Bitcoin

 is a virtual currency or digital payment system with no intermediaries or banks. It was invented by a person or group using the alias Satoshi Nakamoto, and released as open-source software in 2009.

Bitcoin has been described as a decentralized, peer-to-peer virtual currency that is used like money – it can be exchanged for traditional currencies such as the U.S. dollar, or used to purchase goods or services, usually online. Unlike traditional currencies, Bitcoin operates without central authority or banks and is not backed by any government.

This article outlines some of the characteristics of Bitcoin, but you are reminded that it does not fit within the Bogleheads® investment philosophy.

Overview
Many websites provide tutorial overviews. Here are a few suggestions:
 * Bitcoin: More than a Bit Risky, from the Financial Industry Regulatory Authority (FINRA). The section titled "How Bitcoin Works" contains an unbiased, concise summary from an investing perspective. If you don't know where to start, read this publication first.
 * Bitcoin: A Peer-to-Peer Electronic Cash System is "Satoshi Nakamoto's" original paper describing Bitcoin.
 * What is Bitcoin? (v2), on youtube.com. The most watched Bitcoin introduction video ever.
 * Bitcoin, on Wikipedia. Provides a general overview, but read the FINRA publication first.
 * From: bitcoin.org, the open-source Bitcoin community site.
 * Getting started
 * How does Bitcoin work?
 * Some things you need to know

Risk
Consider these risks when evaluating investments involving Bitcoin:


 * Not insured. While securities accounts at U.S. brokerage firms are often insured by the Securities Investor Protection Corporation (SIPC) and bank accounts at U.S. banks are often insured by the Federal Deposit Insurance Corporation (FDIC), bitcoins held in a digital wallet or Bitcoin exchange currently do not have similar protections. Some exchanges do take out extra insurance to protect against a large-scale hack, but will usually not cover account-level breaches.
 * History of volatility. The exchange rate of Bitcoin historically has been very volatile and the exchange rate of Bitcoin could drastically decline. For example, the exchange rate of Bitcoin has dropped more than 50% in a single day. Bitcoin-related investments may be affected by such volatility.
 * Government regulation. Bitcoins are not legal tender. Federal, state or foreign governments may restrict the use and exchange of Bitcoin. No law requires companies or individuals to accept bitcoins as a form of payment. Instead, Bitcoin use is limited to businesses and individuals that are willing to accept bitcoins. If no one accepts bitcoins, bitcoins will become worthless.
 * Security concerns. Bitcoin exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware. Bitcoins also may be stolen by hackers. Platforms that buy and sell bitcoins can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked. As a result, consumers can – and have – lost money.
 * New and developing. As a recent invention, Bitcoin does not have an established track record of credibility and trust. Bitcoin and other virtual currencies are evolving.
 * Bitcoin payments are irreversible. Once you complete a transaction, it cannot be reversed. Purchases can be refunded, but that depends solely on the willingness of the establishment to do so.
 * Anonymity. In part because of the anonymity Bitcoin offers, it has been used in illegal activity, including drug dealing, money laundering and other forms of illegal commerce. Abuses could impact consumers and speculators; for instance, law enforcement agencies could shut down or restrict the use of platforms and exchanges, limiting or shutting off the ability to use or trade bitcoins.

Role in a portfolio
Bitcoin investments should be considered similar to the gambling portion of your portfolio. In other words, only invest in Bitcoin if you can afford to lose all of the investment.

Asset class
Bitcoin, a virtual currency, is a commodity unlike any the Commodity Futures Trading Commission has dealt with in the past. The Commodity Futures Trading Commission (CFTC) has ruled that Bitcoin and other virtual currencies are a commodity covered by the Commodity Exchange Act.

Taxes
Virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:


 * Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
 * Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
 * The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
 * A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Academic papers

 * Chen, Shi and Chen, Cathy Yi-Hsuan and Härdle, Wolfgang K. and Lee, TM and Ong, Bobby, A First Econometric Analysis of the CRIX Family (August 30, 2016). Available at SSRN: https://ssrn.com/abstract=2832099 or http://dx.doi.org/10.2139/ssrn.2832099
 * Hileman, Garrick and Rauchs, Michel, 2017 Global Cryptocurrency Benchmarking Study (April 6, 2017). Available at SSRN: https://ssrn.com/abstract=2965436 or http://dx.doi.org/10.2139/ssrn.2965436
 * Nakamoto, Satoshi, Bitcoin: A Peer-to-Peer Electronic Cash System. The paper that first introduced Bitcoin. (2009)

General

 * From Bitcoin.org
 * Resources, Useful websites and resources about Bitcoin.
 * Bitcoin Wiki, a public resource for the community of Bitcoin users, developers, and businesses as well as anyone interested in Bitcoin.

Programming

 * Developer Documentation, from bitcoin.org. Resources, guides and reference material for developers.
 * . Essential reading for those who wish to learn more about the technical operation of bitcoin or build your own app. Free online access.

Investing / Financial

 * , Motley Fool.
 * CryptoCurrency Market Capitalizations