Bitcoin

Bitcoin is the first true digital peer to peer currency system that ushered in the era of cryptocurrency and related technologies. Bitcoin was announced by Satoshi Nakamoto in November 2008 and the first block was mined in January 2009. It’s code has been forked and used directly or indirectly for most of the other cryptocurrencies. Even when the code is not directly forked, Bitcoin has formed the basis of almost every other cryptocurrency in existence. Bitcoin is described in the original whitepaper as “A Peer-to-Peer Electronic Cash System”.

Overview

Bitcoin is the first true digital peer to peer currency system that ushered in the era of cryptocurrency and related technologies. Bitcoin was announced by Satoshi Nakamoto in November 2008 and the first block was mined in January 2009. It’s code has been forked and used directly or indirectly for most of the other cryptocurrencies. Even when the code is not directly forked, Bitcoin has formed the basis of almost every other cryptocurrency in existence. Bitcoin is described in the original whitepaper as “A Peer-to-Peer Electronic Cash System”.

Today, Bitcoin is mostly used as a borderless currency mostly over the internet but also in retail stores. Several multi-billion dollar companies like Microsoft, Overstock and Dell have begun accepting Bitcoin for certain goods and services. Bitcoin payments are generally processed by payment processors like Coinbase or BitPay and converted into the merchant’s local currency to avoid volatility of exchange rates.

Bitcoin has found use as a microtransaction payment platform for online content, and a system with the ability to pay merchants and service providers across borders in an easy manner. Bitcoin is also used in certain new remittance platforms since it makes it easy to transfer Bitcoin from one wallet to another without regard to geography. Bitcoin remains the most dominant cryptocurrency today in terms of market capitalization, popularity, media and general awareness.

Technologies

Bitcoin created a system to solve several problems that were associated with previous attempts at creating a decentralized monetary system. It’s use of proof of work for mining provides strong incentives for the players in the network to be honest and easily discard dishonest players. It has a consensus mechanism built in so that after a sufficiently long time, all nodes in the network will agree to the state of a given transaction. In addition, Bitcoin created a very good economic model that keeps the system from being overrun by bad actors.

Bitcoin also has an active team of core developers and many others contributing to the project directly or indirectly through open source applications. Companies like Blockstream fund development of the Bitcoin project through research and extending the Bitcoin protocol to add new features.

Mining

Bitcoin introduced the concept of mining for the network to reach consensus on whether a certain transaction was valid or not, essentially solving the problem of double-spend in a distributed system without introducing a trusted third party. Bitcoin uses SHA-256 hashing algorithm for its mining purposes.

Given the economic incentives around Bitcoin, mining became commercial and intensely competitive, moving from hobbyist desktops to data centers. Many companies today manufacture application specific integrated circuits (ASICs) for Bitcoin mining that make it faster and more efficient to perform SHA-256 hashes on a chip.

Transaction Fees

Bitcoin transaction fees varies depending on the size and priority of the transaction. The reference implementation of Bitcoin core has a default fees of 0.0001 BTC per KB of data. However, fees also depend on the priority of the transaction, which in turn depends on the size of the outputs and coinage of the inputs spent in the transaction. For example, if someone wants to transfer 100 BTC that haven’t moved in 5 years, the transaction will have a high priority and will likely be accepted by the miners without fees. However, in order to speed-up the processing, adding fees is advisable. During certain peak periods, it is possible that the default fees may result in large delays in the transaction getting confirmed. Several wallets are working towards a dynamic fee system that adjusts the transaction fees based on the number of pending transactions.

Launch

Bitcoin was first announced on the cypherpunk mailing list by Satoshi Nakamoto on November 1st 2008 under the subject “Bitcoin P2P e-cash paper” describing “…a new electronic cash system that’s fully peer-to-peer, with no trusted third party” along with a link to the original Bitcoin Whitepaper.

Bitcoin’s genesis block was mined on January 3rd 2009. In order to prove that Satoshi himself had not mined blocks in advance of the public announcement, the genesis block contains a headline from the New York Times that was published on the same day. The message in the Genesis block is “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

Community and Founders

Bitcoin was founded by Satoshi Nakamoto, an online pseudonym that remains unidentified in real world identity. Initially greeted with skepticism on the cypherpunk mailing list, Hal Finney, a noted computer scientist, early PGP developer and a regular poster on cypherpunk mailing list took interest in the project. The first Bitcoin transaction was from Satoshi Nakamoto to Hal Finney.

On December 12, 2010, Satoshi made his last post in the Bitcointalk forums, explaining that he has moved on to other things, leaving the Bitcoin project (and Bitcoin Core) in the hands of Gavin Andressen as the core developer. Gavin subsequently passed the torch to Wladimir van der Laan in April of 2014.

Governance

Management of the Bitcoin network is achieved through the complex interplay of users, miners, and developers; governance is effectively an ongoing decentralized decision-making process that is played out at the point of protocol implementation. In lieu of formal governance systems, Bitcoin empowers users with the right to fork the code (i.e., beginning a new development effort using the existing code as its starting point). If users want to run different versions of the software and can agree on a new version, they are free to do so. Providing a mechanism for the community to safeguard against unfavorable actions and serving as a catalyst for innovation, forking is central to Bitcoin governance. As such, Bitcoin’s governance model involves no other on-chain governance mechanisms or formal off-chain governance structure (other than Bitcoin Improvement Proposals or BIPs). According to the BIP process memorialized in BIP 2 and written by BIP editor Luke Dashjr:

“The BIP process does not aim to be a kind of forceful “governance” of Bitcoin, merely to provide a collaborative repository for proposing and providing information on standards, which people may voluntarily adopt or not. It can only hope to achieve accuracy in regard to the “Status” field by striving to reflect the reality of *how things actually are*, rather than *how they should be*.”

Bitcoin seeks to foster a meritocracy that’s open to all, emphasizing long-term developer engagement. In practice, however, a minimal level of hierarchy is required to facilitate coordinated operations. As such, there are Github repository ‘maintainers’ who are responsible for merging pull requests, as well as a ‘lead maintainer’ (Wladimir van der Laan as of the time of this writing) who is responsible for managing the release cycle, overall merging, moderation and the appointment of maintainers. While individual developers within the Bitcoin Core organization are often involved in the development of protocol enhancements, there are no limitations as to who can propose changes to the codebase. The project utilizes an open contributor model in which anyone is welcome to contribute towards development in the form of peer review, testing and patches. However, changes to the underlying codebase must ultimately be approved by the Bitcoin Core developers. While the Core team is different from the Bitcoin Foundation, a non-profit organization that advocates for the mainstream adoption of Bitcoin, the Bitcoin Foundation works closely with the Core team and provides the team financial support.

As with most open source development, a developer’s track record of contribution is viewed in the context of domain expertise when determining the merits of proposed changes, particularly in the case of mission-critical consensus code updates. While small enhancements are typically injected into the project-specific development workflow via a patch submission to the relevant issue tracker, larger enhancements are formalized through the BIP process. Modelled after the Python Enhancement Proposal (PEP) model, BIPs have their roots in a July 2000 commit written by Barry Warsaw in which he outlines how Python enhancements should be managed. Indeed, there are many sections of the BIP framework that have been copied nearly word for word from the PEP framework, suggesting that developers have been paving the way for Bitcoin’s governance model for several years leading up to the protocol release in January 2009.

The primary difference between Python’s PEPs and Bitcoin’s BIPs relate to the removal of the ‘final authority’ construct that was included in the PEP process. In the PEP framework, a ‘BDFL’ or ‘Benevolent Dictator for Life’ is defined and refers to Guido van Rossum, the original creator of, and the final design authority for, the Python programming language. Irrespective of the decision to exclude this feature in the BIP framework, the BDFL model has worked quite well historically. Prominent examples include the creator of Linux, Linus Torvalds, and the creator of the widely-used Python data science library Pandas, Wes McKinney. In the BIP model, this final authority construct is diminished, instead appointing an ‘editor’ who fulfills administrative and editorial responsibilities without any absolute authority.

The decision to eliminate the BDFL element in the Bitcoin protocol carries profound implications. Despite the unparalleled success of Bitcoin, many stakeholders and observers argue that Bitcoin’s lack of formal governance is suboptimal given the difficulty associated with reaching consensus on proposed protocol enhancements. Most notably, Bitcoin stakeholders engaged in a contentious multi-year debate on how best to scale the network’s transaction capacity. Furthermore, some suggest Bitcoin’s governance structure has room for improvement given the absence of any institutional framework that is capable of accomodating the political and social aspects inherent in Bitcoin’s technocratic power structure. In contrast, others argue that this lack of formal governance is one of the key features that has made Bitcoin so successful, arguing that the right to fork the code is an intentional and sufficient form of governance in itself. In fact, many believe forking represents the single most important tool for guaranteeing ecosystem sustainability in the long term.