In recent years, the Bitcoin community has collectively developed an open source platform that allows for the mining of the Bitcoin currency as well as instant global peer-to-peer payments and financial transactions using Bitcoins - without any central authority. With its theoretical roots in the Austrian School of Economics, the community can be seen as a potential threat to the mega financial institutions and governments in Europe and across the globe as the Bitcoin currency and its underlying principles challenge the long-standing fiat money system. Designed and implemented in only 2009, Bitcoin has rapidly grown from being an idea in the head of a “Japanese programmer” to becoming a legitimate currency as Bitcoin-Central was awarded an International Bank ID number and became a Payment Services Provider equal to organizations such as PayPal. However, perhaps due to its rapid growth during the past four years and the fact that the currency is primarily a virtual one, the Bitcoin community has been subject to external threats such as fraud, hacker attacks, and a lawsuit. Despite this, the community has shown significant resilience and has even shown continued exponential growth in recent months. As such, our research purpose is to investigate the process through which the Bitcoin community acts as an institutional entrepreneur. As a first step in fulfilling our research purpose, we conduct an exploratory analysis in this research-in-progress paper of the formal and informal “organizations” of Bitcoin as well as of the topical network structure of the Bitcoin community using secondary sources and the complete archive of 1.15 million English posts written by 21,903 members between 2009 and 2013. Some preliminary results and findings as well as future steps are discussed.

1. Breaking Out of the Bank in Europe
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Exploring Collective Emergent Institutional Entrepreneurship
through Bitcoin
Research-in-progress
Robin Teigland
Department of Marketing and Strategy
Stockholm School of Economics
robin.teigland@hhs.se
Zeynep Yetis
Department of Marketing and Strategy
Stockholm School of Economics
zeynep.yetis@hhs.se
Tomas Larsson
Kairos Future
tomas.larsson@kairosfuture.com
For presentation at 15th Annual SNEE Conference 2013
The
Swedish
Network
for
European
Studies
in
Economics
and
Business
Mölle, Sweden
May 2013

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Breaking Out of the Bank in Europe:
Exploring Collective Emergent Institutional Entrepreneurship
through Bitcoin
Abstract
In recent years, the Bitcoin community has collectively developed an open source
platform that allows for the mining of the Bitcoin currency as well as instant global
peer-to-peer payments and financial transactions using Bitcoins - without any central
authority. With its theoretical roots in the Austrian School of Economics, the
community can be seen as a potential threat to the mega financial institutions and
governments in Europe and across the globe as the Bitcoin currency and its
underlying principles challenge the long-standing fiat money system. Designed and
implemented in only 2009, Bitcoin has rapidly grown from being an idea in the head
of a “Japanese programmer” to becoming a legitimate currency as Bitcoin-Central
was awarded an International Bank ID number and became a Payment Services
Provider equal to organizations such as PayPal. However, perhaps due to its rapid
growth during the past four years and the fact that the currency is primarily a virtual
one, the Bitcoin community has been subject to external threats such as fraud, hacker
attacks, and a lawsuit. Despite this, the community has shown significant resilience
and has even shown continued exponential growth in recent months. As such, our
research purpose is to investigate the process through which the Bitcoin community
acts as an institutional entrepreneur. As a first step in fulfilling our research purpose,
we conduct an exploratory analysis in this research-in-progress paper of the formal
and informal “organizations” of Bitcoin as well as of the topical network structure of
the Bitcoin community using secondary sources and the complete archive of 1.15
million English posts written by 21,903 members between 2009 and 2013. Some
preliminary results and findings as well as future steps are discussed.
Keywords: institutional entrepreneurship, open source, semantic analysis, social
network analysis, Bitcoin, banking

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Breaking Out of the Bank in Europe: Exploring Collective Emergent
Institutional Entrepreneurship through Bitcoin
Introduction
Over the past two decades, the wide adoption of the Internet and developments in
information and communication technologies (ICT) have greatly boosted the
development of online knowledge creation communities, with some of these
collective and emergent environments now disrupting and transforming industries.
For example, open source software (OSS) communities (e.g., LINUX, MySQL)
demonstrate how a globally dispersed group of strangers self-organize online to
challenge and disrupt the software industry’s established norms for innovation and
value creation. Money as a social institution has also been affected by the
developments in Internet and ICT and has evolved to adapt to the online economy. In
recent years, we have seen the rapid spread of online banking, new payment services
such as PayPal and mobile payments, and even new virtual currencies such as Linden
Dollars and Project Entropia Dollars. These virtual currencies are used by virtual
communities to exchange goods and services within the community and even with
others outside the community, thereby providing a medium of exchange and a unit of
account for that particular virtual community (ECB, 2012).
The emergence of Bitcoin, a peer-to-peer (P2P) network virtual currency
scheme based on a collectively developed and maintained open source software
platform, should therefore come as no surprise. What distinguishes Bitcoin from
traditional currencies is that it does not have any central authority in charge of the
money supply or a central clearing house (ECB, 2012). There are no financial
institutions involved in the transactions; community members themselves perform all
these tasks. Bitcoin’s exchange rate is determined by supply and demand, and it is
possible to spend Bitcoins on both virtual and real goods and services. Designed and
implemented in 2009, Bitcoin has rapidly grown from being an idea to becoming a
legitimate currency with more than USD 1 billion in bitcoins in circulation1
. A deal in
December 2012 with French financial firms Aqoba and Credit Mutuel led to Bitcoin-
Central, a currency exchange, being awarded an International Bank ID number and
becoming a Payment Services Provider equal to services such as PayPal.2
With its theoretical roots in the Austrian School of Economics (ECB, 2012),
the Bitcoin community is seen as a threat by many of the mega financial institutions
and governments in Europe and across the globe as the Bitcoin currency and its
underlying principles challenge the long-standing fiat money system. As such, Bitcoin
has created quite some controversy, with opponents claiming that it allows
anonymous buyers to purchase any number of illicit items from anonymous sellers
(Forbes, 2013), and it is for this reason that some worry that the currency is becoming
a viable alternative for drug dealing and money laundering. However, the currency is
also increasingly used by legitimate merchants and employers worldwide. The
currency seems to be gaining momentum, and several leading U.S. Bitcoin startups
have expressed their commitment to preventing illicit activity by registering with the
financial crimes enforcement network agency of the U.S. Federal Government
(Forbes, 2013). Thus, it appears that despite going against the entrenched institutions
of fiat currency and the global banking system and even while facing fraud schemes,
1
http://bitcoinwatch.com/
2
http://www.bbc.co.uk/news/technology-20641465

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the Bitcoin community has shown significant resilience to survive and perhaps, some
would even say, thrive.
Thus, the purpose of this research-in-progress paper is an empirical
exploration of the Bitcoin community in order to better understand how this emergent,
self-organizing online collective is acting as a game changer within the global
financial industry. To do so, we turn to the literature on institutional entrepreneurship,
which has been defined as the “activities of actors who have an interest in particular
institutional arrangements and who leverage resources to create new institutions or to
transform existing ones” (Maguire et al., 2004: 657). The process of institutional
entrepreneurship is a complex one involving many different actors, e.g., individuals,
groups/communities, organizations.
To fulfill our exploratory research purpose, our first step has been to conduct
social network and semantic analyses of the Bitcoin community. Using online
secondary sources and the complete archive of 1.15 million English posts written by
almost 22,000 members between November 2009 and January 2013, we investigate
the social and cognitive structures of the Bitcoin community through the relations
among its as well as the discussions to which they contribute.
This paper is structured as follows. We begin with a brief review of the
relevant institutional theory and open source literatures. We then turn to a description
of the Bitcoin currency scheme and community before discussing our methodology.
We then present some preliminary results from our analysis as well as a brief
discussion of the findings and our next steps.
Theoretical Background and Research Purpose
Institutional Environments and Institutional Entrepreneurship
Set within a cultural or political system, an institutional environment establishes
social norms and expectations of legitimate behavior based on an “elaboration of rules
and requirements to which individual organizations must conform in order to receive
legitimacy and support" (Scott, 1992: 132). The environment channels the
performance of its actors depending on restrictions imposed by laws and other social
structures (Hassebroek, 2007). This shows the restricting nature of an institutional
environment, in which “institutionalization places limitations on the process of
rational choice” (Zucker, 1987). Therefore, Hassebroek (2007: 64) suggests, “Even
though many aspects of organizing are the result of rational decisions, these decisions
are embedded in an institutional environment, i.e., within symbolic and behavioral
structures that define common ways of thinking and doing—sometimes channeling
decisions and actions out of the reach of maximizing performance.”
Changes in institutions are the result of processes driven by institutional
entrepreneurs within an institutional field made up of actors that can be organizations
or groups of organizations (Garud et al., 2002; Greenwood et al., 2002) or individuals
or groups of individuals (Fligstein, 1997; Maguire et al., 2004). To be considered an
institutional entrepreneur, an actor should fulfill two conditions: 1) initiates divergent
changes and 2) actively participates in the implementation of these changes (Battilana
et al., 2009). However, institutional entrepreneurship may even be distributed across
numerous actors Battilana et al., 2009; Canales, 2008; Lounsbury & Crumley, 2007;
Rao et al., 2000) with different kinds and levels of resources. Therefore institutional
change may occur from spatially dispersed activity (Lounsbury & Crumley, 2007) by
actors who act in either a coordinated or uncoordinated way (Battilana et al., 2009).
Dorado (2005) suggests that institutional change results from the autonomous actions
of countless agents converging over time; therefore, it is the collective and not a

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single individual or organization that is responsible for the change. Dorado (2005)’s
explanation of change brought in by actors to the organizational fields is similar to
change brought about through innovation by the uncoordinated actions of the
collective (Van de Ven and Garud 1989, 1993, 1994; Van de Ven et al. 1999).
As for the process, early studies have suggested that institutional entrepreneurs
deliberately develop strategies aimed at changing the institutional environments
within which they are embedded (Colomy, 1998; Colomy & Rhoades, 1994) while
more recent studies suggest that intentions and narratives evolve over time through
the change process (Child et al., 2007). Efforts by institutional entrepreneurs are not
always successful, and while failures are suggested to be common (DiMaggio, 1988),
few are subsequently reported in the literature (Battilana et al., 2009; Greenwood et
al., 2002).
While research on institutional entrepreneurship has been rapidly growing in
recent years, there are still many areas of limited research (see Battilana et al., 2009
for a discussion). As noted above, the process of institutional entrepreneurship is a
complex one that involves many different actors, e.g., individuals,
groups/communities, and organizations. Thus, one area that holds great promise is
multi-level research that would enable a more fine-grained understanding of the
institutional entrepreneurship processes through examining how individual actors are
embedded in organizations that are embedded not only in organizational fields but
also in local geographic communities (Battilana et al., 2009).
The Open Source Community as an Institutional Actor
Open source communities emerge when strangers from across the globe come
together online to self-organize around a shared interest and to create value through
sharing knowledge and innovating. Some scholars propose that these communities are
challenging the firm-based approach to knowledge creation as the primary mechanism
for innovation. For example, Benkler (2002) referred to this type of value creation as
the commons-based peer production and argued that it is the third mode of organizing
economic activity and production, along with the two modes of traditional production
conducted by firms or through market transactions. The non-property and non
contract-based nature of this third mode of production sets it aside from firms and
markets since participants who contribute to this type of production follow a diverse
set of motivations and social signals rather than either market prices or managerial
commands (ibid.).
Similar to traditional organizations, open source communities are embedded in
broader social and professional networks and draw on such networks to establish their
legitimacy. Therefore, the relationship of an open source community with external
stakeholders can enable a community to attract developer effort and user attention
(Grewal et al., 2006; Hahn et al., 2008). Given this background, a new open source
project is said to be susceptible to the liability of newness and therefore perceived by
external stakeholders as less legitimate (Chengalur-Smith et al., 2010). In
organizational ecology, Stinchcombe (1965) refers to the "liability of newness" as the
higher risk of failure for young organizations compared with old ones. Due simply to
the fact that a community has recently emerged, the community may possess weaker
trust and control structures since it has not had time to develop the appropriate
mechanisms.
Considering that younger organizations spend significant amounts of time and
effort coordinating new roles for their members and spend more time on conflict
resolution (Schweik & Semenov, 2003), they may be less efficient than established

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organizations that possess clear governance procedures. Additionally, as the
community and its software are relatively nascent, the community may not have
developed ideas for new features or identified and corrected bugs in the application.
These problems may be compounded by the fact that when the project is new, users
may suspect that the application is less reliable (Chengalur-Smith et al., 2010). In this
respect, younger projects lack bases of influence and stable relationships with external
constituencies and hence lack legitimacy (Baum, 1996) leading to difficulties in
attracting and retaining resources. On the other hand, well-established communities
are likely to have strong social networks that make them more resilient to variations in
their environment.
The question also arises as to whether and how open source communities, as
they gain access to resources and legitimacy through their actions, may act as
institutional entrepreneurs. However, as both institutional entrepreneurship and open
source communities are relatively young fields, there is quite a dearth of research on
the process through which an open source community might act an institutional
entrepreneur. Thus, the purpose of our research is to investigate the process through
which an open source community acts as an institutional entrepreneur.
Methodology
To address our research purpose, we have adopted a case research approach to the
empirical investigation because of the importance of studying the phenomenon in its
real-life context (Yin, 1989). This approach was particularly important given our
emphasis on studying the actual dynamics related to the institutional entrepreneurship
process driven by an open source community since case studies are appropriate when
there is a need to focus on contemporary events in their natural settings (Benbasat et
al., 1987; Yin, 1994). A secondary reason for choosing a case study approach was that
we were of the opinion that the existing literature did not adequately describe the
phenomenon under investigation. As stated by Eisenhardt (1989:548): “There are
times when little is known about a phenomenon, current perspectives seem inadequate
because they have little empirical substantiation, or they conflict with each other or
common sense. In these situations, theory building from case study research is
particularly appropriate.”
As we are only at the very beginning of our research - both theoretically and
methodologically - this paper is very much research-in-progress; however, we do plan
to conduct a multi-method case study of the Bitcoin community. We have chosen
Bitcoin because the Bitcoin community appears to have shown significant resiliency,
despite several threats since its inception, thus offering a fascinating research site for
our research purpose.
Research Setting - Bitcoin
A cloud of uncertainty surrounds the origin of Bitcoin. Satoshi Nakamoto, believed to
be a pseudonym for a person or group of people, has been identified as the creator of
the original Bitcoin scheme3
. Despite the fact that Satoshi Nakamoto claimed to be a
36-year old Japanese male at the time, there are no public records of the real identity
of this person and he has supposedly not been heard from since April 2011 despite
efforts to expose his identity (Davis, 2011). Nakamoto first described Bitcoin in his
self-published paper in October 2008. An open-source project was then registered on
3
https://en.bitcoin.it/wiki/Satoshi_Nakamoto

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sourceforge, and during January 2009 the genesis block was established and the
project was announced on the Cryptography mailing list (Barber et al., 2012).
Since then the project has grown with surprisingly swiftness to the point that
as noted earlier, in December 2012 Bitcoin Central became a Payment Services
Provider (PSP) under European laws, with an International Bank ID number and thus
able to issue debit cards, conduct real-time transfers to other banks, and accept
transfers into its own coffers.4
Today there are more than USD 1 billion in bitcoins
circulating with around 51,000 transactions occurring daily in just about every
country across the globe5
. Individuals may buy a wide range of online and offline
services (e.g., internet, professional, travel services) and digital and physical goods
(e.g., clothing, accessories, electronics, books).6
Bitcoins are divisible to eight
decimal places, which enables their use in micropayments, and recently SC5, a
Finnish HTML5 software developer run by a former Bitcoin core developer, has
offered its employees the option to have part of their salary paid in Bitcoin instead of
Euros.7
Bitcoins can now be exchanged for more than 30 “traditional” currencies,
(e.g., EUR, USD, CAD, GBP, PLN, JPY, HKD, SEK, AUD, CHF) through any of the
some 18 Bitcoin exchange services.8
The most widely used currency exchange
platform is Mt.Gox, located in Japan, with around USD 400,000 in daily transactions,
or more than 65% of the total Bitcoin exchange volume9
. As bitcoins are not pegged
to any real-world currency, the exchange rate is determined by supply and demand in
the market. The USD Bitcoin exchange rate has fluctuated wildly with a recent spike
from under USD 20 per bitcoin in January 2013 to more than USD 260 per bitcoin in
April 2013,10
while the 30 day weighted average rate of around USD 113 per bitcoin
at the time of writing.11
The Bitcoin system has been viewed as demonstrating a surprising amount of
ingenuity and sophistication despite it not employing any fancy cryptography (Barber
et al., 2012), and it has been included in course material taught in several universities
due to its technical aspects. Bitcoin is based on a peer-to-peer network similar to
BitTorrent, the protocol for sharing files, such as films, games and music, over the
Internet (ECB). Satoshi (2008: 1) described it in the following way: “The scheme is
based on cryptographic proof instead of trust so two willing parties can transact
directly without the need for a trusted third party.” As such, there is no central
clearing house nor are any financial or other institutions involved in the transactions.
A detailed technical explanation of how Bitcoin functions goes beyond the scope of
this manuscript, and there are several published explanations online (see e.g.,
http://bitcoin.org/en/how-it-works). However, an in-depth technical understanding is
not necessary to start using Bitcoin. In fact, anyone can choose and install a Bitcoin
wallet on his/her computer or mobile phone for free. Once installed, the new Bitcoin
user is assigned a Bitcoin address that is used to both send and receive payments,
similar to an email address sending and receiving emails. When a Bitcoin user then
decides to make a transaction, a secret piece of data for each Bitcoin address known
as a key that is kept in the user’s wallet is used to sign the transaction. This private
4
http://www.bbc.co.uk/news/technology-20641465
5
http://bitcoincharts.com/bitcoin/
6
Database of product and service providers accepting Bitcoins: https://en.bitcoin.it/wiki/Trade
7
http://thenextweb.com/eu/2013/03/15/finnish-software-company-offers-employees-to-pay-part-of-
their-salary-in-bitcoin/
8
https://en.bitcoin.it/wiki/Trade#Currency_exchanges
9
http://bitcoincharts.com/charts/volumepie/
10
http://bitcoincharts.com/charts/mtgoxUSD#tgSzm1g10zm2g25
11
http://bitcoincharts.com/markets/

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key provides a mathematical proof that the transaction has come from the user’s
address, and the accompanying signature is also used to prevent the transaction from
being altered once it has been processed. Each transaction is then broadcast between
the users and confirmed by the network within a few minutes through a process called
mining. Basically mining is a distributed consensus system that protects the network’s
neutrality by allowing different computers to agree on the state of the system.12
The Bitcoin community and its dispersed set of actors have developed
Satoshi’s initial open source project to the point where there are indications that the
scheme is initiating and implementing substantial changes in the financial institutions
that are deeply entrenched globally. A recent report by PARC questions why Bitcoin
in its few short years has been able to achieve such swift success compared to the
many unsuccessful attempts to develop e-cash during the thirty years of research by
the security and cryptographic community (Barber et al., 2012). One reason put
forward is that Bitcoin breaks the norms of relying on a central point of trust, such as
a centralized bank, to oversee e-cash issuance and double-spending detection (ibid.).
Bitcoin is able to operate outside the legal frameworks of traditional fiat currencies
and as such is independent of any national central bank and its monetary policy.
Based on Satoshi’s original technical scheme, the Bitcoin money supply is predicted
to geometrically increase until it reaches a finite limit of 21 million bitcoins as users
mine the bitcoins through solving increasingly complex algorithms. According to
Bitcoin supporters, this implies in theory that the system will avoid inflation as well
as business cycles stemming from excessive money creation (FBI, 2012). As a result,
Bitcoin is not subject to the typical financial sector regulation and supervision
arrangements.
Interest in Bitcoin has grown substantially within the global media and has
been the subject of various numerous media channels of late, e.g., Economist, Forbes,
New York Times, CNET, BBC (figure 1). One area of interest is the range of start-ups
entering the Bitcoin ecosystem. For example, BitPay, an electronic payment
processing system for the Bitcoin currency, enables merchants to accept bitcoins as a
form of payment. Coinbase, a San Francisco start-up founded in June 2012, provides a
Bitcoin transaction platform for merchants and consumers and charges a one percent
fee on top of each transaction. However, most of its revenue comes from letting users
buy and sell bitcoins directly from and to Coinbase. Today Coinbase has around
40,000 users performing 30,000 transactions per month (Ludwig, 2013). Finally,
Coinsetter, a Bitcoin Forex trading platform, provides traders with leveraged trading
and the possibility to short the digital currency (Finberg, 2013).
Figure 1. Interest over time for “Bitcoin” (Google Trends)
12
http://bitcoin.org/en/how-it-works

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Due to its swift growth, government officials worldwide are now monitoring
Bitcoin. For example, the FBI has written a criminal and cyber intelligence report
assessing how Bitcoin’s “unique features present distinct challenges for deterring
illicit activity” (FBI, 2012:1). Furthermore, the European Central Bank stated in its
report on virtual currency schemes that 1) two US senators had expressed their
worries to the US Attorney General and the US Drug Enforcement Administration
about Bitcoin and its use for illegal purposes, 2) the CIA has asked the lead developer
of the virtual currency project, Gavin Andresen, to report on this virtual currency
scheme, and 3) that further regulatory investigations were to be expected (ECB,
2012).
Data Collection and Analysis
To proceed with our study, we set out to gain a better understanding of three areas: 1)
the Bitcoin community formal organization, 2) the Bitcoin community informal actors
who have been most instrumental to date, and 3) the areas of discussion that have
raised the most attention within the Bitcoin Community.
We collected and analyzed two sources of data. First we accessed extensive
Bitcoin secondary sources, e.g., the Bitcoin forum, wiki, in addition to other online
resources such as social networking sites (LinkedIn, Facebook, Google+, etc.), blogs,
corporate websites, legal documents. Second, we scraped all of the English messages
posted on the online Bitcoin forum (https://bitcointalk.org) between November 22,
2009, when the forum's first message was posted, and January 3, 2013. The number of
English posts was 1,153,831, or 85.2% of the total number of posts in all languages,
and these English posts were written by 21,903 people of a total of 24,512 people
posting on the forum in any language (figures 2 and 3). The average number of words
per post was 63.18.
Figure 2. Number of new Bitcoin forum members per month
0
2000
4000
6000
8000
10000
12000
14000
16000
Oct/05
Dec/05
Feb/06
Apr/06
Jun/06
Aug/06
Oct/06
Dec/06
Feb/07
Apr/07
Jun/07
Aug/07
Oct/07
Dec/07
Feb/08
Apr/08
Jun/08
Aug/08
Oct/08

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Figure 3. Number of Bitcoin forum posts per month (English language only)
Bitcoin Formal Organization
The Bitcoin Foundation was founded by seven of the community’s most instrumental
individuals, such as Gavin Andresen – a core Bitcoin developer (table 1). The Bitcoin
Foundation has been registered under section 501c of the US Internal Revenue Code
in Washington, D.C., and its bylaws were effective as of July 23, 2012. 13
The
Foundation is governed by a board with five seats split by membership class.14
Two
seats elected by the Individual member class (annual membership costs .23 BTC), two
seats by the Corporate member class (five different levels from 9.4 BTC for
companies younger than two years and with less than 25 employees to 935.4 BTC for
Platinum companies), and one seat by the Founding member class.15
The Individual
member class currently has 426 members (of which 68 are anonymous) while the
Corporate member class comprises two platinum and eight silver members (table 2).16
The Board has established the following requirements for its board members: 1) an
Individual member in good standing, 2) any business is conducted openly using their
real identity, and 3) they pass a background check for felony conviction.17
13
https://github.com/pmlaw/The-Bitcoin-Foundation-Legal-
Repo/blob/master/Bylaws/Bylaws_of_The_Bitcoin_Foundation.md
14
Ibid
15
https://bitcoinfoundation.org/about/governance
16
Ibid
17
https://bitcoinfoundation.org/about/governance
0
20000
40000
60000
80000
100000
120000
140000
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Table 1. Founding and Board Members of the Bitcoin Foundation
Founding
member
Board
member
Name Position and location
X X Gavin Andresen Bitcoin Developer in MA, USA
X X Peter Vessenes CEO of CoinLab in WA, USA
X X Charles Shrem CEO of BitInstant in NY, USA
X Roger Ver CEO of MemoryDealers in CA, USA
X Patrick Murck Principal at Engage Legal, PLLC in Washington, DC,
USA
X X Mark Karpeles CEO of MtGox.com in Tokyo, Japan
X Satoshi
Nakamoto
Author of “Bitcoin: A Peer-to-Peer Electronic Cash
System” published on http://bitcoin.org and owner of
PGP Public Key with fingerprint: 5EC948A1 at
satoshin@gmx.com
X Jon Matonis e-Money research and author of The Monetary Future at
Forbes
Table 2. Corporate members of the Bitcoin Foundation
Members
Date
Started
Location Business Info
Mt.Gox 2010
Tokyo,
Japan
Bitcoin
exchange
World's largest bitcoin exchange.
Handles about 63% of all bitcoin
transactions as of April 2013.18
bitcoinstore 2012 USA
Electronics
website that
only accepts
Bitcoin
Electronics retailer in Bitcoin
community, offering more than half
million products.19
bitinstant 2011
New York
City, USA
with UK
office
Bitcoin payment
provide
Offers service allowing customers to
quickly and easily transfer funds into
online exchange account.20
CoinLab 2012 Seattle, WA
Bitcoin
exchange
Enables game makers to offer their
users chance to voluntarily install
program to make their idle computing
resources available to Bitcoin network
for Bitcoin mining in exchange for in-
game virtual goods and points.21
zipbit 2012
New
Zealand
Bitcoin
Merchant
Platform
Specializes on use of Bitcoin by
merchants.22
eCardOne 2006
Czech
Republic
E-currency
exchange
provider
Offers fluctuation rates in automated
digital currency exchange. Provides
customers with option to exchange
currencies instantly.23
18
http://en.wikipedia.org/wiki/Mt.Gox
19
https://en.bitcoin.it/wiki/BitcoinStore
20
https://www.bitinstant.com/aboutus
21
http://www.geekwire.com/2013/bitcoin-seattles-coinlab-files-75m-suit-mt-gox-exchange-alleges-
breach-contract/
22
https://zipbit.co/about-us
23
https://ecardone.com/about-us.php

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BITHOC 2013
Florida,
USA
Charity
Charity feeds homeless people with
Bitcoin donations.24
Cryptex N/A
Kansas,
USA
Cryptocurrency
exchange
N/A
The
Newport
Beach
Company
2007 USA
Start-up
Incubation and
Consulting
Develops business strategies for,
provides seed capital to, participates in
operations of early stage start-up
companies.25
Bitcoin Informal Organization
To determine which individuals were the most active in the community since 2009
and potentially have the most informal power due to their centrality, we conducted an
out-degree social network analysis of the Bitcoin forum data. After identifying the top
10 individuals in terms of forum posting activity, we then investigated their profiles to
determine such things as organizational affiliation, interest, and demographic
information. This identification process using secondary Internet sources took on
average 15 to 20 minutes for each individual. Table 3 provides a selection of the
profile information.
This identification process proved to be a difficult task. Of the 10 most active
individuals, we could find information for only five of them, leaving the other five
anonymous. However, the five we did identify appear to be active entrepreneurs, i.e.,
self-employed or a founder of their own firm. For example, Phinnaeus Gage has been
the most active developer in the Bitcoin Forum since its launch. He founded and still
maintains Bitcoin 100, a kickstarter for non-profits that implement a Bitcoin donation
option onto their websites. He is also actively involved in creating awareness about
Bitcoin. The other four entrepreneurs we identified specialize in different applications
and uses of Bitcoin. Two entrepreneurs develop applications of Bitcoin for online
gaming and gambling while the third works with hardware applications related to
mining performance. Of the five anonymous individuals, we could only find
information related to one of them: he works on hardware applications related to
mining performance. It should also be noted that the 10 most active individuals have
eclectic background interests that span a broad range of areas, such as politics,
taxation, education, and engineering.
Table 3. Ten most active Bitcoin Forum members
# M/F Age Country Occupation
Bitcoin
Position
First
forum
post
# Posts
Bitcoin community
activities
1 M 53 USA Entrepreneur
Hero
Member
Jun11 9898
Founded and maintains
Bitcoin 100, a kickstarter for
non-profits who implement a
Bitcoin donation option onto
their websites.
2 M N/A N/A N/A Donator Sep11 8697
Interested in hardware,
mining related discussions
3 N/A N/A N/A N/A
Hero
member
Apr11 7488 N/A
24
https://www.smore.com/fpa7-sean-s-outpost
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4 M N/A USA Entrepreneur
Hero
member
Nov10 6748 N/A
5 N/A N/A N/A N/A
Hero
member
Feb11 6459 N/A
6 N/A 43 N/A Entrepreneur
Hero
member
Jul10 6388
Owns online gambling
website in which balances
are denominated in bitcoins
and all cash-ins and cash-
outs are done via Bitcoin.
7 N/A N/A Thailand N/A VIP Oct11 6052 N/A
8 M N/A
South
Korea
Entrepreneur
Hero
member
Jun11 5958
Head of Bitcoin magazine.
Owns several companies
around Bitcoin applications.
Co-owner of DialCoin,
founder of Smallpla.net and
founder of the (codename)
BitDex (world’s first
dedicated handheld bitcoin
transaction device).
9 N/A N/A N/A N/A
Hero
member
Okt11 5793 N/A
10 M 26 N/A Entrepreneur
Hero
member
Apr11 5738
Webmaster of
bitcoinfeedback.com, site
Admin & Server Owner.
Involved in Bitcoin
application development for
online gaming
Bitcoin Discussion Topics
Similar to the second analysis, the third analysis also involved using the Bitcoin
forum data. For this we used the bottom-up approach of semantic analysis whereby
the relationship between each Bitcoin forum user's posts and the proper nouns they
contain are analyzed. This enables the identification of the topics that people from
different parts of the world have discussed within the Bitcoin community during its
first four years. The Stanford Log-linear Part-of-Speech Tagger (Toutanova et al.,
2003) was used to automatically assign parts of speech, such as noun, proper noun
and verb, to each word in the posts. We then extracted a word list of all the proper
nouns posted on the Bitcoin forum.
The next step was to conduct a network analysis to map the relations between
the proper nouns, which enabled us to determine the social distance between words.
To explain, two words have a short social distance if they are often used in posts
written by the same individuals, and a long social distance if they are mainly used in
posts written by different individuals. In this manner, we were able to determine the
distribution of topics across the community or, in other words, the social structure of
the discussion in the community (appendix 1).
We also conducted a factor analysis to analyze the variation over time among
our observed variables, namely the word frequencies of proper nouns. All proper
nouns with a frequency of 40 mentions or more in the entire database, totaling 3,296,
were used in the analysis. Factor analysis is a statistical method for analyzing
interrelationships among observed variables in order to reduce them to a smaller set of
underlying variables. In our case, the variation over time of the 3,296 proper nouns
hides a lower number of underlying variations. For example, the words "Zhou Tong",
"AurumXChange", "Bitcoinica" and several other words related to an investigation
into the hackings of Bitcoin trading platforms rose in tandem in July and August
2012, a discussion that is captured by one of the factors. In other words, each factor
can be interpreted as a topic discussed by the community and which distribution over
time can be examined.

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We analyzed the 50 factors that explained most of the variance, both in terms
of the words that loaded strongly on them and their time profiles to provide an
overview of the most important topics discussed on the Bitcoin forum over time. In
other words, each date is assigned a value for each factor based on how active the
factor is on that date. A high value on a certain date results when there is a high
frequency of use on that date of the words that load strongly onto that factor. The
distribution for each factor over time sums to zero, meaning that the number on the
vertical axes in figures x and y are relative values. Hence the values can be compared
across dates within a factor but not between factors. An initial investigation of these
50 factors revealed that 42 (82%) were topics that had a limited degree of activity
during a very short time, i.e., led to a sharp spike in activity (e.g., figure 4). However,
eight of the 50 (18%) factors were active topics for longer than three months (e.g.,
figure 5).
Figure 4. Example of topic with limited spiked activity in community discussion
Figure 5. Example of topic with extended activity in community discussion
-­‐5
0
5
10
15
20
25
30
35
11/22/2009
11/22/2010
11/22/2011
11/22/2012
-­‐6
-­‐4
-­‐2
0
2
4
6
8
10

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We conducted an analysis of the eight relatively active factors through reading
the posts on the forum as well as related sites to provide more context and to reveal
the main topic of each cluster. We found three topics of a more technical nature
related to setting up the Bitcoin mining hardware and software, two topics related to
the actual trading of bitcoins, and three related to legal issues (table 4). Thus, while
topics at the beginning of the Bitcoin community’s activity focused on more
operational issues such as installing and running the software and then payments and
transactions, three of the more recent topics deal with threats to the currency scheme
and its community.
Table 4. Most discussed topics 22 November 2009 to 3 January 2013
Most active
period start
Most active
period end
Topic Description of topic
Nov 2009 Jan 2013 Technical Installing and running bitcoin mining
Oct 2011 May 2012 Technical Payment transaction systems
Jul 2011 Jan 2013 Exchanges Dwolla, Paxum, Tradehill exchanges
May 2011 Sep 2011 Exchanges Metacoi.in, Tradehill, dwolla, shipping
Jun 2011 Jan 2013 Legal Pirate/Trendon Shavers virtual hedge fund
scheme that turned out to be a scam
Jan 2012 Jun 2012 Technical Mining boards and mining software
April 2012 Jan 2013 Legal Bitcoinica hackings and lawsuit
May 2012 Oct 2012 Legal Butterflylabs and whether it was a scam or
not. Recent discussion in April 2013 suggests
that Butterflylabs is producing a legitimate
product.
We then conducted a further investigation of the Bitcoinica legal issues
revealed in this analysis. We found that the Bitcoin community, led by one Hero
Member, keeps careful track of all the major heists, thefts, hacks, scams, and losses
over one thousand bitcoins, of which there are some 25 incidents.26
As the Bitcoinica
hackings are the most substantial of these, we decided to investigate this one further
through reading numerous related posts and documents online, In 2011, Zhou
Tong, supposedly a 17-year-old entrepreneur from Singapore, created a Bitcoin
trading platform called Bitcoinica, which within six months amassed trading assets of
more than USD 1 million in bitcoins.27
However, in March 2012, the web hosting
provider used by Bitcoinica, Linode, was hacked and 43,554 Bitcoins or around USD
220,000 were stolen.28
Shortly thereafter, Tong announced that he had sold Bitcoinica
to Intersango. In May 2012, just 18 days after the Bitcoinica deal was sealed,29
Bitcoinica was hacked a second time – this time through a compromised email
account, for 18,547 bitcoins or around USD 90,00030
. Bitcoinica was then unable to
continue its operations and took the site offline, never to go online again.31
Then in
July 2012, the Mt.Gox account holding the remaining Bitcoinica users’ funds was
26
https://bitcointalk.org/index.php?topic=83794.msg923918#msg923918
27
http://coinabul.tumblr.com/post/24022841613/10qs-zhou-tong-bitcoinica
28
http://bitcoinmagazine.com/bitcoinica-stolen-from-again/
29
http://www.theverge.com/2012/8/10/3233711/second-bitcoin-lawsuit-is-filed-in-california
30
https://bitcointalk.org/index.php?topic=83794.0
31
http://bitcoinmagazine.com/bitcoinica-stolen-from-again/

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hacked, and the thief got away with 40,000 bitcoins or USD 40,000, bringing the total
of these three hacks to USD 350,000.32
In August 2012, four users of Bitcoinica, amidst speculation that Tong himself
was responsible for some of this foul play, filed a complaint in San Francisco against
Bitcoinica LP and other involved parties. The plaintiffs claimed that Bitcoinica was in
breach of their contract by failing to, among other things, “keep said monies in a safe
and secure manner, consistent with fiduciary obligations commonly imposed upon
financial services providers”, and that as a result, owed them just over USD 460,000
in lost deposits and damages. It is unclear whether there has been a settlement or if the
parties are still in talks. An alleged draft settlement agreement, dated interestingly
July 9, 2012 – before the complaint was filed – has been posted online.33
Moreover,
two of the three defendants are in liquidation. Bitcoinica LP, registered in New
Zealand, has been in the process of liquidation since November 201234
while
Bitcoinica Consultancy Ltd, also based in New Zealand, was liquidated in January
2013. However, Intersango Ltd is still trading and registered in the UK.35
Discussion and Conclusion
The purpose of this research-in-progress paper was to begin to explore the process
through which the Bitcoin open source community acts as an institutional
entrepreneur. Institutional entrepreneurship deals with how an actor initiates and
actively participates in the implementation of divergent changes (Battilana et al.,
2009), and our first step to explore the formal and informal organizations behind
Bitcoin as well as the topics that interested the community has led to some
preliminary findings.
First, we find support for distributed institutional entrepreneurship in which
institutional change results from the autonomous actions of countless agents
converging over time (Dorado, 2005). With Bitcoin, we find that it is the collective
and not a single individual or organization that is responsible for initiating and
implementing the changes. While Nakamoto initiated the Bitcoin scheme in early
2009, his launching of the project on sourceforge has led to the growth of a global
community of individuals interacting online. Our analysis revealed that there is
cohesion around a number of topics on the forum, with the community first self-
organizing to solve many of the technical issues related to mining before turning to
payment transactions and then to legal ones. Thus, the activities of the community’s
individual members related to bitcoin mining and transaction activities has led to USD
1.5 billion worth of bitcoins in circulation.
Second, we found that there is a high level of anonymity in this institutional
process. Among the most influential individuals in the Bitcoin community are the
mysterious founder, Nakamoto, and the five influential individuals in the community,
for whom we could not find any identifying information on the Internet. It seems that
an individual’s “real world” identity is not required to take an active role in the
informal organization of Bitcoin. This finding might not be so surprising taken in light
of one of the underlying drivers of Bitcoin – to enable financial transactions between
individuals without knowing each other’s identity. Yet when we look at the formal
organization, one requirement to become a Bitcoin Foundation board member is that
any business conducted must be done openly using the person’s real identity.
32
ibid
33
https://docs.google.com/file/d/0B_ECG6JRZs-7SXFtdG1QXy1uSnM/edit
34
http://www.pkfcr.co.nz/services/services_header
35
https://intersango.com/about-us.php

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Third, as the community has grown, an ecosystem of entrepreneurs and start-
ups supporting the currency scheme has developed. Examining the Bitcoin
Foundation and the results of the most active members on the Bitcoin forum reveal
that entrepreneurs developing their business based on Bitcoin are an extremely active
group within both the formal and informal organization of Bitcoin. Just within the
past two to three years there has been a surge in entrepreneurs who are basing their
start-ups on leveraging Bitcoin in some way. These entrepreneurs support one another
through their communications on the forum as well as through driving the
development of the Bitcoin technical platform, surrounding infrastructure, and
commercial applications.
Fourth, we find that the more substantial threats to the growth and legitimacy
of Bitcoin have primarily come from one or a small group of individuals interested in
hacking or creating fraud in the system as opposed to from institutionalized financial
markets and governments. During the past two years, the forum discussions
surrounding these issues have risen significantly, and Bitcoin, despite being a highly
flexible platform that provides privacy for its users, is seen by some as highly risky.
There are serious concerns by established institutional actors regarding the legal status
and security of the system as well as the finality and irrevocability of the transactions
(ECB, 2012). Legal uncertainties and lack of close oversight make the Bitcoin
platform a high-risk system for its users from a financial perspective (ibid.). In
response to these threats, it appears that several transaction and trading platforms
start-ups, such as BitPay, Coinbase and Coinsetter, have been established to help the
Bitcoin community to gain legitimacy and stability. These businesses highlight the
security they provide for their customers and their fight against fraud related to
Bitcoin. Several of these entrepreneurs, despite being competitors, even collaborate in
these efforts as noted by this post by a forum member: “It’s good to see the exchanges
co-operating with each other for the benefit of the community.”36
However, just prior
to this writing, CoinLab filed a USD 75 million lawsuit against Mt.Gox.37
A more organized effort to strengthen Bitcoin’s legitimacy occurred when six
individuals became founding members of the Bitcoin Foundation, which was
registered as a legal entity in July 2012. The Executive Director Peter Vessenes notes
that legitimacy is one of the primary goals that the Foundation hopes to accomplish.
Vessenes writes, “There’s a lot to love in Bitcoin-land, and a lot to be concerned
about, too. There are botnet operators, hackers, and ponzi-scheme runners floating
around our space. We occasionally hear threatening statements from government
representatives that don’t seem to understand the law, much less how great Bitcoins
are for the world. Our forums and community interaction have a certain uneven
quality to them at times. Gavin, the current leader of the core client dev team,
maintains the software and manages the core team without any compensation—or day
job—beyond the joy of Bitcoin programming. There are legal questions to be
answered about Bitcoins, different ones in different jurisdictions….. We can help
solve or mitigate these problems as a community. My hope is that the Bitcoin
Foundation will be the organization that focuses and unlocks all of your energy and
talents towards promoting Bitcoins, protecting them, and increasing their legitimacy
through standardization.”38
This effort is further supported when taking note of the
requirements to become a Board Member: 1) an Individual member in good standing,
2) any business is conducted openly using their real identity, and 3) they pass a
36
July 26, 2012, 05:01:54 AM, Re: Public Statement regarding Bitcoinica account hack at Mt.Gox.
37
http://forexmagnates.com/coinlab-files-75-million-lawsuit-against-mtgox/
38
https://bitcoinfoundation.org/about/letter

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background check for felony conviction. 39
Thus, it seems that these threats have mobilized the community to self-
organize and bring the community together around a common purpose. Durkheim
(cited in Dirkley, 1997) suggested that norms, beliefs and values, which he calls
collective consciousness, are elements that hold society together, and that institutions
are reinforced once they are challenged. He gave the example of protesters
(institutional entrepreneurs) hung in public as a result of their endeavor to overthrow
the king, and how their efforts actually reinforced the authority (institution) of the
king. He suggested that, institutions are reinforced and kept alive once they are
challenged. A similar case can be made for the Bitcoin community; when the
community is challenged and still absorbs the shock, the community appears to be
strengthened rather than damaged. Therefore, we propose that these instances of
fraud, by bonding the community and by flourishing safe businesses around Bitcoin,
actually increase Bitcoin’s institutional entrepreneurship potential.
In conclusion, our intention with this paper was to document the initial stages
of our exploration of the Bitcoin community and its development as an institutional
entrepreneur. It appears that despite going against the entrenched institutions of fiat
currency and the global banking system and even experiencing fraud and hacking, the
Bitcoin community has shown significant resilience to survive and perhaps, some
would even say, thrive. The question remains, however, whether Bitcoin will one day
be “on the gallows” as the “King” strikes back. In the meantime, there is significant
potential for future research in this area. We intend to continue our study, and our
next step will be to develop our study both theoretically and methodologically. We
intend to do a more fine-grained analysis of the forum messages and combine them
with social network analysis of the individual members in order to better understand
the dynamics of the Bitcoin community. One area to explore relates to the motives of
the individual actors for participating in Bitcoin and how their actions drive the
development of the intentions and narratives of the community. A recent survey by
Lui Smyth of 1000 Bitcoin users indicated that some participants contribute to and
use bitcoins for political reasons, i.e., to bring about change to the financial markets,
while others participate merely for the curiosity and challenge.40
As highlighted by
scholars studying institutional entrepreneurship (Battilana et al., 2009; Dorado, 2005;
Lounsbury & Crumley, 2007; Rao et al., 2000), some actors drive institutional change
through their conscious actions; however, the collective efforts of others, while
unaware of their contributions, may be just as much of a driving force.
Acknowledgements. We greatly appreciate the help on this paper from Claire Ingram,
a PhD student at the Stockholm School of Economics.
39
https://bitcoinfoundation.org/about/governance
40
https://docs.google.com/spreadsheet/ccc?key=0Avvn4_NlztWedDh0bDEwbXFFOHBTOXhLZlNpVm
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Appendix 1. Word cloud of Bitcoin Proper Nouns, November 2009 – January 2013