How much is a bitcoin worth, and why?

  • Andrea Bracciali profile
    Andrea Bracciali
    11 May 2016
    Total votes: 12

The big picture.


Blockchain technologies have a strong transformational potential. Bitcoin and other cryptocurrencies, currently the most well-known blockchain based applications, enable the  possibility of a distributed management of secure transactions amongst “anonymous” parties, i.e. payments in this case, without the need of a centralised validation authority.

However, a much wider range of possible applications are emerging for blockchains. Examples include smart contracts, i.e. enforceable, fully-decentralised agreements between independent peers; the possibility of enforcing fairness in distributed protocols, so-far unachieved; and the availability of a public Big Data set of transactions to be explored by Data Scientists to unveil useful knowledge.

Although highly volatile, Bitcoin has a capitalisation of 7 billion USD (doubled over the last year) and is receiving a lot of interest from private companies and institutional partners, noticeably the EU parliament (April 2016). The success of Bitcoin has fostered the development of alternative cryptocurrencies and frameworks for smart contracts, notably Ethereum with a market capitalization of 700 million USD.

Despite their diffusion and resilience in practice (the only successful attacks to Bitcoin have been, so far, standard frauds), foundations of blockchain technologies have still to be fully understood, and no fully satisfactory scientific validation of their correctness and security exist yet. Difficulties arise from many sources at different levels: the complexity of the decentralised, probabilistic and multi-layer structure of a blockchain, the scattered documentation, the relevance of human and economical aspects on the management and stability of the system, and the globalised dimension of the applications, which also brings into play political aspects, to cite but a few.

Even considering all the issues, challenges and currently open problems, blockchain technologies are clearly deemed to have a strong impact on society, empowering people, companies and institutions to directly manage some of their interactions, akin to the empowering made by Internet in terms of direct access to knowledge and communication. Analogously to what happened with Internet, which for instance is nowadays accepted as a trusted commerce medium, blockchain technologies need to be deeply understood and validated before the breakthrough changes that they will enable can become a trusted component of our society.


The work needed.


Bitcoin and the blockchain technology were introduced in a 2008 paper by Satoshi Nakamoto (whose identity is still unknown). In 2009 he released the first open-source implementation of the protocol, standing up until now as the unique reference definition of the technology. No further widely-accepted, comprehensive, either formal or informal, specification exists up to now. The system relies on an incentivised distributed work of peers, the miners, constituting the backbone of the system. Key ingredients are

i) a decentralized public ledger recording all operations, which is not controlled by any central authority, and therefore ideally suited, for instance, to introduce game-changing procedures in the financial and banking sectors, and

ii) a computationally-expensive distributed consensus, so that, intuitively speaking, system trust and stability can be overturned only by the contribution of a large number of miners. The correctness and security of blockchain technologies relies heavily  on mechanisms to marginalise malevolent miners who try to undermine the system, and and at the same time to incentivize honest miners.

The above  appears to be a quite unconventional scenario. Blockchains are generally open source projects that rely on network-wide decentralised consensus and a public distributed ledger, but also on incentives for miners to support the system and hence guarantee stability. It emerges that the properties of the system, e.g. the possibility of consensus, convergence, stability, security and fairness, rely on a complex system of relationship between technical aspects and human, social and also political factors (suspicions about large-scale organised attempts to control the bitcoin blockchain have recently hit the press). This calls for a new, necessarily multi-disciplinary, approach to understanding and validating blockchain technologies, which needs to include computer scientists, cryptographers, mathematicians and economists, at the very least. Current attempts include the use of game theory, a mathematical model much exploited in economics, together with formal analysis and verification, a well studied framework in computer science.

Starting from the lack of a formally-sound definition, open challenges include:


  • devising a formal specification of (a relevant fragment of) the Bitcoin protocol, in order to clarify many subtle or hidden points in its implementation and working hypotheses;

  • validating the underlying cryptographic protocols of cryptocurrencies, in order to assess and enhance their reliability and security;

  • devising a formal model of smart contracts, considering Ethereum - the currently most relevant smart contract framework - as a starting case study;

  • studying correctness and security of models of smart contracts, both through formal methods and simulation techniques;

  • designing and implementing programming languages for smart contracts, together with analysis tools to detect vulnerabilities before they are deployed to the blockchain;

  • developing integrated models and analysis techniques suitable to address the  “cyber-physical” nature of blockchain future developments, and comprise in a unique validation framework human, economical and technical aspects;

  • using the developed multi-disciplinary framework to address problems like the stability of a blockchain system, its resilience against (coalitions of) malicious miners or users, and its long-term sustainability against unavoidable changes in the miners’ incentives or societal and economical constraints.


The opportunity


Blockchain-based systems are multi-faceted, cyber-physical in some sense, complex systems of a novel kind which require a multidisciplinary approach, catering for technical, economical and human aspects, to address the various existing open problems. We argue that the multi-disciplinary, innovative research, community-building approach of the FET Proactive Programme is the appropriate framework to address the difficult challenges posed by blockchain technologies, a breakthrough development which will deliver radical changes and long-term benefits to the European society and economy within a globalised context, and which will be paramount for Europe to master and be a key player in such a very competitive arena.

By supporting research in blockchain technologies FET Proactive will support the creation of an integrated European research and industrial network centered on one of the currently developing technologies with a high potential for socio-economical transformations, which cannot be fully foreseen at the present, but will definitely change interactions between citizens, companies and institutions.




The seminal 2008 paper:

Nakamoto, S.: Bitcoin: A peer-to-peer electronic cash system (2008),

A 2015 adoption of the NY State on Bitcoins:

Lawsky, B.M.: Bitlicense,

Recent news from the EU Parliament:           

Crypto-currencies market capitalisation:

A reference example of the strongly developing ecosystem of companies focusing on blockchain technologies:

The April 2016 issue of CACM featuring Bitcoin front-cover. It publishes research papers on distributed fairness through blockchains and Big Data analysis of blockchain data:

A comprehensive and up-to-date survey on blockchain technologies:

J. Bonneau, A. Miller, J. Clark, A. Narayanan, J. A. Kroll and E. W. Felten,

"SoK: Research Perspectives and Challenges for Bitcoin and Cryptocurrencies,"

IEEE Symposium on Security and Privacy, San Jose, CA, 2015, pp. 104-121, 2015

doi: 10.1109/SP.2015.14   

Typical entries in the press:




Andrea Bracciali, University of Stirling, UK,

Massimo Bartoletti, University of Cagliari, Italy,