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Basics

  • Short explanation: Internet money and by many claimed to be 'digital gold'.
  • Longer explanation:

Bitcoin is the original cryptocurrency. Released in early 2009, it is a new form of internet money that is fundamentally different from existing currencies.

It is decentralised, meaning it isn’t controlled by any single company or person, and all transactions are peer-to-peer. The history of all transactions is continually being verified by powerful computers, so it is practically impossible to change once a transaction has been accepted.

This means that anybody in the world is able to buy bitcoin and send money to anybody else, which has never been possible before in such a permissionless manner.

History

  • For a comprehensive history you can go the Wikipedia's page here and Bitcoin.com also has a nice history series which you can find here.
  • The coin found parity with the US dollar on February 9, 2011. Six years later, it would trade at parity with an ounce of gold.
  • The Father of cryptos, Bitcoin is considered the most secure of the cryptos, partly because it has been around the longest and therefore has the most commercial proof of security, and partly because the amount of computing power and number of nodes providing the protection is the largest.
  • When Satoshi first created the Bitcoin protocol 10 years ago, the program was created with the C++ programming language. However, the original client’s binary data can conform to any programming language standard, as long as it adheres to the blockchain’s consensus rules.
  • On the origin of the logo: “I propose that we adopt the Thai baht currency symbol, ฿, as the official bitcoin currency symbol and BTC as the official bitcoin three letter currency code,” wrote Bitcointalk forum member “NewLibertyStandard” on Feb 5, 2010. (Four months earlier, the same individual made the first bitcoin purchase using fiat currency, paying $5.02 for 5,050 BTC.)

A poll in mid-2011, saw forum users vote overwhelmingly in favor of ฿, ahead of such options as β, Ƃ, and Ƀ. It wasn’t until years later, in June of 2017, that Bitcoin would finally gain its own unicode symbol and become ₿.

Audits & Exploits

  • Bug bounty program can be found [insert here].
  • Bitcoin got launched without audits.

Bugs/Exploits

"Just like any software, Bitcoin is vulnerable to software bugs and in a worst case scenario, protocol failure. Below, we highlight a few of the bugs that have been discovered within Bitcoin as well as how these were resolved. 

September 2018: DDoS Attack Vulnerability 

Discovered by Bitcoin Cash developer Awemany, this vulnerability could have allowed malicious miners to artificially inflate Bitcoin's supply via a simple type of double input. Once acknowledged, Bitcoin Core Developers decided it was best to keep this bug a secret while they fixed the exploit and had time to urge miners and users to upgrade their software. Fortunately, in less than two days over half of bitcoin's mining hash rate was upgraded - meaning the attack could no longer be used. 

March 2013: Two Versions 

When Bitcoin Core version 0.8 was released, it allowed for larger blocksizes than older versions could handle. Given that some of the network was still using version 0.7 or older, while other network participants had upgraded there was a chance there would be different two different ledgers going forward. Fortunately, the community pointed this out quickly and forced a hard fork back to version 0.7. 

August 2010: Value Overflow Incident 

Over 184 billion bitcoins were created in a transaction within block 74638 because the code used for checking transactions would not work if the outputs were so large that they overflowed when summed. Noticed almost immediately, a code fix was put into place within 5 hours by Satoshi Nakamoto. It was implemented via a fork and the bad transaction no longer exists."

Governance

  • Has no clear on-chain governance model. Code changes are submitted by developers and after review implemented. Bitcoin development has slowed down with the years.
  • A deep dive into Bitcoin's governance by Justin Bons can be read here (12-9-2020).
  • From CoinDesk (6-5-2020):

"Bitcoin’s total node count fell below 47,000 on Monday, a level not seen since 2017, based on estimates determined by well-regarded Bitcoin developer Luke Dashjr. His numbers show a steady decline in the number of operational nodes from a peak of over 200,000 in January 2018."

"Some governance power resides with the developers who control the Bitcoin Core repo on Github and some with the miners who choose what software to run. The lack of a clear process by which decisions are reached or conflicts resolved was the main reason why the argument whether the Bitcoin block size should be increased resulted in years of stalemate and ultimately the split of the network into Bitcoin and Bitcoin Cash. It should be noted that many in the Bitcoin community see the complicated governance process as an advantage since the extremely high barrier to changes creates security and predictability."

Coin

Launch

Coin allocation

  • Network Security Costs: 10% mining inflation.

Utility

  • Money or store of value. No staking or revenue sharing, governance rights or other more common utility aspects of later cryptocurrencies.

Coin Details

  • Block production time 10 min, worst case for confirmation time: 120 blocks

Coin Distribution

  • Presumably Satoshi holds over a million BTC, but has never moved any coin and most consider these coins lost.
  • Besides Satoshi's million BTC, another 2-3M are speculated lost due to losing private keys.
  • Craig Wright claims to be Satoshi, and therefor claims to have huge amounts of BTC. When asked in court he changed his stance and said he couldn't access the coins due to a complicated blind trust fund he and other created at the start of mining.
  • Roger Ver was a very early investor and even though he switched sides dramatically towards Bitcoin Cash, he still claims (4-2019) to hold BTC as a hedge.
  • Grayscale (owned by DCG) owns 1% of the BTC supply. "Since the start of 2018, Grayscale has seen its Bitcoin coffers swell by 30,600 BTC to 203,000 total, now accounting for more than 1% of the asset’s total circulating supply." Update (28-9-2020): "the GBTC Bitcoin trust, which was created in 2013, now amounts to nearly 450,000 BTC—or $4.7 billion. This corresponds to 2.5% of the amount of Bitcoin in circulation."
  • From a Bitcoin.com article (18-10-2019):

"Various studies have noted the wealth disparity in the crypto space with one recent piece of research claiming that around 2% of BTC addresses control approximately 80% percent of the cryptocurrency."

"BTC supply was initially held by a few individuals, but over time it has gradually been distributed to millions of different addresses.

The percentage of BTC supply held by large addresses (with a balance of at least 1/1K of total supply) peaked at about 33% in February 2011. As of February 2020, those addresses hold about 11% of total supply. Conversely, the percentage of supply held by smaller addresses with balances of 1/10M and lower has been steadily increasing since 2011. 

There was a relatively large decrease in percentage of supply held large addresses near the end of 2011 through early 2013, before large price increases. Additionally, there was a decrease in December 2018 that was likely caused by Coinbase redistributing its cold wallets."

  • A total of 13 publicly listed companies now possess (12-10-2020) almost $7 billion in Bitcoin. Microstrategy, Galaxy Digital, Square, and Grayscale are among the biggest companies looking after or owning this Bitcoin. This is  2.85% of the total supply of Bitcoin.

"Coinbase holds approximately 994,904 Bitcoin in cold storage, according to ChainInfo, a Bitcoin analytics platform. By today’s prices, this amounts to over $11 billion. In December 2019, it was reported that Coinbase was holding 966,230 Bitcoin."

"When you take a closer look at Bitcoin, you can see that there are no whales, as no address owns 1% of the outstanding tokens, and it only has 38 addresses that hold between 0.1% and 1% (which at IntoTheBlock we call investors). They hold 9.31% of the circulating supply, but one important thing to consider is that of those 42 addresses, only 9 of them are actively trading, which means that a large amount of Bitcoin is not being moved.

As can be seen in the graph above, the largest concentration of addresses currently holding Bitcoin (more than 16 million) have a balance of less than 0.001 BTC, aggregating a total of 3,269 tokens. Moreover, close to 30% of the current circulating supply of Bitcoin is held by wallets holding between 1000-10000 BTC."

"The top 1% of BTC addresses (including exchanges) hold about 91% of total supply. Addresses holding less than 1 BTC collectively hold about 5% of total BTC supply. Bitcoin miners collectively hold 4.57M BTC, about 25% of total supply."

Tech

Transaction Details

How it works

Mining

Fees

Upgrades

  • An overview of upgrades and proposals for 2020 can be viewed here (23-12-2020). It is mainly LN centred, stuff with atomic swaps and of course Schnorr signatures and Taproot.
  • Taproot went live on 14-11-2021.

Schnorr/Taproot

"The Schnorr/Taproot soft fork will expand BTC’s functionality immensely: increased privacy, scaling, multi-sig applications, and even better transaction speed are all made possible by the upgrade."

"In the works since Gregory Maxwell proposed Taproot in the first month of 2018, the upgrade is perhaps the most anticipated soft-fork in Bitcoin since Segwit was activated in 2016. The codebase for the smart-contract upgrade to Bitcoin’s blockchain has been merged into the Bitcoin Core library. This comes about a month after Pieter Wuille created a pull request to merge the feature.

Now that Taproot’s code has been included in Bitcoin Core’s coding library, the upgrade is only waiting to be deployed at this point. For the new upgrade to activate network-wide, node operators must adopt Taproot's new ruleset in place of the older code's consensus rules. This could take weeks or months, depending on how the review process unfolds for the two leading implementation proposals."

"According to the parameters set forward by “Speedy Trial,” if at least 90% of the blocks mined in any of the designated two-week difficulty periods “signal” their support for the upgrade, then the activation process can begin. Now that the Taproot soft fork upgrades are locked in, the next phase of activation is basically a five-month waiting period. During this time, miners and nodes will have ample opportunity to update their software to Bitcoin Core 0.21.1, the newest version of Bitcoin Core that contains activation logic for the Taproot soft fork (and some other improvements).

Finally, in November, when Bitcoin reaches a specified “block height” (Bitcoin block 709,632), Taproot will activate; that is, the Bitcoin Improvement Proposals (BIPs) relevant to Taproot and contained in Bitcoin Core 0.21.1 will automatically kick in."

Scaling

"Bitcoin's current scalability is limited by its low on-chain throughput, and because every full node stores an entire history of the chain and processes each transaction."

Projects / upgrades working on scaling:

  • SegWit was brought forward as a scaling solution. Big blockers thought this soft fork was a bad idea which lead to the hard fork of BCH.

Lightning Network

Status: Beta Implemented March 2018

Description: Enables users to open channels with another party to transact "off-chain" until the channel is closed out. 

Liquid Network

Status: Went Live in September 2018

Description: Sidechain built on the Bitcoin network, which facilitates faster BTC transactions between businesses and individuals. 

Schnorr Signatures

Status: Under development since 2012

Description: Replace BTC's current digital signature algorithm with a more efficient one. Allows for aggregation of multiple tx signatures into a single signature. 

MAST (Merklized Abstract Syntax Tree)

Status: No final release date announced.

Description: Reduces size of smart contracts (complex scripts) & increases their privacy. Moves portion of smart contract processing & storage off-chain. 

Different Implementations

"Prior to 2013, there was no software project named Bitcoin Core. The Satoshi client was sometimes just called the reference implementation or Bitcoin-QT/Bitcoind.

Then in February 2013, Gavin Andresen, a prominent Bitcoin developer, posted to the Bitcoin Foundation forum asking: There was some discussion about renaming Bitcoin-Qt and the reference implementation in general in IRC today; I thought some of you smart people might have good name ideas.

Mike Hearn, another developer, then responded: Oh good, about time. This has irritated me for a while. How about Bitcoin Core?"

Since then many clients have popped up, the most well known (8-2019) are:

  1. Bitcoin Core
  2. BTCD
  3. Libbitcoin
  4. Bitprim
  5. bcoin
  6. Bits of Proof
  7. Ceasure
  8. Bitcoinj
  9. Ufasoft Coin
  10. Picocoin/libcoin
  11. Parity Bitcoin
  12. Bitcrust

Interoperability

  • Bitcoin is being ported over to Ethereum at a rapid pace. It has almost reached 1B in value. (14-9-2020).

Other Details

Bitcoin Script / Smart Contracts

"This is the biggest difference between Ethereum's smart contracts and Bitcoin's. Ethereum's model is stateful, while Bitcoin is stateless. Ethereum can be considered analogous to the common imperative mutable-data programming paradigm, while Bitcoin is analogous to the functional immutable-data paradigm.

Bitcoin's model allows transactions to be verified independently and much more efficiently, which makes it easier to parallelise and shard transactions. But without any mutable data storage, it is more difficult to create the complex smart contracts that Ethereum allows. ERC20 contracts, for example, have to keep track of token balances and change them.

Besides these differences in state, there are other things limiting complexity in Bitcoin's smart contracts. Notably, Bitcoin Script lacks support for some arithmetic functions and any form of looping or recursion. Contracts also have an effective size limit of 520 bytes and can contain 201 opcodes at most.

Most smart contracts on Bitcoin fall in a few categories of simple contracts. Examples are multisig contracts that can be spent by multiple participants, or Hashed Timelock Contracts (HTLCs) that can be spent by revealing a secret or reclaimed after time has passed. And because these contracts are very simple, most of the value is gained from combining different contracts with additional off-chain application logic. That way simple contracts can be combined to create complex solutions such as the Lightning Network or cross-chain auctions.

While Ethereum has multiple high-level languages that compile to EVM bytecode, there is less of a focus on this with Bitcoin. Although the systems that can be built with them are complex, the contracts themselves are usually quite simple. Because of Bitcoin contracts' size limits and high costs per added bytes, it is important to keep contracts as small as possible.

While these kinds of high-level languages are less important in Bitcoin, they do exist. The most elaborate high-level language for Bitcoin is Ivy, which was created in 2017 by Dan Robinson."

Oracle Method

Privacy Method

Compliance

History of BTC Forks

2010-08-15: Value Overflow Incident (Soft Fork)

2010-10-12: 1MB Block Size Limit (Soft Fork)

2012-04-01: Pay-to-Script-Hash (Soft Fork)

2013-05-15: Migration from Berkely DB to LevelDB (Hard Fork)

2013-07-04: Strict DER Encoding for Signatures (Soft Fork)

2015-12-14: OP_CHECKLOCKTIMEVERIFY (Soft Fork)

2016-07-04: OP_CHECKSEQUENCEVERIFY (Soft Fork)

After this the more well known forks happened.

2017-08-01: User Activated Hard Fork (Block size limit to 8MB) which created Bitcoin Cash (the hard forks that happened on the BCH chain can be viewed on their page or on this map)

2017-08-24: SegWit (Soft Fork)

After this, BTC has had multiple chain splits, of which Bitcoin Cash and Bitcoin Gold are the most famous. BCH has also split in two, creating Bitcoin SV (on 2018-11-15).

"There have been many forks of Bitcoin over the years, but Bitcoin still remains the dominant chain by most measures. Compared to Bitcoin Cash (BCH) and Bitcoin SV (BSV), the two largest Bitcoin forks, Bitcoin accounts for about 94% of the aggregated miner revenue (i.e. block rewards + fees).

Similarly, most usage has remained on Bitcoin. As of February 25th, Bitcoin has about 90% of the combined total daily active addresses for the three chains."

Roadmap

  • Can be found [Insert link here].

Usage

Projects that use or built on it

"The Bitcoin-sidechain called RSK is host to a growing number of Bitcoin DeFi services that provide the core financial functions. Money-on-Chain creates a bitcoin-backed stablecoin, giving Bitcoiners access to U.S. dollar-denominated funds, without having to touch fiatSovryn will soon provide permissionless and uncensorable spot trading, leveraged trading, borrowing and lending."

"Venezuela is reportedly paying companies in allied countries, including Iran and Turkey, with bitcoin to mitigate the effects of U.S. sanctions on its economy. The Venezuelan government is also planning to increase bitcoin usage now that it has a dedicated cryptocurrency mining center."

  1. "Crypto Garage with their P2PDerivatives application written in C++, which enables users users to enter into DLCs with each others.
  2. Suredbits which are implementing DLCs on bitcoin-s, the open source bitcoin library in Scala they support, and have developed several services (such as their oracles explorer) and types of DLCs. Their blog is a great resource to find out more!
  3. Atomic Finance which aims to provide a transparent way to earn yield on Bitcoin with DLCs."

Competition

  • Fiat
  • Any other blockchain project that aims to become the new global money standard.

Bitcoin vs. Ethereum

"The key element that distinguishes Ethereum from Bitcoin is smart contracts — agreements that are embedded in code so that they can automatically execute.

Among the other fundamental differences between Bitcoin and Ethereum are their programming languages. Bitcoin uses a stack-based language while Ethereum uses a Turing-complete language. Their block times and hashing algorithms are also different. Ethereum’s core developers believe that moving Ethereum to a Proof of Stake system will make its smart contract-based network more efficient and secure."

Tether and Bitcoin price correlation

  • "The issuance of new tether tokens is helping Bitcoin prices rise, according (4-10-2019) to new research by TokenAnalyst. The company found up to 70% of the time there is an issuance of Tether, the price of bitcoin also rises, a significant discovery when we’re remind there was more than 2 million tether minted this year. The numbers also change depending on which kind of Tether is gonna be minted. It rises 70% of the time there is tether being issued as an ERC20 token, and 50% of the time it is issued on their native Omni chain."

Pros and Cons

Pros

  • First mover advantage
  • Largest network effects
  • Largest due diligence around changes due to the number of stakeholders and value in the currency

Cons

  • Scalability. Bitcoin can typically handle 5–7 transactions per second, with fees from a few cents to a few dollars. When the transaction volume on the network increases, fees skyrocket and transactions take a long time to clear. In contrast, Visa and Mastercard can reportedly handle around 2000 transactions per second. In order to be a global payments system, Bitcoin needs to improve on this dramatically.
  • Competition
  • Dependent on scaling solutions
  • Hackers & Nation State attacks
  • Long term sustainability without block reward (after the 21m limit is reached, how are miners incentivized without fees skyrocketing?)
  • PoW energy consumptions
  • Disagreements between miners may cause instability
  • Political spotlight
  • Currencies with superior technology may overtake it in the future as it has been very slow to adapt.
  • Government may enforce regulations to prevent the conversion of FIAT to bitcoin (although this may apply to all cryptocurrencies which don’t have compliance as a central aim)
  • The transaction backlog has been growing and it is yet to be seen whether Segwit will solve the issue (2017). By 2021, this backlog seems to have cleared most of the time. Tx volumes on Bitcoin have slowed down and more users have moved to other smart contract chains.
  • Possibility of a chain reaction occurring as miners switch between Bitcoin and other more profitable mined cryptos leading to longer block times, larger backlogs and uncertainty creeping in.
  • Miner centralisation; "At the time of publication (4-2-2020), between F2pool, Poolin, Btc.com, Viabtc, and Antpool, the pools are hashing more than 49% of the BTC network hashrate."

"Building out DeFi on Bitcoin is extremely difficult, and there are a bunch of development and user experience challenges to doing it. I'm not saying it's impossible, but typically, the lead time to launch a Bitcoin product is two to three times longer than the lead time to launch an Ethereum smart contract. I've spent a significant amount of time building out Ethereum and Bitcoin wallets and integrating them and it's much, much quicker to bring an Ethereum product to market. That's why I am not immediately optimistic about DeFi on Bitcoin. Right now, none of the Bitcoin Layer 2 stuff is going to compete with Ethereum. The work that's being done on Lightning right now is really interesting, but we haven't seen as much Lightning adoption as we've seen of Ethereum dapps."

Team, Funding, Partners

Team

Funding

"Gemini today announced the launch of a $200,000 Bitcoin development fund. Called the Gemini Opportunity Fund, $150,000 of the money, in Bitcoin of course, will go straight to Brink, a London non-profit fellowship program to sponsor Bitcoin developers. The developers will work with John Newbery, Brink’s co-founder and executive director, and a Bitcoin Core contributor. Mike Schmidt, another Bitcoin core contributor. Square, the Human Rights Foundation and Kraken are among other donors. Kraken also donated $150,000. So far, the only fellow is Gloria Zhao, a Bitcoin Core contributor fresh from University of California, Berkeley, where she sat as president of its blockchain club."

Bitcoin Foundation

Basics

Team

Members

 (:

Knowledge empowers us all and will help us get closer to the decentralised world we all want to live in!

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