Blockchain
See also: Blockchain (database)

Number of unspent transaction outputs
The blockchain is a public ledger that records bitcoin transactions.[43] A novel solution accomplishes this without any trusted central authority: maintenance of the blockchain is performed by a network of communicating nodes running bitcoin software.[14] Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications.[44] Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin (amount), each network node stores its own copy of the blockchain.[20] Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.[8]

Transactions
See also: Bitcoin network

Number of bitcoin transactions per month (logarithmic scale)[45]
A transaction must have one or more inputs.[29] For the transaction to be valid, every input must be an unspent output of a previous transaction. Every input must be digitally signed. The use of multiple inputs corresponds to the use of multiple coins in a cash transaction. A transaction can also have multiple outputs, allowing one to make multiple payments in one go. A transaction output can be specified as an arbitrary multiple of satoshi. As in a cash transaction, the sum of inputs (coins used to pay) can exceed the intended sum of payments. In such a case, an additional output is used, returning the change back to the payer.[29] Any input satoshis not accounted for in the transaction outputs become the transaction fee.[29]

Transaction fees
Paying a transaction fee is optional.[29] Miners can choose which transactions to process[29] and prioritize those that pay higher fees. Fees are based on the storage size of the transaction generated, which in turn is dependent on the number of inputs used to create the transaction. Furthermore, priority is given to older unspent inputs.[8]:ch. 8

Units
The unit of account of the bitcoin system is bitcoin. As of 2014, symbols used to represent bitcoin are BTC,[note 1] XBT,[note 2] and BitcoinSign.svg.[note 3][46]:2 Small amounts of bitcoin used as alternative units are millibitcoin (mBTC), microbitcoin (µBTC, sometimes referred to as bit), and satoshi. Named in homage to bitcoin's creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoin, one hundred millionth of a bitcoin.[10] A millibitcoin equals to 0.001 bitcoin, one thousandth of bitcoin.[47] One microbitcoin equals to 0.000001 bitcoin, one millionth of a bitcoin.

A proposal was submitted to the Unicode Consortium in October 2015 to add a codepoint for the symbol.[48] As of November 2016, it is in the pipeline for position 20BF (₿) in the Currency Symbols block.[6]

Mining

Semi-log plot of relative mining difficulty.[note 5][45]
Mining is a record-keeping service.[note 6] Miners keep the blockchain consistent, complete, and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block.[43] Each block contains a cryptographic hash of the previous block,[43] using the SHA-256 hashing algorithm,[8]:ch. 7 which links it to the previous block,[43] thus giving the blockchain its name.

In order to be accepted by the rest of the network, a new block must contain a so-called proof-of-work.[43] The proof-of-work requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target.[8]:ch. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is 0, 1, 2, 3, ...[8]:ch. 8) before meeting the difficulty target.

Every 2016 blocks (approximately 14 days), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network.[8]:ch. 8

Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.[50]

The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted.[51] As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.[43]

Practicalities
It has become common for miners to join mining pools,[52] which combine the computational resources of their members in order to increase the frequency of generating new blocks. The reward for each block is then split proportionately among the members, creating a more predictable stream of income for each miner without necessarily changing their long-term average income,[53] although a fee may be charged for the service.[54][55]

The competitive nature of mining has led to ever-more-specialized technology being utilized. The most efficient mining hardware makes use of custom designed application-specific integrated circuits, which outperform general-purpose CPUs while using less power.[56] As of 2015, a miner who is not using purpose-built hardware is unlikely to earn enough to cover the cost of the electricity used in their efforts, even if they are a member of a pool.[57]

Energy consumption

A mining farm in Iceland
In 2013, Mark Gimein estimated electricity use to be about 40.9 megawatts (982 megawatt-hours a day).[58] In 2014, Hass McCook estimated 80.7 megawatts (80,666 kW).[59] As of 2015, The Economist estimated that even if all miners used modern facilities, the combined electricity consumption would be 166.7 megawatts (1.46 terawatt-hours per year).[60]

Journalist Matt O'Brien opined that it is not obvious whether bitcoin is lowering transaction costs, since the costs are transformed into pollution costs, which he characterizes as "environmental spillovers on everyone else, or what economists call negative externalities."[61]

To lower the costs, bitcoin miners have set up in places like Iceland where geothermal energy is cheap and cooling Arctic air is free.[61] Chinese bitcoin miners are known to use hydroelectric power in Tibet to reduce electricity costs.[62]

Supply

Total bitcoins in circulation.[45]
The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees.[63] As of 9 July 2016,[64] the reward amounted to 12.5 newly created bitcoins per block added to the blockchain. To claim the reward, a special transaction called a coinbase is included with the processed payments.[8]:ch. 8 All bitcoins in existence have been created in such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins[note 7] will be reached c. 2140; the record keeping will then be rewarded by transaction fees solely.[65]

In other words, bitcoin's inventor Nakamoto set a monetary policy based on artificial scarcity at bitcoin's inception that there would only ever be 21 million bitcoins in total. Their numbers are being released roughly every ten minutes and the rate at which they are generated would drop by half every four years until all were in circulation.[66]

Wallets
See also: Digital wallet

Electrum bitcoin wallet

Bitcoin paper wallet generated at bitaddress.org

Trezor hardware wallet
A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold[67] or store bitcoins,[68] due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A better way to describe a wallet is something that "stores the digital credentials for your bitcoin holdings"[68] and allows you to access (and spend) them. Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated.[69] At its most basic, a wallet is a collection of these keys.

There are several types of wallets. Software wallets connect to the network and allow spending bitcoins in addition to holding the credentials that prove ownership.[70] Software wallets can be split further in two categories: full clients and lightweight clients.

Full clients verify transactions directly on a local copy of the blockchain (over 80 GB as of November 2016[71]), or a subset of the blockchain (around 2 GB[72]). Because of its size / complexity, the entire blockchain is not suitable for all computing devices.
Lightweight clients on the other hand consult a full client to send and receive transactions without requiring a local copy of the entire blockchain (see simplified payment verification – SPV). This makes lightweight clients much faster to setup and allows them to be used on low-power, low-bandwidth devices such as smartphones. When using a lightweight wallet however, the user must trust the server to a certain degree. When using a lightweight client, the server can not steal bitcoins, but it can report faulty values back to the user. With both types of software wallets, the users are responsible for keeping their private keys in a secure place.[73]
Besides software wallets, Internet services called online wallets offer similar functionality but may be easier to use. In this case, credentials to access funds are stored with the online wallet provider rather than on the user's hardware.[74][75] As a result, the user must have complete trust in the wallet provider. A malicious provider or a breach in server security may cause entrusted bitcoins to be stolen. An example of such security breach occurred with Mt. Gox in 2011.[76]

Physical wallets store the credentials necessary to spend bitcoins offline.[68] Examples combine a novelty coin with these credentials printed on metal,[77] Others are simply paper printouts. Another type of wallet called a hardware wallet keeps credentials offline while facilitating transactions.[78]

Reference implementation
The first wallet program was released in 2009 by Satoshi Nakamoto as open-source code.[17] Sometimes referred to as the "Satoshi client," this is also known as the reference client because it serves to define the bitcoin protocol and acts as a standard for other implementations.[70] In version 0.5 the client moved from the wxWidgets user interface toolkit to Qt, and the whole bundle was referred to as Bitcoin-Qt.[70] After the release of version 0.9, the software bundle was renamed Bitcoin Core to distinguish itself from the network.[79][80] Today, other forks of Bitcoin Core exist such as Bitcoin XT, Bitcoin Classic, and Bitcoin Unlimited.[81][82]

Ownership

Simplified chain of ownership.[39] In reality, a transaction can have more than one input and more than one output.
Ownership of bitcoins implies that a user can spend bitcoins associated with a specific address. To do so, a payer must digitally sign the transaction using the corresponding private key. Without knowledge of the private key, the transaction cannot be signed and bitcoins cannot be spent. The network verifies the signature using the public key.[8]:ch. 5

If the private key is lost, the bitcoin network will not recognize any other evidence of ownership;[14] the coins are then unusable, and thus effectively lost. For example, in 2013 one user claimed to have lost 7,500 bitcoins, worth $7.5 million at the time, when he accidentally discarded a hard drive containing his private key.[83]

Privacy
Bitcoin is pseudonymous, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified, but all transactions on the blockchain are public. In addition, transactions can be linked to individuals and companies through "idioms of use" (e.g., transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses.[84] Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information.[85]

To heighten financial privacy, a new bitcoin address can be generated for each transaction.[86] For example, hierarchical deterministic wallets generate pseudorandom "rolling addresses" for every transaction from a single seed, while only requiring a single passphrase to be remembered to recover all corresponding private keys.[87] Additionally, "mixing" and CoinJoin services aggregate multiple users' coins and output them to fresh addresses to increase privacy.[88] Researchers at Stanford University and Concordia University have also shown that bitcoin exchanges and other entities can prove assets, liabilities, and solvency without revealing their addresses using zero-knowledge proofs.[89]

According to Dan Blystone, "Ultimately, bitcoin resembles cash as much as it does credit cards."[90]

Fungibility
Wallets and similar software technically handle all bitcoins as equivalent, establishing the basic level of fungibility. Researchers have pointed out that the history of each bitcoin is registered and publicly available in the blockchain ledger, and that some users may refuse to accept bitcoins coming from controversial transactions, which would harm bitcoin's fungibility.[91] Projects such as Zerocoin and Dark Wallet aim to address these privacy and fungibility issues.[92][93]

History
Main article: History of bitcoin

Bitcoin ATM in The D Las Vegas Casino, an early retail adopter of bitcoin.
Bitcoin was created[17] by Satoshi Nakamoto,[15] who published the invention[17] on 31 October 2008 to a cryptography mailing list[16] in a research paper called "Bitcoin: A Peer-to-Peer Electronic Cash System".[39] It was implemented as open source code and released in January 2009.[17] Bitcoin is often called the first cryptocurrency[19][20][21] although prior systems existed.[note 4] Bitcoin is more correctly described as the first decentralized digital currency.[14][25]

One of the first supporters, adopters, contributor to bitcoin and receiver of the first bitcoin transaction was programmer Hal Finney. Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world's first bitcoin transaction.[94][95] Other early supporters were Wei Dai, creator of bitcoin predecessor b-money, and Nick Szabo, creator of bitcoin predecessor bit gold.[96]

In the early days, Nakamoto is estimated to have mined 1 million bitcoins.[97] Before disappearing from any involvement in bitcoin, Nakamoto in a sense handed over the reins to developer Gavin Andresen, who then became the bitcoin lead developer at the Bitcoin Foundation, the 'anarchic' bitcoin community's closest thing to an official public face.[98]

Based on bitcoin's open source code, other cryptocurrencies started to emerge in 2011.[26]

In March 2013, a technical glitch caused a fork in the blockchain, with one half of the network adding blocks to one version of the chain and the other half adding to another. For six hours two bitcoin networks operated at the same time, each with its own version of the transaction history. The core developers called for a temporary halt to transactions, sparking a sharp sell-off.[99] Normal operation was restored when the majority of the network downgraded to version 0.7 of the bitcoin software.[99]

In 2013 some mainstream websites began accepting bitcoins. WordPress had started in November 2012,[100] followed by OKCupid in April 2013,[101] TigerDirect[102] and Overstock.com in January 2014,[103] Expedia in June 2014,[104] Newegg and Dell in July 2014,[105] and Microsoft in December 2014.[106] The Electronic Frontier Foundation, a non-profit group, started accepting bitcoins in January 2011,[107] stopped accepting them in June 2011,[108] and began again in May 2013.[109]

In May 2013, the Department of Homeland Security seized assets belonging to the Mt. Gox exchange.[110] The U.S. Federal Bureau of Investigation (FBI) shut down the Silk Road website in October 2013.[111]

In October 2013, Chinese internet giant Baidu had allowed clients of website security services to pay with bitcoins.[112] During November 2013, the China-based bitcoin exchange BTC China overtook the Japan-based Mt. Gox and the Europe-based Bitstamp to become the largest bitcoin trading exchange by trade volume.[113] On 19 November 2013, the value of a bitcoin on the Mt. Gox exchange soared to a peak of US$900 after a United States Senate committee hearing was told by the FBI that virtual currencies are a legitimate financial service.[114] On the same day, one bitcoin traded for over RMB¥6780 (US$1,100) in China.[115] On 5 December 2013, the People's Bank of China prohibited Chinese financial institutions from using bitcoins.[116] After the announcement, the value of bitcoins dropped,[117] and Baidu no longer accepted bitcoins for certain services.[118] Buying real-world goods with any virtual currency has been illegal in China since at least 2009.[119]

The first bitcoin ATM was installed in October 2013 in Vancouver, British Columbia, Canada.[120]

With about 12 million existing bitcoins in November 2013,[121] the new price increased the market cap for bitcoin to at least US$7.2 billion.[122] By 23 November 2013, the total market capitalization of bitcoin exceeded US$10 billion for the first time.[123]

In the U.S., two men were arrested in January 2014 on charges of money-laundering using bitcoins; one was Charlie Shrem, the head of now defunct bitcoin exchange BitInstant and a vice chairman of the Bitcoin Foundation. Shrem allegedly allowed the other arrested party to purchase large quantities of bitcoins for use on black-market websites.[124]

In early February 2014, one of the largest bitcoin exchanges, Mt. Gox,[76] suspended withdrawals citing technical issues.[125] By the end of the month, Mt. Gox had filed for bankruptcy protection in Japan amid reports that 744,000 bitcoins had been stolen.[126] Months before the filing, the popularity of Mt. Gox had waned as users experienced difficulties withdrawing funds.[127]

On 18 June 2014, it was announced that bitcoin payment service provider BitPay would become the new sponsor of St. Petersburg Bowl under a two-year deal, renamed the Bitcoin St. Petersburg Bowl. Bitcoin was to be accepted for ticket and concession sales at the game as part of the sponsorship, and the sponsorship itself was also paid for using bitcoin.[128]

Less than one year after the collapse of Mt. Gox, United Kingdom-based exhange Bitstamp announced that their exchange would be taken offline while they investigate a hack which resulted in about 19,000 bitcoins (equivalent to roughly US$5 million at that time) being stolen from their hot wallet.[129] The exchange remained offline for several days amid speculation that customers had lost their funds. Bitstamp resumed trading on 9 January after increasing security measures and assuring customers that their account balances would not be impacted.[130]

The bitcoin exchange service Coinbase launched the first regulated bitcoin exchange in 25 US states on 26 January 2015. At the time of the announcement, CEO Brian Armstrong stated that Coinbase intends to expand to thirty countries by the end of 2015.[131] A spokesperson for Benjamin M. Lawsky, the superintendent of New York state's Department of Financial Services, stated that Coinbase is operating without a license in the state of New York. Lawsky is responsible for the development of the so-called 'BitLicense', which companies need to acquire in order to legally operate in New York.[132]

In August 2015 it was announced that Barclays would become the first UK high street bank to start accepting bitcoin, with the bank revealing that it plans to allow users to make charitable donations using the cryptocurrency.[133]

A major bitcoin exchange, Bitfinex, was hacked and nearly 120,000 BTC (around $60m) was stolen in 2016.[134]

Economics
Classification
Bitcoin is a digital asset[135][136][137][138][139][140] designed by its inventor, Satoshi Nakamoto, to work as a currency.[39][141] It is commonly referred to with terms like: digital currency,[14]:1 digital cash,[142] virtual currency,[10] electronic currency,[40] or cryptocurrency.[143]

The question whether bitcoin is a currency or not is still disputed.[143] Bitcoins have three useful qualities in a currency, according to The Economist in January 2015: they are "hard to earn, limited in supply and easy to verify".[60] Economists define money as a store of value, a medium of exchange, and a unit of account and agree that bitcoin has some way to go to meet all these criteria.[144] It does best as a medium of exchange, as of February 2015 the number of merchants accepting bitcoin has passed 100,000.[30] As of March 2014, the bitcoin market suffered from volatility, limiting the ability of bitcoin to act as a stable store of value, and retailers accepting bitcoin use other currencies as their principal unit of account.[144]

Classification of bitcoin by the United States government is to date unclear with multiple conflicting rulings. In 2013 Judge Amos L. Mazzant III of the United States District Court for the Eastern District of Texas stated that "Bitcoin is a currency or form of money".[145] In July 2016, Judge Teresa Mary Pooler of Eleventh Judicial Circuit Court of Florida cleared Michell Espinoza in State of Florida v. Espinoza in money-laundering charges he faced involving his use of bitcoin. Judge Pooler stated "Bitcoin may have some attributes in common with what we commonly refer to as money, but differ in many important aspects, they are certainly not tangible wealth and cannot be hidden under a mattress like cash and gold bars."[146] In September 2016, a ruling by Judge Alison J. Nathan of United States District Court for the Southern District of New York contradicted the Florida Espinoza ruling stating "Bitcoins are funds within the plain meaning of that term.— Bitcoins can be accepted as a payment for goods and services or bought directly from an exchange with a bank account. They therefore function as pecuniary resources and are used as a medium of exchange and a means of payment."[147]

The Commodity Futures Trading Commission classifies bitcoin as a commodity, and the Internal Revenue Service classifies it as an asset.[147]

Journalists and academics also debate what to call bitcoin. Some media outlets do make a distinction between "real" money and bitcoins,[148] while others call bitcoin real money.[149] The Wall Street Journal declared it a commodity in December 2013.[150] A Forbes journalist referred to it as digital collectible.[151] Two University of Amsterdam computer scientists proposed the term "money-like informational commodity".[152] In a 2016 Forbes article, bitcoin was characterized as a member of a new asset class.[153]

The People's Bank of China has stated that bitcoin "is fundamentally not a currency but an investment target".[154]

In addition to the above, bitcoin is also characterized as a payment system.[14]:1[155]

Decentralization
Per sources such as the academic Mercatus Center,[14] U.S. Treasury,[11] Reuters,[25] The Washington Post,[35] The Daily Herald,[61] The New Yorker,[18] and others, bitcoin is decentralized.

There is also a minority opinion published in an article that appeared in IEEE Security & Privacy magazine, in which it is stated that "contrary to widespread belief, it isn’t truly decentralized as it's deployed and implemented today."[156]

Buying and selling

A Bitcoin ATM in California.
Bitcoins can be bought and sold both on- and offline. Participants in online exchanges offer bitcoin buy and sell bids. Using an online exchange to obtain bitcoins entails some risk, and, according to a study published in April 2013, 45% of exchanges fail and take client bitcoins with them.[157] Exchanges have since implemented measures to provide proof of reserves in an effort to convey transparency to users.[158][159] Offline, bitcoins may be purchased directly from an individual[160] or at a bitcoin ATM.[161] Bitcoin machines are not however traditional ATMs. Bitcoin kiosks are machines connected to the Internet, allowing the insertion of cash in exchange for bitcoins. Bitcoin kiosks do not connect to a bank and may also charge transaction fees as high as 7% and exchange rates $50 over rates from elsewhere.[162]

As of 2016 it was estimated there were over 800 bitcoin ATMs operating globally, the majority (500+) being in the United States.[163]

Price and volatility

Price[note 8] (left vertical axis, logarithmic scale) and volatility[note 9] (right vertical axis).[45]

Liquidity (estimated, USD/year, logarithmic scale).[45]
According to Mark T. Williams, as of 2014, bitcoin has volatility seven times greater than gold, eight times greater than the S&P 500, and eighteen times greater than the U.S. dollar.[164]

Attempting to explain the high volatility, a group of Japanese scholars stated that there is no stabilization mechanism.[165] The Bitcoin Foundation contends that high volatility is due to insufficient liquidity,[166] while a Forbes journalist claims that it is related to the uncertainty of its long-term value,[167] and the high volatility of a startup currency makes sense, "because people are still experimenting with the currency to figure out how useful it is."[168]

There are uses where volatility does not matter, such as online gambling, tipping, and international remittances.[168] As of 2014, pro-bitcoin venture capitalists argued that the greatly increased trading volume that planned high-frequency trading exchanges would generate is needed to decrease price volatility.[169]

The price of bitcoins has gone through various cycles of appreciation and depreciation referred to by some as bubbles and busts.[170][171] In 2011, the value of one bitcoin rapidly rose from about US$0.30 to US$32 before returning to US$2.[172] In the latter half of 2012 and during the 2012–13 Cypriot financial crisis, the bitcoin price began to rise,[173] reaching a high of US$266 on 10 April 2013, before crashing to around US$50.[174] On 29 November 2013, the cost of one bitcoin rose to the all-time peak of US$1,242.[175] In 2014, the price fell sharply, and as of April remained depressed at little more than half 2013 prices. As of August 2014 it was under US$600.[176] In January 2015, noting that the bitcoin price had dropped to its lowest level since spring 2013 – around US$224 – The New York Times suggested that "[w]ith no signs of a rally in the offing, the industry is bracing for the effects of a prolonged decline in prices. In particular, bitcoin mining companies, which are essential to the currency's underlying technology, are flashing warning signs."[177] Also in January 2015, Business Insider reported that deep web drug dealers were "freaking out" as they lost profits through being unable to convert bitcoin revenue to cash quickly enough as the price declined – and that there was a danger that dealers selling reserves to stay in business might force the bitcoin price down further.[178]

On 4 November 2015, bitcoin had risen by more than 20%, exceeding $490. The Financial Times associated the rapid growth with the popularity of "socio-financial networks" MMM operated by Russian businessman Sergei Mavrodi.[179]

According to The Wall Street Journal, as of April 2016, bitcoin is starting to look slightly more stable than gold.[180]

Speculative bubble dispute
Bitcoin has been labelled a speculative bubble by many including former Fed Chairman Alan Greenspan[181] and economist John Quiggin.[182] Nobel Memorial Prize laureate Robert Shiller said that bitcoin "exhibited many of the characteristics of a speculative bubble".[183] On March 14, 2014, the American business magnate Warren Buffett said, "Stay away from it. It's a mirage, basically."[184] Two lead software developers of bitcoin, Gavin Andresen[185] and Mike Hearn,[186] have warned that bubbles may occur. David Andolfatto, a vice president at the Federal Reserve Bank of St. Louis, stated, "Is bitcoin a bubble? Yes, if bubble is defined as a liquidity premium." According to Andolfatto, the price of bitcoin "consists purely of a bubble," but he concedes that many assets have prices that are greater than their intrinsic value.[49]:21 Journalist Matthew Boesler rejects the speculative bubble label and sees bitcoin's quick rise in price as nothing more than normal economic forces at work.[187] The Washington Post pointed out that the observed cycles of appreciation and depreciation don't correspond to the definition of speculative bubble.[172]

Ponzi scheme concerns
Various journalists,[61][188] economists,[189][190] and the central bank of Estonia[191] have voiced concerns that bitcoin is a Ponzi scheme. Eric Posner, a law professor at the University of Chicago, stated in 2013 that "a real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion."[192] In 2014 reports by both the World Bank and the Swiss Federal Council examined the concerns and came to the conclusion that bitcoin is not a Ponzi scheme.[193]:7[194]:21

Value forecasts
Financial journalists and analysts, economists, and investors have attempted to predict the possible future value of bitcoin. In April 2013, economist John Quiggin stated, "bitcoins will attain their true value of zero sooner or later, but it is impossible to say when".[182] A similar forecast was made in November 2014 by economist Kevin Dowd.[195]

In December 2013, finance professor Mark T. Williams forecast that bitcoin would trade for less than $10 by mid-year 2014.[196] In the indicated period bitcoin has exchanged as low as $344 (April 2014) and during July 2014 the bitcoin low was $609.[45][197] In December 2014, Williams said, "The probability of success is low, but if it does hit, the reward will be very large."[198]

In November 2014, David Yermack, Professor of Finance at New York University Stern School of Business, forecast that in November 2015 bitcoin may be all but worthless.[199] In the indicated period bitcoin has exchanged as low as $176.50 (January 2015) and during November 2015 the bitcoin low was $309.90.[45]

In May 2013, Bank of America FX and Rate Strategist David Woo forecast a maximum fair value per bitcoin of $1,300.[200] Bitcoin investor Cameron Winklevoss stated in December 2013 that the "small bull case scenario for bitcoin is... 40,000 USD a coin".[201]

Obituaries
The "death" of bitcoin has been proclaimed numerous times.[202] One journalist has recorded 29 such "obituaries" as of early 2015.[202]

Forbes magazine declared bitcoin "dead" in June 2011,[203] followed by Gizmodo Australia in August 2011.[204] Wired magazine wrote it had "expired" in December 2012.[205] Ouishare Magazine declared, "game over, bitcoin" in May 2013,[206] and New York Magazine stated bitcoin was "on its path to grave" in June 2013.[207] Reuters published an "obituary" for bitcoin in January 2014.[208] Street Insider declared bitcoin "dead" in February 2014,[209] followed by The Weekly Standard in March 2014,[210] Salon in March 2014,[211] Vice News in March 2014,[212] and Financial Times in September 2014.[213] In January 2015, USA Today states bitcoin was "headed to the ash heap",[214] and The Telegraph declared "the end of bitcoin experiment".[215] In January 2016, former bitcoin developer Mike Hearn called bitcoin a "failed project".[216]

Peter Greenhill, Director of E-Business Development for the Isle of Man, commenting on the obituaries paraphrased Mark Twain saying "reports of bitcoin's death have been greatly exaggerated".[217]

Reception
Some economists have responded positively to bitcoin while others have expressed skepticism. François R. Velde, Senior Economist at the Chicago Fed, described it as "an elegant solution to the problem of creating a digital currency".[218] Paul Krugman and Brad DeLong have found fault with bitcoin, questioning why it should act as a reasonably stable store of value or whether there is a floor on its value.[219] Economist John Quiggin has criticized bitcoin as "the final refutation of the efficient-market hypothesis".[182]

David Andolfatto, Vice President at the Federal Reserve Bank of St. Louis, stated that bitcoin is a threat to the establishment, which he argues is a good thing for the Federal Reserve System and other central banks, because it prompts these institutions to operate sound policies.[49]:33[220][221]

Free software movement activist Richard Stallman has criticized the lack of anonymity and called for reformed development.[222] PayPal President David A. Marcus calls bitcoin a "great place to put assets" but claims it will not be a currency until price volatility is reduced.[223] Bill Gates, in relation to the cost of moving money from place to place in an interview for Bloomberg L.P. stated: "Bitcoin is exciting because it shows how cheap it can be."[224]

Officials in countries such as Brazil,[225] the Isle of Man,[226] Jersey,[227] the United Kingdom,[228] and the United States[35] have recognized its ability to provide legitimate financial services. Recent bitcoin developments have been drawing the interest of more financially savvy politicians and legislators as a result of bitcoin's capability to eradicate fraud, simplify transactions, and provide transparency, when bitcoins are properly utilized.[229][230][231]