternative use beyond bitcoin mining. Reducing bitcoin’s environmental effects is difficult; possible remedies include making bitcoin only where or when there is excess clean electricity. Some policymakers have called for further restrictions or bans on bitcoin mining.
Bitcoin Core is free and open-source software that serves as a bitcoin node (the set of which form the bitcoin network) and provides a bitcoin wallet which fully verifies payments. It is considered to be bitcoin’s reference implementation. Initially, the software was published by Satoshi Nakamoto under the name “Bitcoin”, and later renamed to “Bitcoin Core” to distinguish it from the network. It is also known as the Satoshi client.
The MIT Digital Currency Initiative funds some of the development of Bitcoin Core. The project also maintains the cryptography library libsecp256k1.
Bitcoin Core includes a transaction verification engine and connects to the bitcoin network as a full node. Moreover, a cryptocurrency wallet, which can be used to transfer funds, is included by default. The wallet allows for the sending and receiving of bitcoins. It does not facilitate the buying or selling of bitcoin. It allows users to generate QR codes to receive payment.
The software validates the entire blockchain, which includes all bitcoin transactions ever. This distributed ledger which has reached more than 235 gigabytes in size as of Jan 2019, must be downloaded or synchronized before full participation of the client may occur. Although the complete blockchain is not needed all at once since it is possible to run in pruning mode. A command line-based daemon with a JSON-RPC interface, bitcoind, is bundled with Bitcoin Core. It also provides access to testnet, a global testing environment that imitates the bitcoin main network using an alternative blockchain where valueless “test bitcoins” are used. Regtest or Regression Test Mode creates a private blockchain which is used as a local testing environment. Finally, bitcoin-cli, a simple program which allows users to send RPC commands to bitcoind, is also included.
Checkpoints which have been hard coded into the client are used only to prevent Denial of Service attacks against nodes which are initially syncing the chain. For this reason the checkpoints included are only as of several years ago. A one megabyte block size limit was added in 2010 by Satoshi Nakamoto. This limited the maximum network capacity to about three transactions per second. Since then, network capacity has been improved incrementally both through block size increases and improved wallet behavior. A network alert system was included by Satoshi Nakamoto as a way of informing users of important news regarding bitcoin. In November 2016 it was retired. It had become obsolete as news on bitcoin is now widely disseminated.
Bitcoin Core includes a scripting language inspired by Forth that can define transactions and specify parameters. ScriptPubKey is used to “lock” transactions based on a set of future conditions. scriptSig is used to meet these conditions or “unlock” a transaction. Operations on the data are performed by various OP_Codes. Two stacks are used – main and alt. Looping is forbidden.
Bitcoin Core uses OpenTimestamps to timestamp merge commits.
The original creator of the bitcoin client has described their approach to the software’s authorship as it being written first to prove to themselves that the concept of purely peer-to-peer electronic cash was valid and that a paper with solutions could be written. The lead developer is Wladimir J. van der Laan, who took over the role on 8 April 2014. Gavin Andresen was the former lead maintainer for the software client. Andresen left the role of lead developer for bitcoin to work on the strategic development of its technology. Bitcoin Core in 2015 was central to a dispute with Bitcoin XT, a competing client that sought to increase the blocksize. Over a dozen different companies and industry groups fund the development of Bitcoin Core.
source : wikipedia
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