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Advantages,disadvantages,applications and economic aspects of bitcoin


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Advantages,disadvantages,applications and economic aspects of bitcoin

  1. 1. Topics to be covered Advantages of using bit coin Inherent risks of using bit coin Applications of bit coin Economic aspects of bitcoi
  2. 2. What are the advantages of
  3. 3. Difficult to block
  4. 4. Cheaper than wired money transfer -$30.0 -$0.001
  5. 5. A safe haven for merchants
  6. 6. Bitcoin protects your money from inflation
  7. 7. Other Benefits of Bitcoin  Payment without going to bank  Free acceptance  No fee  No charge-backs  Simple form for transaction
  8. 8.  Digital signature , verification  Transactions can be received at any time, regardless of whether your computer is turned on or off.  No Need for Middlemen  Irrevocable Transactions
  9. 9. Some more Important advantages of using a Bit coin 1) An Inflation Hedge for Longterm Savings   This is very helpful for citizens of countries that are experiencing run-away inflation. If they can transfer their earnings to Bit coins, they can be isolated from the rapid inflation of their native currency, and only convert back when needed to purchase goods or services using their native currency.
  10. 10. 2) A World-Wide System    Unlike current payment processing systems, Bit coins are inherently worldwide and multi-national. There are no artificial barriers for making payments across national boundaries; in fact, it's impossible to verify a transaction's country of origin. A merchant accepting Bitcoins immediately has access to a world-wide market, without any risk of non-payment from those outside his own country's legal enforcement system.
  11. 11. 2) Financial Self-Determinism and Control    The Bitcoin system is unique because it is the first digital store of value which can be safely and securely saved and transacted by individuals, without having to rely on a trusted third party. Once acquired and properly secured, Bitcoins can't be taken from their owner, by a thief, a bank, or a government. Neither can any entity freeze any account, nor prevent the owner from performing (essentially free) transactions on the Bitcoin network.
  12. 12. What are the inherent risks of
  13. 13. Disadvantages of Bitcoin    Volatile price Payments are irreversible Non anonymous system (All transactions are stored publicly and permanently on the network, so anyone can see transactions of any Bitcoin address.)   Less secure transactions Taxes are applicable
  14. 14. Criticism leveled against the bitcoin 4 reasons why you should think twice before buying bitcoins –  Losses: No laws (yet) to limit consumer losses.  Regulation: Extremely resistant to government regulation.  Scaling: Running the full bitcoin client will only become more and more resource intensive.  Lack of applications: How useful is bitcoin really?
  15. 15. Some more disadvantages of using a Bit coin 1) Irrevocable transactions   Merchants do not have to trust their customers to verify payments, but customers have to now trust merchants to deliver the goods or services they have paid for. for example, use of third-party trusted escrow services which require merchants to post a performance bond and enter into binding arbitration of disputes.
  16. 16. 2) Anti-Inflationary    Economist Paul Krugman wrote an article in the New York Times criticizing Bitcoin's anti-inflationary provision (due to the 21M Bitcoin creation limit). His argument is that Bitcoins will cause people to hoard the currency rather than spend it. But his argument is not exactly correct because If Bitcoin values go up, people will still desire to spend some of their gains from the currency by using a fraction of what they own.
  17. 17. 3) Risk of Loss    Users of Bitcoin today have to ensure that they secure their digital wallets from both loss and theft. This can be challenging, requiring use of secure encryption, password management, and information backup methods. There have been some high-profile cases where people made mistakes and lost hundreds of dollars' worth of Bitcoin. With no central authority to appeal to, these funds are truly unrecoverable.
  18. 18. Is Bit coin "The One"?  Some competing digital currencies have been proposed, but with much more limited adoption than Bit coin has seen. It seems likely to us, that Bit coin, or something very much like it, will be a viable option for many types of transactions and exchanges in the online world.
  19. 19. Applications Well-suited to Bitcoin 1) Online sales of digital goods  Customers can receive delivery immediately and the merchant gets a guaranteed irrevocable payment.
  20. 20. 2) Online donations  Payments can optionally be publicly visible to demonstrate social proof of support for a charitable cause.
  21. 21. 3) Super vault  A Bitcoin wallet can be created from a passphrase or stored on one or more USBkeys.  Bitcoins can be deposited to the generated public addresses even when the wallet is offline.  So there is no risk of loss through online hacking; money can flow in, but is impossible to flow out without retrieving the offline wallet from storage (or the memory of the wallet creator).
  22. 22. 4) Remittances  Inexpensive money transfer system across national boundaries.  Agents could accept cash in a developed country, and transfer Bitcoins to an agent in the home country of a foreign worker, to be picked up by the family of the worker.
  23. 23. Economic aspects of Bitcoin
  24. 24. Value of bitcoins  Bitcoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics.  With these attributes, all that is required for a form of money to hold value is trust and adoption. In the case of Bitcoin, this can be measured by its growing base of users, merchants, and start-ups. Determination of exchange rates: The price of a bitcoin is determined by supply and demand. When demand for bitcoins increases, the price increases, and when demand falls, the price falls. There is only a limited number of bitcoins in circulation and new bitcoins are created at a predictable and decreasing rate, which means that demand must follow this level of inflation to keep the price stable. Because Bitcoin is still a relatively small market compared to what it could be, it doesn't take significant amounts of money to move the market price up or down, and thus the price of a bitcoin is still very volatile.
  25. 25. Money Supply  A miner will record all data floated by all parties and group them into a chunk called a block. This is equivalent to a ledger entry.  After creating a block, the miners job is to add it to the blockchain, or connect the ledger page to the ledger itself.  Once a miner comes up with a valid proof, his version of the block is attached to the block chain, and in return the network rewards the miner with coinbase – a special transaction of some BTC credited to the miner.  This is how bitcoins are generated. A coinbase is reduced to half every 2,10,000 blocks. Mathematically infinite:  Despite an upper limit to the number of bitcoins in circulation, each bitcoin can be divided into smaller chunks. The smallest recognizable unit, a Satoshi is equivalent to 0.00000001 BTC.
  26. 26. Potential fall of the bitcoin economy Unlike previous currencies, failures due to hyperinflation is made impossible by bitcoin. However, there is always potential for technical failures, competing currencies, political issues and so on.
  27. 27. Is Bitcoin a bubble? Bitcoin is a small and volatile market, so no hard predictions regarding it’s short term price movements can be made.
  28. 28. The early adoption benefit Bitcoin has been designed with the “High Risk, High Reward” policy. Some early adopters have large numbers of bitcoins because they took risks and invested time and resources in an unproven technology that was hardly used by anyone and that was much harder to secure properly. This is very similar to investing in an early start-up that can either gain value through its usefulness and popularity, or just never break through.
  29. 29. What does the future hold?
  30. 30. A positive feedback loop
  31. 31. 4 sided network effect Merchants Consumers Miners Developers
  32. 32. Going down the rabbit hole This presentation was a short and concise summary of the system, it’s economic implications and a projection into the future. To get into the details, one can read the original paper that describes the system’s design, and explore the Bitcoin Wiki.