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Bitcoin operates as a cryptocurrency platform (Cheun et al., 2017; Inci & Lagasse, 2019), leveraging a decentralized, peer-to-peer architecture to function as a virtual currency (Abramowicz, 2016; Bariviera, 2017; Hileman & Rauchs, 2017; Milutinovic, 2018; Tschorsch & Scheuermann, 2016; Urquhart, 2016). Promoted as an innovative kind of payment network and a novel kind of money, Bitcoin has gained significant attention in the fintech domain (Wile, 2014). To date, it has become the most successful virtual currency (John et al., 2022), capturing over 81% of the cryptocurrency market. Its prominence arises from two key features: it serves as an alternative currency independent of central banks and transactions are inherently distributed and decentralized in terms of control (Yermack, 2015). Unlike conventional currencies and financial instruments, it is neither issued nor regulated by any central bank (DeVries, 2016; Hileman & Rauchs, 2017; Kelly, 2014). Instead, individual participants can aggregate or “mine” bitcoins (BitcoinWiki, 2022). As such, it does not fit the conventional definition of a commodity currency (i.e., backed by tangible assets such as gold) or of a fiat currency (i.e., controlled by governments through central banks) (Shea, 2012).
All transactions within the Bitcoin ecosystem are recorded on a transparent, publicly accessible distributed ledger called the “blockchain.” This decentralized database chronicles value transfers in a peer-to-peer network. The blockchain consists of blocks—batches of validated transactions—that are cryptographically interconnected. Bitcoin’s structure exemplifies a specific use of distributed ledger technology (Winklevoss, 2021). It employs a consensus method named “proof-of-work” to guarantee the ledger’s security and integrity. This mechanism compels network nodes to solve intricate mathematical challenges to craft new blocks and earn rewards. Its design permits the generation and transfer without requiring intermediaries or centralized entities.
The security of the blockchain platform is contingent on a specific algorithm used for mining bitcoin, which safeguards against double-spending and ensures transaction integrity. This algorithm, however, is energy-intensive (Vranken, 2017). Bitcoin represents a distributed system capable of addressing certain shortcomings of traditional currencies (Böhme et al., 2015; Vranken, 2017). Therefore, transaction costs can be expected to be lower as the issuance, settlement, and transaction confirmation are achieved through public consensus (Ali et al., 2014; Mikołajewicz-Woźniak & Scheibe, 2015). While the Bitcoin Foundation provides guidelines to comply with a standardized governance framework to ensure its security and promotion, it does not act as a centralized authority and does not issue currency (Beer & Weber, 2014).
In this study, we refer to it as “bitcoin,” but it is worth reiterating that it is a digital currency without any physical representation (Böhme et al., 2015; Vranken, 2017; Zohar, 2015). The blockchain—the underlying technology of the Bitcoin platform—facilitates transactions within a user network. These users transact with one another using the Bitcoin protocol over the Internet. The open-source nature enables users to store and trade the currency to purchase goods or exchange other currencies. Cryptocurrency, denoted by Bitcoin has distinct characteristics, including decentralized architecture, flexibility, transparency, fastness, and low transaction fees (Gerard, 2017).