Advantages,disadvantages,applications and economic aspects of bitcoin

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  • Recently, Paypal and certain credit card companies blocked all donations and money transfers to the whistleblowing website “wikileaks”, in order to cripple their operations worldwide. But wikileaks soon began to accept payments made in bitcoin and within no time money began flowing in and operations resumed.This is one of Bitcoin’s major achievements in that no government or any other regulating body in the world can control bitcoin transactions. Bitcoin is something that is controlled by the people themselves. A true democracy…
  • The process appears similar to online fund transfer, in any fiat bank system. The real magic happens when a transaction is validated by a miner. In fiat banking system, this validation happens as the money passes through a series of institutions, each of which impose a service charge, which is very significant in case of money transferacross borders. In the Bitcoin system, the miner validates transactions using computer programs. The service charge in this case is insignificant. The bank imposes service charge to support its operations, but miners don’t need to impose it as their operations are supported by a reward mechanism.
  • PayPal's chargeback policy can unfairly penalize merchants who sell digitial goods or other virtual items. A plethora of horror stories are available from merchants who have had malicious chargebacks cripple their business or who have had their funds frozen by PayPal for no reason.Services like bit-pay make accepting bitcoin's as easy for merchants as accepting PayPal, funds can be immediately exchange for domestic currency so exposure to exchange rate fluctuations is minimal. The advantage for merchants is that as bitcoin is digital cash it does not support chargebacks, funds cannot be frozen and payments cannot be blocked.
  • To a certain extent, Bitcoin can protect your money from inflation as it follows a positive feedback cycle (explained later). Data observed till April 2013 shows that although there have been spikes and falls in value, there has been more or less a steady growth overall. The value of the Bitcoin (as explained later) depends to a large extent on the use of the payment system today. The use of the system can only go up in the years to come and so will the value.
  • Because the lifetime creation limit is 21MBitcoins, it may be that they will be a good wayto store long-term value as a hedge againstinflation. This may be especially true for citizensof countries that are experiencing run-awayinflation. If they can transfer their earnings toBitcoins, they can be isolated from the rapidinflation of their native currency, and onlyconvert back when needed to purchase goodsor services using their native currency.While this strategy is premature due to Bitcoin'svery volatile valuation today, it may becomecommon as Bitcoin becomes more widelyadopted and develops a history of valuestability.
  • Reference website : http://www.forbes.com/sites/timothylee/2013/04/03/four-reason-you-shouldnt-buy-bitcoins/Bitcoin is pseudonymous, i.e. the real life identity of a party is hidden and all transactions are recorded in a public ledgercalled the block chain.
  • Because the lifetime creation limit is 21MBitcoins, it may be that they will be a good wayto store long-term value as a hedge againstinflation. This may be especially true for citizensof countries that are experiencing run-awayinflation. If they can transfer their earnings toBitcoins, they can be isolated from the rapidinflation of their native currency, and onlyconvert back when needed to purchase goodsor services using their native currency.While this strategy is premature due to Bitcoin'svery volatile valuation today, it may becomecommon as Bitcoin becomes more widelyadopted and develops a history of valuestability.
  • Reference website : http://www.forbes.com/sites/timothylee/2013/04/03/four-reason-you-shouldnt-buy-bitcoins/Bitcoin is pseudonymous, i.e. the real life identity of a party is hidden and all transactions are recorded in a public ledgercalled the block chain.
  • Reference website : http://www.forbes.com/sites/timothylee/2013/04/03/four-reason-you-shouldnt-buy-bitcoins/Bitcoin is pseudonymous, i.e. the real life identity of a party is hidden and all transactions are recorded in a public ledgercalled the block chain.
  • Reference website : http://www.forbes.com/sites/timothylee/2013/04/03/four-reason-you-shouldnt-buy-bitcoins/Bitcoin is pseudonymous, i.e. the real life identity of a party is hidden and all transactions are recorded in a public ledgercalled the block chain.
  • Reference website : http://www.forbes.com/sites/timothylee/2013/04/03/four-reason-you-shouldnt-buy-bitcoins/Bitcoin is pseudonymous, i.e. the real life identity of a party is hidden and all transactions are recorded in a public ledgercalled the block chain.
  • When the United States dollar finally disconnected from the gold standard in 1971 it became a fiat currency. Basically the USA declared, "The dollar has value because we are ‘America" and the world said, "OK". In actuality, the US dollar has no intrinsic value other than the fact it is issued by the United States. Most modern currencies are fiat money.Bitcoin follows the same principle, in that its value is determined by perception. Instead of the trust of some government entity being evaluated to determine the value of Bitcoin, other factors (the technology, widespread acceptance, understanding of e-money, etc.) are taken into consideration. When magazines and online entities write intriguing articles about Bitcoin, people take interest in it, the demand goes up and so does its value v. government-back currencies. Likewise when Mt. Gox is DDoSed, a bitcoin service shutters, or $250,000 worth of BTC is stolen, people get nervous, demand drops, and so does BTC's value.History is littered with currencies that failed and are no longer used, such as the German Mark during the Weimar Republic and, more recently, the Zimbabwean dollar.
  • A fast rise in price does not constitute a bubble. An artificial over-valuation that will lead to a sudden downward correction constitutes a bubble. Choices based on individual human action by hundreds of thousands of market participants is the cause for bitcoin's price to fluctuate as the market seeks price discovery. Reasons for changes in sentiment may include a loss of confidence in Bitcoin, a large difference between value and price not based on the fundamentals of the Bitcoin economy, increased press coverage stimulating speculative demand, fear of uncertainty, and old-fashioned irrational exuberance and greed.
  • The bitcoin exchange rates rose dramatically from $1 in May 2011 to almost $1ooo in November 2013. There has been a case of a person who bought $27 worth of bitcoins in 2009 and forgot about them. Now the value of those bitcoins is more than $1m.Many early adopters spent large numbers of bitcoins quite a few times before they became valuable or bought only small amounts and didn't make huge gains. There is no guarantee that the price of a bitcoin will increase or drop. Bitcoin is still in its infancy, and it has been designed with a very long-term view; and like any other technology, it is slightly biased towards early adopters, and today's users may or may not be the early adopters of tomorrow.
  • When Satoshi Nakamuto introduced the Bitcoin in 2009, he projected that the Bitcoin would follow a positive feedback loop unlike fiat currencies.
  • There are four constituencies that participate in expanding the value of Bitcoin as a consequence of their own self-interested participation. Those constituencies are (1) consumers who pay with Bitcoin, (2) merchants who accept Bitcoin, (3) “miners” who run the computers that process and validate all the transactions and enable the distributed trust network to exist, and (4) developers and entrepreneurs who are building new products and services with and on top of Bitcoin.All four sides of the network effect are playing a valuable part in expanding the value of the overall system, but the fourth is particularly important.
  • 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.

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