Bitcoin is a digital or virtual currency (also know as „crypto currency“ or „cyber currency“) based on a technology named „Blockchain“, which was provided by its developer as open source code. A short description based on a formulation provided by the Bitcoin Forum at brings it to the point: „Bitcoin is the currency of the Internet: a distributed, decentralized digital money with high security and global validity. Unlike traditional currencies such as US-Dollars or Euros, bitcoins are issued and managed without any central authority or instance whatsoever: there is no government, no central bank, no company, and no bank in charge of Bitcoin. As such, it is more resistant to manipulation by corrupt instances, who want to make profit with money transfers.“

The notation „Blockchain“, i.e. „chain of blocks“, already illustrates quite well, how a Blockchain is designed: Blocks are simply spoken data structures with defined content (e.g. block header, transaction counter) and a uniform size (in case of Bitcoin e.g. one megabyte), which are logically connected. Another peculiarity consists in the fact, that the Blockchain is not centrally stored at a server, but distributed in a network of decentralized computers, with the consequence, that it cannot be controlled or manipulated by a single person/instance. Anonymity, authenticity and integrity of the data in the Blockchain are ensured by cryptographic methods and procedures (e.g. digital signatures, hash algorithms, proof-of-work, and encryptions).

The following graphics shows, how the transfer of Bitcoins in the Blockchain works from a logical point of view:

The roots of Bitcoin are located in the so called „Cypherpunks“ movement (see:, a group of technical-skilled activists, who campaigned for protection of privacy and anonymity in the Cyberspace from the beginning of 1990s onwards (see: „A Cypherpunk’s Manifesto“ issued by Eric Hughes on March 9, 1993: Members of the Cypherpunks were activists like Hal Finney, Nick Szabo, David Chaum, Wei Dai, Phil Zimmermann, Julian Assange and Satoshi Nakamoto, who later developed the Bitcoin.

Since its introduction in January 2009 (some weeks after the breakdown of Lehman Brothers at the height of the last global financial crisis) Bitcoin has run through a lot of ups and downs. Scandals, such as a the close-down and confiscation of the virtual marketplace „Silk Road“ in October 2013 (Silk Road 1.0) or November 2014 (Silk Road 2.0), which was used to trade with arms and drugs paid with Bitcoins under the shelter of the TOR network (see:, the breakdown of the bitcoin exchange „Mt. Gox“ in February 2014 or the detention of the BitInstant founder and CEO Charlie Shrem due to the accusation of money laundering could not prevent that the business with the crypto currency rapidly spread around the globe and the value of a Bitcoin continuously increased.

I would like to highlight at the beginning of this article one point, which I consider as very important (I will come back to this point at the end of the article): Bitcoin was developed by an individual, who is today still unknown, under the pseudonym „Satoshi Nakamoto“ to break the power of Wall Street and Central Banks. As alternative to conventional currencies Bitcoin should allow to perform global payments efficiently, fair, and for free – explicitly without governmental control and regulation and without involvement of banks, credit card companies or other money brokers, such as PayPal or Western Union. Erik Vorhees, who is today the CEO of the startup „“ made the following remarkable statement: „Bitcoin is the battle of ideas, and it forces the issue, of whether our people should be as free in their handling of money as they are in their handling of speech or religion or relationships to each other“.

The following chart issued by the Everest Group provides a brief overview on the history of Bitcoin and Blockchains:


Simon Johnson, Professor at MIT Sloan, describes the significant effects of cryptocurrencies such as Bitcoin on developing countries as follows: „The developing world is generally characterized by having problems with government, corruption, land titles, and movable property. The main idea is that you could use blockchain to track who owns what and therefore perhaps borrow more easily. Or sell things more easily … the bitcoin blockchain idea is certainly both a libertarian dream because there’s no government, but it’s also a left-wing dream because there’s no powerful oligarchs or banks or anything else … preventing people from being involved in the financial system. Most people are excluded from the banking system because the banks don’t want them as their customers, because they have too little money. And the banks think that [these customers] are too expensive, and they set their fees accordingly. In a purely decentralized system, it should be really easy to include people and give them a means of payment that’s digital.“ (see:

The 90-minute movie „Banking on Bitcoin“ released in 2016 provides a really excellent overview on the backdrop, which led to the introduction of Bitcoin on the basis of the Blockchain technology, and reports the changeful history of the crypto currency in course of the last 8 years in a very fascinating way (see:

What are the most important milestones regarding the crypto currency Bitcoin? The following 8 bullet points are extracted from an overview, which was published on August 21, 2017 by the Swiss „Handelszeitung“ in German language (see: including some small additions from my end:

  1. Bitcoin is the mother of all crypto currencies; however, it is not the only one. The website itemizes at the moment (status: August 21, 2017) a total of 855 crypto currencies (see:, from which Bitcoin with a market capitalization of 67.1 Billion USD is by far the most important, followed by Ethereum with 31.2 Billion USD, Bitcoin Cash with 10.4 Billion USD and Ripple with 6.0 Billion USD. The market capitalization of the following 851 listed crypto currencies lies between 0.002937 USD (True Investment Coin at rank 855) and 2.51 Billion USD (IOTA at rank 5). Note: The information provided for the market capitalization of crypto currencies has to be considered in relation to the total volume of conventional „broad money“, which was in 2015 including coins, bank notes, deposits in bank accounts and long term money investments at approx. 80,9 billion USD (see article in German language: Besides 855 crypto currencies approx. 160 conventional currencies, such as UD-Dollar, Euro, etc. exist (siehe:
  2. In 2008 the document, which described the Bitcoin system, appeared the first time (see: It was signed with the name Satoshi Nakamoto. People in the scene suspected for a long time, that this was a pseudonym. In May 2016, this assumption seemed to be confirmed. At that time, the Australian Craig Steven Wright claimed to be the inventor of Bitcoin. However, his assertion was heavily questioned and could never be proven with full certainty. According to another theory the person behind the pseudonym Satoshi Nakamoto was the Cypherpunk Hal Finney, who died in August 2014 (see: As crypto expert and former software developer of PGP („Pretty Good Privacy“) Corporation, Hal Finney made verifiable essential contributions for the development of the Bitcoin Blockchain. Hal Finney’s ALS disease got worse just at the same time, when „Satoshi Nakamoto“ backed out of the public.
  3. January 3, 2009 counts as birthday of the Bitcoin. At his day, the first 50 Bitcoins were generated. Note: This did not accidentally happen some weeks after the breakdown of Lehman Brother (on September 15, 2008) in a phase, when the weaknesses of the global financial system became obvious for everybody.
  4. The payment, i.e. transfer of Bitcoins is considered as very secure. Bitcoin itself cannot be hacked due to its decentralized security architecture, however Bitcoin exchanges such as Mt. Gox were hacked several times. According to financial experts, Bitcoin is a risky investment and the cyber currency is not able to safeguard the value of your investment. Note: Which currency can safeguard the value of your investment at all? The purchasing power of the US-Dollar dropped within 100 years from 1.00 US-Dollar in 1913 to 0.05 US-Dollar in 2013 (see: In a similar way, the external value of the Euro dropped between 2008 and 2017 by approx. 35% from 1.60 USD/EUR to 1.05 USD/EUR.
  5. To buy Bitcoins you need a so-called Bitcoin client (see: The digital coins are stored in a virtual Bitcoin Wallet (see: This systematics allows to purchase Bitcoins at certain exchanges (
  6. The highest market price ever Bitcoin reached with 4,479.33 US-Dollar on August 17, 2017, which was a rapid development. Just at the beginning of August 2017 the digital currency cracked the 3,000 US-Dollar mark. After having achieved this, it went straight upwards. Technical innovations were responsible for the Bitcoin rally. The first payment with Bitcoins is famous: A programmer in Florida paid 10,000 Bitcoins for 2 pizzas in 2010. With hindsight, the unfortunate guy probably mourns after a missed opportunity, since today the 10,000 Bitcoins represent a value of 35.173 Million Euro.
  7. The „Mining“, i.e. the generation of new Bitcoins – is primarily popular in China. According to estimations approx. 70% of all new coins are generated there, which bears cluster risks. News from China, which affect Bitcoin, can cause significant impact on rates and value of the Bitcoins. The architecture of the Bitcoin Blockchain determines that all miners together cannot generate more than 21 Million Bitcoin in total. It is expected that this limit will be reached around the year 2030. The limit of Bitcoins should protect the currency against inflation. Additional information regarding mining of Bitcoins can be found here:
  8. In April 2017 Japan granted Bitcoin the status of an official instrument of payment. By end of 2017 it shall be possible to pay in 300,000 shops in Japan with Bitcoin. Zurich was in 2014 the third city in Europe, where a money change machine for Bitcoins was located. The first money change machine of this kind was launched in Canada one year before. The municipality of Zug (Switzerland) was the first public authority in the world which started in 2016 to accept crypto currencies as instrument of payment. The respective pilot project has already been extended.

I would like to continue this article with some hints based on my own research.

I have published a comprehensive article describing the basics of Blockchain technology under the headline „Blockchain basic knowledge“ on January 25, 2017 under This article is so far unfortunately only available in German language.

While potential investors are alienated by extreme volatility of crypto currency rates, such as Bitcoin, the Bitcoin Blockchain so far could resist in course of the last 8 years since its introduction every cyber-attack. Some of the Bitcoin exchange platforms could be hacked (see:, but not the Bitcoin Blockchain itself. The major reason is, that Blockchains provide a very different (decentralized, secure) approach for storing information, performing transactions or functions and establishing trust. This make the Blockchain technology particularly interesting for use cases with very high security requirements or users, which want or need to stay anonymous. An article under the headline „Cryptocurrency Cyber Crime has cost victims millions this year“ published at on August 24, 2017 describes the four most important Cyber Crime threats (Phishing, Exploit of Systems, Hack, Ponzi Scheme):

Most recent development in Blockchain security – including „Keyless Signature Infrastructure (KIS)“ – are described in this article published on August 21, 2017 under the headline „3 ways Blockchain is revolutionizing Cybersecurity“ (see:

Very important hint: A Blockchain is not database, i.e. you cannot store documents or objects in the Blockchain, but instead refer to documents or objects, which must be stored outside the Blockchain.

Furthermore, the Blockchain technology is today not ready for use cases, which require response times in the range of milliseconds (such as e.g. real-time networking of devices in the Internet of Things), because the validation and verification of a Bitcoin transaction lasts approx. 15 Minutes. The credit card company VISA can process 25,000 parallel transactions per second, the cash money transfer supplier Western Union approx. 750 and the Bitcoin Blockchain approx. 7. Beyond this, the latency times of the networks, which are utilized for transferring data between the Blockchain computers are to be considered.

How the „mining“ of Bitcoins works you can refer in this professional article from June 28, 2017 under the Headline „What is Bitcoin Mining and how does it work“ (see: The speed of Bitcoin mining depends on several influencing factors. You need to consider various aspects such as electricity cost, cost of respective hardware and other variables. The more Bitcoin miners are in one network, the more difficult it becomes, to generate Bitcoins. Bitcoin mining consumes a lot of electricity. If electricity prices are high, Bitcoin mining often is not profitable. To perform Bitcoin mining you need to join a mining pool, which causes additional cost. For the mining you need adequate hardware, which causes additional cost as well. Depending on how powerful your Bitcoin miner should be, you may pay up to 2,000 Euro.

The following picture shows a technician inspecting Bitcoin Mining machines at a Mining facility operated by Bitmain Technologies Ltd. in Ordos, Inner Mongolia, China, on August 11, 2017. Bitmain is one of the leading producers of bitcoin-mining equipment and also runs Antpool, a processing pool that combines individual miners from China and other countries, in addition to operating one of the largest digital currency mines in the world (source: Qilai Shen/Bloomberg).

Technician inspects Bitcoin Mining machines.jpg

Bitcoins are stored in so called „Wallets“. According to a blog published on March 24, 2017 under the headline „How many people in the world own bitcoin or Ethereum?“ (see: 14 million Bitcoin Wallets (source: CoinDesk) and approx. 1.2 million Ethereum Wallets (source: EtherScan) were in place at that point of time. These numbers may include inoperative Wallets. In addition, one user may own various Wallets. Due to security reasons, it is even recommended to open and use different Wallets for different use cases.

This immediately leads to the questions, who owns the biggest number of Bitcoins. This issue is insofar important, since there were rumors in the past, that a bulk of Bitcoins lies in the hands of only a few investors. According to this article published by on May 30, 2017 under the headline „7 People Set to Make a Killing from the Bitcoin Boom“ (see: these rumors don’t seem to be true. As top 7 Bitcoin profiteers the article mentions the following individuals:

  1. Tim Draper (Venture Capitalist) with approx. 30,000 Bitcoins
  2. Tyler and Cameron Winklevoss (Investors) with approx. 1% of all Bitcoins, which are currently in circulation
  3. Barry Silbert (Venture Capitalist) with approx. 48,000 Bitcoins
  4. Charlie Shrem (former founder and CEO of BitInstant)
  5. Satoshi Nakamoto (Bitcoin Inventor) with approx. 5% of all Bitcoins, which are currently in circulation
  6. Uncle Sam, i.e. the US-American state, since the „Internal Revenue Service (IRS)“ started in 2016 to identify Bitcoin investors, to collect capital returns tax from them. In calendar year 2015 in the USA only 802 tax payers confessed to receive income from investments into Bitcoins.

On August 1, 2017, a new crypto currency named „Bitcoin Cash“ split off from the original Bitcoin currency. The original Bitcoin currency consists of blocks with one Megabyte size. Due to the increasing popularity of Bitcoins, transactions run very slow based on this limitation. For this reason, some developers created a second currency named Bitcoin Cash, which clones the Bitcoin Blockchain, but utilizes blocks with up to eight Megabyte size. This new currency relinquishes the so called „Segregated Witness“ concept – known as well as „SegWit“. SegWit is the process, in which signature-relevant data are removed from Bitcoin transactions, to decrease the size of the transaction block, so that more transaction fit into one block of the same size.

Short after the dust around Bitcoin Cash has settled, people speculate about the next split of Bitcoin, since the two existing solutions still not satisfy all requirements. Some developers advocate to take the best of the two worlds and transfer it into a third Bitcoin currency. For this reason, most likely from November 2017 on, there will be three versions of Bitcoin in place. The new third Bitcoin currency under the name SegWit2 will differ from the two existing ones, as it comprises blocks of two Megabyte size and continues to utilize the „Segregated Witness“ concept. This is expected to increase the performance of mining, because the blocks do not comprise signatures any more.

In the middle of 2016 the Ethereum Blockchain was the first Blockchain in the market, which could process so called „Smart Contracts“. This war a major innovation and extension of the Blockchain technology, which is – besides Ethereum – as well offered by the NEO Blockchain (formerly known as AntShares). Smart Contracts are automated agreements between Users. The realization of these agreements may depend on a broad, variety of events or checks, e.g. on a certain data or from balancing a certain account by paying a lending fee for a rented object. The Ethereum and NEO Blockchain both offer support for programming languages. Vitalik Buterin, the developer of the Ethereum Blockchain, considered the missing availability of such a support as major disadvantage of the Bitcoin Blockchain. Buterin’s idea seems to attract potential investors: With a market capitalization of 28.768 billion USD (status: August 22, 2017) Ethereum is the second biggest crypto currency in the market.

NEO allows developers to write programs for Smart Contracts and other applications based on programming languages customary in the market, such as .NET and Java. Python, Go and Java Script are planned to be supported in the future. Between the NEO Blockchain and the Bitcoin and Ethereum Blockchains there is one major difference: While the anonymity of the users is integral part of the Bitcoin and Ethereum Blockchain architecture, the NEO Blockchain uses a Digital Identity System, to make the integration of NEO with the „real-world economy“ easier. This certainly leads to disadvantages, when anonymity is the major motivation for the user, to utilize crypto currencies on Blockchain basis, on the other hand experts expect, that die Digital Identity System will give NEO a competitive advantage in its Chinese home market (reminder: approx. 70% of Bitcoin mining takes place in China). With a market capitalization of 1.637 Billion USD (status: August 22, 2017) NEO is currently already the ninth largest crypto currency in the market.

In 2014 Susanne Tarkowski Tempelhof founded with „Bitnation“ ( the first global virtual state („crypto nation“). Citation: „Bitnation shall be understood as grassroots movement, which wants to overcome borderlines and make institutions obsolete. „Bitnation does not care where in the world you are from, where you live, or what passport you hold. Everyone has the right to enjoy, high-end, competitive governance services“ the platform postulates. Bitnation wants, like a conventional state, possess its own education system, network of ambassadors, and a space travel agency“ (see: This exceptional idea is another evidence for the potential or reach and diversity of the Blockchain concept.

Having said this, I would like to come back to the aspect I already mentioned at the beginning of this article, i.e. the question, why Bitcoin has been developed at all. On August 4, 2017 the Reddit user „hodlgentlemen“ published an article under the headline „Just a quick reminder, why bitcoin was invented in the first place“ (see:

This Reddit article ends in the following conclusion: „„So, if you find yourself religiously checking some cryptocurrency’s price, or bogged down in discussions about the “one true bitcoin”, or constantly asking what currency to buy, please at least remember that we have bigger fish to fry. We are here to fix the financial system.“ The major purpose of cryptocurrencies is to eliminate the influence and power of central intermediaries by an alternative system of decentralized trust. Period. If you want to know, why something has been invented or set up, it is always a smart question to ask: „Who benefits it?“. This applies for the approx. 160 fiat money currencies at our planet as well as for the more than 1,060 cryptocurrencies, which have been introduced as per today in the cyberspace.“

The Reddit article, as well as the over 5,000 comments of other Reddit users are interesting and worth reading.

The crypto sector is much more than Bitcoin, and crypto currencies — it’s about building a better, decentralized, (digital) world — how this article ( published on June 1, 2017 on under the headline „Mapping the decentralized world of tomorrow“ and the hence extracted following graphics both illustrate:


Imagine the Federal Republic of Germany (I take Germany as an example, because it is my mother country and I know it best) would transfer all essential public administration services in a central Blockchain („Cyber Germany“), such as resident’s registration, motor vehicle license, child allowance, register of real estate („cadaster“) or elections („eVoting“), so that interested citizens could process these services on a full digital basis utilizing the (in Germany already existing) electronic Identity Card.

In those cases, where the electronic Identity Card is not sufficient, citizens could utilize the (in Germany as well already existing) PostIdent procedure including legitimation via video (see:, instead of wasting their time by waiting hours and hours in a public administration office.

If „Cyber Germany“ proves its value, the government could transfer step by step the data from the existing IT systems at Federal level, federal state level, cities an municipalities to the Blockchain until the old IT systems can be shut down.

Even an own virtual currency („German Bitcoin“) could be introduced on the basis of Blockchain technology in parallel to the unfortunate Euro (to be prepared for day X, when the Euro collapses). This virtual currency could be used e.g. to process tax payments.

Germany (as well as any other country) could make a mark as trailblazer for the digitalization of public administration …

Last, but not least, here are some interesting or continuative links for further research or application of Bitcoin:

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