Bitcoin (Global)

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Location: Worldwide
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Author: Jean-Philippe Vergne and Gautam Swain
Affiliation: Ivey Business School, Western University (Canada)

Original text by Jean-Philippe Vergne and Gautam Swain

Bitcoin, originally described as a ‘peer-to-peer electronic cash system’, was introduced in 2008 by Satoshi Nakamoto (a pseudonym) as an alternative to national currencies issued by central banks (Nakamoto 2008[1]). Unlike the formal institutions of global finance (e.g. banks, credit card companies), bitcoin is to a large extent a bottom-up, activist driven, lightly regulated ecosystem. Like other software innovations in the past, its creation draws upon various technological building blocks developed among libertarian hacker communities since the mid-1980s (Durand & Vergne 2013[2]), particularly in the areas of peer-to-peer networking and cryptography. With an Internet access and a digital wallet, which can be created for free in a few seconds, anyone can transfer value to a third party anywhere in the world, whether to purchase goods from merchants who accept bitcoin payments, or to exchange bitcoin for fiat currency such as the U.S. dollar. All bitcoin transactions are recorded on a public ledger, called a blockchain, which is maintained in a decentralised fashion by thousands of computer nodes (Swan 2015[3]). These nodes secure the bitcoin network by verifying and validating cryptographically all the transactions. As well, each node stores a copy of the public ledger that can be compared to other copies in order to ensure integrity and detect fraud.

More specifically, the security of bitcoin transactions relies on public-key cryptography, based on the generation of random pairs of keys consisting of alphanumeric characters and used to digitally sign transactions. Bitcoin users are assigned a public key upon joining the bitcoin network, and that public key acts as an address (similar to a bank account number) to which funds can be transferred. The blockchain records the number of bitcoin held by each address and can verify the authenticity of associated transactions. The private key associated with each address (or public key) must be kept secret since it is used to prove ownership of the address and allows the user to unlock the funds. Public-key cryptography enables bitcoin users to transfer value without having to reveal their real identity, which makes bitcoin transactions ‘pseudonymous’. Even though full anonymity is not a feature of bitcoin (i.e. public keys can sometimes be connected to real-world identities), it still offers more privacy than traditional financial transactions. As a result, bitcoin has been a tool of choice for transferring value outside the boundaries of formal financial institutions, occasionally helping black market entrepreneurs eschew scrutiny by law enforcement and tax authorities (for a detailed, multimedia overview of how bitcoin works, see Vergne & Lomazzo 2015[4]).

Not only does bitcoin have the potential to power the informal economy, but it also represents an attempt at managing informally an international payment system. Indeed, bitcoin is not a corporation, neither is it a for-profit structure of any kind. Instead, it is run as (and by) a multi-stakeholder community comprising users, merchants (who accept bitcoin), developers (of the bitcoin software), and miners (i.e. the owners of network nodes in charge of maintaining the integrity of the bitcoin blockchain in exchange for bitcoin rewards) (Antonopoulos 2014[5]). Over time, third-party service providers backed by venture capital firms have entered the scene (e.g. Coinbase, Kraken), offering tools to facilitate bitcoin storage and exchange. The decentralised nature of bitcoin’s governance means that the traditional tools of monetary policy are inapplicable to bitcoin—for instance, no central authority can debase bitcoin by ‘minting’ additional coins. New bitcoins are released gradually into the ecosystem following transparent rules, and the maximum number of bitcoins in circulation has been fixed once and for all in the software code at twenty-one million. It would require a large consensus among bitcoin stakeholders to change this parameter.

While bitcoin offers a promising digital alternative to the centralisation of financial transactions, its future is still mired in uncertainty. Bitcoin’s total market capitalisation has been hovering around $10 billion over the last year, which represents a tiny fraction of the market capitalisation of the world’s largest banks (i.e. the top three are each valued more than $200 billion). Besides, the regulatory environment remains unpredictable (De Filippi 2013[6]), and standardisation efforts by the bitcoin community have been slowed down by persistent governance issues, including feuds between factions of bitcoin developers who disagree about the cryptocurrency’s future (World Economic Forum 2016[7]). Some countries, such as Iceland, Russia or Bangladesh, have sought to ban the use of bitcoin, while China prohibits its financial institutions from transacting in bitcoin (Swan 2015[8]). In contrast, countries such as the U.K., Singapore or Canada are more open to the technology and seek to design attractive regulation.

One of the major obstacles to bitcoin’s mass diffusion is the difficulty to understand what bitcoin represents at a deeper level or, put differently, to classify bitcoin using an adequate category label, such as ‘asset’, ‘payment system’, ‘commodity’, ‘property’, or ‘virtual currency’. In fact, in the British media alone, more than one hundred distinct category labels have been used to describe bitcoin between 2009 and 2015 (Vergne and Swain 2017[9]), creating substantial confusion among the general public. In addition, many category labels used to refer to bitcoin are inconsistent and fail to accommodate some of bitcoin’s core features (e.g., a ‘virtual currency’ is typically issued by developers in a centralised fashion, as is the case in videogames, yet bitcoin was designed precisely to avoid centralisation) (European Central Bank 2012[10]). The multiplicity of category labels used to describe bitcoin also nurtures contradictory beliefs regarding which attributes bitcoin possesses—or not (e.g., bitcoin is not ‘anonymous’, despite numerous public claims to the contrary).

Such instances of ‘categorical anarchy’ (Vergne & Swain 2017[11]) are rare, but do not necessarily imply the ultimate failure of the innovation. For instance, back in 1993, The New York Times (1993[12]) wrote, rather ambiguously, about ‘a television station without programmers or a newspaper without editors’ to describe what is now consensually labelled ‘the Internet’. Interestingly, in the case of bitcoin, the ambiguity regarding which category labels adequately describe the technology is at times nurtured by insiders who are not keen on seeing bitcoin leave the sphere of the informal economy. While some clarification around bitcoin’s definition and applicable regulatory regime would likely reassure potential investors, it would also constrain users’ ability to transact without having to rely on the institutions of global finance. For example, if regulators were to categorise bitcoin as a ‘commodity’ instead of ‘currency’, then sales tax would apply to bitcoin transactions (Peters et al. 2015[13]), and the latter would require additional records and reporting, thereby diminishing bitcoin’s potential as the informal economy’s currency. Today, cash is still (by far) the preferred means of payment for racketeering, money laundering, drug and human trafficking, bribery, tax evasion, extortion, and terrorism (Rogoff 2016[14]). But bitcoin —now recognised, with increasing consensus, as the first ‘decentralised cryptocurrency’—continues to develop regardless of censure because it cuts out the financial sector’s middlemen and provides ways to mitigate both regulatory power and government surveillance (Maurer et al. 2013[15]).

References and Bibliography

  1. Tyllström (eds.), Research in the Sociology of Organizations (From Categories to Categorization - Studies in Sociology, Organizations and Strategy at the Crossroads). Emerald Publishing


  1. Nakamoto, S. 2008. ‘: A Peer-to-Peer Electronic Cash System’,
  2. Durand, R. and Vergne J-P. 2013. The Pirate Organization: Lessons from the Fringes of Capitalism. Cambridge: Harvard Business Review Press.
  3. Swan, M. 2015. Blockchain: Blueprint for a New Economy, O'Reilly Media, Inc.
  4. Vergne, J-P. and Lomazzo, C. 2015. ‘ crash course’, Crypto Capitalism Center,
  5. Antonopoulos, A. 2014. Mastering : Unlocking digital cryptocurrencies. O’Reilly Media.
  6. De Filippi, P. 2013. ‘: a regulatory nightmare to a libertarian dream’, Internet Policy Review, 3: 1-11.
  7. World Economic Forum, 2016. ‘The future of financial infrastructure: An ambitious look at how blockchain can reshape financial services’,
  8. Swan, M. 2015. Blockchain: Blueprint for a New Economy, O'Reilly Media, Inc.
  9. Vergne, J-P. and Swain, G. 2017 (forthcoming). ‘Categorical Anarchy in the U.K.? The British Media’s Classification of and the Limits of Categorization’, in R. Durand, N. Granqvist, and A.
  10. European Central Bank. 2012. ‘Virtual Currency Schemes’,
  11. Vergne, J-P. and Swain, G. 2017 (forthcoming). ‘Categorical Anarchy in the U.K.? The British Media’s Classification of and the Limits of Categorization’, in R. Durand, N. Granqvist, and A.
  12. Johnson, G. 1993. ‘Ideas & Trends; We Are the Wired: Some Views On the Fiberoptic Ties That Bind’, The New York Times, 24 October.
  13. Peters, G.W., Panayi, E. and Chapelle, A. 2015. ‘Trends in crypto-currencies and blockchain technologies: A monetary theory and regulation perspective’, SSRN 2646618
  14. Rogoff, K.S. 2016. ‘The Sinister Side of Cash’, The Wall Street Journal, 25 August,
  15. Maurer, B., Nelms, T.C. and Swartz, L. 2013. ‘“When perhaps the real problem is money itself!”: the practical materiality of ’, Social Semiotics, 23: 261–277 .