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Bitcoin is a type of digital crypto currency that allows transactions between entities with minimal trace and no intermediaries. Commonly given the currency symbol BTC, Bitcoin was the first cryptocurrency to be released, and provides both the ideological and technological foundation for many other cryptocurrencies. Bitcoin is created through a process called "mining" and is capped at a total quantity of 21 million bitcoins.[1] Bitcoin is also known for the invention of blockchain technology that safeguards the validity of a transaction. Blockchain technologies utilize complex algorithms to fend off hacking to avoid millions of copies stored in each bitcoin miner’s computer so when a block is tampered with, it can be identified and discredited[2].

Bitcoin is an open source software created by Satoshi Nakamoto (an unknown group or individual) with no known motive. Due to Bitcoin's digital nature and unknown creator requiring virtual trust from its users, it is not currently regulated by any central bank. Despite Bitcoin’s anonymity, transparency or lack there of and security, it receives frequent criticism for being utilized for illegal transactions. Its lack of regulation means it is extremely volatile and prone to inflation.[3]



There are theories circulating that Bitcoin was created as a means of a Ponzi scheme, it is believed an anonymous individual with the pseudonym, Satoshi Nakamoto created bitcoin to fight against the flaws of the established centralized banking system.[4] Soon after the Lehman Brothers in 2008, the domain was registered and Satoshi Nakamoto published a paper called "Electronic Cash System", explaining how cryptocurrency can be a functional alternative form of currency. On January 3rd, 2009 the genesis block was created with the hidden message, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” It is the first block of the Bitcoin’s blockchain[5][6]. Bitcoin is unique in that Satoshi Nakamoto created it as an open source project, meaning that anyone has the ability to see the code behind the blockchain technology that sets the foundation for Bitcoin. The public has the ability to copy that code and expand to improve its functionality. Therefore, after the creation of Bitcoin, Satoshi Nakamoto encouraged other cryptographers to improve the Bitcoin's source code. On April 23rd, a statement was released by Satoshi Nakamoto announcing his departure from the digital currency. It read, "I've moved on to other things."[7] There has been no reported activity of Satoshi Nakamoto since then.


Silk Road Interface

The first recorded transaction using Bitcoin was when software developer Laszlo Hanyecz offered 10,000 BTC for a pizza. A British man took the offer and ordered a pizza to Laszlo’s Florida residence.[8] In 2011 Ross Ulbricht founded Silk Road, an online dark-web marketplace with a cash flow of at least 213 million dollars.[9] Initially, his intention was to empower consumer and producer privacy, so he made Bitcoin which was the only form of transaction allowed on the website. The fact that Bitcoin is an internet currency means that it cannot be traced, allowing Ulbricht to accomplish what he set out to do. However, the anonymity made it a perfect platform for trading illegal items such as drugs and fake IDs.[10]

Valuation, Bubble and Collapse

Bitcoin Price History

Since bitcoin is a currency, the only way to assess its value is by comparing its exchange rate to other fiat currencies, most commonly, the US Dollar. When Bitcoin was first created, a single bitcoin was valued as $0.30. However, as it became an acceptable form of payment in more locations and more methods of liquidating Bitcoin emerged, its value began to skyrocket[4]. The biggest jump of Bitcoin's value occurred in 2017, when Bitcoin had 58% of the cryptocurrency market share and had a market capitalization upwards of $124 Billion, whereby the price per coin started at $998 in 2017 and rose to all-time high of $19,666 per coin on December 17th, 2017[11][12]. Transactions in this bubble period exceeded $4.1 billion dollars daily whereas Bitcoin’s closest competitor, Ethereum, had daily transactions of only $700 million. However, soon after the bubble popped Bitcoin's value dropped back down to $3845 per coin.

After the "Bitcoin Bubble" burst in late 2017 and early 2018, many economists and market analysts refuted the idea that Bitcoin, as a form of digital currency, stating it was not actually a reputable asset or commodity. Many questioned why Bitcoin's extreme rise and fall occurred when it did. Since, there were no major cryptocurrency competitors, regulation crackdowns or technical problems; the bubble was attributed to large scale "herd" mentality of market irrationality among regular investors. There was no understanding of how a decentralized cryptocurrency could replace a centralized fiat currency, especially one that demonstrated long-term high volatility, low liquidity, and misunderstood usability. [13]



The unofficial currency code for bitcoin is BTC. However, XBT is also used as BTC conflicts with the formal ISO 4217 definition of a currency code. The primary denomination of the Bitcoin currency is a bitcoin, while the smallest and atomic denomination is the satoshi, one bitcoin is can be divided down into 100 million satoshis. Unofficially, 10 satoshis are called a Finney, after early Bitcoin developer Hal Finney. The Bitcoin currency sign, equivalent to the $ for US dollars is ₿, and was formally introduced in Unicode 10.0 after being previously rejected. Its unicode code point is U+20BF. While the symbol does exist, most bitcoin values are expressed with BTC as a suffix, instead of using ₿ as a prefix. For example: 10.15 BTC instead of ₿10.15.[14]


Bitcoin is one of the first advocates for the use of blockchain as a means of protecting information from potential hackers that are looking to gain monetary gains by manipulating its data[15]. The idea of blockchain was first conceptualized in 1991 by W. Scott Stornetta and it is a list of blocks linked by storing the hash of the previous block[16]. It is a distributed ledger that anyone can access and once a block is created it is immutable[2]. In addition to the hash of the previous block, each block contains a transaction record and a hash of the block. A hash is defined as a fingerprint that identifies each block and is unique[17].


Blockchain Visualization

One of the fundamental protection mechanisms of a blockchain is its alphanumeric hash value which is calculated by feeding the information within the block through a SHA-256 function from the SHA-2 hash function family[18]. This means that if the transaction data within the block is altered, its hash value changes. This change causes a discrepancy between the said block and the block in front of it and it cannot be fixed unless all of the hash values of every block in the front of the said block changes[19]. Using the SHA-256 function, each block has what is known as proof-of-work because it takes a lot of computational time to calculate the hash values, making it infeasible to edit every block in a blockchain[20].

The blockchain takes advantage of the fact that it is publicly accessible by utilizing a peer-to-peer network as its second line of defense in which every miner (known as a node) has a copy of the blockchain. As a result, when a new block is added, it is verified by the peer-to-peer network and needs to be approved by more than 50% of the network to be accepted. As a result, an attacker must tamper almost every block on 50% of the network in order to successfully perform a breach.[18]

Lastly, most exchanges and merchants will not consider a transaction complete until anywhere from 3 to 6 confirmations, or blocks being added above it in the chain. This means an attacker would need to build a significantly large chain on over 50% of the network to cause real financial harm.


Each person mines Bitcoin by being a node for the peer-to-peer network of the blockchain of Bitcoin. The miners' computers are used to run the Bitcoin's software to perform calculations for proof-of-work of new blocks[21]. Since the function to calculate proof-of-work requires lots of computational power, it causes huge electricity consumption[22]. In addition, Bitcoin becomes more secure when there are more nodes than there are in a peer-to-peer network. This implication of this reality is that, unlike the majority of contemporary currencies, including the US dollar, the number of Bitcoins is not controlled by a regulatory body. Instead, the number of Bitcoins in circulation depends entirely on the rate at which they are being mined. Bitcoins cannot be destroyed the number will strictly increase over time, with the rate of creation getting less and less as the supply trends towards the protocol defined maximum. For the original Bitcoin Core, this limit is roughly 21 million BTC[23]



Cryptocurrency, including Bitcoin, is allowed in Canada. Under Canada's Currency Act, cryptocurrency is not accepted as legal tender, and the Canada Revenue Agency “has characterized cryptocurrency as a commodity and not a government-issued currency."[24] Regarded as the world's first national law on cryptocurrencies, Canada passed a law in 2014 which regulates virtual currencies as "Money Service Businesses". [25] In February of 2018, the Ontario Securities Commission approved Canada's first blockchain fund, entitled Blockchain Technologies ETF.[26]


According to The Law Library of Congress' 2018 report on the Regulation of Cryptocurrency Around the World, there is an implicit ban on the use of bitcoins in China. In 2013, the People's Bank of China prohibited financial companies from participating in bitcoin transactions in the earliest attempts at regulation.[27] Exchanges and trading platforms involving cryptocurrency were effectively banned in the country in September of 2017.[28]


The “Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019" was proposed in India. India has been in a testing period with cryptocurrency and if this bill is passed, Bitcoin will be banned and the government will crack down on cryptocurrency exchanges, as well as forcibly shutdown bank accounts of investors. In 2016, the Indian Prime Minister was met with a lot of criticism when, in an effort to centralize control, demonetized Rs 1,000 and Rs 500 currency notes. This was when the popularity of Bitcoin arose. However, India's participation in the cryptocurrency market is rather small, globally. There is much criticism about this new bill and whether it will be passed is yet to be determined. [29]

United States

In the United States, Bitcoin has several different classes and laws applying to it. First, according to the Internal Revenue Service (IRS), Bitcoin assets, as well as other cryptocurrencies are taxed as property, instead as capital gains.[30] Secondly, if a finical business, such as an exchange or anonymizing service like a tumbler, conducts a large portion of its business in the U.S it must register with the government and enforce know-your-customer (KYC) and anti-money laundering (AML) regulations.[31] [32]

Ethical Implications

Illegal Transactions

It is estimated that cryptocurrency facilitates around $76 billion of illegal activity per year, 46% of which is through Bitcoin.[33] The anonymous nature of Bitcoin allows it to be used by many as a means of doing illegal transactions without leaving any trace behind, possibly further complicating law enforcement because of the increased difficulty of building a case against both the seller and the buyer—especially because Bitcoins are technically not owned by any one entity. In addition to that, the absence of a digital footprint makes it impossible to prove ownership. The most notable example of such exploitation is the Silk Road founded by Ross Ulbricht where drug dealers sold drugs indiscriminately to anyone with access to internet[9]. Moreover, sites like and sell custom made falsified IDs through transactions using Bitcoins[34].The US government even claims that Russian hackers used Bitcoins to fund their interference of the 2016 US election without trace.[35]. For the same reason, Bitcoin is a perfect medium for trafficking illegal goods, as well as money laundering since it provides a means of moving a large amount of cash discretely[36].

Because cryptocurrencies like Bitcoin undermine the surveillance, investigation, and prosecution of illegal activities by obscuring monetary transactions, it's possible that more illegal activity that causes the economy to suffer, facilitate drug addictions, and put lives at risk through contracted hitmen or sex trafficking of vulnerable people and even children[37] This may reduce the overall well-being of people within a country, especially marginalized and disadvantaged individuals and communities.

Modern exchanges attempt to crackdown on these transactions by complying and enforcing "Know-Your-Customer" (KYC) and Anti-Money Laundering (AML) regulations and practices in order to purchase Bitcoin with and sell Bitcoin for normal fiat currency, such as United States Dollars. Coinbase, the largest Bitcoin and Crypto exchange, enforces this by requiring Photo ID, Social Security Number (SSN) and other identifying information, before allowing transactions at all, and even more verification in order to transact with large amounts[38]

Unlike other cryptocurrencies such as Monero (XMR) or Zcash (ZEC), Bitcoin does not try to obfuscate account numbers or amounts in its ledger. This means that if a person is able to try a person or other entity to a certain Bitcoin address, they can trace all of their transactions, helping law enforcement cut down on crime.

Energy Consumption

Bitcoin ensures its security by making sure every block has proof-of-work that requires enough computational power to make it infeasible for potential hackers to tamper with the transactions through brute force guessing[2]. It also requires lots of nodes in the peer-to-peer network to ensure fidelity when new blocks are added[19]. In order to exert this much computation power and store this much data, a lot of energy is consumed by each Bitcoin miner. By the end of 2017, it was estimated that Bitcoin mining operations used between 1 to 4 gigawatts of energy combined[40]. Ron Eglash has studied the manner in which current technology has been developed in ways that harm society, and it can be observed that Bitcoin could fall under the same category[41]. Since mining Bitcoins takes a tremendous amount of energy, and this highly energy-consuming process is vital to the expansion and use of Bitcoin, it follows that Bitcoin's impact on energy consumption produces a negative effect on society. While a cryptocurrency which does not take up as much resources to maintain may be a possible solution, the current Bitcoin implementation relies on this design to survive. This offers a unique debate between the maintenance of the world's most popular cryptocurrency versus its high energy consumption, which future cryptocurrencies and Bitcoin should consider optimizing in their design.

Transparency and Security

The introduction of Bitcoin as a mainstream currency has raised ethical questions regarding the amount of transparency that Bitcoin transaction employ being a pseudonymous currency. It is important to note that despite popular beliefs, Bitcoin is not an anonymous currency, as the ledger is public information and personal details can be tied back to a Bitcoin address through a transaction [42]. Luciano Floridi and Matteo Turilli's work "The ethics of information transparency" gives a lens with which to examine the ethical implications of Bitcoin's transparent information[43]. Transparency is linked to ethical principles when the information involved is in a regulatory or dependent relationship with said ethical principles. When applied to Bitcoin we can see that these regulatory principles are very much anonymity and privacy, as Bitcoin's implementation prevents immediate personal details from being revealed at all times. In practice, Bitcoin's privacy and anonymity methods are so well implemented that criminals typically use it as the means of illegal transactions. Yet this raises yet another ethical dilemma as if the enabling of illegal transactions and platforms, such as the Silk Road, creates a dichotomy between a secure and private currency system being used for nefarious means. In terms of the dependent ethical principles Bitcoin achieves with its transparency, one can see that the openness of the implementation of the blockchain offers a very secure view of how and why Bitcoin works. This transparency is central to Kerchoff's principle for a cryptographic system. There are no central figures or corporations controlling Bitcoin, and miners contribute to the currency just from the cost of their computation machines. Compared to other currencies and financial institutions, the transparency of this system is far higher and is much more accountable without a centralized, self-interested authority.

Virtual Trust

While much of the value, or lack thereof, of Bitcoin, rests on the market availability of the currency, much of the integrity that supports the infrastructure for Bitcoin to function rests on principles of virtual trust.[44] Exchanges involving Bitcoin often depend on implicit agreements between multiple parties, and the integrity of these transactions is ensured by the community of users who trust in Bitcoin to remain secure. A large scale bitcoin scam in Taiwan of approximately 51 million dollars, violated the trust of over 1000 investors.[45] Lin and his group promised 335% investment return to investors who trusted they would grow their investment through just one year of bitcoin.[46] All, if not most, investors received no returns at all. Lin and his group instead took the invested money defrauding every investor who trusted them. The Bitcoin community is not always able to determine the integrity of such schemes leading to reoccurring cases of fraud.

Wealth Inequality

It's not completely conclusive on whether Bitcoin will redistribute wealth more fairly over time or widen the wealth gap between the richest and the poorest. For example, academia may argue that cryptocurrency inherently favors the rich since they can afford better computational machines allow faster and more efficient Bitcoin mining. Furthermore, as Bitcoin's value continues to rise it allows Bitcoin holders to have more wealth that they can invest toward more Bitcoin mining. [47] This may cause poorer communities to suffer because they lack access to Bitcoin and it's benefits of anonymized transactions, especially if they come from vulnerable populations like undocumented immigrants. In May 2018, it was reported that billionaires house about $10 billion in Bitcoin just for one startup after being persued that Bitcoin is the future global currency.[48] However, other research with statistical analyses suggests that wealth distribution has been highly heterogeneous through out the Bitcoin system's lifetime.[49]

See Also

External Links


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