04 — Bitcoin (L1)

The original blockchain. Designed as peer-to-peer electronic cash. Today primarily a store of value + settlement layer; L2s for payments.

1. Fundamental specifications

Spec Value
Launch 2009-01-03 (genesis block)
Whitepaper 2008-10-31 (Satoshi Nakamoto)
Consensus Proof-of-Work (SHA-256d)
Block time 10 minutes (average target)
Block size 1 MB base + witness (after SegWit), effective ~2-4 MB
Difficulty adjustment Every 2016 blocks (~2 weeks)
Total supply 21M BTC (asymptotic)
Halvings Every 210k blocks (~4 years): 50 → 25 → 12.5 → 6.25 → 3.125 BTC
Smallest unit 1 satoshi = 10⁻⁸ BTC
Address curve secp256k1 (ECDSA legacy; Schnorr in Taproot)
Hash algorithms SHA-256 (PoW, txid), RIPEMD-160 (address)
Tx model UTXO
Native script Bitcoin Script (non-Turing-complete)
Programming language (Core) C++
Reference impl Bitcoin Core (github.com/bitcoin/bitcoin)

2. Block structure

Block header (80 bytes):
  version       (4 bytes)
  prev_block    (32 bytes)
  merkle_root   (32 bytes)
  timestamp     (4 bytes)
  bits          (4 bytes)  // difficulty target encoded
  nonce         (4 bytes)
Tx count        (varint)
Transactions

Block hash = SHA-256(SHA-256(header)).

Merkle root

Hash of the Merkle tree of SHA-256(SHA-256(txid_i)) of the txs in the block.

Enables SPV (Simplified Payment Verification): a light client can verify tx inclusion with \(O(\log n)\) data.

3. Transactions

Structure

version       (4 bytes)
input count   (varint)
inputs:
  prev_output (txid:vout)  (36 bytes)
  scriptSig length
  scriptSig
  sequence
output count  (varint)
outputs:
  value       (8 bytes; satoshis)
  scriptPubKey length
  scriptPubKey
locktime      (4 bytes)

Script types

Type Opcode template Address
P2PK (Pay-to-Public-Key) <pubkey> OP_CHECKSIG (no address; raw pubkey)
P2PKH (Pay-to-Public-Key-Hash) OP_DUP OP_HASH160 <hash> OP_EQUALVERIFY OP_CHECKSIG Base58 1...
P2SH (Pay-to-Script-Hash, BIP 16) OP_HASH160 <hash> OP_EQUAL Base58 3...
P2WPKH (Witness Pubkey Hash, SegWit) OP_0 <hash> Bech32 bc1q... (20 bytes)
P2WSH (Witness Script Hash, SegWit) OP_0 <hash> Bech32 bc1q... (32 bytes)
P2TR (Pay-to-Taproot) OP_1 <pubkey> Bech32m bc1p...

Lock scripts (timelocks)

  • OP_CHECKLOCKTIMEVERIFY (CLTV, BIP 65): absolute timelock.
  • OP_CHECKSEQUENCEVERIFY (CSV, BIP 112): relative timelock.

Used in Lightning, HTLCs.

4. Upgrade history

BIPs (Bitcoin Improvement Proposals)

Process: BIP draft → community discussion → soft fork via miner signaling (BIP 9 / Speedy Trial).

Major upgrades

Year Upgrade BIP Impact
2012 P2SH BIP 16 Pay-to-script-hash; enables multi-sig
2015 OP_CLTV BIP 65 Absolute timelocks
2016 OP_CSV BIP 112 Relative timelocks
2017-08 SegWit BIP 141, 143, 144 Separates signatures; fixes malleability; effective block size ↑
2017-08 Bech32 addresses BIP 173 Better error correction
2021-11 Taproot BIP 340, 341, 342 Schnorr signatures, MAST, Tapscript
2021-11 Bech32m BIP 350 Fix Bech32 last-char weakness

SegWit (2017)

Segregated Witness:

  • Separates the script_sig (signature) into a "witness" — does not count toward the 1 MB base block size.
  • Weight units (WU): block max 4M WU. Base tx data = 4 WUbyte, witness = 1 WUbyte.
  • Effective block: ~1.5-2 MB with a typical mix.
  • Fixes malleability: txid does not include the witness — Lightning Network viable.

Taproot (2021)

Schnorr signatures (BIP 340):

  • Simpler than ECDSA, clean security proof in ROM.
  • Linear: \(\sigma_1 + \sigma_2\) valid for \(P_1 + P_2\). Enables signature aggregation (MuSig2).
  • 64 bytes (vs 71-72 ECDSA).

Taproot (BIP 341):

  • Output: single 32-byte Schnorr pubkey.
  • Single sig, multisig (via MuSig), and complex script — all indistinguishable on-chain on the happy path.
  • Script revealed only if necessary (key path vs script path).

Tapscript (BIP 342):

  • Modifies Script (adds OP_CHECKSIGADD; removes some legacy opcodes; clean signature behavior).
  • 64-byte signatures.

5. Mining

Mechanics

  1. The miner builds a block template: collects mempool txs, adds the coinbase tx (with block reward + fees).
  2. Computes the Merkle root.
  3. Varies the nonce + extranonce in the coinbase until \(H(\text{header}) < \text{target}\).
  4. Broadcasts the block; peers verify and propagate.

Difficulty adjustment

Every 2016 blocks:

\[D_{\text{new}} = D_{\text{old}} \times \frac{T_{\text{expected}}}{T_{\text{actual}}}\]

\(T_{\text{expected}} = 2016 \times 600\text{s}\). Bounded [1/4, 4]× per adjustment.

Hashrate

Total network hash power. ~700 EHs in May 2026 (vs ~1 THs in 2010).

Pools

Pool Approx share 2026
Foundry USA 25%
AntPool 20%
ViaBTC 12%
F2Pool 10%
Binance Pool 8%
MARA Pool 5%
Others 20%

Centralization concern: top 2 pools ~45%. But pool ≠ miner; individual miners can switch pools easily (Stratum V2 helps).

ASICs

Antminer S21 (~225 THs, 18 JTH efficient), Whatsminer M60S+. Bitmain, MicroBT, Canaan dominant.

Mining geography

Country Approx share 2026
USA 38%
Kazakhstan 13%
Russia 12%
Canada 6%
Others 31%

(China: <1% after the 2021 ban; recovery slow underground.)

6. Economic halving

Halving Date Reward before → after
#1 2012-11-28 50 → 25 BTC
#2 2016-07-09 25 → 12.5 BTC
#3 2020-05-11 12.5 → 6.25 BTC
#4 2024-04-19 6.25 → 3.125 BTC
#5 (expected) 2028 3.125 → 1.5625 BTC

Stock-to-flow: Bitcoin scarcity narrative; PlanB's model (2019) that post-halving price tracks. A controversial model (over-fit; the 2021 ATH above, 2022 below).

Mining economics: each halving compresses margins; post-halving bear markets test efficient miners.

7. Lightning Network (L2)

Joseph Poon + Thaddeus Dryja whitepaper 2015. Mainnet 2018.

Mechanics

Payment channels: 2 parties open a multi-sig channel; balance updated off-chain via signed state; eventual on-chain settle.

HTLCs (Hashed Timelock Contracts): enable multi-hop payments — the payer reveals a secret \(x\) such that \(H(x) = h\); intermediate hops conditionally pay.

Onion routing (Sphinx): route encrypted; nodes only know prev+next hop.

Stats (~May 2026)

  • ~6000 BTC total capacity.
  • ~14000 active nodes.
  • Payments instantaneous, sub-cent fees.

Implementations

  • LND (Lightning Labs, Go).
  • Core Lightning (CLN) (Blockstream, C).
  • Eclair (ACINQ, Scala).
  • LDK (Lightning Dev Kit) (Spiral, Rust library).

Limitations

  • Liquidity routing: directional balance issues.
  • Channel rebalancing needed.
  • Watchtowers required to prevent counterparty malfeasance during offline periods.
  • Channel jamming attacks mitigated in research.

8. Stacks (Bitcoin L2 with smart contracts)

Muneeb Ali + Ryan Shea 2017. Anchored to Bitcoin via Proof-of-Transfer (PoX).

  • Clarity language (decidable, no Turing-completeness).
  • sBTC: 2-way peg to Bitcoin via threshold signing.
  • Native Bitcoin DeFi attempt.

9. Liquid Network

Blockstream, 2018. A federated sidechain with 15 functionaries.

  • Confidential Transactions (Pedersen commitments).
  • Issued assets (Tether USDt-Liquid, USDC-Liquid).
  • 1-minute blocks, 2-block finality.
  • L-BTC peg-in/peg-out via federation.

10. Ordinals + Inscriptions

Casey Rodarmor 2023.

Ordinals theory: assign a serial number to each satoshi based on order of mining. Allows non-fungibility ("rare sats").

Inscriptions: arbitrary data inscribed in the witness data of a Taproot tx. Native NFTs on Bitcoin without an L2.

BRC-20: token standard using inscriptions (text JSON). Controversial — bloated the block; raised fees.

Runes (Casey, 2024): a more efficient token protocol. Launched at the 2024 halving.

Atomicals: alternative protocol.

Stamps (SRC-20): data in UTXOs (more permanent than witness, higher fee).

11. RGB

Smart contract layer with "client-side validation" — state lives off-chain, anchored in a Bitcoin tx. Long roadmap; recent traction limited.

12. Bitcoin DeFi (BTCFi)

Emerging 2024-2026:

  • Babylon: stake BTC to secure L2s (timestamping). Mainnet Aug 2024.
  • CoreDAO: EVM-compatible sidechain using BTC mining hash.
  • Bouncebit: LRT on BTC.
  • Arch Network: Bitcoin L2 EVM-like.
  • BitVM: trustless bridge concept via fraud proofs (theoretical 2023, impl in progress 2024-2025).
  • Citrea: ZK rollup on Bitcoin.

13. Privacy in Bitcoin

CoinJoin

Mixing protocol — multiple users combine UTXOs into one tx; who-paid-whom is ambiguous.

  • Wasabi Wallet (Wasabi 2.0+).
  • Samourai Whirlpool — founders arrested in Apr 2024 (US DOJ alleged money laundering).
  • JoinMarket.

PayJoin (BIP 78)

Sender + receiver both contribute inputs — breaks the "common input ownership" heuristic.

Silent Payments (BIP 352)

Reusable addresses without on-chain reuse; receiver computes ECDH with the sender. Native in Bitcoin Core 28.0 (2024).

14. Adoption + investment vehicles

Spot ETFs (US, Jan 2024)

Approved by the SEC:

  • BlackRock IBIT
  • Fidelity FBTC
  • Grayscale GBTC (converted from trust)
  • Bitwise BITB
  • Ark/21Shares ARKB
  • VanEck HODL
  • WisdomTree BTCW
  • Invesco BTCO
  • Valkyrie BRRR
  • Hashdex DEFI
  • Franklin EZBC

AUM combined > US$ 100B by 2026.

Corporate treasuries

  • MicroStrategy (MSTR): ~500k BTC (Michael Saylor).
  • Tesla: ~10k BTC (sold partial 2022).
  • Block (Square): ~8k BTC.
  • Coinbase: ~9k BTC.
  • Marathon Digital, Riot Platforms miners: hold BTC.

Nation-state

  • El Salvador: legal tender since Sep 2021. ~2700 BTC reserves.
  • Bhutan: secret BTC mining via Druk Holding (revealed 2024).
  • United States Strategic Bitcoin Reserve: Executive Order 2025 — holds confiscated BTC (~200k BTC).

Bitcoin Cash + Bitcoin SV

Hard forks (2017, 2018). Marginal adoption. BCH still active community; BSV mostly Craig Wright (perjury convictions, COPA lawsuit 2024).

15. Software

Client Lang Share
Bitcoin Core C++ ~95%
btcd (Lightning Labs) Go ~3%
Bcoin (Purse, now discontinued) JS < 1%
Knots (Luke-Jr fork of Core) C++ minority
libbitcoin C++ research

16. Limitations and debates

Throughput

7 TPS sustainable. Lightning + sidechains escalate but with trust assumptions.

Energy

150 TWh/year (Argentina). Defenders: growing renewable share; stabilizes the grid (Bitcoin Mining Council estimates 60% renewable in 2024).

Quantum threat

Reused addresses (P2PK in the Satoshi era) are exposed. P2PKHP2SHSegWit/Taproot hide the pubkey until spend — the window after broadcast (not confirmation) is the window of vulnerability.

Mitigation roadmap: BIP draft PQC signing (2024+, Westerbaan/Valsorda).

Censorship resistance

Mempool censorship via mining pool policy possible. States under regulatory pressure may demand it. Stratum V2 improves this (jobs created by miners, not the pool).

Privacy

Pseudonymous, not anonymous. Chain analysis is mature.

17. Metrics

On-chain

  • Daily tx: ~500k.
  • Hash power: ~700 EH/s.
  • UTXO set: ~120M.
  • Full nodes: ~16k.
  • Mempool fee market: ~50-200 sat/vB typical.

Macro

  • Marketcap: ~US$ 2.5T (May 2026).
  • Circulating supply: 19.7M / 21M (94%).
  • Dominance (% total crypto mcap): ~50%.

18. Bibliography + resources

  • Antonopoulos, Mastering Bitcoin, 3rd ed.
  • Whitepaper original bitcoin.org/bitcoin.pdf.
  • Bitcoin Optech newsletter.
  • Bitcoin Magazine.
  • BIPs github.com/bitcoin/bips.
  • Mempool space mempool.space.
  • Glassnode, CryptoQuant for metrics.
  • Conferences: Bitcoin Conference (Miami), Adopting Bitcoin (El Salvador), TABConf, BTCPrague.

19. Cross-reference

  • Crypto primitives (secp256k1, Schnorr, SHA-256): ../cryptography/05-assimetrica.md, 06-hash-e-mac.md.
  • L2 scaling: 07-l2-scaling.md §Lightning.
  • Quantum migration: ../cryptography/08-pos-quantica.md.
  • Privacy techniques: 02-fundamentals.md §Endereços e privacy.
  • Bitcoin ETF context: 12-tokenomics.md, 13-regulation.md.
  • Mt. Gox, etc.: 14-incidents.md.