Category: Bitcoin

You have probably heard of Bitcoin. It has been one of the most commonly searched words on google for the past 3 years, yet most people still don’t understand what it is or how it works, and when people don’t understand how something works, we tend to stay away from it. Bitcoin has been called the virtual gold, or alternate currency. Due to this and its huge international presence it has a tendency to shift stock markets, and upset foreign currencies. In this research essay I will discuss all the ins and outs of Bitcoin. The benefits it has, and the problems that come with it. In an attempt to help people more fully understand what it is, and how it can affect all our lives. My personal stance is that Bitcoin is a genius idea, that can bring clarity to international trade affairs and currency exchange of goods.

To give only a brief summary Bitcoin is a virtual currency. It has no centralized bank, and is not influenced by any government. Now this means that it is not backed by anything physically, one hundred percent virtual. This tends to scare people because it’s hard to grasp the fact that something isn’t physical, yet that is how we live everyday now. Most people are paid by direct deposit or check. Which goes into their bank account and then they pay for things using a debit or credit card. Never once seeing the money, or touching the cash physically. Yet they know it’s there and know what it is worth. And we know what a dollar is worth because we can take it to the store and exchange it for a good or a service, but what is that really backed by? Up until the 1970’s the U.S dollar was backed by gold, but since then it has not been backed by anything. Economist Simon Black said: “Future historians will probably also be dumbfounded when they see how long people allowed worthless, unbacked fiat paper to pass as money. It’s extraordinary that most people today happily accept a digital abstraction of paper currency controlled by a single individual as ‘valuable’”. So, why be scared of Bitcoin not being backed by anything physical? The U.S dollar certainly isn’t. The only reason to be uncertain about the price of Bitcoin is that it is completely controlled by the demand for it in the market, similar to stocks. Which may feel like uncertainty to some, but it truly reflects what its true value is. Because value means what the people are willing to pay for it.

Unlike all other types of currencies, Bitcoin is not printed off by the federal government. It is mined. No, the mining is not physically digging for it like gold and silver, it is mined virtually through computer programs. Now this may seem absurd but it’s really quite interesting. To briefly explain how it works, the coins are put on a block chain, and set to release on a consistent and complete timeline. Using computer programing, and number must be found, also known as nonce. This nonce has to the hash along a number of blocks on the network to verify it. It is relatively easy to do, but extremely time consuming considering it has to try all different types of combinations. Every 2,016 blocks, or once every 14 days, a new coin is released. The miner who has found the right nonce number and block mines the coin. This will continue eventually slowing down, and coming to a halt when 21 million Bitcoins are out in circulation. In case you’re counting, that will happen in year 2140. You may ask what the point of all of this is, and that is what makes Bitcoin so special. The amount that will be released is predictable meaning when there is a shortage of money, or Bitcoins, more can’t simply be printed off. It has a controlled rate of inflation. Which later we will talk about why that affects international business so much.

It is actually unsure who the real creator of Bitcoin is, or if it was a group of people. It was published under the name of Satoshi Nakamoto. Nakamoto published a paper in January of 2009 titled, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. The paper was published and made first available to a group of ‘cypher punks’ who then began mining for the coin. The first purchase ever made using Bitcoin was a year later in 2010, where a man purchased two Papa John’s pizzas for 10,000 ₿. Ironic that Americans would purchase pizza first. It is interesting to think that the value of Bitcoin went up considering normally a valuation of money declines. In the 1990’s a quarter could buy you a lot of items, now all its good for is a gumball maybe. In 2010 10,000 Bitcoin was worth two pizzas, but today that same amount would be worth over 75 million dollars.

As stated earlier, Bitcoin is not controlled by a central government. That was and is the main purpose of Bitcoin. Taken directly from Nakamot’s paper, it says: “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”. The third party referred to here is the government. Now government currency has been around for thousands of years what could be so wrong with it? Well, it did not used to be so bad when it was harder to make money, and it had to be backed by gold. Now that it doesn’t, and money can be printed with ease, it is extremely susceptible to being corrupted or manipulated (AAPC). Let’s take an example to explain. Say the United States needs money for a new bill they are funding. They could issue a bond to China asking 98 million dollars with a one-year expiration and 100 million dollars payout. Then in one year when China comes to collect the money the U.S could pay back then 98 million, and then if they don’t have the other 2 million, they owe China for lending them, they can just go and print 2 million dollars. China is none the wiser because they received their full amount of money. Yet the value of the U.S dollar has gone down because more money has been created, with no backing behind it. Now this then affects everyone who has U.S dollars in their bank account because the money they have is now worth less because there is more money in circulation. Now what is stopping a federal government from consistently doing this to pay off debts and fund new activities? Given it may not be that easy to print it off, but real-life instances like the example I gave are happening all the time with our government and with all kinds of governments all around the world.

The term is called hyperinflation and it means exactly what it sounds like. Inflation increasing at an unsustainable rate. Where the excessive printing of money by the government to pay off debt or fund other interest, which can cause crashes and problems in the economy. Hyperinflation causes a vicious cycle to begin where the government runs into a budget deficit, typically it is caused by wars or famines, but can also be because of greed or corruption. Due to the deficit of the government, more money is printed causing the nominal value of money to decrease, and the price of goods to rise. This in turn creates more deficit, and higher prices. Which makes it necessary to print more money. This cycle will continue until the currency has zero value and because it is most likely a ‘fiat currency’ meaning it has no backed physical value. The currency then collapses causing it to mean nothing. Typically, when this has happened that foreign government typically turns to the U.S dollar. But what would we do if this happened to the U.S dollar? What currency would we turn to? One of the most recent examples of this is what happened to Venezuela. The Venezuelan Bolivar began to lose its value mostly in 2014 when its inflation went up by 69 %. In 2015 it was up 181% and at a world high record of 800% in 2016. I wish I could say that was the worst of it, but it continued after that hitting 4000% in 2017, and a whopping 1,698,488% in 2018. Supposedly the government of Venezuela has halted production of the bolivar, but economists say it is on track to be over 5,000% for 2019 (Krauze).

What happened in Venezuela is that the central government da-privatized the oil industry and took it over. Which was good for the government for a while, but privatized industries, or capitalism, is the best thing for the economy because then the government is not assuming all the risks that come with it. Also, when its privately owned the owners and employees are acting in their own best interest to be as profitable as possible, to ensure that they are taken care of and so are all their employees. Well, when the government of Venezuela assumed the risk of the oil industry and it had a recession the government went into a ginormous recession. Causing a budget deficit and a shortage of money. Due to the fact that the Venezuelan government was ran poorly they had little in savings or other resources to pull along through this time causing them to borrow a lot of money. Along with paying back the borrowed money and continuing to loan the banks money, they had to print off more money. Which as we know printing more money than you should causes crashes in your economy (Davies).

Now I am not stating that if Venezuela had been using Bitcoin their problems would have been solved and they wouldn’t have fallen into the state they are in. But there are a few areas where Bitcoin could have helped them. First off, it would not have destroyed the savings of everyone in the country. When the government started printing money and causing the value of the Bolivar to drop if other Venezuelan citizens would have had some of their money in Bitcoin, the value of it would have remained the same across the world. It would take a whole world economy to crash for the Bitcoin to be worth zero, or for everyone in the world to see absolutely zero value in it. Secondly, it is more difficult to create a redistribution of wealth for a nation. Meaning if the government of Venezuela would have been on a Bitcoin currency to redistribute the wealth or to pay back their deficits, they would have had to have the actual Bitcoins. Meaning they would either have to buy them, or tax the people for them. If they would have purchased them it would have caused the price of Bitcoin to rise meaning the people in the country with Bitcoin would have more money. Now this also helps the government from getting into a deficit too deep because there is a limited amount of Bitcoins out there. It would also make it easier to get out of a debt because of the fluidity of having a universal currency. It would make it easier for other governments or private industries to come in and buy Venezuela’s debt and the oil rigs and allow Venezuela to rebuild. No one wants to buy a debt from a country whose currency is losing value every day because what they pay you back with isn’t worth anything to you.

There are several possible concerns about Bitcoin as a centralized currency. First, Bitcoin is a peer-to-peer trading currency. It has no need to go through a bank. It is widely known that Bitcoin has been used as a way to sell drugs, sex trafficking, and human trafficking. This is due to the fact that it is completely untraceable. Anyone can go online and download a virtual wallet, send money to that wallet and then send that money to whoever they please. Now this causes a number of issues. The IRIS would have no idea how much money you have or where it’s going, if you don’t go through a bank or have that money recorded. Meaning tax evasion would be easier. Also, the cops then can’t pull up bank statements in court to show a paper trail proving you committed the crime you were accused of. Which could hurt you if trying to prove your innocence. Now you may be thinking, well, all of this already does happen but with cash. Which is true, but cash has to be exchanged in person. If drugs are purchased from someone in Mexico, then that money has to be laundered and wire transferred there, or it has to be shipped there through smuggling methods not to raise suspicion. With Bitcoin that can all be done in a matter of seconds online while leaving no trace. Second, Bitcoin is an online system meaning it can and has been hacked. Mt. Gox a large exchange service that converts Bitcoin to cash was hacked, and millions of dollars in Bitcoin was stolen. Now the main system that releases the Bitcoin has never been hacked there’s no 100% guarantee saying that it never could be. Third, we live in a time where technology is always changing, and it is often times difficult for the average person to keep up with all the changes. Completely changing the currency in the U.S would be a dramatic change leaving millions of people in the dark on it. There are certain people who have a hard time functioning their smart phone as it, how are you going to explain to them they now need to run their whole life through it? Everyday people are forgetting their email passwords, or getting their Facebook hacked into. What if they lock themselves out of their virtual wallet, or drop their phone in a lake and have no back up saved. There goes all their money. You can’t run down to the centralized bank, because Bitcoin doesn’t have one.

Now we have talked an awful lot about Bitcoin, but we have failed to mention the hundreds of other crypto currencies out there. When Bitcoin first came out, it was the first of its kind, revolutionary. But like any good idea, copy cats are sure to follow, and many did. This is mostly because Bitcoin was beginning to see crazy rates of returns, and others wanted a piece of the pie. The blockchain technology that was introduced with Bitcoin was easy to modify and create your own similar to it. Multiple companies invested in it, and created their own cryptocurrency and began essentially using them like you would a stock. The company would stockpile a whole bunch of them, and then slowly sell them to the public for whatever price people were willing to pay. This caused tons of them to blow up, and Bitcoin started seeing crazy returns as well. It 2017 Bitcoin hit an all-time high of 20,000$ per coin. Remember the two pizzas bought for 10,000 Bitcoin? That was worth 200 million dollars in 2017 (McWhinney). But like any other supply and demand the hype died down, and the price settled to what its market value was, and for the past year it has stayed around 7,000$ per coin. But not before big named people made their own coin. Former Google engineer, Charlie Lee, made a cryptocurrency called Litecoin, which also had a boom and made him and his partners millions of dollars (Aguirre). Companies like Amazon and Facebook have also toyed with the idea of their own cryptocurrency. Facebook even announced it had plans for it, yet they called it a ‘digital currency’.

If you are like me, you are probably wondering if Bitcoin could ever replace the U.S dollar? Well, the founder of Twitter, Jack Dorsey thinks it will in about ten years (Shen). Now I think that is very unrealistic, and a bit of a stretch. Here’s why, first, in ten years there will still be people who were born in the 60’s, 70’s and 80’s, who didn’t even grow up with the Internet. They are far too technologically illiterate to transfer their entire currency online to a virtual one, and be able to keep up with the continuingly changing price of the Bitcoin. Obviously as Bitcoin becomes more widespread it will be much more predictable on what it is worth, but it is not there yet. Second, the United States has too many rural areas for that right now. Rural America is still very much a thing, and 6% of Americans don’t have Wi-Fi, or even have access to it (FCC). Now this could definitely change in the next ten years, but with the pace were going that seems unlikely. Third, way too many other underdeveloped countries around the world rely on the U.S dollar right now. Ecuador for example is a third world country that relies heavily on the dollar, and if 6% of Americans don’t have Wi-Fi, I can’t imagine how many there don’t even have access to the Internet. It would be very nice though when traveling abroad if everywhere would accept a universal currency, and not have to exchange your money and lose some, or try and pay with U.S dollars and not know what the exchange rate is and so forth.

Should you invest now in Bitcoin. As stated at the beginning of the essay, many people still know very little about Bitcoin. They have probably watched one or two YouTube videos, and seen an article in Forbes, but most don’t understand all of it. As any good financial advisor would say, is to make sure you do your own research. Learn and understand the market of it. This is a whole new category of investing, it’s not stocks and bonds, and it’s also not foreign currencies. Don’t invest more than you can afford to lose, and it is always good to diversify. Bitcoin has had some of the highest returns ever seen, and people became overnight millionaires. A lot of people also lost money. It is a high-risk investment. Unlike sticks the market never closes either. You could buy Bitcoin at night and then go to sleep and something major could happen in Korea or China and the price could rise 50% in the eight hours you’re sleeping. So, make sure to stay diligent with it, and keep up on the news and new releases coming out.

For the final question then, do I personally think that Bitcoin or cryptocurrency will ever take over the U.S dollar, or if it will be the sole currency for the world? If you can’t tell from my tone and arguing points in the article, I love the idea of Bitcoin and the new technology that it has brought to the world. It is a step in the right direction of ensuring that people are the ones who are in power, and not the government. I am a strong believer in small government with few regulations. But I do not believe that Bitcoin is in a place to be able to take over the currency all together now, or even in the next twenty years. What I could see happening is the U.S dollar adapting and having a similar property of Bitcoin. Where the aspect of paper and coin is forgotten and a fully electronic version is then adopted. That way we no longer have to worry about all the problems that come with cash such as counterfeit and losing it. We live in a time now where everything paper is going away. More and more countries are following suit and adapting the same habits. This is a good thing, and it’s slowly taking over that part of the currency industry. I love living in a world where Bitcoin can exist and I hope to see the U.S dollar and Bitcoin continue to exist together. Maybe someday sooner than we think we might be asked at the grocery store in we want to pay in cash, card, or Bitcoin.

There are many people that don’t know much or have heard false information about Bitcoin. Bitcoin is a cryptocurrency which takes advantage of a peer-to-peer (P2P) connection. A P2P connection is a type of connection that utilizes a direct link between both parties without going through a central server or administrator. Everyone should support the use of Bitcoin because both Bitcoin and any physical currency is used for criminalistic activities, the government supports its use and has organizations in place to keep it under control in terms of legality, and the government can’t get rid of Bitcoin.

Bitcoin has been around since 2009 when the creator, Satoshi Nakamoto, mined the first block of bitcoin which yielded a reward of 50 bitcoins. The block of coins contained text that read: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” (Nakamoto). This was a significant point in the history of online transactions because it was the start of the first decentralized cryptocurrency. Bitcoin is important because of the technology that it uses. Bitcoin uses blockchain computing. Blockchain computing is a decentralized, public ledger that is used to keep a record of transactions across multiple computers so that any involved record cannot be altered. This prevents it from being stolen because every transfer is documented digitally.

Bitcoin is a type of cryptocurrency that is designed to allow a single transaction to be mined in around 10 minutes. Bitcoin uses a special encryption that allows control over the generation of coins and confirming the transaction. Another feature of Bitcoin that makes it different from physical currency is the fact that normal financial systems use physical money, while Bitcoin is completely electronic. Bitcoin doesn’t use physical money because it can be stored in virtual wallets and then transmitted electronically to someone else’s wallet through online transactions, which is the main difference between Bitcoin and physical currency.

Governments create currency to allow the buying and selling of goods. Governments release a specific amount to stimulate or reduce buying in a country. Cryptocurrency also is a form of currency. But it isn’t controlled by any organization or government. Bitcoin is designed to share digital information through cryptography. Using advanced cryptography techniques, cryptocurrency is used to secure transactions and control the creation of new coins, like Bitcoin and other cryptocurrencies. “Cryptocurrency is electricity converted into lines of code with monetary value” (Graydon). Since the coins value is not regulated by any organization or government, they are fully decentralized. This means the value of Bitcoin or other cryptocurrencies is dictated by the amount created through mining.

Bitcoin doesn’t get its value like a regular currency. Cryptocurrency uses a proof-of-work system. This is a type of system that prevents people from spamming the system because it requires work from each user which requires processing power from each system. This means that no one person can control the mining of Bitcoin. In the United States, gold gets its value from the US dollar. Gold is a rare resource and requires lots of effort to obtain and then to refine. The rarity of this resource is exactly what gives gold some value which in turn is what gives value to the US dollar. In contrast, Bitcoin gains it values from “the supply of Bitcoin and market demand for it, the cost of producing a Bitcoin through the mining process, the number of competing cryptocurrencies, and the exchanges it trades on” (Bloomenthal). Bitcoin’s value isn’t based off of another source of value but more based off of the people who use it.

Many people believe that Bitcoin shouldn’t be used because it is untraceable and could be used in criminalistic activities. But this doesn’t make sense as official currency is already used for such activities. So, taking it away wouldn’t necessarily put an end to its potential use in felonious acts or crime itself. Another reason that Bitcoin should be used is that it is traceable because of the use of the Blockchain network explained earlier. Where traditional currency is only traceable if the holder registers its serial number into a website and another person enters it in then creating a route between the two, Bitcoin is fully traceable. Bitcoin uses a digital ledger stored across multiple devices that logs every transaction. This makes it easy for any person to identify the details of the transaction. There are actually government organizations in place that help slow and stop the use of Bitcoin being used illegally. In conclusion, the fact that Bitcoin is untraceable is a very common misconception and in fact it is safer than any physical currency because it can be traced and the user can be identified. In the case that it was used illegally then the government could trace the origin and person who initiated the transaction.

Another common misconception is that the government has no control over Bitcoin, but the government can actually control Bitcoin indirectly in a couple ways. The first way is by controlling the assets of fiat currencies. A fiat currency is a government issued currency that doesn’t gain its value and isn’t backed by gold or silver. They can affect the price by buying and selling in international markets. The second way is by increasing the cost of doing business by putting regulations on it. This is achieved by some states requiring a surety bond or a payment equivalent to the Bitcoin transaction in a fiat currency to insure, that they will be paid the full amount. This would make it hard for people to use Bitcoin for transactions which would cause less people to use it. In conclusion, even though the government doesn’t directly control the value and use of Bitcoin they do at least have an influence over its value.

Some people believe that a government can easily get rid of Bitcoin in its entirety. But the truth is, the government can ban its use in the country but it can’t get rid of Bitcoin in the country. China has already made a step against Bitcoin by banning all trade of it in their country, but this one act doesn’t simply get rid of it. Bitcoin is so widely used that it would be very hard to get rid of it completely. Andreas Antonopoulos said this in response to a question someone asked him if he thought that Bitcoin could be completely gotten rid of: “I don’t worry about that at all, this cannot be done with Bitcoin anymore… Bitcoin has achieved a level of computing that no single nation-state can overthrow it through computation alone”. He is stating that because Bitcoin has so many users that it would be impossible for one nation to overthrow it.

Jay Clayton is the chairman of the US Securities and Exchange Commission and is a supporter of Bitcoin. “We have seen historical instances where such a rush into certain investments has benefited our economy and those investors who backed the right ventures”, – he said in testimony before the Senate banking committee. “But when our laws are not followed, the risks to all investors are high and numerous – including risks caused by or related to poor, incorrect or non-existent disclosure, volatility, manipulation, fraud and theft” (Clayton). He supports his opinion because of his position with the SECC. He is correct in everything he is saying. People in high positions in a career that has to do with money and investing agree with Bitcoin which puts a good reputation on Bitcoin itself.

Nicholas Weaver is a security researcher who publish an essay talking about flaws with Bitcoin. He says that he admires Bitcoin because of the science and engineering behind it. “It’s an incredibly clever piece of cryptographic engineering, especially the proof-of-work as a way of maintaining an indelible history and a signature scheme which, when properly used, can limit the damage that might be done by an adversary with a quantum computer” (Weaver). “Without an undo/back button, it’s only possible to prevent fraud. With an undo, it would also be possible to detect and mitigate fraud; to see that something bad happened and then actually do something about it” (Weaver). He is saying that Bitcoin needs a way for its users to undo purchases if they change their mind about the purchase.

Weaver first brings up the point of Bitcoin not having a ‘back button’ when it comes to purchases. He believes this because he did research on the Bitcoin system. While this is true that transactions cannot be reversed, there are certain places that will allow you to reverse a transaction. They do this by simply having you return something or show proof of the order and then they either give you a partial or full refund depending on the items involved. While Weaver is technically correct his answer doesn’t fully consider all circumstances. His answer only looks at the core function of Bitcoin and not what the individual miner could do. With these businesses that do these returns, this system could spread and be used in more and more places as Bitcoin grows and advances.

Weaver brings up another point about Bitcoin being very easy to steal. “To steal a million dollars hidden under mattresses, a thief needs to break into thousands of homes, to steal a million dollars from a typical business’s bank account, thieves need to transfer it to a network of roughly 100 money mules” (Weaver). He is saying that to steal real currency you have to do actual work, whereas when you want to steal Bitcoin all you have to do is get the owner’s wallet code. Bitcoin is stored in an online wallet which is linked to a string of numbers and letters used to make purchases. In reality it would actually be very hard to steal Bitcoin from someone. Even if you have their wallet code you have to first figure out which service they use for their wallet. Then you would have to figure out their login information and then approve the transaction. In theory the steps to steal someone’s Bitcoins would be easy, the chances of someone other than the owner being able to do this is very slim.

In conclusion, Bitcoin is good for the economy and should be used by more people. The technology behind it is very important not just for cryptocurrencies, but for computing as a whole. People say Bitcoin can be used for felonious activities but we have to keep in mind that the US dollar and other currencies can be as well. Whether people want to use Bitcoin or not, it will always be around and one country wouldn’t be able to get rid of Bitcoin completely. There are many people who have been falsely informed about Bitcoin which results in people not liking or agreeing with Bitcoin with false info.

Nowadays, just about everything is going digital. It was only a matter of time before money ended up going that way too. Most of us are familiar with digital payment options including online card payments and inter/intra bank fund transfers. In 2009, the world saw its very first digital currency. A developer named Satoshi Nakamoto developed this virtual currency called ‘Bitcoin’. Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. The trend of using digital currencies to transact securely online has gained momentum all over the world. In this paper I will give a brief overview of cryptocurrency including its history and benefits. I will further discuss the vulnerabilities associated with Bitcoin.

Satoshi Nakamoto’s goal was to create an electronic peer to peer cash system. He decided to create a digital cash system that had no centralized authority. This was the birth of Bitcoin. The value of Bitcoin exploded. Cryptocurrencies has proven their value, their ability to operate in the real world, and have shown that they possess real purchasing power. Investment firms, trading organizations, and retailers have begun to accept them as legit forms of payment and currency.

Digital currencies like Bitcoins are called cryptocurrency. They are virtual currencies with real monetary value and can be used to make all types of financial transactions. Cryptocurrencies use a completely decentralized payment mechanism. Traditionally, in money exchange, every payment you make and receive is tracked by financial authorities. Authorities and third – party institutions are completely privy to everything you do with your money whether you are depositing money or making a debit card payment. This reduces monetary security and privacy to a great degree. One of the objectives of designing cryptocurrencies was to provide users with a way to securely transact online. This could be done out of the view of third- party financial banks, agencies, and authorities. Cryptocurrency allows users to spend, invest, and save money in complete anonymity. Today there are multiple types of cryptocurrencies including Ether, Litecoin, Monero, Dash, Zcash, and Ripple (Martucci, 2018).

There are several benefits associated with the use of cryptocurrency. One benefit is the ease of peer-to-peer interactions. Users can directly interact with other users and engage in trade. Another benefit is that the use of cryptocurrency allows for extremely quick settlements. Bitcoins take about 10 minutes to complete all transactions and are very efficient to operate. Cryptocurrencies allow users to purchase anything in just a matter of minutes. Low transaction costs are an additional benefit of using cryptocurrency. Cryptocurrency networks compensate miners for mining the currencies, ensuring that users don’t pay additional sums of money for procuring the cryptocurrency. Since there are no middlemen involved in the transactions, there are not transaction fees that need to be paid. Cryptocurrencies are also more secure. Identity theft is guarded against with the use of separate public and private keys. Without the private key, no one can access users’ web wallets and personal accounts. This allows for complete safety.

In addition, the use of cryptocurrency protects against counterfeiting and double spending. Cryptocurrencies are monitored, tracked and governed through blockchains. Block chains are online, decentralized ledgers that contain detailed information regarding every single transaction that a user has engaged in. Using this technology, participants can confirm transactions without the need for a central certifying authority. Once blocks are added, they are permanent and unalterable (Rhodes, 2017).

Bitcoin is so far the most successful cryptocurrency. Nevertheless, price volatility remains one of the most significant challenges facing all cryptocurrencies (Schwaz, 2018). The virtual currency Bitcoin faces some serious security concerns and risks. These include: use of for illegal activity, double spending, the safety of wallets, vulnerability to orchestrated attacks on Bitcoin exchanges, and fears of rogue miners engaging in selfish mining.

One of the biggest drawbacks and regulatory concerns around cryptocurrency is its ability to facilitate illicit activity. Concerns have been raised that Bitcoin could be more attractive to criminals because it can be used to make private and irreversible payments. Many black or gray market online transactions are denominated in Bitcoin and other cryptocurrencies. Cryptocurrencies are increasingly popular tools for money laundering. The same strengths that make cryptocurrencies difficult for governments to seize and track allow criminals to operate with relative ease (Martucci, 2018). Bitcoin is money, however, and money has always been used both for legal and illegal purposes.

Double spending within Bitcoin is the act of using the same Bitcoins more than once. Double spending happens when a user makes multiple payments using one particular funding form (Hasanova, et al., 2018). Bitcoin is digital money, not physical cash. Hence, Bitcoin transactions have a possibility of being copied and rebroadcasted. Reinforcements have been instituted to mitigate this concern. Bitcoin manages the double spending problem by implementing a confirmation mechanism and maintaining a universal ledger called blockchain similar to the traditional cash monetary system. Bitcoin’s blockchain maintains a chronologically ordered, time-stamped transaction ledger from the very start of its operation in 2009. Even though Bitcoin has become sturdier against double spending, there are still fears concerning the transaction risk.

Generally, cryptocurrencies store their value in a file store called a wallet. Each client owns a set of private keys to access the wallet. There is a real vulnerability of Bitcoin wallets. Weak spots in hardware wallets can be exploited. Even heavily encrypted wallets are vulnerable. Using malware, communication between the wallet and PC’s can be intercepted. The privacy of Bitcoin users is affected by this security breach because funds can be diverted into different accounts. Wallet theft uses classic mechanisms such as system hacking, phishing, the installation of buggy software, and the incorrect use of wallets (Hasanova et al., 2018). Any programming bug or lack of secure private key can be the foundation of a major security breach.

Cryptocurrency exchanges have to deal with the constant threat of distributed denial of service (DDoS) attacks. Bitcoin is threatened by (DDoS) attacks. As Bitcoin price continues to soar, people try to get their hands on the virtual currency which places a huge strain on exchanges and their servers. Exchanges are doing their best to fight against hackers who are looking to cripple their services and find vulnerabilities in an effort to steal Bitcoin. One of the most common attacks on exchange websites and their platforms is a DDoS attack. It is a cyber-attack on a service provider that looks to disrupt its service, usually by flooding the server with too many requests to handle (Hasanova et al., 2018). By using multiple sources to attack a server, DDoS attacks can be difficult to stop because they are not started by a single source.

In a DDoS hacker attack, cybercriminals scan the network trying to identify potentially weak nodes. The selected nodes are attacked, and the hacker becomes the system administrator of the network. Trojan programs are installed on the captured nodes, which work in the background an require additional control. Upon receiving certain controls from the hacker, the infected computers spread the virus to other computers that are in the network. During a DDoS attack, the users do not suspect that their system is infected and pass date to the attackers (Blockchain, 2018).

The security of Bitcoin relies heavily on the incentive compatible proof-of-work (PoW) based distributed consensus protocol, which is run by network nodes called miners. In exchange for incentive, the miners are expected to honestly maintain the blockchain. Selfish mining, however, is another underlying threat to Bitcoin. With some mining pools becoming powerful enough to command significant mining ratios, they may engage in selfish mining. This is also referred to as block withholding. A pool may use their computational power to mine a block and then hide it from honest miners instead of broadcasting the new block to the network (Conti et al., 2017). This conspiracy can cause considerable harm to mining because selfish miners can use their power to invalidate transactions on the network.

One of the worst things to happen to a proof-of-work cryptocurrency is a 51 percent attacks. Such attacks undermine the trust in a blockchain. In Bitcoin, a 51 percent attack is possible if a single miner, or group of miners can assemble more hashing power than all the other mining participants. If a situation arises where a group of miners have control of more than 50 percent of the total hashing power in a network, then that group could outvote honest miners. An attacker could defraud people through several methods. The attacker could create conflicting transactions by refunding coins to themselves or someone else after a transaction. The miners could also mine empty blocks and invalidate transactions. The coins would then be returned to the attackers. If someone were to conduct a 51 percent attack on Bitcoin, it would greatly reduce the value of the coins.

There is no denying that cryptocurrency is the future. Bitcoin is an innovative payment network and a new kind of money. It is an exciting concept with the power to alter global finances for the better. Bitcoin technology has a strong security track record. New tools, features, and services are being developed to make Bitcoin more secure and accessible. There are, however, risks and vulnerabilities associated with the use of Bitcoin. It is fair to say that Bitcoin and cryptocurrency in general remains a practical and technological work in progress.

How can a virtual currency that exists in computer hard drives, manifest heated discussion and poses a real-world threat to the environment? The brief answer is Bitcoin mining. Since its foundation in 2009 by a mysterious group led by Satoshi Nakamoto, Bitcoin has offered roughly 410 million transactions between millions of accounts. As of today, the daily average transactions are approximately 386,000 Bitcoins ($193,000,000). However, current research shows that there is a gradual decline in Bitcoin mining since 2017. In the year 2017, Bitcoin (BTC) achieved an unparalleled price growth by burgeoning as much as 2000%, although the exchange rate has shown extensive variations. The probability of producing a digital resource with a massive price gives rise to an impetus to ‘mine’. Virtual currencies revolutionize our vision about market design and explain how the business of buyers and sellers operate. Companies with thousands of computers have developed an exclusive desire to solve mathematical questions in quest of direct private benefit. The Bitcoin protocol is a free, open software which grants users to exchange Bitcoins for alternative currencies or to sell or purchase goods.

For the first time, Bitcoin provides people with an alternative system of payment from a peer-to-peer network which is guaranteed safe and secure. But a question may arise that, are Bitcoin transactions secure? Well, they are secure comparatively to other smaller coins which are vulnerable. Bitcoins have gain high popularity during the past few years and, hence it is difficult to attack Bitcoin’s server. If a group or an organization can manage enough GPU’s, which costs Billions of dollars, then they can implement a 51% attack which increases the chances of mining Bitcoins. Ethereum was attacked a couple of months ago by an anonymous group of people who were able to gain 51% control over the server. All financial transactions are registered on a ledger which is a huge database of details and records. Banks and other financial institutions run on a centralized ledger and only one company controls it, what if someone hacks it? In contrast, a blockchain is a decentralized (i.e., a distributed ledger) system which is not governed by a single authority, making it much more tamper-proof. The ledger is imitated many times across several computers on a web.

Bitcoin is a virtual currency with no connection to lawyers or regulators and, does not operate on a single computer server. The transactions are irrevocable, do not require a real name, and are done without the interference of central authority. Everybody knows that the transaction has taken place still no one can challenge the legitimacy of transfer. The security of the blockchain is provided by a computer-intensive algorithm known as a cryptographic hash, which is collision resistant and one-way. However, the mining of Bitcoin poses a high risk on the stability of the present economic systems, and the volatility of virtual currency raises questions.

Bitcoin grabs economists’ attention as a digital currency with the possibility to disturb existing payment methods like fiat or gold-based currencies and perhaps even financial systems. The sustainability of Bitcoins depends on certain factors such as financial, ethical, and economic aspects. Bitcoin mining is not possible without powerful hardware, which includes ASIC and FPGA. In late 2010, GPU and CPU were used to do computations, but they became obsolete because they did not have a functionality to carry out operations. All this requires plenty of hardware which needs constant updates and demands immense energy cost. According to scientific research, “the total energy consumption of Bitcoin mining is equivalent to the electricity developed by small or medium-sized countries such as Denmark, Ireland or Bangladesh”. Bitcoin mining can jeopardize our ecosystem as over the years it has used an exorbitant amount of energy. More energy corresponds to more carbon emissions, which eventually threatens our ecosystem. According to the Bitcoin Energy Consumption Index, “the estimated carbon footprint is 242Kg of CO2 per Bitcoin transactions”. Nevertheless, it is plausible to interpret that the electricity bill obtained by Bitcoin miners in hydroelectric-abundant Chinese provinces imitate the complexity and enable an opportunity to check pollution regulation guidelines in the market for mining virtual assets. As mining can produce a smooth flow of revenue, people all over the world are willing to run power-hungry machines to get a piece of it. However, many researchers contradict that Bitcoin mining consumes energy. For instance, according to Harald Vranken, who has done copious research in mining, states that “the energy consumption of the Bitcoin system is not excessive”.

Unlike many cryptocurrency guides, Seele and Dierksmeier argue that digital money is a controversial topic more than the merits and demerits of plastic money. While the denigrators claim that it is entirely a downright evil because it promotes criminal activities (e.g., drugs, weapons), uses offensive means for shadow banking and for the transactions within the ‘darknet’, and can easily escape public’s critical observation, the defenders contradict these claims by saying that it is the modern solution to the most pressing societal ailments like hyperinflation, poverty, and debt crisis. Both sides deliver a vivid picture; however, due to global dissemination and their digital nature, cryptocurrencies have the potential to be omnipresent than any other previously established forms of money. A big issue with Bitcoin mining is that the transactions are exceptionally slow because millions of people are trying to hash rate (i.e., find the block) at the same time from different parts of the world. The hash rate is unimaginably high which makes difficult to find the block. Another problem with Bitcoin is that, it requires a high transaction fee and, due to that people are dropping the idea of investing. Also, users require high technical knowledge and are supposed to know a lot about computer security, which is a reason for the downgrade of Bitcoin mining.

What is the ultimate goal of Bitcoin and other virtual cryptocurrencies? Will it replace VISA and Mastercard in future by escalating? The first perspective delivered a vivid picture, but as the modern constituents get the way, it turns out less comprehensible than the earlier design decisions meet necessity. However, said the technological issues with Bitcoin and the potential threats and ambiguities of the ‘dark web’ and vulnerability to digital theft, an adequate substitute has not yet arisen. In the long-run, the worldwide unity to restrict Bitcoin mining will not succeed to mark market failure due to ineffectiveness to control property rights and impose imperative institutional policies.

You have probably heard of Bitcoin. It has been one of the most commonly searched words on google for the past 3 years, yet most people still don’t understand what it is or how it works, and when people don’t understand how something works, we tend to stay away from it. Bitcoin has been called the virtual gold, or alternate currency. Due to this and its huge international presence it has a tendency to shift stock markets, and upset foreign currencies. In this research essay I will discuss all the ins and outs of Bitcoin. The benefits it has, and the problems that come with it. In an attempt to help people more fully understand what it is, and how it can affect all our lives. My personal stance is that Bitcoin is a genius idea, that can bring clarity to international trade affairs and currency exchange of goods.

To give only a brief summary Bitcoin is a virtual currency. It has no centralized bank, and is not influenced by any government. Now this means that it is not backed by anything physically, one hundred percent virtual. This tends to scare people because it’s hard to grasp the fact that something isn’t physical, yet that is how we live everyday now. Most people are paid by direct deposit or check. Which goes into their bank account and then they pay for things using a debit or credit card. Never once seeing the money, or touching the cash physically. Yet they know it’s there and know what it is worth. And we know what a dollar is worth because we can take it to the store and exchange it for a good or a service, but what is that really backed by? Up until the 1970’s the U.S dollar was backed by gold, but since then it has not been backed by anything. Economist Simon Black said: “Future historians will probably also be dumbfounded when they see how long people allowed worthless, unbacked fiat paper to pass as money. It’s extraordinary that most people today happily accept a digital abstraction of paper currency controlled by a single individual as ‘valuable’”. So, why be scared of Bitcoin not being backed by anything physical? The U.S dollar certainly isn’t. The only reason to be uncertain about the price of Bitcoin is that it is completely controlled by the demand for it in the market, similar to stocks. Which may feel like uncertainty to some, but it truly reflects what its true value is. Because value means what the people are willing to pay for it.

Unlike all other types of currencies, Bitcoin is not printed off by the federal government. It is mined. No, the mining is not physically digging for it like gold and silver, it is mined virtually through computer programs. Now this may seem absurd but it’s really quite interesting. To briefly explain how it works, the coins are put on a block chain, and set to release on a consistent and complete timeline. Using computer programing, and number must be found, also known as nonce. This nonce has to the hash along a number of blocks on the network to verify it. It is relatively easy to do, but extremely time consuming considering it has to try all different types of combinations. Every 2,016 blocks, or once every 14 days, a new coin is released. The miner who has found the right nonce number and block mines the coin. This will continue eventually slowing down, and coming to a halt when 21 million Bitcoins are out in circulation. In case you’re counting, that will happen in year 2140. You may ask what the point of all of this is, and that is what makes Bitcoin so special. The amount that will be released is predictable meaning when there is a shortage of money, or Bitcoins, more can’t simply be printed off. It has a controlled rate of inflation. Which later we will talk about why that affects international business so much.

It is actually unsure who the real creator of Bitcoin is, or if it was a group of people. It was published under the name of Satoshi Nakamoto. Nakamoto published a paper in January of 2009 titled, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. The paper was published and made first available to a group of ‘cypher punks’ who then began mining for the coin. The first purchase ever made using Bitcoin was a year later in 2010, where a man purchased two Papa John’s pizzas for 10,000 ₿. Ironic that Americans would purchase pizza first. It is interesting to think that the value of Bitcoin went up considering normally a valuation of money declines. In the 1990’s a quarter could buy you a lot of items, now all its good for is a gumball maybe. In 2010 10,000 Bitcoin was worth two pizzas, but today that same amount would be worth over 75 million dollars.

As stated earlier, Bitcoin is not controlled by a central government. That was and is the main purpose of Bitcoin. Taken directly from Nakamot’s paper, it says: “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”. The third party referred to here is the government. Now government currency has been around for thousands of years what could be so wrong with it? Well, it did not used to be so bad when it was harder to make money, and it had to be backed by gold. Now that it doesn’t, and money can be printed with ease, it is extremely susceptible to being corrupted or manipulated (AAPC). Let’s take an example to explain. Say the United States needs money for a new bill they are funding. They could issue a bond to China asking 98 million dollars with a one-year expiration and 100 million dollars payout. Then in one year when China comes to collect the money the U.S could pay back then 98 million, and then if they don’t have the other 2 million, they owe China for lending them, they can just go and print 2 million dollars. China is none the wiser because they received their full amount of money. Yet the value of the U.S dollar has gone down because more money has been created, with no backing behind it. Now this then affects everyone who has U.S dollars in their bank account because the money they have is now worth less because there is more money in circulation. Now what is stopping a federal government from consistently doing this to pay off debts and fund new activities? Given it may not be that easy to print it off, but real-life instances like the example I gave are happening all the time with our government and with all kinds of governments all around the world.

The term is called hyperinflation and it means exactly what it sounds like. Inflation increasing at an unsustainable rate. Where the excessive printing of money by the government to pay off debt or fund other interest, which can cause crashes and problems in the economy. Hyperinflation causes a vicious cycle to begin where the government runs into a budget deficit, typically it is caused by wars or famines, but can also be because of greed or corruption. Due to the deficit of the government, more money is printed causing the nominal value of money to decrease, and the price of goods to rise. This in turn creates more deficit, and higher prices. Which makes it necessary to print more money. This cycle will continue until the currency has zero value and because it is most likely a ‘fiat currency’ meaning it has no backed physical value. The currency then collapses causing it to mean nothing. Typically, when this has happened that foreign government typically turns to the U.S dollar. But what would we do if this happened to the U.S dollar? What currency would we turn to? One of the most recent examples of this is what happened to Venezuela. The Venezuelan Bolivar began to lose its value mostly in 2014 when its inflation went up by 69 %. In 2015 it was up 181% and at a world high record of 800% in 2016. I wish I could say that was the worst of it, but it continued after that hitting 4000% in 2017, and a whopping 1,698,488% in 2018. Supposedly the government of Venezuela has halted production of the bolivar, but economists say it is on track to be over 5,000% for 2019 (Krauze).

What happened in Venezuela is that the central government da-privatized the oil industry and took it over. Which was good for the government for a while, but privatized industries, or capitalism, is the best thing for the economy because then the government is not assuming all the risks that come with it. Also, when its privately owned the owners and employees are acting in their own best interest to be as profitable as possible, to ensure that they are taken care of and so are all their employees. Well, when the government of Venezuela assumed the risk of the oil industry and it had a recession the government went into a ginormous recession. Causing a budget deficit and a shortage of money. Due to the fact that the Venezuelan government was ran poorly they had little in savings or other resources to pull along through this time causing them to borrow a lot of money. Along with paying back the borrowed money and continuing to loan the banks money, they had to print off more money. Which as we know printing more money than you should causes crashes in your economy (Davies).

Now I am not stating that if Venezuela had been using Bitcoin their problems would have been solved and they wouldn’t have fallen into the state they are in. But there are a few areas where Bitcoin could have helped them. First off, it would not have destroyed the savings of everyone in the country. When the government started printing money and causing the value of the Bolivar to drop if other Venezuelan citizens would have had some of their money in Bitcoin, the value of it would have remained the same across the world. It would take a whole world economy to crash for the Bitcoin to be worth zero, or for everyone in the world to see absolutely zero value in it. Secondly, it is more difficult to create a redistribution of wealth for a nation. Meaning if the government of Venezuela would have been on a Bitcoin currency to redistribute the wealth or to pay back their deficits, they would have had to have the actual Bitcoins. Meaning they would either have to buy them, or tax the people for them. If they would have purchased them it would have caused the price of Bitcoin to rise meaning the people in the country with Bitcoin would have more money. Now this also helps the government from getting into a deficit too deep because there is a limited amount of Bitcoins out there. It would also make it easier to get out of a debt because of the fluidity of having a universal currency. It would make it easier for other governments or private industries to come in and buy Venezuela’s debt and the oil rigs and allow Venezuela to rebuild. No one wants to buy a debt from a country whose currency is losing value every day because what they pay you back with isn’t worth anything to you.

There are several possible concerns about Bitcoin as a centralized currency. First, Bitcoin is a peer-to-peer trading currency. It has no need to go through a bank. It is widely known that Bitcoin has been used as a way to sell drugs, sex trafficking, and human trafficking. This is due to the fact that it is completely untraceable. Anyone can go online and download a virtual wallet, send money to that wallet and then send that money to whoever they please. Now this causes a number of issues. The IRIS would have no idea how much money you have or where it’s going, if you don’t go through a bank or have that money recorded. Meaning tax evasion would be easier. Also, the cops then can’t pull up bank statements in court to show a paper trail proving you committed the crime you were accused of. Which could hurt you if trying to prove your innocence. Now you may be thinking, well, all of this already does happen but with cash. Which is true, but cash has to be exchanged in person. If drugs are purchased from someone in Mexico, then that money has to be laundered and wire transferred there, or it has to be shipped there through smuggling methods not to raise suspicion. With Bitcoin that can all be done in a matter of seconds online while leaving no trace. Second, Bitcoin is an online system meaning it can and has been hacked. Mt. Gox a large exchange service that converts Bitcoin to cash was hacked, and millions of dollars in Bitcoin was stolen. Now the main system that releases the Bitcoin has never been hacked there’s no 100% guarantee saying that it never could be. Third, we live in a time where technology is always changing, and it is often times difficult for the average person to keep up with all the changes. Completely changing the currency in the U.S would be a dramatic change leaving millions of people in the dark on it. There are certain people who have a hard time functioning their smart phone as it, how are you going to explain to them they now need to run their whole life through it? Everyday people are forgetting their email passwords, or getting their Facebook hacked into. What if they lock themselves out of their virtual wallet, or drop their phone in a lake and have no back up saved. There goes all their money. You can’t run down to the centralized bank, because Bitcoin doesn’t have one.

Now we have talked an awful lot about Bitcoin, but we have failed to mention the hundreds of other crypto currencies out there. When Bitcoin first came out, it was the first of its kind, revolutionary. But like any good idea, copy cats are sure to follow, and many did. This is mostly because Bitcoin was beginning to see crazy rates of returns, and others wanted a piece of the pie. The blockchain technology that was introduced with Bitcoin was easy to modify and create your own similar to it. Multiple companies invested in it, and created their own cryptocurrency and began essentially using them like you would a stock. The company would stockpile a whole bunch of them, and then slowly sell them to the public for whatever price people were willing to pay. This caused tons of them to blow up, and Bitcoin started seeing crazy returns as well. It 2017 Bitcoin hit an all-time high of 20,000$ per coin. Remember the two pizzas bought for 10,000 Bitcoin? That was worth 200 million dollars in 2017 (McWhinney). But like any other supply and demand the hype died down, and the price settled to what its market value was, and for the past year it has stayed around 7,000$ per coin. But not before big named people made their own coin. Former Google engineer, Charlie Lee, made a cryptocurrency called Litecoin, which also had a boom and made him and his partners millions of dollars (Aguirre). Companies like Amazon and Facebook have also toyed with the idea of their own cryptocurrency. Facebook even announced it had plans for it, yet they called it a ‘digital currency’.

If you are like me, you are probably wondering if Bitcoin could ever replace the U.S dollar? Well, the founder of Twitter, Jack Dorsey thinks it will in about ten years (Shen). Now I think that is very unrealistic, and a bit of a stretch. Here’s why, first, in ten years there will still be people who were born in the 60’s, 70’s and 80’s, who didn’t even grow up with the Internet. They are far too technologically illiterate to transfer their entire currency online to a virtual one, and be able to keep up with the continuingly changing price of the Bitcoin. Obviously as Bitcoin becomes more widespread it will be much more predictable on what it is worth, but it is not there yet. Second, the United States has too many rural areas for that right now. Rural America is still very much a thing, and 6% of Americans don’t have Wi-Fi, or even have access to it (FCC). Now this could definitely change in the next ten years, but with the pace were going that seems unlikely. Third, way too many other underdeveloped countries around the world rely on the U.S dollar right now. Ecuador for example is a third world country that relies heavily on the dollar, and if 6% of Americans don’t have Wi-Fi, I can’t imagine how many there don’t even have access to the Internet. It would be very nice though when traveling abroad if everywhere would accept a universal currency, and not have to exchange your money and lose some, or try and pay with U.S dollars and not know what the exchange rate is and so forth.

Should you invest now in Bitcoin. As stated at the beginning of the essay, many people still know very little about Bitcoin. They have probably watched one or two YouTube videos, and seen an article in Forbes, but most don’t understand all of it. As any good financial advisor would say, is to make sure you do your own research. Learn and understand the market of it. This is a whole new category of investing, it’s not stocks and bonds, and it’s also not foreign currencies. Don’t invest more than you can afford to lose, and it is always good to diversify. Bitcoin has had some of the highest returns ever seen, and people became overnight millionaires. A lot of people also lost money. It is a high-risk investment. Unlike sticks the market never closes either. You could buy Bitcoin at night and then go to sleep and something major could happen in Korea or China and the price could rise 50% in the eight hours you’re sleeping. So, make sure to stay diligent with it, and keep up on the news and new releases coming out.

For the final question then, do I personally think that Bitcoin or cryptocurrency will ever take over the U.S dollar, or if it will be the sole currency for the world? If you can’t tell from my tone and arguing points in the article, I love the idea of Bitcoin and the new technology that it has brought to the world. It is a step in the right direction of ensuring that people are the ones who are in power, and not the government. I am a strong believer in small government with few regulations. But I do not believe that Bitcoin is in a place to be able to take over the currency all together now, or even in the next twenty years. What I could see happening is the U.S dollar adapting and having a similar property of Bitcoin. Where the aspect of paper and coin is forgotten and a fully electronic version is then adopted. That way we no longer have to worry about all the problems that come with cash such as counterfeit and losing it. We live in a time now where everything paper is going away. More and more countries are following suit and adapting the same habits. This is a good thing, and it’s slowly taking over that part of the currency industry. I love living in a world where Bitcoin can exist and I hope to see the U.S dollar and Bitcoin continue to exist together. Maybe someday sooner than we think we might be asked at the grocery store in we want to pay in cash, card, or Bitcoin.

There are many people that don’t know much or have heard false information about Bitcoin. Bitcoin is a cryptocurrency which takes advantage of a peer-to-peer (P2P) connection. A P2P connection is a type of connection that utilizes a direct link between both parties without going through a central server or administrator. Everyone should support the use of Bitcoin because both Bitcoin and any physical currency is used for criminalistic activities, the government supports its use and has organizations in place to keep it under control in terms of legality, and the government can’t get rid of Bitcoin.

Bitcoin has been around since 2009 when the creator, Satoshi Nakamoto, mined the first block of bitcoin which yielded a reward of 50 bitcoins. The block of coins contained text that read: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” (Nakamoto). This was a significant point in the history of online transactions because it was the start of the first decentralized cryptocurrency. Bitcoin is important because of the technology that it uses. Bitcoin uses blockchain computing. Blockchain computing is a decentralized, public ledger that is used to keep a record of transactions across multiple computers so that any involved record cannot be altered. This prevents it from being stolen because every transfer is documented digitally.

Bitcoin is a type of cryptocurrency that is designed to allow a single transaction to be mined in around 10 minutes. Bitcoin uses a special encryption that allows control over the generation of coins and confirming the transaction. Another feature of Bitcoin that makes it different from physical currency is the fact that normal financial systems use physical money, while Bitcoin is completely electronic. Bitcoin doesn’t use physical money because it can be stored in virtual wallets and then transmitted electronically to someone else’s wallet through online transactions, which is the main difference between Bitcoin and physical currency.

Governments create currency to allow the buying and selling of goods. Governments release a specific amount to stimulate or reduce buying in a country. Cryptocurrency also is a form of currency. But it isn’t controlled by any organization or government. Bitcoin is designed to share digital information through cryptography. Using advanced cryptography techniques, cryptocurrency is used to secure transactions and control the creation of new coins, like Bitcoin and other cryptocurrencies. “Cryptocurrency is electricity converted into lines of code with monetary value” (Graydon). Since the coins value is not regulated by any organization or government, they are fully decentralized. This means the value of Bitcoin or other cryptocurrencies is dictated by the amount created through mining.

Bitcoin doesn’t get its value like a regular currency. Cryptocurrency uses a proof-of-work system. This is a type of system that prevents people from spamming the system because it requires work from each user which requires processing power from each system. This means that no one person can control the mining of Bitcoin. In the United States, gold gets its value from the US dollar. Gold is a rare resource and requires lots of effort to obtain and then to refine. The rarity of this resource is exactly what gives gold some value which in turn is what gives value to the US dollar. In contrast, Bitcoin gains it values from “the supply of Bitcoin and market demand for it, the cost of producing a Bitcoin through the mining process, the number of competing cryptocurrencies, and the exchanges it trades on” (Bloomenthal). Bitcoin’s value isn’t based off of another source of value but more based off of the people who use it.

Many people believe that Bitcoin shouldn’t be used because it is untraceable and could be used in criminalistic activities. But this doesn’t make sense as official currency is already used for such activities. So, taking it away wouldn’t necessarily put an end to its potential use in felonious acts or crime itself. Another reason that Bitcoin should be used is that it is traceable because of the use of the Blockchain network explained earlier. Where traditional currency is only traceable if the holder registers its serial number into a website and another person enters it in then creating a route between the two, Bitcoin is fully traceable. Bitcoin uses a digital ledger stored across multiple devices that logs every transaction. This makes it easy for any person to identify the details of the transaction. There are actually government organizations in place that help slow and stop the use of Bitcoin being used illegally. In conclusion, the fact that Bitcoin is untraceable is a very common misconception and in fact it is safer than any physical currency because it can be traced and the user can be identified. In the case that it was used illegally then the government could trace the origin and person who initiated the transaction.

Another common misconception is that the government has no control over Bitcoin, but the government can actually control Bitcoin indirectly in a couple ways. The first way is by controlling the assets of fiat currencies. A fiat currency is a government issued currency that doesn’t gain its value and isn’t backed by gold or silver. They can affect the price by buying and selling in international markets. The second way is by increasing the cost of doing business by putting regulations on it. This is achieved by some states requiring a surety bond or a payment equivalent to the Bitcoin transaction in a fiat currency to insure, that they will be paid the full amount. This would make it hard for people to use Bitcoin for transactions which would cause less people to use it. In conclusion, even though the government doesn’t directly control the value and use of Bitcoin they do at least have an influence over its value.

Some people believe that a government can easily get rid of Bitcoin in its entirety. But the truth is, the government can ban its use in the country but it can’t get rid of Bitcoin in the country. China has already made a step against Bitcoin by banning all trade of it in their country, but this one act doesn’t simply get rid of it. Bitcoin is so widely used that it would be very hard to get rid of it completely. Andreas Antonopoulos said this in response to a question someone asked him if he thought that Bitcoin could be completely gotten rid of: “I don’t worry about that at all, this cannot be done with Bitcoin anymore… Bitcoin has achieved a level of computing that no single nation-state can overthrow it through computation alone”. He is stating that because Bitcoin has so many users that it would be impossible for one nation to overthrow it.

Jay Clayton is the chairman of the US Securities and Exchange Commission and is a supporter of Bitcoin. “We have seen historical instances where such a rush into certain investments has benefited our economy and those investors who backed the right ventures”, – he said in testimony before the Senate banking committee. “But when our laws are not followed, the risks to all investors are high and numerous – including risks caused by or related to poor, incorrect or non-existent disclosure, volatility, manipulation, fraud and theft” (Clayton). He supports his opinion because of his position with the SECC. He is correct in everything he is saying. People in high positions in a career that has to do with money and investing agree with Bitcoin which puts a good reputation on Bitcoin itself.

Nicholas Weaver is a security researcher who publish an essay talking about flaws with Bitcoin. He says that he admires Bitcoin because of the science and engineering behind it. “It’s an incredibly clever piece of cryptographic engineering, especially the proof-of-work as a way of maintaining an indelible history and a signature scheme which, when properly used, can limit the damage that might be done by an adversary with a quantum computer” (Weaver). “Without an undo/back button, it’s only possible to prevent fraud. With an undo, it would also be possible to detect and mitigate fraud; to see that something bad happened and then actually do something about it” (Weaver). He is saying that Bitcoin needs a way for its users to undo purchases if they change their mind about the purchase.

Weaver first brings up the point of Bitcoin not having a ‘back button’ when it comes to purchases. He believes this because he did research on the Bitcoin system. While this is true that transactions cannot be reversed, there are certain places that will allow you to reverse a transaction. They do this by simply having you return something or show proof of the order and then they either give you a partial or full refund depending on the items involved. While Weaver is technically correct his answer doesn’t fully consider all circumstances. His answer only looks at the core function of Bitcoin and not what the individual miner could do. With these businesses that do these returns, this system could spread and be used in more and more places as Bitcoin grows and advances.

Weaver brings up another point about Bitcoin being very easy to steal. “To steal a million dollars hidden under mattresses, a thief needs to break into thousands of homes, to steal a million dollars from a typical business’s bank account, thieves need to transfer it to a network of roughly 100 money mules” (Weaver). He is saying that to steal real currency you have to do actual work, whereas when you want to steal Bitcoin all you have to do is get the owner’s wallet code. Bitcoin is stored in an online wallet which is linked to a string of numbers and letters used to make purchases. In reality it would actually be very hard to steal Bitcoin from someone. Even if you have their wallet code you have to first figure out which service they use for their wallet. Then you would have to figure out their login information and then approve the transaction. In theory the steps to steal someone’s Bitcoins would be easy, the chances of someone other than the owner being able to do this is very slim.

In conclusion, Bitcoin is good for the economy and should be used by more people. The technology behind it is very important not just for cryptocurrencies, but for computing as a whole. People say Bitcoin can be used for felonious activities but we have to keep in mind that the US dollar and other currencies can be as well. Whether people want to use Bitcoin or not, it will always be around and one country wouldn’t be able to get rid of Bitcoin completely. There are many people who have been falsely informed about Bitcoin which results in people not liking or agreeing with Bitcoin with false info.

Nowadays, just about everything is going digital. It was only a matter of time before money ended up going that way too. Most of us are familiar with digital payment options including online card payments and inter/intra bank fund transfers. In 2009, the world saw its very first digital currency. A developer named Satoshi Nakamoto developed this virtual currency called ‘Bitcoin’. Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. The trend of using digital currencies to transact securely online has gained momentum all over the world. In this paper I will give a brief overview of cryptocurrency including its history and benefits. I will further discuss the vulnerabilities associated with Bitcoin.

Satoshi Nakamoto’s goal was to create an electronic peer to peer cash system. He decided to create a digital cash system that had no centralized authority. This was the birth of Bitcoin. The value of Bitcoin exploded. Cryptocurrencies has proven their value, their ability to operate in the real world, and have shown that they possess real purchasing power. Investment firms, trading organizations, and retailers have begun to accept them as legit forms of payment and currency.

Digital currencies like Bitcoins are called cryptocurrency. They are virtual currencies with real monetary value and can be used to make all types of financial transactions. Cryptocurrencies use a completely decentralized payment mechanism. Traditionally, in money exchange, every payment you make and receive is tracked by financial authorities. Authorities and third – party institutions are completely privy to everything you do with your money whether you are depositing money or making a debit card payment. This reduces monetary security and privacy to a great degree. One of the objectives of designing cryptocurrencies was to provide users with a way to securely transact online. This could be done out of the view of third- party financial banks, agencies, and authorities. Cryptocurrency allows users to spend, invest, and save money in complete anonymity. Today there are multiple types of cryptocurrencies including Ether, Litecoin, Monero, Dash, Zcash, and Ripple (Martucci, 2018).

There are several benefits associated with the use of cryptocurrency. One benefit is the ease of peer-to-peer interactions. Users can directly interact with other users and engage in trade. Another benefit is that the use of cryptocurrency allows for extremely quick settlements. Bitcoins take about 10 minutes to complete all transactions and are very efficient to operate. Cryptocurrencies allow users to purchase anything in just a matter of minutes. Low transaction costs are an additional benefit of using cryptocurrency. Cryptocurrency networks compensate miners for mining the currencies, ensuring that users don’t pay additional sums of money for procuring the cryptocurrency. Since there are no middlemen involved in the transactions, there are not transaction fees that need to be paid. Cryptocurrencies are also more secure. Identity theft is guarded against with the use of separate public and private keys. Without the private key, no one can access users’ web wallets and personal accounts. This allows for complete safety.

In addition, the use of cryptocurrency protects against counterfeiting and double spending. Cryptocurrencies are monitored, tracked and governed through blockchains. Block chains are online, decentralized ledgers that contain detailed information regarding every single transaction that a user has engaged in. Using this technology, participants can confirm transactions without the need for a central certifying authority. Once blocks are added, they are permanent and unalterable (Rhodes, 2017).

Bitcoin is so far the most successful cryptocurrency. Nevertheless, price volatility remains one of the most significant challenges facing all cryptocurrencies (Schwaz, 2018). The virtual currency Bitcoin faces some serious security concerns and risks. These include: use of for illegal activity, double spending, the safety of wallets, vulnerability to orchestrated attacks on Bitcoin exchanges, and fears of rogue miners engaging in selfish mining.

One of the biggest drawbacks and regulatory concerns around cryptocurrency is its ability to facilitate illicit activity. Concerns have been raised that Bitcoin could be more attractive to criminals because it can be used to make private and irreversible payments. Many black or gray market online transactions are denominated in Bitcoin and other cryptocurrencies. Cryptocurrencies are increasingly popular tools for money laundering. The same strengths that make cryptocurrencies difficult for governments to seize and track allow criminals to operate with relative ease (Martucci, 2018). Bitcoin is money, however, and money has always been used both for legal and illegal purposes.

Double spending within Bitcoin is the act of using the same Bitcoins more than once. Double spending happens when a user makes multiple payments using one particular funding form (Hasanova, et al., 2018). Bitcoin is digital money, not physical cash. Hence, Bitcoin transactions have a possibility of being copied and rebroadcasted. Reinforcements have been instituted to mitigate this concern. Bitcoin manages the double spending problem by implementing a confirmation mechanism and maintaining a universal ledger called blockchain similar to the traditional cash monetary system. Bitcoin’s blockchain maintains a chronologically ordered, time-stamped transaction ledger from the very start of its operation in 2009. Even though Bitcoin has become sturdier against double spending, there are still fears concerning the transaction risk.

Generally, cryptocurrencies store their value in a file store called a wallet. Each client owns a set of private keys to access the wallet. There is a real vulnerability of Bitcoin wallets. Weak spots in hardware wallets can be exploited. Even heavily encrypted wallets are vulnerable. Using malware, communication between the wallet and PC’s can be intercepted. The privacy of Bitcoin users is affected by this security breach because funds can be diverted into different accounts. Wallet theft uses classic mechanisms such as system hacking, phishing, the installation of buggy software, and the incorrect use of wallets (Hasanova et al., 2018). Any programming bug or lack of secure private key can be the foundation of a major security breach.

Cryptocurrency exchanges have to deal with the constant threat of distributed denial of service (DDoS) attacks. Bitcoin is threatened by (DDoS) attacks. As Bitcoin price continues to soar, people try to get their hands on the virtual currency which places a huge strain on exchanges and their servers. Exchanges are doing their best to fight against hackers who are looking to cripple their services and find vulnerabilities in an effort to steal Bitcoin. One of the most common attacks on exchange websites and their platforms is a DDoS attack. It is a cyber-attack on a service provider that looks to disrupt its service, usually by flooding the server with too many requests to handle (Hasanova et al., 2018). By using multiple sources to attack a server, DDoS attacks can be difficult to stop because they are not started by a single source.

In a DDoS hacker attack, cybercriminals scan the network trying to identify potentially weak nodes. The selected nodes are attacked, and the hacker becomes the system administrator of the network. Trojan programs are installed on the captured nodes, which work in the background an require additional control. Upon receiving certain controls from the hacker, the infected computers spread the virus to other computers that are in the network. During a DDoS attack, the users do not suspect that their system is infected and pass date to the attackers (Blockchain, 2018).

The security of Bitcoin relies heavily on the incentive compatible proof-of-work (PoW) based distributed consensus protocol, which is run by network nodes called miners. In exchange for incentive, the miners are expected to honestly maintain the blockchain. Selfish mining, however, is another underlying threat to Bitcoin. With some mining pools becoming powerful enough to command significant mining ratios, they may engage in selfish mining. This is also referred to as block withholding. A pool may use their computational power to mine a block and then hide it from honest miners instead of broadcasting the new block to the network (Conti et al., 2017). This conspiracy can cause considerable harm to mining because selfish miners can use their power to invalidate transactions on the network.

One of the worst things to happen to a proof-of-work cryptocurrency is a 51 percent attacks. Such attacks undermine the trust in a blockchain. In Bitcoin, a 51 percent attack is possible if a single miner, or group of miners can assemble more hashing power than all the other mining participants. If a situation arises where a group of miners have control of more than 50 percent of the total hashing power in a network, then that group could outvote honest miners. An attacker could defraud people through several methods. The attacker could create conflicting transactions by refunding coins to themselves or someone else after a transaction. The miners could also mine empty blocks and invalidate transactions. The coins would then be returned to the attackers. If someone were to conduct a 51 percent attack on Bitcoin, it would greatly reduce the value of the coins.

There is no denying that cryptocurrency is the future. Bitcoin is an innovative payment network and a new kind of money. It is an exciting concept with the power to alter global finances for the better. Bitcoin technology has a strong security track record. New tools, features, and services are being developed to make Bitcoin more secure and accessible. There are, however, risks and vulnerabilities associated with the use of Bitcoin. It is fair to say that Bitcoin and cryptocurrency in general remains a practical and technological work in progress.

How can a virtual currency that exists in computer hard drives, manifest heated discussion and poses a real-world threat to the environment? The brief answer is Bitcoin mining. Since its foundation in 2009 by a mysterious group led by Satoshi Nakamoto, Bitcoin has offered roughly 410 million transactions between millions of accounts. As of today, the daily average transactions are approximately 386,000 Bitcoins ($193,000,000). However, current research shows that there is a gradual decline in Bitcoin mining since 2017. In the year 2017, Bitcoin (BTC) achieved an unparalleled price growth by burgeoning as much as 2000%, although the exchange rate has shown extensive variations. The probability of producing a digital resource with a massive price gives rise to an impetus to ‘mine’. Virtual currencies revolutionize our vision about market design and explain how the business of buyers and sellers operate. Companies with thousands of computers have developed an exclusive desire to solve mathematical questions in quest of direct private benefit. The Bitcoin protocol is a free, open software which grants users to exchange Bitcoins for alternative currencies or to sell or purchase goods.

For the first time, Bitcoin provides people with an alternative system of payment from a peer-to-peer network which is guaranteed safe and secure. But a question may arise that, are Bitcoin transactions secure? Well, they are secure comparatively to other smaller coins which are vulnerable. Bitcoins have gain high popularity during the past few years and, hence it is difficult to attack Bitcoin’s server. If a group or an organization can manage enough GPU’s, which costs Billions of dollars, then they can implement a 51% attack which increases the chances of mining Bitcoins. Ethereum was attacked a couple of months ago by an anonymous group of people who were able to gain 51% control over the server. All financial transactions are registered on a ledger which is a huge database of details and records. Banks and other financial institutions run on a centralized ledger and only one company controls it, what if someone hacks it? In contrast, a blockchain is a decentralized (i.e., a distributed ledger) system which is not governed by a single authority, making it much more tamper-proof. The ledger is imitated many times across several computers on a web.

Bitcoin is a virtual currency with no connection to lawyers or regulators and, does not operate on a single computer server. The transactions are irrevocable, do not require a real name, and are done without the interference of central authority. Everybody knows that the transaction has taken place still no one can challenge the legitimacy of transfer. The security of the blockchain is provided by a computer-intensive algorithm known as a cryptographic hash, which is collision resistant and one-way. However, the mining of Bitcoin poses a high risk on the stability of the present economic systems, and the volatility of virtual currency raises questions.

Bitcoin grabs economists’ attention as a digital currency with the possibility to disturb existing payment methods like fiat or gold-based currencies and perhaps even financial systems. The sustainability of Bitcoins depends on certain factors such as financial, ethical, and economic aspects. Bitcoin mining is not possible without powerful hardware, which includes ASIC and FPGA. In late 2010, GPU and CPU were used to do computations, but they became obsolete because they did not have a functionality to carry out operations. All this requires plenty of hardware which needs constant updates and demands immense energy cost. According to scientific research, “the total energy consumption of Bitcoin mining is equivalent to the electricity developed by small or medium-sized countries such as Denmark, Ireland or Bangladesh”. Bitcoin mining can jeopardize our ecosystem as over the years it has used an exorbitant amount of energy. More energy corresponds to more carbon emissions, which eventually threatens our ecosystem. According to the Bitcoin Energy Consumption Index, “the estimated carbon footprint is 242Kg of CO2 per Bitcoin transactions”. Nevertheless, it is plausible to interpret that the electricity bill obtained by Bitcoin miners in hydroelectric-abundant Chinese provinces imitate the complexity and enable an opportunity to check pollution regulation guidelines in the market for mining virtual assets. As mining can produce a smooth flow of revenue, people all over the world are willing to run power-hungry machines to get a piece of it. However, many researchers contradict that Bitcoin mining consumes energy. For instance, according to Harald Vranken, who has done copious research in mining, states that “the energy consumption of the Bitcoin system is not excessive”.

Unlike many cryptocurrency guides, Seele and Dierksmeier argue that digital money is a controversial topic more than the merits and demerits of plastic money. While the denigrators claim that it is entirely a downright evil because it promotes criminal activities (e.g., drugs, weapons), uses offensive means for shadow banking and for the transactions within the ‘darknet’, and can easily escape public’s critical observation, the defenders contradict these claims by saying that it is the modern solution to the most pressing societal ailments like hyperinflation, poverty, and debt crisis. Both sides deliver a vivid picture; however, due to global dissemination and their digital nature, cryptocurrencies have the potential to be omnipresent than any other previously established forms of money. A big issue with Bitcoin mining is that the transactions are exceptionally slow because millions of people are trying to hash rate (i.e., find the block) at the same time from different parts of the world. The hash rate is unimaginably high which makes difficult to find the block. Another problem with Bitcoin is that, it requires a high transaction fee and, due to that people are dropping the idea of investing. Also, users require high technical knowledge and are supposed to know a lot about computer security, which is a reason for the downgrade of Bitcoin mining.

What is the ultimate goal of Bitcoin and other virtual cryptocurrencies? Will it replace VISA and Mastercard in future by escalating? The first perspective delivered a vivid picture, but as the modern constituents get the way, it turns out less comprehensible than the earlier design decisions meet necessity. However, said the technological issues with Bitcoin and the potential threats and ambiguities of the ‘dark web’ and vulnerability to digital theft, an adequate substitute has not yet arisen. In the long-run, the worldwide unity to restrict Bitcoin mining will not succeed to mark market failure due to ineffectiveness to control property rights and impose imperative institutional policies.

Abstract:

In the last decade, numbers of papers were published about blockchain and cryptocurrencies. We evaluated a portion of the well-known cryptocurrencies, and every cryptocurrency has its own pros and cons. It is a tedious task for the researchers to select a cryptocurrency, which is ideal to implement and also demonstrates better outcome on a diverse dataset with respect to performance, energy, time and security. These are the issues, which are confronted by the researchers. So our work concentrates on the usage of the 3 best-known cryptocurrencies , which are Bitcoin, Ripple, and Ethereum. We are going to evaluate one by one, and as per our results bitcoin is the best system among the other two strategies with respect to performance, ethereum seems to be more power efficient, and ripple is more secure than both of them.

Keywords–Blockchain, Cryptocurrencies, Bitcoin, Digital Currency.

Introduction

The blockchain is an undeniably ingenious invention – the brainchild of a person or group of people known by the pseudonym, Satoshi Nakamoto. But since then, it has evolved into something greater, and the main question every single person is asking is: What is Blockchain?

By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally devised for the digital currency, Bitcoin, the tech community has now found other potential uses for the technology.

According to Zibin et al [1], blockchain and bitcoin has enjoyed a huge success with the capital market reaching 10 billion dollars in 2016. Additionally, blockchain technology is becoming one of the most promising technologies for the next generation of Internet interaction systems, such as smart contracts , public services , Internet of Things (IoT) , reputation systems and security services .

In another paper, Stephen et al [2], Bitcoin has spiked once again in recent months, for example, the UK government is considering paying out research grants in Bitcoin; an increasing number of IT companies are stockpiling Bitcoin to defend against ransomware; growing numbers in China are buying into Bitcoin and seeing it as an investment opportunity.

Although blockchain was introduced in 2008, till then it became such a rapidly growing invention that almost every industry is shifting their data management system to it. Block chain has attracted 40 major banks and financial institutions [3]. IBM has 1,000 employees working on blockchain-powered projects. They’ve also set aside $200 million for development. Financial and tech firms invested an estimate $1.4 billion dollars in blockchain in 2016 with an increase to $2.1 billion dollars in 2018 [4].

Figure 1 gives an overview of the whole process of blockchain. We have done a comparative analysis of different type of cryptocurrencies and extracted different type of parameters. Following is a pictorial representation of how two parties can connect using blockchain….

Figure 1: Blockchain’s life cycle[image: ]

Figure 2: Block Structure[image: ]

This paper is divided in 3 sections. Section 1 presents comparative study. Section 2 presents conclusion and last section presents the reference.

Related Work

Blockchain and cryptocurrencies are becoming a revolutionary industry of 21st century, but it has it’s own pros and cons. main issue is the power consumption as the mining process involved in blockchain takes a huge amount of energy and cost. According to christophe et al, bitcoin is consuming 47 THh per year [4], and it’s a huge amount of energy consumption main reason for such amount of energy consumption is proof of work. PoW secures a blockchain network by creating random math problem which miners are in a race to solve. The winner is validated by other miners who confirm that the winner had correctly solved the math problem and downloaded the information on the previous block. With bitcoin, PoW is what adds new blocks to the chain, and is what rewards miners for adding and validating the correct blocks with bitcoin. In the beginning of bitcoin, people mining it sold it to speculators for the amount that it increased their electricity bills. Over time, as people found uses for the currency, and realized that because there could ever only be 21 million Bitcoin in existence, the price went up. As the price rose, more miners were incentivized to discover bitcoins and enter the market and to find ways to get an edge through more computing power and economies of scale.

Our work relies on the comparison of the most widely used digital currencies, in order to check which of the digital currency is most suitable for the end users.

In this section we gave a brief overview of the digital currencies. Section 2.1 defines bitcoin. Section 2.2 defines Etherem, and section 2.3 presents Ripple.

2.1. Bitcoin

A cryptocurrency, a form of electronic cash. It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.

Following are some of the basic properties of bitcoin.

• 32 bit block size.
• Uses 256 bit SHA-256 hash code.
• 32 bit nonce.
• 32 bit block version number.
• 32 bit time stamp.
• Uses proof of work.
• Limit of block size is 1 MB.
• Currency name bitcoin.

2.2. Ethereum

Ethereum is a global, open-source platform for decentralized applications. On Ethereum, you can write code that controls digital value, runs exactly as programmed, and is accessible anywhere in the world.

Following are some basic points of ethereum.

• 32 bit block size.
• Uses 256 bit SHA-256 hash code.
• Uses proof of work.
• Limit of block size is 1 MB.
• Currency name ether.
• Contains Halting problem.

2.3. Ripple

Ripple is a currency exchange and remittance network created by Ripple Labs Inc., a US-based technology company. Released in 2012, Ripple is built upon a distributed open source protocol, and supports tokens representing fiat currency, cryptocurrency, commodities, or other units of value such as frequent flier miles or mobile minutes. Ripple purports to enable ‘secure, instantly and nearly free global financial transactions of any size with no chargebacks.”

• Much faster than both the other currencies.
• Currency name XRP.
• Can handle 1500 transactions per second.
• Uses proof of stake.
• Uses 256 bit SHA-256 hash code.

Comparative Analysis

We have done a comparative analysis on the characterization of ads and extracted five main parameters and fifteen sub parameters, to show what parameters are involved in ads delivery. e analysed 30 papers and plot the extracted parameters in tables. Following are the tables with some description.

Table 1:Economics.

Economics

Bitcoin

Ethereum

Ripple

Ownership

Public

Private

Public

Transaction speed

App. 1 hour

12-14 sec

3-5 sec

Transaction cost

$40

$14.40

$0.004

Native Currency

BTC

ETH

XPR

Maximum supply

21 million BTC

No

100 billion XPR

Table 1 presents the characterization of ads with 5 different sub-parameters; Location-based ads, random ads, generic ads, targeted ads and contextual ads. Location-based ads pinpoint consumers location and provide location-specific advertisements on their mobile devices. Random ads or pop-ups are forms of online advertising on the World Wide Web. A pop-up is a Graphical User Interface (GUI) display area, usually a small window, that suddenly appears (‘pops up’) in the foreground of the visual interface. The pop-up window containing an advertisement is usually generated by JavaScript that uses the cross-site scripting (XSS), sometimes with a secondary payload that uses Adobe Flash. They can also be generated by other vulnerabilities/ security holes in browser security. Generic ad tends to use mass media as a way to promote the firm. TV, radio, billboard, magazine, newspaper and website ads are common forms of mass media. The ads highlight the name of the firm, and perhaps the firm’s contact information as well, and are designed to generate public awareness of the firm. They will not, however, mention specific recommendations that the firm is currently making or has made in the past. Targeted ads are a form of advertising where online advertisers can use sophisticated methods to target the most receptive audiences with certain traits, based on the product or person the advertiser is promoting. These traits can either be demographic which are focused on race, economic status, gender, age, the level of education, income level and employment or they can be psychographically focused which are based on the consumer’s values, personality, attitudes, opinions, lifestyles, and interests. They can also be behavioral variables, such as browser history, purchase history, and other recent activity. Contextual ads is a form of targeted advertising for advertisements appearing on websites or other media, such as content displayed in mobile browsers. The advertisements themselves are selected and served by automated systems based on the identity of the user and the content displayed.

In paper [1] the location and contextual based ads are discussed. In paper [2, 13] random ads, generic and targeted ads are discussed. In paper [4 – 6] and [25, 28], importance of contextual ads are discussed. Paper [10, 11] and [27, 30] location, targeted and contextual based ads are discussed.

Table 2: Security

Security

Bitcoin

Ethereum

Ripple

Double spending attack

Yes

Yes

Yes

Sybil

Yes

Yes

Yes

51%

No

No

Yes

Dos

Yes

Yes

Yes

Table 2 presents the contextual ads, attribute targeting and behavioral targeting. Contextual ads is a form of targeted advertising for advertisements appearing on websites or other media, such as content displayed in mobile browsers. The advertisements themselves are selected and served by automated systems based on the identity of the user and the content displayed. Attribute targeting focuses on the user personal information. In behavioural targeting when a consumer uses an application the amount of time they view each page, the links they click on, the searches they make, and the things that they interact with, allows to collect that data, and other factors, to create a ‘profile’ that links to that consumer’s app As a result, ad publishers can use this data to create defined audience segments based on consumer that has similar profiles. Contextual ads have 3 sub-parameters; Keyword-based, ads category and relevant info. Keyword based is tasked with the automatic identification of terms that best describe the subject of a document. Key phrases, key terms, key segments or just keywords are the terminology which is used for defining the terms that represent the most relevant information contained in the document.

In paper [1] keyword based and user profile base ads are discussed. In paper [2] ads category is discussed. In paper [4] user profile is discussed. In paper [5, 6] user profile and relevant information is discussed. In paper [7] relevant information is discussed.

Table 3: Consensus mechanism

Consensus mechanism

Bitcoin

Ethereum

Ripple

Verification method

Proof of work

Proof of work

Proof of stake

Hash algorithm

SHA-256

Keccak-256

SHA-512 half

Block time

App. 10

20

1500

Energy Cost

App. 250 kWh

50kWh

33kWh

Mining reward

Yes

Yes

No

Table 3 presents the ads domain. Ads domain contains nature of ads i.e; which type of ads are to be displayed. It contains 11 sub parameters. Games, art, entertainment, business, dining, food, energy, medical and news feeds.

In paper [1] games, medical, art and shopping ads are discussed. In paper [2] games, energy and food ads are discussed. Paper [4] presents the ads about games.

Conclusion

After comprehensive analysis we analysed that most of papers have characterised ads in to 4 major categories, some of them have explained each category one by one in detail and introduced subcategories as well, while few of them just went through these categories. Some papers considered same context for different purpose for example; In Paper [1] Imdad et al, says that contextual ads contains only those ads which are based on users history while in paper [4] nath et al, says that contextual ads may also contain user profile information. We analysed that there are many papers who does not cover security point of view while in our view, it is one of most important part, those papers lack with. Most of papers related to ad’s characterisation, only considered admob while in our view there are many other ad’s sdks which needs to be covered . We analysed very few papers on reverse engineered sdks libraries and demonstrated network flow while other just gave an overview which was not enough to understand proper functioning of that whole work demonstrated in respective paper. Android market is a large plate-form for app developers, to earn revenue and there are still research gaps in this domain. Such as developers create an app and monitize it with google ads but get ditched by advertisers (google) and when developers claim for the money, google sometime does not let them to claim . This part should be considered in future by researchers. Personal information is an important part of someone. No-one has covered which information is being leaked at what time, cause some sdks specially, Admob changes it’s behaviour dynamically with time as admob new version comes in to the market everyone who is synced with google get it’s version updated which is very critical for user who should be aware what information is being shared to other parties by google.

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One of the main features of the new digital economy is the increasing dependence on technology. Among the new possibilities is the emergence of cryptocurrencies, special intangible money, among whose characteristics is the decentralization of power (Guegan, 2018). Cryptocurrencies do not have a single development center or central bank but operate entirely automatically, at the discretion of the user community. This means that cryptocurrencies are not governed by governments, and their use is not mediated because transactions are peer-to-peer. In theory, this should increase the cybersecurity of the use of such money, and this presentation will detail the characteristics of Bitcoin as one of the most important cryptocurrencies of our time.

Bitcoin: What It Is

Bitcoin should be understood as a virtually created payment system that allows users to exchange the digital currency of the same name for purchases and money transfers. Unlike electronic money, the use of bitcoin is associated with increased anonymity and decentralization of transactions, which means that it is much harder to track incoming and outgoing transactions without knowing the cryptocurrency identification number of a particular individual. There are no familiar bank accounts that hold bitcoins, as this violates the principle of decentralization of power. For this reason, each carrier has its own software wallet with a cryptographic key to decrypt transactions — from this perspective, it is clear that the loss of such a key irrevocably loses access to cryptocurrency. Users can host cryptocurrency wallets either online on specially created free platforms or offline, without access to the network as a “file” on a computer.

Bitcoin: How to Use

Using Bitcoin cryptocurrency is no more complicated than using any other form of electronic money. Users can pay with cryptocurrency for goods or services, coffee, pizza: any type of product whose supplier accepts bitcoins. In the global community, the value of bitcoins is increasingly recognized, so we should expect more sellers and buyers to switch to using this cryptocurrency (Haar, 2022). In addition, it is not necessary to use bitcoin for direct purchases; instead, other forms of cryptocurrency can be purchased with this digital currency, which are sold on special cryptocurrency exchanges. In this regard, it should be said that bitcoin can be used as an investment tool, as its dynamics can bring much money. For example, according to Yahoo! (2022), over the past eight years, the value of one bitcoin has increased by almost 10 thousand percent, indicating a huge increase in the popularity of this cryptocurrency. The number of coins in market circulation has also increased, but it is correct to emphasize that their number is not infinite. It is noteworthy that due to the limited number of bitcoins, the value of one unit naturally increases according to the laws of limited supply. For this reason, almost no one pays for goods or services with a whole bitcoin, but it is customary to divide it into fractions called a satoshi.

Number of Bitcoins

The mathematics of bitcoin’s existence is built on the use of geometric progression. Specifically, about every ten minutes, a number of new bitcoins are generated, and about every four years, the coins accumulated are enough to create a complex of 210,000 blocks (Hayes, 2022). Reaching this number, halves the number of bitcoins generated, so over time, the total number of bitcoins will reach a limit that cannot be crossed, namely 21 million units. Theoretically, it is assumed that this threshold will not be crossed since there are arithmetic bit shift operators; however, projections show that even if such a scenario occurs, the last bitcoin will not be released until 2140 (Hayes, 2022). Once the limit point is reached, new bitcoins will stop being generated, which means we can expect a sharp rise in the value of this cryptocurrency due to a decrease in supply while demand increases.

Blockchain Technology

Virtually any cryptocurrency, including bitcoin, is built on the principle of blockchain. Blockchain is a secure, distributed registry of transactions, closed to centralized processing methods by issuers. Based on its name, blockchain should be understood as a chain of interconnected blocks that store cryptographic transaction records every time bitcoins are exchanged between users. The link between the blocks is cryptographic, which means that each of the subsequent blocks contains information about the link to the previous block that is protected by encryption technology. This snowball connection explains the impossibility of changing information in intermediate blocks post factum, as this would lead to a loss of information in all subsequent elements of the overall chain. This is an excellent protection system that prevents bitcoins from being used for unauthorized modifications of transaction histories, which increases the reliability of the cryptocurrency. Electronic wallets are linked to blockchains, which allows them to reflect objective financial reality and increase the accuracy of the use of software cryptocurrencies.

Mining

The increase of blocks in a blockchain is called the process of mining – this process is done by ordinary users who use their own computers with powerful video cards to mine the cryptocurrency. In simple terms, mining is all about identifying the hash key that binds the blocks into a single chain. Once the hash is detected, it allows the creation of a new block, but it should be understood that this technology works on the principle of increasing computing power, which means it requires more and more energy to create new blocks. In addition, the user who manages to create a new block receives a reward in the form of bitcoin, which is the interest of miners.

History of Bitcoin

Bitcoin is thought to begin its history in 2008, when a little-known Japanese researcher Satoshi Nakamoto (reportedly a pseudonym under which a group of scientists worked) created the bitcoin protocol, fully describing the rules of the cryptocurrency. In the original article, Nakamoto described the decentralization principle of bitcoin and, by 2009, generated the first block in the blockchain (Nakamoto, 2008; Guegan, 2018). There is a great deal of mystery and uncertainty about Nakamoto’s personality, and the man himself has not appeared online for several years, so no in-depth knowledge of him can be gained. However, his product, the bitcoin system, has shown excellent viability as it has been linked to real currencies through an exchange rate, has built up a cryptocurrency wallet audience, and has grown in value significantly. Interestingly, by now, bitcoin is proving to be extremely volatile, and its exchange rate is changing exactly like fiduciary money rates. Bitcoin’s changing value is due, among other things, to the utterances of famous media personalities who can influence the herd behavior of investors and thus change the price of a single bitcoin.

Bitcoin Ideology

One should not assume that by now, bitcoin has a strictly formalized philosophy or code, but on the contrary, the foundations of the cryptocurrency’s ideology are just emerging. Some of the basic pillars that remain unchanged are transparency and anonymity of transactions, complete decentralization of power, and limitation of the number of coins issued. However, bitcoin’s role in today’s economy is rapidly changing, and with it, the ideology of cryptocurrency. As soon as it became possible to buy household goods, pizza or coffee with bitcoin, bitcoin began to be seen as a people’s currency available to everyone on the planet with electronic wallets. At the same time, the decentralization of power with the increasing attention of governments to cryptocurrency suggests that bitcoin is an instrument of slow revolution, the value of which is determined by the anarchic ideology of rejecting the centralized power of political elites.

Quantitative Metrics

In the discussion of bitcoin, special attention should be paid to quantitative metrics. According to Hayes (2022), some 18.89 million bitcoin units have already been mined to date, representing approximately 90 percent of the entire capacity of this cryptocurrency. About 106 million people worldwide (only 1.3 percent) have bitcoin, among them about thirty million U.S. residents (Howarth, 2022). Residents of all continents have cryptocurrency wallets and actively use bitcoin, with the largest concentration of users concentrated in Asia. The value per bitcoin is 38,951 at the time of the creation of the presentation, and bitcoin has been in a state of decline since late March 2022, updating its peak daily (Yahoo!, 2022).

The Future

To predict any future changes, the history of bitcoin should be kept in mind. Given trends, we can assume that more and more new users and exchanges will be created, with bitcoin’s value increasing in the face of limited supply. In addition, bitcoin will have to compete even harder with other popular cryptocurrencies in the future. Active acceptance of the currency by states may lead to their official use within a country, but this can be expected to increase cyber risks and corruption concerns.

Future

We should also expect the coin’s volatility to increase as more and more attention is paid to it by opinion leaders. Controlling herd behavior by investors causes bitcoin’s exchange rate to fall or rise, which benefits big buyers. There is a perception that cryptocurrencies will be subject to regulations that will eliminate the free use of the coin (Haar, 2022). It is clear that such action destroys the ideology of bitcoin as a decentralized currency.

Interesting Facts

Among the interesting facts found during the research are the following:

1. A lost bitcoin cannot be recovered if the owner has lost the devices or cannot remember the password.
2. 10,000 bitcoins (almost $400,000) were spent on pizza in 2010 (Bessemer, 2019).
3. States are beginning to recognize cryptocurrency as official tender in their territories.
4. Elon Musk may have been the one who created bitcoin, but this is not officially recognized.

References Slide

Bessemer, C. (2019). Cryptocurrency: Legality and role within US financial institutions. Syracuse Journal of Science and Technology Law, 36, 3-10.

Guegan, D. (2018). The digital world: I-Bitcoin: from history to real live [PDF document].

Haar, R. (2022). The future of cryptocurrency: 5 experts’ predictions after a ‘breakthrough’ 2021. Time. Web.

Hayes, A. (2022). What happens to bitcoin after all 21 million are mined?Investopedia.

Howarth, J. (2022). How many people own bitcoin? 95 blockchain statistics. Exploding Topics.

Nakamoto, S. (2008). A peer-to-peer electronic cash system. Bitcoin, 1-9. Yahoo!