Published on March 6, 2014
Bitcoin New phenomena in online payment systems
Interesting Facts or what can you do with Bitcoins • 2010 – BitCoin enthusiast purchased 2 pizzas from Papa Johns. He paid 10 000 BTC or $25 that day. Since then, price for BTC flew sky-high turning $25 into $8 000 000. • Jamaican Bobsleigh Olympic team went to Sochi only thanks to Reedit project which started an initiative to collect money for their sledge. All donations were accepted in BTC variation – DoggyCoins.
So… What is a Bitcoin? • BitCoin is a peer-to-peer payment system and a digital currency. • BTC is a type of crypto currency. Crypto, because it uses cryptography technology to work. • It doesn’t exist as a physical object. BitCoin has a form of a long string that carries all of its information.
How it works?
What are advantages of using Bitcoins • Low price of transactions • Allows users to conduct transactions anonymously, hiding their identity. • Limited and fixed supply of currency • Decentralized architecture of system
It’s very cheap • Transaction fee is 40 cents for 10 000 kb file of BTC • You don’t need to buy any software to conduct these operations.
It’s anonymous • BTC is a cryptocurrency. It uses advanced methods of encryptions of BTC files. • The HASH cipher method ensures that a transaction cannot be traced to a particular IP address. • Though all history of transactions is open to a wide public, its almost impossible to link these transaction to one ID.
Bitcoin supply is fixed and unchangeable • In a fully decentralized monetary system, there is no central authority that regulates the monetary base. Instead, currency is created by the nodes of a peer-to-peer network. The Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless. • Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The Austrian school of thought counters this criticism, claiming that in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits.
Bitcoin’s cryptography structure provides fair level of security
Decentralized system architecture • In a fully decentralized monetary system, there is no central authority that regulates the monetary base. • If central authority organ fails the whole system fails. Having no central authority eliminates that chance. (Structure is alike as the Internet structure). • Crowdsourcing ensures that there are always spare resources to use.
However There are some side-effects • • • • Decentralized System Architecture Extreme volatility Black Market and Illegal activity Lack of international acknowledgment
Decentralized system architecture Nobody regulates relations between the sender and the receiver.
Extreme volatility BTC exchange rate chart
Black market and illegal activity Bitcoins can’t be traced to a particular IP address very popular with criminals. Most popular misuses of BTC : • Purchasing/paying for illegal products – Drugs, weaponry, illegal software. (Latest research shows that 5-10% of all BTC transactions were used for drug purchase only on 1(!) web resource) • Money laundry • Evasion of tax • Concealing income/spenditure
Lack of international acknowledgment • Not all governments acknowledge BTC as a currency or as a good. • Some governments intervene : o China and Thailand have forbidden any use of that technology o USA and Canada have developed set of laws regulating activity of firms that work with BTC. o Germany imposed taxes on all income that comes in the form of BTC for Germany citizens
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