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Communications of the ACM

Technology strategy and management

The Bitcoin Ecosystem

bitcoin image

Credit: Julia Zakharova

Bitcoinsa continue to attract attention but remain somewhat difficult to understand (see the May 2014 Communications Economic and Business Dimensions column by Marshall Van Alstyne, "Why Bitcoin Has Value"). They are by far the most used of several hundred "crypto-currencies." Theoretically, they are free and available to anyone with a computer and an Internet connection. They could replace cash, credit and debit cards, money transfers, and currency conversions through banks and other financial intermediaries. They represent another potentially disruptive Internet technology. But are they truly free and easily available? Not really. For most of us, bitcoins are a complex platform technology that requires the help of intermediaries—an ecosystem of "complementary" product and service providers that charge fees.

The software solves the dilemma of how two or more people who do not know each other can establish trust and mutually agree upon a transaction: the so-called "Byzantine Generals Problem." The technology first appeared in 2008 after its creator (or creators) known as Satoshi Nakamoto made the software freely available.2 Bitcoin generates a public ledger (a "block chain") when anyone creates, buys, or transfers a bitcoin. No one can change this ledger, and anyone can see it by downloading the open source peer-to-peer software. This scheme offers significant protection against theft or counterfeiting. However, because the ledger does not contain names or physical addresses, some criminal use of bitcoins to transfer and store money has occurred.5 (Anonymous overseas bank accounts might be worse in this regard.)


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