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Federal Register / Vol. 86, No. 172 / Thursday, September 9, 2021 / Notices
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referred to as decentralized and censorship resistant.
The value of bitcoin is determined by the supply of and demand for bitcoin.
New bitcoins are created and rewarded to the parties providing the Bitcoin Networks infrastructure miners in exchange for their expending computational power to verify transactions and add them to the Blockchain. The Blockchain is effectively a decentralized database that includes all blocks that have been solved by miners, and is updated to include new blocks as they are solved.
Each bitcoin transaction is broadcast to the Bitcoin Network and, when included in a block, recorded in the Blockchain. Each new block records outstanding bitcoin transactions, and outstanding transactions are settled and validated through such recording. The Blockchain represents a complete, transparent, and unbroken history of all transactions of the Bitcoin Network.
The method for creating new bitcoin is mathematically controlled in a manner so that the supply of bitcoin grows at a limited rate pursuant to a preset schedule. The number of bitcoin awarded for solving a new block is automatically halved every 210,000
blocks. Thus, the current fixed reward for solving a new block is 6.25 bitcoin per block; the reward decreased from twenty-five bitcoin in July 2016 and 12.5 in May 2020. It is estimated to halve again at the start of 2024. This deliberately controlled rate of bitcoin creation means that the number of bitcoin in existence will never exceed twenty-one million and that bitcoin cannot be devalued through excessive production unless the Bitcoin Networks source code and the underlying protocol for bitcoin issuance is altered.
As of January 1, 2021, approximately 18,587,000 bitcoin have been mined. It is estimated that more than ninety percent of the twenty-one million bitcoin will have been produced by 2022.
Bitcoin Network The first step in directly using the Bitcoin Network for transactions is to download specialized software referred to as a bitcoin wallet. A users bitcoin wallet can run on a computer or smartphone and can be used both to send and to receive bitcoin. Within a bitcoin wallet, a user can generate one or more unique bitcoin addresses, which are conceptually similar to bank account numbers. After establishing a bitcoin address, a user can send or receive bitcoin from his or her bitcoin address to another users address.
Sending bitcoin from one bitcoin
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address to another is similar in concept to sending a bank wire from one persons bank account to another persons bank account, provided, however, that such transactions are not managed by an intermediary and erroneous transactions generally may not be reversed or remedied once sent.
The amount of bitcoin associated with each bitcoin address, as well as each bitcoin transaction to or from such address, is transparently reflected in the Blockchain and can be viewed by websites that operate as blockchain explorers. Copies of the Blockchain exist on thousands of computers on the Bitcoin Network. Anyone can view the blockchain as it is available to observe without restriction. A users bitcoin wallet will either contain a copy of the blockchain or be able to connect with another computer that holds a copy of the blockchain. The innovative design of the Bitcoin Network protocol allows each Bitcoin user to trust that their copy of the Blockchain will generally be updated consistent with each other users copy because it is extraordinarily unlikely that the Blockchain could be retroactively changed.
When a Bitcoin user wishes to transfer bitcoin to another user, the sender must first have the recipients Bitcoin address. The sender then uses his or her Bitcoin wallet software to create a proposed transaction to be added to the Blockchain. The proposal would reduce the amount of bitcoin allocated to the senders address and increase the amount allocated to the recipients address, in each case by the amount of bitcoin desired to be transferred. The proposal is completely digital in nature, similar to a file on a computer, and it can be sent to other computers participating in the Bitcoin Network.
Bitcoin Transactions A bitcoin transaction contains the senders bitcoin address, the recipients bitcoin address, the amount of bitcoin to be sent, a transaction fee, and the senders digital signature. Bitcoin transactions are secured by a type of cryptography known as public-private key cryptography, represented by the bitcoin addresses and digital signature in a transactions data file. Each Bitcoin Network address, or wallet, is associated with a unique public key and private key pair, both of which are lengthy alphanumeric codes, derived together and possessing a unique relationship.
The public key is visible to the public and analogous to the Bitcoin Network address. The private key is a secret and may be used to digitally sign a transaction in a way that proves the
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transaction has been signed by the holder of the public-private key pair, without having to reveal the private key.
A users private key must be kept in accordance with appropriate controls and procedures to ensure that it is used only for legitimate and intended transactions. If an unauthorized third person learns of a users private key, that third person could forge the users digital signature and send the users bitcoin to any arbitrary bitcoin address, thereby stealing the users bitcoin.
Similarly, if a user loses his private key and cannot restore such access e.g., through a backup, the user may permanently lose access to the bitcoin contained in the associated address.
The Bitcoin Network incorporates a system to prevent double-spending of a single bitcoin. To prevent the possibility of double-spending a single bitcoin, each validated transaction is recorded, time stamped and publicly displayed in a block in the Blockchain, which is publicly available. Thus, the Bitcoin Network provides confirmation against double-spending by memorializing every transaction in the Blockchain, which is publicly accessible and downloaded in part or in whole by all users of the Bitcoin Network software program. Any user may validate, through their Bitcoin wallet or a blockchain explorer, that each transaction in the Bitcoin Network was authorized by the holder of the applicable private key. Bitcoin Network mining software consistent with reference software requirements typically validates each such transaction before including it in the Blockchain.
This cryptographic security ensures that bitcoin transactions may not generally be counterfeited, although it does not protect against the real world theft or coercion of use of a Bitcoin users private key, including the hacking of a Bitcoin users computer or a service providers systems.
A Bitcoin transaction between two parties is settled when recorded in a block added to the Blockchain.
Validation of a block is achieved by confirming the cryptographic hash value included in the blocks solution and by the blocks addition to the longest confirmed Blockchain on the Bitcoin Network. For a transaction, inclusion in a block on the Blockchain constitutes a confirmation of a Bitcoin transaction.
As each block contains a reference to the immediately preceding block, additional blocks appended to and incorporated into the Blockchain constitute additional confirmations of the transactions in such prior blocks, and a transaction included in a block for the first time is confirmed once against
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