Bitcoin - Wikipedia, The Free Encyclopedia

2/1/2015
BitcoinWikipedia,thefreeencyclopedia
Bitcoin
FromWikipedia,thefreeencyclopedia
Bitcoin[note5]isanonlinepaymentsysteminventedby
SatoshiNakamoto[note6]in2008[12]andintroducedas
opensourcesoftwarein2009.[13]Thesystemispeerto
peeruserscantransactdirectlywithoutneedingan
intermediary.[14]:4Transactionsareverifiedbynetwork
nodesandrecordedinapublicdistributedledgercalled
theblockchain.[15]Theledgerusesitsownunitof
account,alsocalledbitcoin,[note7]whichisthecurrency
ofthenetwork.[19]Thesystemworkswithoutacentral
repositoryorsingleadministrator,whichhasledtheUS
Treasurytocategorizeitasadecentralizedvirtual
currency.[1]Bitcoinisoftencalledthefirst
cryptocurrency,[20]althoughpriorproposals
existed.[note8]Bitcoinismorecorrectlydescribedasthe
firstdecentralizeddigitalcurrency.[23][14]Itisthelargest
ofitskindintermsoftotalmarketvalue.[24]
Bitcoinsarecreatedasarewardforpaymentprocessing
workinwhichusersoffertheircomputingpowerto
verifyandrecordpaymentsintothepublicledger.This
activityiscalledminingandisrewardedbytransaction
feesandnewlycreatedbitcoins.[14]Besidesmining,
bitcoinscanbeobtainedinexchangeforfiatmoney,
products,andservices.[25]Userscansendandreceive
bitcoinsforanoptionaltransactionfee.[26]
Bitcoinasaformofpaymentforproductsandservices
hasgrown,[25]andmerchantshaveanincentivetoaccept
itbecausefeesarelowerthanthe23%typically
imposedbycreditcardprocessors.[27]Unlikecredit
cards,anyfeesarepaidbythepurchaser,notthevendor.
TheEuropeanBankingAuthority[28]andother
sources[14]:11havewarnedthatbitcoinusersarenot
protectedbyrefundrightsorchargebacks.
Bitcoin
Logoofthebitcoinreferenceclient
Administration decentralized[note1]
Dateof
introduction
3January2009
User(s)
worldwide
Supplygrowth 25bitcoinsperblock
(approximatelyeverytenminutes)
untilmid2016, [2]andthen
afterwards12.5bitcoinsperblock
for4yearsuntilnexthalving.
Thishalvingcontinuesuntil2110
2140when21millionbitcoins
havebeenissued.
Subunit
103
millibitcoin
106
microbitcoin,bit[3]
108
satoshi[4]
Symbol
BTC, [note2]XBT, [note3]
millibitcoin
mBTC
microbitcoin,
BTC
[note4]
bit[3]
Coins
unspentoutputsoftransactions
denominatedinanymultipleof
satoshis[10]
Theappealofbitcointocriminalshasattractedtheattentionoffinancialregulators,[29]legislative
bodies,[30]lawenforcement,[31]andmedia.[32]Theylistedmoneylaundering,financingofillicitactivities,
theft,fraud,taxevasion,anduseinblackmarketsaspossible.Asof2013,thecriminalactivitiescentered
aroundtheftandblackmarkets.OfficialsincountriessuchastheUnitedStatesalsorecognizedthatbitcoin
canprovidelegitimatefinancialservicestocustomers.[33]
http://en.wikipedia.org/wiki/Bitcoin
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Contents
1Design
1.1Theblockchain
1.2Units
1.3Ownership
1.4Transactions
1.5Mining
1.6Supply
1.7Transactionfees
1.8Wallets
1.9Privacy
1.10Fungibility
2History
3Economics
3.1Classification
3.2Buyingandselling
3.3Priceandvolatility
3.4Speculativebubbledispute
3.5Ponzischemedispute
3.6Valueforecasts
3.7Obituaries
3.8Reception
3.9Acceptancebymerchants
3.10Financialinstitutions
3.11Asinvestment
3.12Venturecapital
3.13Politicaleconomy
4Legalstatusandregulation
4.1China
4.2EuropeanUnion
4.3G7
4.4UnitedStates
5Criminalactivity
5.1Theft
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5.2Blackmarkets
5.3Moneylaundering
5.4Ponzischeme
5.5Malware
6Security
6.1Unauthorizedspending
6.2Doublespending
6.3Raceattack
6.4Historymodification
6.5Selfishmining
6.6Deanonymisationofclients
7Inthemedia
8Bibliography
9Seealso
10Notes
11References
12Externallinks
Design
Themostimportantpartofthebitcoinsystemisapublicledger,calledtheblockchain,thatrecordsbitcoin
transactions.Anovelsolutionaccomplishesthiswithoutasingle,centralauthority:maintenanceofthe
ledgerisperformedbyanetworkofcommunicatingnodesrunningbitcoinsoftwarethatanyonecan
join.[14]TransactionsoftheformpayerXsendsYbitcoinstopayeeZarebroadcasttothisnetworkusing
readilyavailablesoftwareapplications.Networknodescanvalidatethesetransactions,addthemtotheir
copyoftheledger,andthenbroadcasttheseledgeradditionstoothernodes.[10]
Theblockchain
Bitcointransactionsarerecordedinapublicledgercalledtheblockchain.Theblockchainisdistributedto
independentlyverifythechainofownershipofanyandeverybitcoinamount,eachnetworknodestoresits
owncopyofit.Approximatelysixtimesperhour,agroupofacceptedtransactions,ablock,isaddedtothe
blockchain,whichisquicklypublishedtoallnodes.Thisallowsbitcoinsoftwaretodeterminewhena
particularbitcoinamounthasbeenspent,whichisnecessarytopreventdoublespendinginanenvironment
withnocentralauthority.Whereasaconventionalledgerrecordsthetransfersofactualbillsorpromissory
notesthatexistapartfromit,theblockchainistheonlyplacethatbitcoinscanbesaidtoexistintheform
ofunspentoutputsoftransactions.[10]
Units
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Theunitofaccountofthebitcoinsystemisbitcoin.Asof2014,symbolsusedtorepresentbitcoinare
BTC,[note2]XBT,[note3]and .[note4][19]:1Smallmultiplesofbitcoinusedasalternativeunitsare
millibitcoin(mBTC),microbitcoin(BTC),andsatoshi.Namedinhomagetobitcoin'screator,asatoshiis
thesmallestmultipleofbitcoinrepresenting0.00000001bitcoin,whichisonehundredmillionthofa
bitcoin.[4]Amillibitcoinequalsto0.001bitcoin,whichisonethousandthofbitcoin.[10]Onemicrobitcoin
equalsto0.000001bitcoin,whichisonemillionthofbitcoin.Amicrobitcoinissometimesreferredtoasa
bit.
On7October2014,theBitcoinFoundationrevealedaplantoapplyforanISO4217currencycodefor
bitcoin,[5]andmentionedBTCandXBTastheleadingcandidates.[34]
Ownership
Ownershipofbitcoinsimpliesthatausercanspendbitcoins
associatedwithaspecificaddress.Todoso,apayermustdigitally
signthetransactionusingthecorrespondingprivatekey.Without
knowledgeoftheprivatekeythetransactioncannotbesignedand
bitcoinscannotbespent.Thenetworkverifiesthesignatureusing
thepublickey.[10]Iftheprivatekeyislost,thebitcoinnetworkwill
notrecognizeanyotherevidenceofownership[14]thecoinsarethen
lostandcannotberecovered.Forexample,in2013oneusersaidhe
lost7,500bitcoins,worth$7.5millionatthetime,whenhe
discardedaharddrivecontaininghisprivatekey.[35]
Transactions
Simplifiedchainofownership. [12]In
reality,atransactioncanhavemore
thanoneinputandmorethanone
output.
Atransactionmusthaveoneormoreinputs.Forthetransactiontobevalid,everyinputmustbeanunspent
outputofaprevioustransaction.Everyinputmustbedigitallysigned.Theuseofmultipleinputs
correspondstotheuseofmultiplecoinsinacashtransaction.Atransactioncanalsohavemultipleoutputs,
allowingonetomakemultiplepaymentsinonego.Atransactionoutputcanbespecifiedasanarbitrary
multipleofsatoshi.Similarlyasinacashtransaction,thesumofinputs(coinsusedtopay)canexceedthe
intendedsumofpayments.Insuchcase,anadditionaloutputisused,returningthechangebacktothe
payer.[10]
TosendmoneytoaBitcoinaddress,userscanclicklinksonwebpagesthisisaccomplishedwitha
provisionalBitcoinURIschemeusingatemplateregisteredwithIANA.BitcoinclientslikeElectrumand
Armory(software)supportBitcoinURIs.MobileclientsrecognizeBitcoinURIsinQRcodes,sothatthe
userdoesnothavetotypethebitcoinaddressandamountinmanually.TheQRcodeisgeneratedfromthe
userinputconsistingofthepaymentamount.Thecodeisdisplayedonthemobiledevicescreenandcan
thenbescannedbyasecondmobiledevice.[36]
Mining
Miningisarecordkeepingservice.[note12]Minerskeeptheblockchainconsistent,complete,and
unalterablebyrepeatedlyverifyingandcollectingnewlybroadcasttransactionsintoanewgroupof
transactionscalledablock.
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Thenewblockmustcontaininformationthatchainsittothepreviousblockandgivestheblockchainits
name.ItisacryptographichashbitcoinusesSHA256ofthepreviousblock.
Finally,thenewblockmustcontainasocalledproofofwork.The
proofofworkconsistsofanumbercalledadifficultytargetanda
numbercalledanonce,whichisjargonfor"anumberusedonly
once".Minershavetofindsuchanoncethatgivesahashofthenew
blocksmallerthanthedifficultytarget.Whenthenewblockis
createdanddistributedtothenetwork,everynetworknodecan
easilyverifytheproof.[10]Ontheotherhand,findingtheproof
requiressignificantwork,sinceforasecurecryptographichash
thereisonlyonemethodtofindtherequisitenonce:minerstry
differentintegervaluesoneatatime,e.g.,1,then2,then3,andso
onuntiltherequisiteoutputisobtained.Thefactthatthehashofthe
newblockissmallerthanthedifficultytargetservesasaproofthat
thistediousworkhasbeendone,hencetheproofofworkname.
Relativeminingdifficulty[note9]
chart. [note10]Verticalaxis:relative
miningdifficulty,thescaleis
logarithmic.Horizontalaxis:date
rangingfrom20090109to201412
31.
Smallertargetnumbersreducetherangeofacceptednonces,and
hencewillincreasetheaveragetimerequiredtofindanonce.The
bitcoinsystemperiodically(every2016blocks)adjuststhe
difficultytargetsothattheaveragetimetheentirenetworkneedsto
findanonceisabouttenminutes.Thatway,ascomputerhardware
getsfasterovertheyears,thebitcoinprotocolwillsimplyadjustthe
miningtargettomakeminingalwayslastabouttenminutes.[10]For
example,attheendofApril2014minershadtotry34.4quintillion
valuesataveragebeforefindingtherequisitenonce,whileattheend
ofOctober2014itwas154.6quintillionvaluesataverage.
Theproofofworksystem,withthechainingofblocksmakes
modificationsoftheblockchainextremelyhard,asanattackermust
modifyallsubsequentblocksinorderformodificationsofoneblock
tobeaccepted.Asnewblocksareminedallthetime,thedifficulty
ofmodifyingablockincreasesthehighernumberofsubsequent
blocksthereare.[39]
Obsoletebitcoinmininghardware
calledASICMinerBlockErupter
USBcommoninmidandlate
2013. [note11]
Environmentalcosts
Theenvironmentalcostsofminingincludefirstandforemostelectricitycost.Evenifallminersused
energyefficientprocesses,thecombinedelectricityconsumptionwouldbe1.46terawatthperyear,equal
totheconsumptionofabout135,000Americanhomes".[40]
Miningpools
Asof2014,ithasbecomecommonforminerstojoinorganizedminingpools.[41]Apoolsplitsthework
betweenitsmembersandhasamuchlargerchancetowinthereward.Therewardisthensplitbetweenthe
memberscreatingasteadystreamofincome.[42]Evenforthosewhojoinpools,thecostoftheelectricity
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necessarytominemayoutweightherewardsfromdoingso.[43]
Supply
Thesuccessfulminerfindingthenewblockisrewardedwithnewly
createdbitcoinsandtransactionfees.[44]Asof2014,thereward
amountsto25newlycreatedbitcoinsperblockaddedtotheblock
chain.Toclaimthereward,aspecialtransactioncalledacoinbaseis
includedwiththeprocessedpayments.[10]Allbitcoinsincirculation
canbetracedbacktosuchcoinbasetransactions.Thebitcoin
protocolspecifiesthattherewardforaddingablockwillbehalved
approximatelyeveryfouryears.Eventually,therewardwillbe
removedentirelywhenanarbitrarylimitof21millionbitcoinsis
reachedc.2140,andrecordkeepingwillthenberewardedby
transactionfeessolely.[45]
Totalbitcoinsincirculation. [note10]
Horizontalaxis:daterangingfrom
20090109to20141231.
Transactionfees
Payingatransactionfeeisoptional,butmayspeedupconfirmationofthetransaction.[46]Payershavean
incentivetoincludesuchfeesbecausedoingsomeanstheirtransactionwilllikelybeaddedtotheblock
chainsoonerminerscanchoosewhichtransactionstoprocess[26]andprioritizesthosethatpayfees.Fees
arebasedonthestoragesizeofthetransactiongenerated,whichinturnisdependentonthenumberof
inputsusedtocreatethetransaction.Furthermore,priorityisgiventoolderunspentinputs.[47]
Wallets
Awalletstorestheinformationnecessarytotransactbitcoins.While
walletsareoftendescribedasaplacetohold[48]orstorebitcoins,[49]
duetothenatureofthesystem,bitcoinsareinseparablefromthe
blockchaintransactionledger.Perhapsabetterwaytodescribea
walletissomethingthat"storesthedigitalcredentialsforyour
bitcoinholdings"[49]and"allowsyoutoaccess(andspend)them".
Bitcoinusespublickeycryptography,inwhichtwocryptographic
keys,onepublicandoneprivate,aregenerated.[50]Atitsmostbasic,
awalletisacollectionofthesekeys.
Thereareseveraltypesofwallets.Softwarewalletsconnecttothe
networkandallowspendingbitcoinsinadditiontoholdingthe
credentialsthatproveownership.[51]Internetservicescalledonline
walletslikeBlockchain.info,Circle,orCoinbaseoffersimilar
functionalitybutmaybeeasiertouse.[52]Physicalwalletsalsoexist
andaremoresecure,astheystorethecredentialsnecessarytospend
bitcoinsoffline.[49]Examplescombineanoveltycoinwiththese
Electrumbitcoinwallet
Bitcoinpaperwalletgeneratedat
bitaddress.org
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credentialsprintedonmetal,[53]wood,orplastic.Othersaresimply
paperprintouts.Anothertypeofwalletcalledahardwarewallet
keepscredentialsofflinewhilefacilitatingtransactions.[54]
Referenceimplementation
Thefirstwalletprogram,calledBitcoinQt,wasreleasedin2009by
Trezorhardwarewallet
SatoshiNakamotoasopensourcecode.[51]Itcanbeusedasa
desktopwalletforpaymentsorasaserverutilityformerchantsand
otherpaymentservices.BitcoinQt,alsocalledSatoshiclient,is
sometimesreferredtoasthereferenceclientbecauseitservestodefinethebitcoinprotocolandactsasa
standardforotherimplementations.[51]Asofversion0.9,BitcoinQthasbeenrenamedBitcoinCoreto
avoidconfusion.[55]
Privacy
Inthebitcoinsystemprivacyisachievedbynotidentifyingownersofbitcoinaddresseswhilemakingother
transactiondatapublic.Bitcoinusersarenotidentifiedbyname,buttransactionscanbelinkedto
individualsandcompanies.[56]Additionally,bitcoinexchanges,wherepeoplebuyandsellbitcoinsforfiat
money,mayberequiredbylawtocollectpersonalinformation.[57]Tomaintainfinancialprivacy,a
differentbitcoinaddressforeachtransactionisrecommended.[58]Transactionsthatspendcoinsfrom
multipleinputscanrevealthattheinputsmayhaveacommonowner.Usersconcernedaboutprivacycan
usesocalledmixingservicesthatswapcoinstheyownforcoinswithdifferenttransactionhistories.[59]It
hasbeensuggestedthatbitcoinpaymentsshouldnotbeconsideredmoreprivatethancreditcard
payments.[60]
Fungibility
Walletsandsimilarsoftwaretechnicallyhandlebitcoinsasequivalent,establishingthebasiclevelof
fungibility.Researchershavepointedoutthatthehistoryofeverysinglebitcoinisregisteredandpublicly
availableintheblockchainledger,andthatsomeusersmayrefusetoacceptbitcoinscomingfrom
controversialtransactions,whichwouldharmbitcoin'sfungibility.[61]
History
BitcoinwasinventedbySatoshiNakamoto,[note6]whopublishedhisinventionon31October2008ina
researchpapercalled"Bitcoin:APeertoPeerElectronicCashsystem".[12]Itwasimplementedasopen
sourcecodeandreleasedinJanuary2009.Bitcoinisoftencalledthefirstcryptocurrency[20]althoughprior
proposalsexisted.[note8]Bitcoinismorecorrectlydescribedasthefirstdecentralizeddigitalcurrency.[23][14]
Oneofthefirstsupporters,adopters,contributortobitcoinandreceiverofthefirstbitcointransactionwas
programmerHalFinney.Finneydownloadedthebitcoinsoftwarethedayitwasreleased,andreceived10
bitcoinsfromNakamotointheworld'sfirstbitcointransaction.[62][63]
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OtherearlysupporterswereWeiDai,creatorofbitcoinpredecessorbmoney,andNickSzabo,creatorof
bitcoinpredecessorbitgold.[64]
In2010,anexploitinanearlybitcoinclientwasfoundthatallowedlargenumbersofbitcoinstobe
created.[65]Theartificiallycreatedbitcoinswereremovedwhenanotherchainovertookthebadchain.[66]
Basedonbitcoin'sopensourcecode,othercryptocurrenciesstartedtoemergein2011.[24]
InMarch2013,atechnicalglitchcausedaforkintheblockchain,withonehalfofthenetworkadding
blockstooneversionofthechainandtheotherhalfaddingtoanother.Forsixhourstwobitcoinnetworks
operatedatthesametime,eachwithitsownversionofthetransactionhistory.Thecoredeveloperscalled
foratemporaryhalttotransactions,sparkingasharpselloff.Normaloperationwasrestoredwhenthe
majorityofthenetworkdowngradedtoversion0.7ofthebitcoinsoftware.[65]
In2013somemainstreamwebsitesbeganacceptingbitcoins.WordPresshadstartedinNovember2012,[67]
followedbyOKCupidinApril2013,[68]AtomicMallinNovember2013,[69]TigerDirect[70]and
Overstock.cominJanuary2014,[71]ExpediainJune2014,[72]NeweggandDellinJuly2014,[73]and
MicrosoftinDecember2014.[74][note13]CertainnonprofitoradvocacygroupssuchastheElectronic
FrontierFoundationacceptbitcoindonations.[76](TheorganizationstartedacceptingbitcoinsinJanuary
2011,[77]stoppedacceptingtheminJune2011,[78]andbeganagaininMay2013.[76])
InMay2013,theDepartmentofHomelandSecurityseizedassetsbelongingtotheMt.Goxexchange.[79]
TheU.S.FederalBureauofInvestigation(FBI)shutdowntheSilkRoadwebsiteinOctober2013.[80]
InOctober2013,ChineseinternetgiantBaiduhadallowedclientsofwebsitesecurityservicestopaywith
bitcoins.[81]DuringNovember2013,theChinabasedbitcoinexchangeBTCChinaovertooktheJapan
basedMt.GoxandtheEuropebasedBitstamptobecomethelargestbitcointradingexchangebytrade
volume.[82]On19November2013,thevalueofabitcoinontheMt.Goxexchangesoaredtoapeakof
US$900afteraUnitedStatesSenatecommitteehearingwastoldbytheFBIthatvirtualcurrenciesarea
legitimatefinancialservice.[83]Onthesameday,onebitcointradedforoverRMB6780(US$1,100)in
China.[84]On5December2013,thePeople'sBankofChinaprohibitedChinesefinancialinstitutionsfrom
usingbitcoins.[85]Aftertheannouncement,thevalueofbitcoinsdropped,[86]andBaidunolongeraccepted
bitcoinsforcertainservices.[87]BuyingrealworldgoodswithanyvirtualcurrencyhasbeenillegalinChina
sinceatleast2009.[88]
ThefirstbitcoinATMwasinstalledinOctober2013inVancouver,BritishColumbia,Canada.[89]
Asof2013mininghadbecomequitecompetitiveandwascomparedtoanarmsraceasevermore
specializedtechnologywasbeingutilized.Themostefficientmininghardwaremakesuseofcustom
designedapplicationspecificintegratedcircuits,whichoutperformgeneralpurposeCPUsandalsouseless
power.[90]Withoutaccesstothesepurposebuiltmachines,abitcoinminerisunlikelytoearnenoughto
evencoverthecostoftheelectricityusedinhisorherefforts.[43]
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Withroughly12millionexistingbitcoinsinNovember2013,[91]thenewpriceincreasedthemarketcapfor
bitcointoatleastUS$7.2billion.[92]By23November2013,thetotalmarketcapitalizationofbitcoin
exceededUS$10billionforthefirsttime.[93]
IntheUStwomenwerearrestedinJanuary2014onchargesofmoneylaunderingusingbitcoinsonewas
CharlieShrem,theheadofnowdefunctbitcoinexchangeBitInstantandavicechairmanoftheBitcoin
Foundation.Shremallegedlyallowedtheotherarrestedpartytopurchaselargequantitiesofbitcoinsforuse
onblackmarketwebsites.[94]
InearlyFebruary2014,oneofthelargestbitcoinexchanges,Mt.Gox,[95]suspendedwithdrawalsciting
technicalissues.[96]Bytheendofthemonth,Mt.GoxhadfiledforbankruptcyprotectioninJapanamid
reportsthat744,000bitcoinshadbeenstolen.[97]OriginallyasitefortradingMagic:TheGathering
cards,[98]Mt.Goxhadoncebeenthedominantbitcoinexchangebutitspopularityhadwanedasusers
experienceddifficultieswithdrawingfunds.[99]
OnJune18,2014,itwasannouncedthatBitcoinpaymentserviceproviderBitPaywouldbecomethenew
sponsorofSt.PetersburgBowlunderatwoyeardeal,renamedtheBitcoinSt.PetersburgBowl.Bitcoin
wastobeacceptedforticketandconcessionsalesatthegameaspartofthesponsorship,andthe
sponsorshipitselfwasalsopaidforusingbitcoin.[100]
LessthanoneyearafterthecollapseofMt.Gox,Bitstampannouncedthattheexchangewouldbetaken
offlinewhiletheyinvestigateahackwhichresultedinapproximately19,000bitcoins(equivalenttoroughly
US$5millionatthattime)beingstolenfromtheirhotwallet.[101]Theexchangeremainedofflineforseveral
daysamidspeculationthatcustomershadlosttheirfunds.BitstampresumedtradingonJanuary9after
increasingsecuritymeasuresandensuringcustomersthattheiraccountbalanceswouldnotbe
impacted.[102]
Economics
Classification
AccordingtothedirectoroftheInstituteforMoney,TechnologyandFinancialInclusionattheUniversity
ofCaliforniaIrvinethereis"anunsettleddebateaboutwhetherbitcoinisacurrency".[103]Bitcoinis
commonlyreferredtowithtermslike:digitalcurrency,[14]:1digitalcash,[104]virtualcurrency,[4]electronic
currency,[16]orcryptocurrency.[103]Itsinventor,SatoshiNakamoto,calledbitcoinelectroniccash.[12]
Bitcoinshave3usefulqualitiesinacurrency,accordingtotheEconomistin1/2015:theyare"hardtoearn,
limitedinsupplyandeasytoverify".[105]
Economistsdefinemoneyasastoreofvalue,amediumofexchange,andaunitofaccountandagreethat
bitcoinhassomewaytogotomeetallthesecriteria.[106]Itdoesbestasamediumofexchange.[note14]The
bitcoinmarketcurrentlysuffersfromvolatility,limitingtheabilityofbitcointoactasastablestoreof
value,andretailersacceptingbitcoinuseothercurrenciesastheirprincipalunitofaccount.[106]
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Journalistsandacademicsalsodisputewhattocallbitcoin.Somemediaoutletsdomakeadistinction
between"real"moneyandbitcoins,[110]whileothercallbitcoinrealmoney.[111]TheWallStreetJournal
declareditacommodityinDecember2013.[112]AForbesjournalistreferredtoitasdigitalcollectible.[113]
TwoUniversityofAmsterdamcomputerscientistsproposedtheterm"moneylikeinformational
commodity".[114]
Buyingandselling
Bitcoinscanbeboughtandsoldbothonandoffline.Participantsinonlineexchangesofferbitcoinbuyand
sellbids.Usinganonlineexchangetoobtainbitcoinsentailssomerisk,and,accordingtoastudypublished
inApril2013,45%ofexchangesfailandtakeclientbitcoinswiththem.[115]Exchangeshavesince
implementedmeasurestoprovideproofofreservesinanefforttoconveytransparencytousers.[116]
Offline,bitcoinsmaybepurchaseddirectlyfromanindividual[117]oratabitcoinATM.[118]
Priceandvolatility
Toimproveaccesstopriceinformationandincreasetransparency,
on30April2014BloombergLPannouncedplanstolistpricesfrom
bitcoincompaniesKrakenandCoinbaseonits320,000subscription
financialdataterminals.[119]
AccordingtoMarkT.Williams,asof2014,bitcoinhasvolatility
seventimesgreaterthangold,eighttimesgreaterthantheS&P500,
andeighteentimesgreaterthantheU.S.dollar.[120]
Attemptingtoexplainthehighvolatility,agroupofJapanese
scholarsstatedthatthereisnostabilizationmechanism.[121]The
BitcoinFoundationcontendsthathighvolatilityisdueto
insufficientliquidity,[122]whileaForbesjournalistclaimsthatitis
relatedtotheuncertaintyofitslongtermvalue,[123]andthehigh
volatilityofastartupcurrencymakessense,"becausepeoplearestill
experimentingwiththecurrencytofigureouthowusefulitis."[124]
Price[note15]andvolatility[note16]
chart. [note10]Leftverticalaxis:price,
thescaleislogarithmic.Rightvertical
axis:volatility.Horizontalaxis:date
rangingfrom20100817to201412
31.
Thereareuseswherevolatilitydoesnotmatter,suchasonlinegambling,tipping,andinternational
remittances.[124]Asof2014,probitcoinventurecapitalistsarguedthatthegreatlyincreasedtradingvolume
thatplannedhighfrequencytradingexchangeswerehopedtobringwoulddecreasepricevolatility.[119]
Thepriceofbitcoinshasgonethroughvariouscyclesofappreciationanddepreciationreferredtobysome
asbubblesandbusts.[125][126]In2011,thevalueofonebitcoinrapidlyrosefromaboutUS$0.30toUS$32
beforereturningtoUS$2.[127]Inthelatterhalfof2012andduringthe20122013CypriotFinancialCrisis,
thebitcoinpricebegantorise,[128]reachingahighofUS$266on10April2013,beforecrashingtoaround
US$50.[129]OnNovember29,2013,thecostofonebitcoinrosetothealltimepeakofUS$1,242.[130]In
2014thepricefellsharply,andasofAprilremaineddepressedatlittlemorethanhalf2013prices.Asof
August2014itwasunderUS$600.[131]InJanuary2015,notingthatthebitcoinpricehaddroppedtoits
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lowestlevelsincespring2013aroundUS$224theNewYorkTimessuggestedthat"[w]ithnosignsofa
rallyintheoffing,theindustryisbracingfortheeffectsofaprolongeddeclineinprices.Inparticular,
bitcoinminingcompanies,whichareessentialtothecurrencysunderlyingtechnology,areflashing
warningsigns."[132]AlsoinJanuary2015,BusinessInsiderreportedthatdeepwebdrugdealerswere
"freakingout"astheylostprofitsthroughbeingunabletoconvertbitcoinrevenuetocashquicklyenough
asthepricedeclinedandthattherewasadangerthatdealerssellingreservestostayinbusinessmight
forcethebitcoinpricedownfurther.[133]
Speculativebubbledispute
BitcoinhasbeenlabelledaspeculativebubblebymanyincludingformerFedChairmanAlan
Greenspan[134]andeconomistJohnQuiggin.[135]NobelLaureateRobertShillersaidthatbitcoin"exhibited
manyofthecharacteristicsofaspeculativebubble".[136]Twoleadsoftwaredevelopersofbitcoin,Gavin
Andresen[137]andMikeHearn,[138]havewarnedthatbubblesmayoccur.DavidAndolfatto,aVice
PresidentattheFederalReserveBankofSt.Louis,stated,"Isbitcoinabubble?Yes,ifbubbleisdefinedas
aliquiditypremium."AccordingtoAndolfatto,thepriceofbitcoin"consistspurelyofabubble,"buthe
concedesthatmanyassetshavepricesthataregreaterthantheirintrinsicvalue.[38]:21JournalistMatthew
Boeslerrejectsthespeculativebubblelabelandseesbitcoin'squickriseinpriceasnothingmorethan
normaleconomicforcesatwork.[139]TheWashingtonPostpointedoutthattheobservedcyclesof
appreciationanddepreciationdon'tcorrespondtothedefinitionofspeculativebubble.[127]
Ponzischemedispute
Variousjournalists,[140]U.S.economistNourielRoubini,[141]andtheheadoftheEstoniancentralbank[142]
havevoicedconcernsthatbitcoinmaybeaPonzischeme.A2012reportbytheEuropeanCentralBankhad
stated,"it[isnot]easytoassesswhetherornotthebitcoinsystemactuallyworkslikeapyramidorPonzi
scheme."[143]:27A2014reportbytheWorldBankconcludedthat"contrarytoawidelyheldopinion,
bitcoinisnotadeliberatePonzi".[144]:7IntheopinionofEricPosner,alawprofessorattheUniversityof
Chicago"ArealPonzischemetakesfraudbitcoin,bycontrast,seemsmorelikeacollectivedelusion."[140]
U.S.economistNourielRoubini,formersenioradvisertotheU.S.TreasuryandtheInternationalMonetary
Fund,hasstatedthat"bitcoinisaPonzigame".[145]InFebruary2014anassetmanagerandcolumnistfor
TheNewYorkPostcalledbitcoinaPonzischemeopining:"Welcometo21stcenturyPonzischeme:
Bitcoin".[146]TheheadoftheEstoniancentralbank,MihkelNommela,stated,"virtualcurrencyschemes
areaninnovationthatdeservessomecaution,giventhelackof...evidencethatthisisntjustaPonzi
scheme."[142]
OthershaveexpressedtheopinionthatbitcoinisnotaPonzischeme.TheHuffingtonPostasked,"is
BitcoinaPonzischeme,yesorno?"answeringthequestionwithadefinitive"no!".[147]ThePCWorld
stated:"bitcoinisclearlynotaPonzischeme".[148]EconomistJeffreyTuckerclaimsthat"thereareseveral
keydifferencesbetweenaPonzischemeandbitcoin."[149]A2014reportbyFederalCouncil(Switzerland)
states,"thequestionisrepeatedlyraisedwhetherbitcoincanbedeemedanimpermissiblepyramid
scheme...sinceinthecaseofbitcointhetypicalpromisesofprofitsarelacking,itcannotbeassumedthat
bitcoinisapyramidscheme."[150]:21
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Valueforecasts
Financialjournalistsandanalysts,economists,andinvestorshaveattemptedtopredictthepossiblefuture
valueofbitcoin.InApril2013,economistJohnQuigginstated,"bitcoinswillattaintheirtruevalueofzero
soonerorlater,butitisimpossibletosaywhen".[135]AsimilarforecastwasmadeinNovember2014by
economistKevinDowd.[151]InNovember2014,DavidYermack,ProfessoroffinanceatNYUStern
SchoolofBusinessforecastthatinNovember2015bitcoinmaybeallbutworthless."[152]InDecember
2013,financeprofessorMarkT.WilliamsforecastabitcoinwouldbeworthlessthantenU.S.dollarsby
July2014.[153]Intheindicatedperiodbitcoinhasexchangedaslowas$344(April2014)andduringJuly
2014thebitcoinlowhasbeen$609.[note10][154]InDecember2014professorWilliamssaid:"The
probabilityofsuccessislow,butifitdoeshit,therewardwillbeverylarge."[155]InMay2013,Bankof
AmericaFXandRateStrategistDavidWooforecastamaximumfairvalueperbitcoinof$1,300.[156]
BitcoininvestorCameronWinklevossstatedinDecember2013thatthe"[s]mallbullcasescenariofor
bitcoinis...40,000USDacoin".[157]
Obituaries
Thedeathofbitcoinhasbeenproclaimednumeroustimes.[158]ForbesdeclaredbitcoindeadinJune
2011,[159]followedbyGizmodoAustraliainAugust2011.[160]WiredwrotebitcoinexpiredinDecember
2012,[161]OuishareMagazinedeclaredgameoverforbitcoininMay2013,[162]andNewYorkMagazine
statedbitcoinwasonitspathtograveinJune2013.[163]Reuterspublishedanobituaryforbitcoinin
January2014,[164]StreetInsiderdeclaredbitcoindeadinFebruary2014,[165]asdidtheWeeklyStandardin
March2014,[166]followedbySaloninMarch2014,[167]andViceNewsinMarch2014,[168]thenthe
FinancialTimesinSeptember2014,and9others.[169]InJanuary2015,USATodaydeclaredbitcointobe
headedtotheashheap,[170]andTheTelegraphdeclared"theendofbitcoinexperiment".[171]Onesitehas
recorded29obituaries.[158]
Reception
Someeconomistshaverespondedpositivelytobitcoin,butmanyhavenot.FranoisR.Velde,Senior
EconomistattheChicagoFeddescribeditas"anelegantsolutiontotheproblemofcreatingadigital
currency".[172]AccordingtoWired"intheestimationofmanyleadingeconomists,bitcoinisafatally
flawedideashapedbypeoplewhodontreallyunderstandhowmoneyworks".[173]PaulKrugmanandBrad
DeLonghavefoundfaultwithbitcoinquestioningwhyitshouldactasareasonablystablestoreofvalueor
whetherthereisaflooronitsvalue.[174]EconomistJohnQuigginhascriticizedbitcoinas"thefinal
refutationoftheefficientmarkethypothesis".[135]
DavidAndolfatto,VicePresidentattheFederalReserveBankofSt.Louis,statedthatbitcoinisathreatto
theestablishment,whichhearguesisagoodthingfortheFederalReserveSystemandothercentralbanks
becauseitpromptstheseinstitutionstooperatesoundpolicies.[38]:33[175][176]
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FreesoftwaremovementactivistRichardStallmanhascriticizedthelackofanonymityandcalledfor
reformeddevelopment.[177]PayPalPresidentDavidA.Marcuscallsbitcoina"greatplacetoputassets"but
claimsitwillnotbeacurrencyuntilpricevolatilityisreduced.[178]BillGates,inrelationtothecostof
movingmoneyfromplacetoplaceinaninterviewforBloombergL.P.stated:"Bitcoinisexcitingbecause
itshowshowcheapitcanbe."[179]
Similarly,PeterSchiff,abitcoinscepticunderstands"thevalueofthetechnologyasapaymentplatform"
andhisEuroPacificPreciousMetalsfundpartneredwithBitPayinMay2014,because"awiretransferof
fiatfundscanbeslowandexpensiveforthecustomer".[180]
KevinDowd,ProfessorofFinanceandeconomicsatDurhamUniversityhasabearishoutlookonbitcoinas
acurrency.AttheCatoInstitutes2014AnnualConferencewiththetopic'AlternativestoCentralBanking:
TowardFreeMarketMoney'[181]hesaid"bitcoinscurrentincentivestructure[is]leadingtoaninevitable
collapse,mostlyduetothecentralizationofmining".[182]
Acceptancebymerchants
AsofDecember2014establishedfirmsthatacceptpaymentsin
bitcoinincludeAtomicMall,[69]ClearlyCanadian,[183]Dell,[184]
DishNetwork,Expedia,[185]Microsoft,[74]Newegg,[186]
PrivateFly,[187]Overstock.com,[71]theSacramentoKings,[188]
TigerDirect,[70]TimeInc.,[189]VirginGalactic,[190]and
Zynga.[191][note13]Asof23September2014PayPaloffersitsNorth
Americanmerchantstoreceivecustomerpaymentsfordigitalgoods
inbitcoin.[192]Inlate2013theUniversityofNicosiabecamethe
firstuniversityintheworldtoacceptbitcoins.[193]Duetothefact
Bitcoinsareacceptedinthiscafin
thatchargebacksareimpossible,retailersusuallyofferinstore
theNetherlandsasof2013
creditastheonlyoptionwhenreturningitemspurchasedwith
bitcoins.[194]InSeptember2014,DynamiteEntertainmentbecame
thefirstcomicbookpublishertoacceptbitcoinforpurchasesthroughtheirDRMFreeDigitalComic
Store.[195]
Organizationsacceptingdonationsinbitcoininclude:Greenpeace,[196]TheMozillaFoundation,[197]and
TheWikimediaFoundation.[198]SomeU.S.politicalcandidates,includingNewYorkCityDemocratic
CongressionalcandidateJeffKurzonhavesaidtheywouldacceptcampaigndonationsinbitcoin.[199]
Financialinstitutions
Bitcoincompanieshavehaddifficultyopeningtraditionalbankaccountsbecauselendershavebeenleeryof
bitcoin'slinkstoillicitactivity.[200]AccordingtoAntonioGallippi,acofounderofBitPay,"banksare
scaredtodealwithbitcoincompanies,eveniftheyreallywantto".[201]Inlate2014,HSBCrefusedtoserve
ahedgefundwithlinkstobitcoin.[202]
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Otherfinancialinstitutionshavebeenbullishonbitcoin.Ina2013report,BankofAmericaMerrillLynch
statedthat"webelievebitcoincanbecomeamajormeansofpaymentforecommerceandmayemergeasa
seriouscompetitortotraditionalmoneytransferproviders."[203]InJune2014,thefirstbankthatconverts
depositsincurrenciesinstantlytobitcoinwithoutanyfees,forfurthertransactions,wasopenedin
Boston.[204]
Asinvestment
Onewaytoinvestinbitcoinsistobuyandholdthemasalongterminvestment.[205]SomeArgentinians
haveboughtbitcoinstoprotecttheirsavingsagainsthighinflationorthepossibilitythatgovernmentscould
confiscatesavingsaccounts.[57]Duringthe20122013Cypriotfinancialcrisis,bitcoinpurchasesinCyprus
roseduetofearsthatsavingsaccountswouldbeconfiscatedortaxed.[206]Othermethodsofinvestmentare
bitcoinfunds.ThefirstregulatedbitcoinfundwasestablishedinJerseyinJuly2014andapprovedbythe
JerseyFinancialServicesCommission.[207]Also,c.2012anattemptwasmadebytheWinklevosstwins
(whoinApril2013claimedtheyownednearly1%ofallbitcoinsinexistence[208])toestablishabitcoin
ETF.[209]
In2013and2014,theEuropeanBankingAuthority[28]andtheFinancialIndustryRegulatoryAuthority
(FINRA),aUnitedStatesselfregulatoryorganization,[210]warnedthatinvestinginbitcoinscarries
significantrisks.Suchriskswerehighlightedin2014whenBloombergnamedbitcoinasoneofitsworst
investmentsoftheyear.[211]BloombergselectedtheRussianrubleastheworstcurrencyinvestmentof
2014butalsomentionedbitcoinasthe"onecurrencythatdidworse[thantheruble]in2014,dependingon
whetheryouthinkvirtualcurrenciesarerealmoney."[211]
Venturecapital
Venturecapitalists,suchasPeterThiel'sFoundersFund,whichinvestedUS$3millioninBitPay,donot
purchasebitcoinsthemselves,insteadfundingbitcoininfrastructurelikecompaniesthatprovidepayment
systemstomerchants,exchanges,walletservices,etc.[212]In2012,anincubatorforbitcoinfocusedstart
upswasfoundedbyAdamDraper,withfinancinghelpfromhisfather,venturecapitalistTimDraper,one
ofthelargestbitcoinholdersafterwinninganauctionof30,000bitcoins,[213]atthetimecalled'mystery
buyer'.[214]Thecompany'sgoalistofund100bitcoinbusinesseswithin23yearswith$10,000to$20,000
fora6%stake.[213]Investorsalsoinvestinbitcoinmining.[215]
Politicaleconomy
Bitcoinappealstotechsavvylibertarians,becauseitsofarexistsoutsidetheinstitutionalbankingsystem
andthecontrolofgovernments.[216]Itsappealreachesfromleftwingcritics,"whoperceivethestateand
bankingsectorasrepresentingthesameeliteinterests,[...]recognisinginitthepotentialforcollective
directdemocraticgovernanceofcurrency"[217]andsocialistsproposingtheir"ownstates,completewith
currencies",[218]torightwingcriticssuspiciousofbiggovernment,atatimewhenactivitieswithinthe
regulatedbankingsystemwereresponsiblefortheseverityofthefinancialcrisisof200708,[219]"because
governmentsarenotfullylivinguptotheresponsibilitythatcomeswithstatesponsoredmoney".[220]
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Bitcoinhasbeendescribedas"remov[ing]theimbalancebetweenthebigboysoffinanceandthe
disenfranchisedlittleman,potentiallyallowingearlyadopterstonegotiatefavourableratesonexchanges
andtransferssomethingthatonlytheverybiggestfirmshavetraditionallyenjoyed".[221]TwoWSJ
journalistsdescribebitcoinintheirbookas"aboutfreeingpeoplefromthetyrannyofcentralisedtrust".[222]
Legalstatusandregulation
Variousgovernmentagencies,departments,andcourtshaveclassifiedbitcoinsdifferently.Afew
governmentshavemovedtoregulatebitcoinandsimilarpaymentsystems.AccordingtotheEuropean
CentralBank,traditionalfinancialsectorregulationisnotapplicablebecausebitcoindoesnotinvolve
traditionalfinancialactors.[143]:5Underotherregimes,however,existingruleshavebeenextendedto
includebitcoinandbitcoincompanies.
StevenStrauss,aHarvardpublicpolicyprofessor,suggestedinApril2013thatgovernmentscouldoutlaw
bitcoin,[223]butasof2014itwasillegalonlyintwocountriesVietnamandIceland.[224]Thisdoesnot
stop[225]businessesinIcelandfromcreating(or"mining")bitcoins.[226]Thepossibilityofbitcoinbeing
outlawedwasmentionedina2013U.S.SecuritiesandExchangeCommission(SEC)filingmadebya
bitcoininvestmentvehicle.[209]AdetailedsurveyofbitcoininfortyforeignjurisdictionsandtheEuropean
UnionismaintainedbytheU.S.LibraryofCongress.[19]
China
ThePeople'sBankofChinahasstatedthatbitcoin"isfundamentallynotacurrencybutaninvestment
target".[227]On5December2013,ChinaCentralBankmadeitsfirststepinregulatingbitcoinby
prohibitingfinancialinstitutionstohandlebitcointransactions.[228]Inastatementonthecentralbanks
websitethePeople'sBankofChinasaidfinancialinstitutionsandpaymentcompaniescannotgivepricing
in,buyandsellbitcoinorinsurebitcoinlinkedproducts.ADecember2013statementfromBTCChina
suggestedpaymentprocessorshadvoluntarilywithdrawntheirservices.[229]On1April2014ChinaCentral
Bankorderedcommercialbanksandpaymentcompaniestoclosebitcointradingaccountsintwo
weeks.[230]TradingbitcoinsbyindividualsislegalinChina.[228]
EuropeanUnion
TheEuropeanCentralBankclassifiesbitcoinasaconvertibledecentralizedvirtualcurrency.[143]:6A
Germancourtfoundbitcointobeaunitofaccount.[19]:10TheFinnishgovernmentjudgedittobea
commoditynotacurrency.[231]InJuly2014theEuropeanBankingAuthorityadvisedEuropeanbanksnot
todealinvirtualcurrenciessuchasbitcoinuntilaregulatoryregimewasinplace.[232]
G7
The2013G7'sFinancialActionTaskForcepublishedguidanceforInternetbasedpaymentservicesthat
defines"exchangersbuyingorsellingdigitalcurrencyforcash(orotherdigitalcurrencies)[...]asavirtual
bureaudechange"andwarnsthat"Internetbasedpaymentservicesthatallowthirdpartyfundingfrom
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anonymoussourcesmayfaceanincreasedriskof[moneylaundering/terroristfinancing]"concludingthat
thismay"posechallengestocountriesin[antimoneylaundering/counterterroristfinancing]regulationand
supervision".[233]
UnitedStates
TheU.S.Treasuryclassifiesbitcoinasaconvertibledecentralizedvirtualcurrency.[1]MagistrateJudge
AmosL.MazzantofaTexasDistrictCourtclassifiedbitcoinasacurrency.[234]AJune2014U.S.
governmentauctionofalmost30,000bitcoins,whichtheU.S.MarshalsServiceseizedinOctober2013
fromSilkRoad,wassaidtoincreaselegitimacyofthecurrency.[214]
TheU.S.GovernmentAccountabilityOffice(GAO)reviewedvirtualcurrenciesupontherequestofthe
SenateFinanceCommitteeandinMay2013recommended,thattheInternalRevenueService(IRS)
formulatetaxguidanceforbitcoinbusinesses.[235]On25March2014,intimefor2013taxfiling,theIRS
issuedaguidancethatvirtualcurrencyistreatedaspropertyforU.S.federaltaxpurposesandthat"an
individualwho'mines'virtualcurrencyasatradeorbusiness[is]subjecttoselfemploymenttax".[236]
On18November2013,theUnitedStatesSenateheldacommitteehearingtitled"BeyondSilkRoad:
PotentialRisks,ThreatsandPromisesofVirtualCurrencies"todiscussvirtualcurrencies.[237]Atthis
hearing,heldbysenatorTomCarper,bitcoinandothercurrencieswerereceivedgenerallypositively,with
statementsthatbitcoinwasa"legalmeansofexchange"andthat"onlinepaymentsystems,bothcentralized
anddecentralized,offerlegitimatefinancialservices"byUSofficialsPeterKadzikandMythili
Raman.[91][238]
TheFederalElectionCommission(FEC)deadlockedon21November2013onwhethertoallowbitcoinin
politicalcampaigns.Theirdecisionwassplitacrosspartylines(threemembersDemocratvotingnay,three
Republicansvotingyea).[239]PoliticalbitcoinpioneersNewHampshireHousememberMarkWarden[240]
andSouthernCaliforniapoliticianMichaelB.Glenn[241]independentlyfromeachotheracceptedbitcoinin
theircampaigna,andpavedthewayforotherstofollowsuit.On8May2014,theU.S.FederalElection
CommissionissueddraftguidancetoU.S.politicianswhowanttoreceivebitcoindonations.[242]The
Commissiondeclinedtodeclarebitcoinscurrency,statingtheyfitintoits"anythingofvalue"
definition.[243]
InMay2014,BrettStapper,cofounderofFalconGlobalCapital,registeredtolobbymembersofCongress
andfederalagenciesonissuesrelatedtobitcoin.[244]
InJanuary2014,theU.S.SecuritiesandExchangeCommission(SEC)wasfocusedonwhetherbitcoin
denominatedstockexchangeswereillegal,peritsenforcementadministrator,andinquiredintothe
gamblingsiteSatoshiDicelistingsharesonbitcoinexchangeMPEx.[245]InMayitwarnedinvestorsthat
"bothfraudstersandpromotersofhighriskinvestmentschemesmaytargetbitcoinusers".[246]TheSEC
chargedandsettledwiththeformerownerofSatoshiDiceinJune2014forsellingsecuritieswithout
registeringwiththeSEC.[247]InOctober2014,formerSECChairArthurLevittjoinedBitPay,abitcoin
paymentprocessor,andVaurum,abitcoinexchangeforinstitutionalinvestorsinadvisoryroles.[248]
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TheU.S.CommodityFuturesTradingCommissionstatedinMarch2014itconsideredregulationofdigital
currencies[249]afterTeraExchangeannouncedtolaunchaswap.TeraExchangeconstructedanindexforthe
valueofbitcoinfromsixdifferentexchanges.Thedollarvalueofagivenbitcoinamountislockedinthe
swap.TheCFTCapprovedthefinancialproductinSeptember2014,satisfiedit"couldnoteasilybe
manipulated".[250]
InJune2014CaliforniaAssemblymanRogerDickinson(DSacramento)submitteddraftlegislation
(AssemblyBill129)(http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?
bill_id=201320140AB129&search_keywords=)tolegalizebitcoinandallotherformsofalternativeand
digitalcurrency.[251]AftertheGAOhadcalledforincreasedoversightofbitcoin,theConsumerFinancial
ProtectionBureauwarnedconsumersofbitcoinbeingrisky.[252]
AsofNovember2014,therearenofinalrulesattheU.S.statelevelyet.InMarch2014,theNewYork
StateDepartmentofFinancialServicesledbysuperintendentBenjaminLawskyhadofficiallyinvited
bitcoinexchangestoapplywiththem,[253]andon17Julyitpublisheddraftregulationsforvirtualcurrency
businesses.[254]Businesseswouldhavetoprovidetransactionreceipts,disclosuresaboutrisks,policiesto
handlecustomercomplaints,maintainacybersecurityprogram,hireacomplianceofficerandverifydetails
abouttheircustomerstofollowantimoneylaunderingrules,perFinCEN.[254]
Criminalactivity
Theappealofbitcointocriminalshasattractedtheattentionoffinancialregulators,legislativebodies,law
enforcement,andthemedia.[29]TheFBIpreparedanintelligenceassessment,[31]theSEChasissueda
pointedwarningaboutinvestmentschemesusingvirtualcurrencies,[29]theU.S.Senateheldahearingon
virtualcurrenciesinNovember2013,CNNhasreferredtobitcoinasa"shadyonlinecurrency[thatis]
startingtogainlegitimacyincertainpartsoftheworld",[255]andTheWashingtonPostcalledit"the
currencyofchoiceforseedyonlineactivities".[32]Criminalactivityinvolvingbitcoinhascenteredaround
theft,andtheuseofbitcoinsinexchangeforillegalitemsorservices.
Theft
Therehavebeenmanycasesofbitcointheft.[50]Onewaytheftisaccomplishedinvolvesathiefinfiltrating
theprivatekeysofthevictim'sbitcoinaddress,[256]orofanonlinewallet.[257]Iftheprivatekeyisstolen,
thethiefcanuseittotransferallthebitcoinsfromthecompromisedaddresstoanotheraddressofhisown.
Inthatcase,thenetworkdoesnothaveanyprovisiontoidentifythethief,toblockfurthertransactionsof
thosestolenbitcoins,orreturnthemtothelegitimateowner.[209]
InlateNovember2013,anestimated$100millioninbitcoinswerestolenfromtheonlineillicitgoods
marketplaceSheepMarketplace,whichimmediatelyclosed.[258]Userstrackedthecoinsastheywere
processedandconvertedtocash,butnofundswererecoveredandnoculpritsidentified.[258]Adifferent
blackmarket,SilkRoad2,statedthatduringaFebruary2014hack,bitcoinsvaluedat$2.7millionwere
takenfromescrowaccounts.[259]Inputs.io,anAustralianbitcoinwalletservicewashackedtwiceinOctober
2013andlostmorethan$1millioninbitcoins.[260]InlateFebruary2014Mt.Gox,oneofthelargestvirtual
currencyexchanges,filedforbankruptcyinTokyoamidreportsthat744,000bitcoinshadbeenstolen.[97]
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Flexcoin,abitcoinstoragespecialistbasedinAlberta,Canada,shutdownonMarch2014aftersayingit
discoveredatheftofabout$650,000inbitcoins.[261]Poloniex,adigitalcurrencyexchange,reportedon
March2014thatitlostbitcoinsvaluedataround$50,000.[262]BeginningofJanuary2015,UKbased
bitstamp,thethirdbusiestbitcoinexchangegloballywashacked,and19,000bitcoins($5million)were
stolen.[263]
Blackmarkets
Becauseoftheirpresumedcapacitytoobfuscatethesourceofpaymentsinonlinetransactionsandbypass
moneytransfercontrolsbygovernmentsandlawenforcementagencies,bitcoinhavecometobeusedinthe
deepwebblackmarkets.[264]In2012,itwasestimatedthat4.5%to9%ofalltransactionsofallbitcoin
exchangesintheworldwerefordrugtradesonasingledeepwebdrugsmarket,SilkRoad.[265]
Severaldeepwebblackmarketshavebeenshutbyauthorities.InOctober2013SilkRoadwasshutdown
byU.S.lawenforcement[264][266][267]leadingtoashorttermdecreaseinthevalueofbitcoin.[268]
Alternativesitesweresoonavailable,andinearly2014theAustralianBroadcastingCorporationreported
thattheclosureofSilkRoadhadlittleimpactonthenumberofAustralianssellingdrugsonline,whichhad
actuallyincreased.[269]Inearly2014,DutchauthoritiesclosedUtopia,anonlineillegalgoodsmarket,and
seized900bitcoins.[270]Inlate2014,ajointpoliceoperationsawEuropeanandAmericanauthoritiesseize
bitcoinsandclose400deepwebsitesincludingtheillicitgoodsmarketSilkRoad2.0.[271]On19December
2014CharlieShremwassentencedtotwoyearsinprisonforindirectlyhelpingtosend$1milliontoSilk
Road.[272]
Severalnewsoutletshaveassertedthatthepopularityofbitcoinshingesontheabilitytousethemto
purchaseillegalgoods.[273][274]Nondrugtransactionswerethoughttobefarlessthanthenumberinvolved
inthepurchaseofdrugs,[275]androughlyonehalfofalltransactionsmadeusingbitcoinc.2013werebets
placedatasingleonlinegamblingwebsite,SatoshiDice.[276]TheHuffingtonPoststatedthatonlinegun
dealersusebitcointosellarmswithoutbackgroundchecks.[277]
Someblackmarketsitesmayseektostealbitcoinsfromcustomers.Thebitcoincommunitybrandedone
site,SheepMarketplace,asascamwhenitpreventedwithdrawalsandshutdownafteranallegedbitcoins
theft.[278]Inaseparatecase,escrowaccountswithbitcoinsbelongingtopatronsofadifferentblackmarket
werehackedinearly2014.[259]
Moneylaundering
Bitcoinsmaynotbeidealformoneylaunderingbecausealltransactionsarepublic.[279]Authorities,
includingtheEuropeanBankingAuthority[28]andtheFBI[31]haveexpressedconcernsthatbitcoinmaybe
usedformoneylaundering.Inearly2014,anoperatorofaU.S.bitcoinexchangewasarrestedformoney
laundering.[94]
Ponzischeme
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InaPonzischemethatutilizedbitcoins,TheBitcoinSavingsandTrustpromisedinvestorsupto7percent
weeklyinterest,andraisedatleast700,000bitcoinsfrom2011to2012.[280]InJuly2013theU.S.Securities
andExchangeCommissionchargedthecompanyanditsfounderin2013"withdefraudinginvestorsina
Ponzischemeinvolvingbitcoin".[280]InSeptember2014thejudgefinedBitcoinSavings&Trustandits
owner$40millionforoperatingabitcoinPonzischeme.[281]
Malware
Bitcoinrelatedmalwareincludessoftwarethatstealsbitcoinsfromusersusingavarietyoftechniques,
softwarethatusesinfectedcomputerstominebitcoins,anddifferenttypesofransomware,whichdisable
computersorpreventfilesfrombeingaccesseduntilsomepaymentismade.SecuritycompanyDell
SecureWorkssaidinFebruary2014thatithadidentifiedalmost150typesofbitcoinmalware.[282]
Unauthorizedmining
InJune2011,Symantecwarnedaboutthepossibilitythatbotnetscouldminecovertlyforbitcoins.[283]
MalwareusedtheparallelprocessingcapabilitiesofGPUsbuiltintomanymodernvideocards.[284]
AlthoughtheaveragePCwithanintegratedgraphicsprocessorisvirtuallyuselessforbitcoinmining,tens
ofthousandsofPCsladenwithminingmalwarecouldproducesomeresults.[285]
InmidAugust2011,bitcoinminingbotnetsweredetected,[286]andlessthanthreemonthslater,bitcoin
miningtrojanshadinfectedMacOSX.[287]
InApril2013,electronicsportsorganizationESportsEntertainmentwasaccusedofhijacking14,000
computerstominebitcoinsthecompanylatersettledthecasewiththeStateofNewJersey.[288]
GermanpolicearrestedtwopeopleinDecember2013whocustomizedexistingbotnetsoftwaretoperform
bitcoinmining,whichpolicesaidhadbeenusedtomineatleast$950,000worthofbitcoins.[289]
ForfourdaysinDecember2013andJanuary2014,Yahoo!Europehostedanadcontainingbitcoinmining
malwarethatinfectedanestimatedtwomillioncomputers.[285]Thesoftware,calledSefnit,wasfirst
detectedinmid2013andhasbeenbundledwithmanysoftwarepackages.Microsofthasbeenremovingthe
malwarethroughitsMicrosoftSecurityEssentialsandothersecuritysoftware.[290]
Severalreportsofemployeesorstudentsusinguniversityorresearchcomputerstominebitcoinshavebeen
published.[291]
Malwarestealing
Somemalwarecanstealprivatekeysforbitcoinwalletsallowingthebitcoinsthemselvestobestolen.The
mostcommontypesearchescomputersforcryptocurrencywalletstouploadtoaremoteserverwherethey
canbecrackedandtheircoinsstolen.[292]Manyofthesealsologkeystrokestorecordpasswords,often
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avoidingtheneedtocrackthekeys.[292]Adifferentapproachdetectswhenabitcoinaddressiscopiedtoa
clipboardandquicklyreplacesitwithadifferentaddress,trickingpeopleintosendingbitcoinstothewrong
address.[293]Thismethodiseffectivebecausebitcointransactionsareirreversible.
Onevirus,spreadthroughthePonybotnet,wasreportedinFebruary2014tohavestolenupto$220,000in
cryptocurrenciesincludingbitcoinsfrom85wallets.[294]SecuritycompanyTrustwave,whichtrackedthe
malware,reportsthatitslatestversionwasabletosteal30typesofdigitalcurrency.[295]
AtypeofMacmalwareactiveinAugust2013,Bitvanityposedasavanitywalletaddressgeneratorand
stoleaddressesandprivatekeysfromotherbitcoinclientsoftware.[296]AdifferenttrojanforMacOSX,
calledCoinThiefwasreportedinFebruary2014toberesponsibleformultiplebitcointhefts,includingone
userwholost20bitcoins.[296]Thesoftwarewashiddeninversionsofsomecryptocurrencyappson
Download.comandMacUpdate.[296]
Ransomware
Anothertypeofbitcoinrelatedmalwareisransomware.OneprogramcalledCryptoLocker,typically
spreadthroughlegitimatelookingemailattachments,encryptstheharddriveofaninfectedcomputer,then
displaysacountdowntimeranddemandsaransom,usuallytwobitcoins,todecryptit.[297]Massachusetts
policesaidtheypaida2bitcoinransominNovember2013,worthmorethan$1,300atthetime,todecrypt
oneoftheirharddrives.[298]Linkup,acombinationransomwareandbitcoinminingprogramthatsurfaced
inFebruary2014,disablesinternetaccessanddemandscreditcardinformationtorestoreit,whilesecretly
miningbitcoins.[297]
Security
Variouspotentialattacksonthebitcoinnetworkanditsuseasapaymentsystem,realortheoretical,have
beenconsidered.Thebitcoinprotocolincludesseveralfeaturesthatprotectitagainstsomeofthoseattacks,
suchasunauthorizedspending,doublespending,forgingbitcoins,andtamperingwiththeblockchain.[39]
Otherattacks,suchastheftofprivatekeys,requireduecarebyusers.
Unauthorizedspending
UnauthorizedspendingismitigatedbyBitcoin'simplementationofpublicprivatekeycryptography.When
AlicesendsabitcointoBob,Bobbecomesthenewownerofthebitcoin.Eveobservingthetransaction
mightwanttospendthebitcoinBobjustreceived,butshecannotsignthetransactionwithoutthe
knowledgeofBob'sprivatekey.[14]
Doublespending
Aspecificproblemthataninternetpaymentsystemmustsolveisdoublespending,wherebyauserpaysthe
samecointotwoormoredifferentrecipients.AnexampleofsuchaproblemwouldbeifEvesentabitcoin
toAliceandlatersentthesamebitcointoBob.Thebitcoinnetworkguardsagainstdoublespendingby
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recordingallbitcointransfersinaledger(theblockchain)thatisvisibletoallusers,andensuringforall
transferredbitcoinsthattheyhaven'tbeenpreviouslyspent.[14]:4
Raceattack
IfEveofferstopayAliceabitcoininexchangeforgoodsandsignsacorrespondingtransaction,itisstill
possiblethatshealsocreatesadifferenttransactionatthesametimesendingthesamebitcointoBob.By
therules,thenetworkacceptsonlyoneofthetransactions.Thisiscalledraceattack,sincethereisarace
whichtransactionwillbeacceptedfirst.Alicecanreducetheriskofraceattackstipulatingthatshewillnot
deliverthegoodsuntilEve'spaymenttoAliceappearsintheblockchain.[299]
Avariantraceattack(whichhasbeencalledaFinneyattackbyreferencetoHalFinney)requiresthe
participationofaminer.Insteadofsendingbothpaymentrequests(topayBobandAlicewiththesame
coins)tothenetwork,EveissuesonlyAlice'spaymentrequesttothenetwork,whiletheaccomplicetriesto
mineablockthatincludesthepaymenttoBobinsteadofAlice.Thereisapositiveprobabilitythatthe
rogueminerwillsucceedbeforethenetwork,inwhichcasethepaymenttoAlicewillberejected.Aswith
theplaindoublespendingattack,AlicecanreducetheriskofaFinneyattackbywaitingforthepaymentto
beincludedintheblockchain.[300]
Historymodification
Theotherprincipalwaytostealbitcoinswouldbetomodifyblockchainledgerentries.
Forexample,EvecouldbuysomethingfromAlice,likeasofa,byaddingasignedentrytotheblockchain
ledgerequivalenttoEvepaysAlice100bitcoins.Later,afterreceivingthesofa,Evecouldmodifythat
blockchainledgerentrytoreadinstead:EvepaysAlice1bitcoin,orreplaceAlice'saddressbyanotherof
Eve'saddresses.Digitalsignaturescannotpreventthisattack:Evecansimplysignherentryagainafter
modifyingit.
Topreventmodificationattacks,eachblockoftransactionsthatisaddedtotheblockchainincludesa
cryptographichashcodethatiscomputedfromthehashofthepreviousblockaswellasalltheinformation
intheblockitself.Whenthebitcoinsoftwarenoticestwocompetingblockchains,itwillautomatically
assumethatthechainwiththegreatestamountofworktoproduceitisthevalidone.Therefore,inorderto
modifyanalreadyrecordedtransaction(asintheaboveexample),theattackerwouldhavetorecalculate
notjustthemodifiedblock,butalltheblocksafterthemodifiedone,untilthemodifiedchaincontainsmore
workthanthelegitimatechainthattherestofthenetworkhasbeenbuildinginthemeantime.
Consequently,forthisattacktosucceed,theattackermustoutperformthehonestpartofthenetwork.[39]
Eachblockthatisaddedtotheblockchain,startingwiththeblockcontainingagiventransaction,iscalled
aconfirmationofthattransaction.Ideally,merchantsandservicesthatreceivepaymentinbitcoinshould
waitforatleastoneconfirmationtobedistributedoverthenetwork,beforeassumingthatthepaymentwas
done.Themoreconfirmationsthatthemerchantwaitsfor,themoredifficultitisforanattackerto
successfullyreversethetransactioninablockchainunlesstheattackercontrolsmorethanhalfthetotal
networkpower,inwhichcaseitiscalleda51%attack.[301]Forexample,iftheattackerpossesses10%of
thecalculationpowerofthebitcoinnetworkandtheshoprequires6confirmationsforasuccessful
transaction,theprobabilityofsuccessofsuchanattackwillbe0.02428%.[12]
21/46
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Selfishmining
ThisattackwasfirstintroducedbyIttayEyalandEminGunSireratthebeginningofNovember2013.[302]
Theattackerdoesnotnormallybroadcasttheblocksuponfindingthem.Hemineshisprivatechainand
eventually(whensomebodyfindshisownblock)publishesseveralblocksatrow.Thismakesthe"honest"
networkabandontheirlastworkandswitchtotheattacker'sbranch.Asaresult,honestminerslosea
significantpartoftheirrevenue,whilsttheattackerincreasesprofitsduetochangesinrelativehashpowers.
Accordingtotheauthorsitchangestheincentivesforrationalminersandmakesthemwanttojointhe
attacker'spool,increasingattacker'shashpower(whichcouldpotentiallyleadto51%attack).
However,otherresearchersdisagreewiththeconclusionandpointouttheflawsinthearticle.[303]
Deanonymisationofclients
Alongwithtransactiongraphanalysis,whichmayrevealconnectionsbetweenbitcoinaddresses
(pseudonyms),[2][304]thereisapossibleattack[305]whichlinksuserpseudonymtoitsIPaddress,evenifthe
peerisusingTor.TheattackmakesuseofbitcoinmechanismsofrelayingpeeraddressesandantiDoS
protection.Thecostoftheattackonthefullbitcoinnetworkisunder1500permonth.[305]
Inthemedia
AbitcoindocumentaryfilmcalledTheRiseandRiseofBitcoinmadeitsdebutattheTribecaFilmFestival
inNewYorkon23April2014,chroniclingitsoriginstoitsexplosivegrowthin2013.[306]
Severallightheartedsongscelebratingbitcoinhavebeenreleased.[307]NumerousU.S.comedianshave
madefunof"bitcoinconfusion".[308]
InFall2014,undergraduatestudentsattheMassachusettsInstituteofTechnology(MIT)eachreceived
bitcoinsworth$100"tobetterunderstandthisemergingtechnology".OnestudenthadtheideaofaBitcoin
ClubandraisedmorethanhalfamilliondollarsfromanMITalumnusworkinginhighfrequency
trading.[309]
Bibliography
PaulVigna,MichaelCasey(January27,2015).TheAgeofCryptocurrency:HowBitcoinandDigital
MoneyAreChallengingtheGlobalEconomicOrder.St.Martin'sPress.ISBN1250065631.
Seealso
Alternativecurrency
Bitcoinfaucet
Cryptoanarchism
22/46
2/1/2015
Electronicmoney
Privatecurrency
Tidbit
Virtualcurrency
Worldcurrency
Notes
1. ^Bitcoindoesnothaveacentralauthority.[1]
2. âbAsof2014,BTCisthemostcommonlyusedcode.[5]
3. âbAsof2014,XBTisusedbyBloombergL.P.,[6]CNNMoney,[7]CoinDesk,[8]andxe.com.[9]
4. âbBitcoinFoundationwillattempttoestablishaUnicodesymbolforbitcoin.TheleadingcandidatesareB
(letterBwithcombiningdoubleverticalstrokeoverlay),(theThaiBahtsymbol),and(Bwithstroke).[5]
5. ^Thewordbitcoinisacompoundofthewordsbit,beingitselfacompoundofthewordsbinaryanddigit,and
coin,originallymeaningwedge,stamp,corner.[11]Thewhitepaperthatdefinedbitcoin[12]frequentlyusesjust
theshortercoin.
6. âbItisnotknownwhetherthenameSatoshiNakamotoisrealorapseudonym,orifitrepresentsonepersonor
agroup.
7. ^Thereisnouniformconventionforbitcoincapitalization.SomesourcesuseBitcoin,capitalized,torefertothe
technologyandnetworkandbitcoin,lowercase,torefertotheunitofaccount.[16]TheWSJ[17]andThe
ChronicleofHigherEducation[18]advocateuseoflowercasebitcoininallcases.Thisarticlefollowsthelatter
convention.
8. âbDavidChaum'selectroniccashbasedoncryptographywasfirstusedforatransactionin1994,[21]and
OpenCoin,nowknownasRipple,hadcodewrittenpriortoNovember2008.[22]
9. ^Blocksintheblockchaincontainanumbercalledthedifficultytarget.Therelativeminingdifficultyatagiven
timeisdefinedastheratiobetweenthedifficultytargetat9January2009andthedifficultytargetatthegiven
time.Thisyieldsrelativeminingdifficultyat9January2009equalto1.Highernumbermeanshigherrelative
difficulty.Asthetotalnetworkpowerincreases,thenetworkadjuststheminingdifficultytomakeminingalways
lastabouttenminutes.Therefore,therelativeminingdifficultycanalsobeinterpretedastherelativepowerofthe
network.
10. âbcdDataacquiredfromBlockchain.info[37]
11. ÊachASICMinerBlockErupterUSBcancalculate~333megahashespersecond(Mhash/s)atanefficiencyof
130megahashesperjoule(Mhash/J).
12. Îtismisleadingtothinkthatthereisananalogybetweengoldminingandbitcoinmining.Thefactisthatgold
minersarerewardedforproducinggold,whilebitcoinminersarenotrewardedforproducingbitcoinstheyare
rewardedfortheirrecordkeepingservices.[38]
13. âbSomeofthesefirmsusebitcoinpaymentprocessorssuchasBitPayandCoinbaseanddonothandleorstore
bitcoinsthemselves.[75]
14. Âbout1,000bricksandmortarbusinesseswerewillingtoacceptpaymentinbitcoinsasofNovember2013[107]
23/46
2/1/2015
14. Âbout1,000bricksandmortarbusinesseswerewillingtoacceptpaymentinbitcoinsasofNovember2013[107]
inadditiontomorethan16,000merchantswhosignedupwithBitcoinpaymentprocessorCoinbase[108]and
20,000merchantssignedtoBitPay.[109]
15. ^Thepriceof1bitcoininU.S.dollars.
16. ^Volatilityiscalculatedonayearlybasis.Allyearlyvolatilitiesexceed60%.
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Externallinks
Bitcoin
WikimediaCommonshas
mediarelatedtoBitcoin.
Lookupbitcoinin
Wiktionary,thefree
dictionary.
TheWikibook
Professionalismhasapage
onthetopicof:BitTorrent
andBitCoin
TheWikibookStrategyfor
InformationMarketshasa
pageonthetopicof:
Micropayments
45/46
2/1/2015
(https://www.dmoz.org/Science/Social_Sciences/Economics/Financial_Economics/Currency_and_M
oney/Alternative_Monetary_Systems/Bitcoin)atDMOZ
Bitcoinvideoseries(https://www.khanacademy.org/economicsfinancedomain/corefinance/money
andbanking/bitcoin/v/bitcoinwhatisit)atKhanAcademy
Bitcoin:acryptographiccurrency
(http://cert.inteco.es/extfrontinteco/img/File/intecocert/EstudiosInformes/int_bitcoin_en.pdf)Bitcoin,
InstitutoNacionaldeTecnologasdelaCommunicacin(INTECO),Spain,orNationalInstituteof
CommunicationTechnologies(undated,47pp,inEnglish).
OntheOriginsofBitcoin:StagesofMonetaryEvolution(http://nakamotoinstitute.org/originsof
bitcoin/)
QuandlBitcoincurrencydata(https://www.quandl.com/c/markets/bitcoindata)historicalstatistics
intimeseriesdownloadableformat.
ExchangeWar:Bitcoinexchanges(http://exchangewar.info)ComprehensivelistofBitcoin
exchangesaroundtheworld.
Retrievedfrom"http://en.wikipedia.org/w/index.php?title=Bitcoin&oldid=645113643"
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126. ^Moore,Heidi(3April2013)."ConfusedaboutBitcoin?It's'theHarlemShakeofcurrency' "

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