1-Page work

week-11/Bitcoin ecommerce_beeline.html

Bright Dark Blues Grays Night

University of the Cumberlands white text logo

Bitcoin and e-commerce

ITS 836

University of the Cumberlands white text logo

What is Bitcoin?

• Bitcoin is software-based online payment system described by Satoshi Nakamoto in 2008 and introduced as open-source software in 2009.
• Payments are recorded in a public ledger using its own unit of account (Bitcoin).
• is a form of digital currency (physical form is absent), created and held electronically. It can be used to buy things electronically and in that sense it is no different than conventional dollars.
• Bitcoin is commonly referred to as cryptocurrency and it can be divided into smaller unit called Satoshi (one hundred millionth of a BTC).

University of the Cumberlands white text logo

Key

What is Bitcoin based on?

• System is run by The Bitcoin protocol
• is based on mathematics unlike conventional currencies that had been based on fixed quantity of metal (gold, silver…) or fiat currencies.
• Bitcoin has several features that set it apart from fiat currencies:

1. is decentralized
2. is easy to set up and it is fast
3. is anonymous
4. is completely transparent
5. Transaction fees are miniscule
6. Transactions are irreversible
University of the Cumberlands white text logo

Decentralized

• Base for the Bitcoin protocol is a peer-to-peer system which means that there is no need for a third party.
• Therefore, in theory, bitcoin network is not controlled by central authority (fully decentralized monetary system).
• Bitcoins are being created by a community of people that anyone can join.
• theory, there is no authority (financial institution) which can tinker with monetary policy and in that sense devalue or revalue Bitcoin currency.
Five laptops decentralized graphic
University of the Cumberlands white text logo

.

Animosity & Transparency

• Bitcoins are stored in wallet with digital credentials for your bitcoin holdings and allows you to access them.
• Wallet uses public-key cryptography, in which two keys, one public and one private are generated. Public key can be thought of as an account number or name and the private key, ownership credentials.
• Bitcoin is transferred to the next owner when the next owner gives a public key and previous owner uses his private key to publish a record into system announcing that the ownership has changed to the new public key.
• Bitcoin protocol stores details of every single transaction that occurred in the network in huge version of general ledger (Block chain).
University of the Cumberlands white text logo

Negligible Fees

• Bitcoin doesn’t charge fees for either national or international transfers.
• Bitcoin is not the first private money, not the first digital currency, and not first currency based on cryptography, but it has been the first to rely on peer to peer network decentralization to avoid double spending.
• Bitcoin protects against double spending by verifying each transaction added to the block chain to ensure that the inputs for the transaction had not previously already been spent.
University of the Cumberlands white text logo

Mining

• Miners use special software to solve math problems (Bitcoin algorithm), and upon completing the task they receive certain amount of coins.
• They are created each time a user discovers new block (finds hash value).
• Software is creating new units until it reaches amount of 21 million unites (currency with Finite Supply).
• The rate of block creation is approximately consistent over time (6 per hour) with 50 % reduction every four years.
• Halving (in theory) continues until 2110-2140 when 21 million BTC have been issued.
University of the Cumberlands white text logo

Total Bitcoin Unit Supply Over Time

Total BTC = 409 USD, Year 2010

Period

Number of Units in Circulations

University of the Cumberlands white text logo

Obtaining Bitcoins

• Earn Bitcoins from mining
• Earn Bitcoins by accepting them as a means of payment
• Earn Bitcoins trough trading
• Earn Bitcoins as a regular income
• Earn Bitcoin from interest payments
• Various ways (donations, gambling, getting tipped, completing tasks on websites...)
University of the Cumberlands white text logo

Why the price of bitcoins soared and why it became the world pioneer in virtual currency field

Bitcoin prices soaring in 2013 and 2014
University of the Cumberlands white text logo

Why the price of bitcoins soared and why it became the world pioneer in virtual currency field

• Financial crisis that caused meltdown of the economy started 2008-2009.
• caused a transfer of assets form real-estate and financial sphere to investment into commodities that are traditionally considered as a stable store of values.
• Historically, Gold is best known commodity of that type because quantity of this metal is limited and, therefore, it is great way how to hedge your portfolio in times when usage of expansive monetary policy is highly likely.
• this sense, bitcoin is similar to gold (except there is no intrinsic value) and when the value of gold started to decrease due to the price roof that it had reached and partial recovery of financial market, value of bitcoin soared because it was cleverly designed financial product with finite quantity.
University of the Cumberlands white text logo

Theoretical and Technical Problems

1. Illegal activities, speculations and nature of this currency
2. Theoretical base for digital currency usage
3. Regulation and taxation issue
4. Disputable status of independent and decentralized currency
5. Mining problems
6. Skepticism towards implementation of new, unregulated, theologies in finance sphere
Stack of bitcoins
University of the Cumberlands white text logo

Illegal Activities and Speculations

• Can currency be anonymous and transparent at the same time?
• Why would somebody give you approximately 27,000 $ for solving impractical mathematical equations?
• According to Forbes, more than 90 percent of bitcoin accounts are in a buy-and-hold mode!
University of the Cumberlands white text logo

Regulating Virtual Currency

FED?

SEC?

• Question: is bitcoin a security?
• The strongest regulatory hook for deeming Bitcoin to be a security may be categorizing it a an "investment contract”.
• think it's important to understand that this is a payment innovation that's taking place entirely outside the banking industry, The Federal Reserve simply does not have the authority to supervise or regulate Bitcoin in any way.”

Federal Reserve Chair Janet Yellen

Fed logo
SEC logo
University of the Cumberlands white text logo

Regulating Virtual Currency

US TREASURY?

• Bitcoin Remains Impractical, Treasury Will Let it Be” BloombergBusinessWeek, 2014.

CFTC?

• Investing in Bitcoins could come under CFTC jurisdiction as being a commodity for future delivery
• CFTC would have a colorable claim to regulate derivative products of Bitcoins (i.e., Bitcoin futures, swaps, rolling spot Bitcoin transactions, etc.).
• However, market for those products remains small and outside of the United States.
CFTC logo
US Treasury logo
University of the Cumberlands white text logo

There are three ways how bitcoin generate income:

1. Since value of a bitcoin fluctuates, one can generate net income selling them at the higher price than the original purchase price (capital gains taxation).
2. they are received by merchants sa payment for goods and services.
3. Bitcoins obtained through mining activities are a subject of standard income taxation.
• Can a country have an adequate taxation program if regulatory framework is not defined and if status of “currency or commodity” is unknown?
• take the anonymity of bitcoin into account then one can simply deduct that tax evasion is not only feasible but inevitable.
Bitcoin tax via Michael Carney Pandodaily 10 Things #Bitcoin Won’t Tell You
University of the Cumberlands white text logo

Mining Problems

• Using computing power of third parties to achieve faster mining performance (without knowledge and consent of the third party)
• Distributed Denial of Service Attacks (DDoS)
• The 51% cartel attack
• Goldfinger attack
Data mining illustration
Powered by Beeline Reader