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Bitcoin is a peertopeer payment system created in 2009. It is the first open source digital currency, and Bitcoin is managed by an open source software algorithm that uses the global internet network both to create the Bitcoins as well as to record and verify transactions. Being a cryptocurrency, Bitcoin uses the principles of cryptography to control the creation and transfer of money. Access to the Bitcoin network requires downloading the Bitcoin software on personal computer and joining the Bitcoin network, which allows participants to engage in operations, and update and verify the transactions.
Bitcoin – The status, impacts and prospects CONTENT I OVERVIEW OF BITCOIN What is Bitcoin? The process of formation and development Bitcoin mining 3.1 Bitcoin mining .5 3.2 Blockchain .6 3.3 Proof of Work 3.4 Bitcoin Mining Difficulty II THE STATUS OF BITCOIN The status of Bitcoin in the world 1.1 Countries that attach great importance to Bitcoin 1.2 Countries adjust Bitcoin .8 1.3 Countries reject Bitcoin The status of Bitcoin in Vietnam III THE IMPACT OF BITCOIN .9 Factors affect bitcoin The impact of bitcoin .9 2.1 Power to the Dark Web 2.2 Speculations 10 2.3 Politicization of Money .10 2.4 Apprehension among the Central Banks 10 2.5 The Emergence of New Markets 11 IV PROSPECTS FOR BITCOIN 11 The big prospects for bitcoin 11 The forecast of bitcoin .12 2.1 Optimistic forecast for Bitcoin in 2018 12 2.2 Pessimistic outlook for Bitcoin in 2018 12 V CONCLUSION 13 Buy and holding 13 Trading in Bitcoins 13 Investing in bitcoin 13 LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects LIST OF PICTURES Picture 1: Chart of the legality of Bitcoin worldwide Picture 2: An ATM of Bitcoin .9 Picture 3: Transaction schedule Bitcoin 11 Picture 4: Chart of Capitalization Bitcoin 11 LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects I OVERVIEW OF BITCOIN What is Bitcoin? Bitcoin is a peer-to-peer payment system created in 2009 It is the first open source digital currency, and Bitcoin is managed by an open source software algorithm that uses the global internet network both to create the Bitcoins as well as to record and verify transactions Being a cryptocurrency, Bitcoin uses the principles of cryptography to control the creation and transfer of money Access to the Bitcoin network requires downloading the Bitcoin software on personal computer and joining the Bitcoin network, which allows participants to engage in operations, and update and verify the transactions Compared to a standard fiat currency, such as dollars or euros, the key distinguishing feature of Bitcoin is that the quantity of units in circulation is not controlled by a person, group, company, central authority, or government, but a software algorithm controls the amount of Bitcoins issued A fixed amount of Bitcoins is issued at a fixed a-priori defined and publicly known rate, implying that the stock of Bitcoins increases at a decreasing rate In 2140 the Bitcoin growth rate will converge to zero, when the maximum amount of Bitcoins in circulation will reach 21 million units Hence, the maximum stock of Bitcoins will not change after 2140 Bitcoins can be used to buy goods or services worldwide, provided that transaction partners accept Bitcoin as a mean of payment A transaction implies that Bitcoin owners transfer their ownership of a certain number of Bitcoins, in exchange for goods and services An increasing number of companies accept Bitcoins as payments for their goods and services (CoinDesk 2014) Bitcoins can be also exchanged for other currencies To summarise, Bitcoin is a fiat currency without an intrinsic value In contrast to standard government backed fiat currencies, e.g dollar, euro, Bitcoin is developed outside of an underlying economy or issuing institution, implying that there are no macroeconomic fundamentals that would determine its price formation The process of formation and development In 2008, in the context of the economic crisis, the Federal Reserve (FED) had to inject money continuously to help the global economic downturn, people began to question and lose heart Trust in government-issued currency At that time, a new currency concept called "crypto currency" emerged, in which Bitcoin was the most remarkable idea Bitcoin's difference in comparison to other virtual units is that it uses the block chain technology, which works like a public notebook listing all transactions If you want to learn about the transactions of any bitcoin address, you have to look up the blockchain, since the information is not stored on that bitcoin address On 18 August 2008, the domain name bitcoin.org was registered Later that year on 31 October, a paper authored by Satoshi Nakamoto titled Bitcoin which LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects described detailed methods of using a peer-to-peer network to generate "a system for electronic transactions without relying on trust" Satoshi Nakamoto (probably a nickname) is the founder of Bitcoin Virtual Currency We don't know exactly who they are, although there are many conjecture All that is known about Satoshi is an expert in the field of coding In the early days, Nakamoto is estimated to have mined million bitcoins Before disappearing from any involvement in bitcoin, Nakamoto in a sense handed over the reins to developer Gavin Andresen, who then became the bitcoin lead developer at the Bitcoin Foundation, the 'anarchic' bitcoin community's closest thing to an official public face By 2010, Bitcoin is publicly traded with a conversion of 1000 BTC = USD In May 2010, Laszlo Hanyecz, a Florida programmer, was the first to buy a virtual Bitcoin currency item that spent 10,000 Bitcoins in exchange for two pizza boxes delivered to his home July 2010, MT GOX opened and became the largest and most well known trading platform in the Bitcoin community By the end of 2010, the value of the Bitcoin market exceeded $ million Bitcoin continued to grow strongly and was expected to surpass $ billion by 2013 At that time, the conversion ratio for a bitcoin of $ 92, with about $ 11 million in circulation Bitcoin mining 3.1 Bitcoin mining Where bitcoins come from? With paper money, a government decides when to print and distribute money Bitcoin doesn't have a central government With Bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange This provides a smart way to issue the currency and also creates an incentive for more people to mine Mining is the process of adding transaction records to Bitcoin's public ledger of past transactions (and a "mining rig" is a colloquial metaphor for a single computer system that performs the necessary computations for "mining" This ledger of past transactions is called the block chain as it is a chain of blocks The blockchain serves to confirm transactions to the rest of the network as having taken place Bitcoin nodes use the blockchain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady Individual blocks must contain a proof of work to be considered valid This proof of work is verified by other Bitcoin nodes each time they receive a block Bitcoin uses the hashcash proof-of-work function The primary purpose of mining is to set the history of transactions in a way that is computationally impractical to modify by any one entity By downloading and verifying the blockchain, bitcoin nodes are able to reach consensus about the ordering of events in bitcoin LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a "subsidy" of newly created coins This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new units available to anybody who wishes to take part An important difference is that the supply does not depend on the amount of mining In general changing total miner hashpower does not change how many bitcoins are created over the long term 3.2 Blockchain A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically Bitcoin is the most wellknown user of this technology and, as its’ use is crucial for the smooth running of Bitcoin transactions, it would help us all as Bitcoin users and fans to better understand just how this technology works 3.3 Proof of Work A proof of work is a piece of data which was difficult (costly, time-consuming) to produce so as to satisfy certain requirements It must be trivial to check whether data satisfies said requirements Producing a proof of work can be a random process with low probability, so that a lot of trial and error is required on average before a valid proof of work is generated Bitcoin uses the Hashcash proof of work 3.4 Bitcoin Mining Difficulty 3.4.1 The Computationally-Difficult Problem Bitcoin mining a block is difficult because the SHA-256 hash of a block's header must be lower than or equal to the target in order for the block to be accepted by the network This problem can be simplified for explanation purposes: The hash of a block must start with a certain number of zeros The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made In order to generate a new hash each round, a nonce is incremented See Proof of work for more information 3.4.2 The Bitcoin Network Difficulty Metric The Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty This will yield, on average, one block every ten minutes LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects As more miners join, the rate of block creation will go up As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down Any blocks released by malicious miners that not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless 3.4.3 The Block Reward When a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks See Controlled Currency Supply Additionally, the miner is awarded the fees paid by users sending transactions The fee is an incentive for the miner to include the transaction in their block In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income II THE STATUS OF BITCOIN The status of Bitcoin in the world Picture 1: Chart of the legality of Bitcoin worldwide 1.1 Countries that attach great importance to Bitcoin Some countries have accepted Bitcoin and brought real laws to regulate Bitcoin transactions Bitcoin is considered a legal payment method in Japan, moreover, some organizations recognize it as a currency The law in dealing with banks has not changed, but they are also being considered to make Bitcoin can even be used in everyday life India seems to be the next nation to legalize Bitcoin, LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects The Indian government agrees that the regulation of Bitcoin may be beneficial and is currently drafting legislation aimed at this The Reserve Bank of India is also considering the use of Blockchain technology in the banking sector 1.2 Countries adjust Bitcoin These are the countries that have Bitcoin laws, although they not consider it a coin like Japan Most countries in the world belong to this group In the United States, for example, the CFTC classifies Bitcoin as a commodity, while the United States Treasury considers this a money services business Although no financial manager views it as a currency, it is still reported in tax returns In Europe almost all countries have regulations about Bitcoin, primarily aimed at minimizing crimes in the financial sector such as money laundering, but does not legally use it as a currency The same trend have also occurred in the Americas from Canada and Greenland to Argentina In the East, Asia and Oceania, there are also some regulations about Bitcoins and other electronic currencies, again aimed at preventing financial crimes The bitcoin policy has always been controversial in Russia, but Russian central bank finally came up with rules that consider electronic money as an asset 1.3 Countries reject Bitcoin Only a few countries, exactly 6, completely banned Bitcoin One noteworthy example is Iceland, which has the largest Bitcoin digging industry in the world, but people are not allowed to buy Bitcoin Surprisingly, one can own by digging Bitcoin, but not buying Bitcoin from a foreign exchange This is an effort to prevent capital outflows from Iceland Five other countries belong to Bolivia, Ecuador, Bangladesh, Kyrgyzstan and Vietnam The status of Bitcoin in Vietnam With the price is on the rise sharply as today, bitcoin are more interested Vietnamese people than ever In addition to the electronic trading platform, bitcoin is also traded directly through ATMs These ATMs appear inside of cafes and restaurants Particularly in the area of HCM City, there are such ATMs operating With this machine, customers put in paper money in exchange for bitcoin, then can trade goods and services like any currency Most of these shops previously listed prices of products and used Bitcoin as a mean of payment, but since the government has regulations which illegal means of payment, including Bitcoin and other similar virtual currency will be fined from VND 150 million to VND 200 million, these stores trade bitcoin by cash Besides, many people think that when the government not specify Bitcoin is money or goods and not specify whether Bitcoin is a means of payment prohibited or not, the transaction through Bitcoin is completely outside the jurisdiction of the State Bank LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects Picture 2: An ATM of Bitcoin In the morning of 17th January, the price of Bitcoin fell to about 20%, and this virtual currency almost touched 10,000 USD/coin, a drop of nearly 50% compared to the peak not long ago This fact indicates that virtual currency is a future trend or not is not entirely sure, but the risk in the current investment is very high Therefore, before what is happening, investors need to consider seriously pouring money into the virtual currency III THE IMPACT OF BITCOIN Factors affect bitcoin Let's list the factors that will have a decisive influence on the cost of Bitcoin's exchange rate: Absence of hacker attacks and failures No disagreements within the community Let me remind you that Bitcoin Cash and Bitcoin Gold appeared in August and October due to disagreements The worsening of the economic situation in the world If a large number of people will use Bitcoin The impact of bitcoin 2.1 Power to the Dark Web LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects Dark web is the section of the web that is not accessible through the search engine What we are given access to is the surface web which is not even half of the existing internet Dark web is accessible only through special software like Tor Browser which enables anonymous searching of the internet Dark web is the place where you can find assassins, weapons and a lot more illegal stuff By using crypto currencies like Bitcoins people can make illegal transactions without giving any information about themselves Cryptocurrencies like Bitcoins are a way to empower such transactions across the globe which will ultimately result in increased cyber crime 2.2 Speculations As on 14th January 2015, Bitcoin was valued at $170 and as on 24th July 2017, it values at $2772 There have been many ups and downs in the value of Bitcoins and this scenario is likely to continue Due to the extreme highs and lows BitCoins present a massive possibility for speculation Just like trading in shares, trading in Bitcoins is massive and seeing the rise in traction around cryptocurrencies it is likely to grow further Another reason accounting to this is the increasing cost of investing in the stock markets A share in Apple or Facebook can cost around $150 while Bitcoins can be bought in fractions at a price as low as one-tenth of a cent This makes it an easy target for speculative gains 2.3 Politicization of Money Earlier all the monetary transactions were enabled through central banks (directly or indirectly) Now, with the evolution of Bitcoins, the scenario has changed The power that was vested in the governments and central banks is shifting to the masses This revolutionary change in transaction handling has the power to change the economic structure To bring security and enable scrutiny, central banks and financial institutions maintain a record of all the transactions undertaken by the people Now with digital currencies, this economic power can be challenged by people This has led to the creation of a new autonomous body which can facilitate transactions Ultimately if adopted on a large scale, Bitcoins can lead to the politicization of money 2.4 Apprehension among the Central Banks There have been implications that Bitcoins can be used to secretly launder money outside the country Central banks across the world have been wary of LECTURER: TRUONG THI PHUONG TRANG 10 Bitcoin – The status, impacts and prospects Bitcoins as an uncontrollable and unpredictable form of currency Cryptocurrencies are leading to loopholes in the current bank’s data about the money transactions leading to inability to track economic activities Crypto and Cyberspace has emerged as a power in itself thus bringing a check on the activities of the so powerful governments 2.5 The Emergence of New Markets Cryptocurrencies have led to the emergence of new markets Currencies like Bitcoin and Ethereum have opened gates for a new kind of market which unlike present money market is controlled by no one Cyberspace will rise up as the managing body that will handle and maintain such disruptive markets The near zero transaction cost (along with other characteristics) has made these currencies even superior to the traditional money we are accustomed to using What can be surely stated is that it is just the beginning and the number of possibilities is endless IV PROSPECTS FOR BITCOIN The big prospects for bitcoin The Bitcoins seem to have a potentially great future: International currency Alternative to real money Fast translations Impossibility to forge currency Are not subject to inflation The following two graphs can testify to a bright future: Picture 3: Transaction schedule Bitcoin LECTURER: TRUONG THI PHUONG TRANG 11 Bitcoin – The status, impacts and prospects Picture 4: Chart of Capitalization Bitcoin The forecast of bitcoin Investors were divided into two camps: some believe that Bitcoin will end, while others believe that everything is just beginning Each side has its own convincing facts and counterarguments 2.1 Optimistic forecast for Bitcoin in 2018 Optimists believe that the rate of Bitcoin in a couple of years (possibly tens of years) can generally reach up to 100 thousand dollars for BTC, but it is only in the future Personally, I think that this is quite realistic if the governments of the countries can agree among themselves and make it legal A favorite counter-argument among optimists is a comparison of Bitcoins with real gold (they are often called "virtual gold") Remember the demand for real gold Once $ 300 for one ounce was considered very expensive During the 2008 crisis, gold rose and reached $ 1,800 per ounce And what is gold? Than it is provided? It's just metal Bitcoins are also not provided with anything However, the potential opportunity to make it an international currency makes for it unlimited growth prospects An adequate forecast indicates that in 2018 the cost of Bitcoin will be around $ 10 thousand There should be no sharp falls Most analysts and banks expect growth Forecast for Bitcoin in 2017: $ 1000 $ 10000 Forecast for Bitcoin in 2018: $ 5000 $ 13000 LECTURER: TRUONG THI PHUONG TRANG 12 Bitcoin – The status, impacts and prospects The forecast for the Bitcoin rate in 2019 is 8000 $ 27000 $ 2.2 Pessimistic outlook for Bitcoin in 2018 The main reason for pessimists is that the Bitcoins are outlawed and that their cost is artificially inflated They are sure that governments will never legalize the currency with such prospects The second weighty argument against the Bitcoins is the question of the security of your virtual money If you lose or steal coins, no one will return them to you, as it is impossible for someone to prove anything and return it However, this issue should be resolved over time through the release of ever newer versions of wallets, which will have better protection levels A pessimistic forecast indicates that the rate will be in the region of $ 1,0002,000 per coin V CONCLUSION Buy and holding The most common form of “investing” in Bitcoin is buying the currency in hopes it will appreciate in value If this is the case then you need to decide for yourself if you think this is a good time to buy Meaning, you think the price will continue to rise A few pointers for buying and holding Bitcoins: Never invest more than you are willing/able to lose – Bitcoin is a very risky investment and you should keep in that in mind at all times After buying Bitcoins make sure to move them into your own personal wallet and never leave them at the exchange My personal recommendation is to use a hardware wallet to store your Bitcoins If you can’t afford a hardware wallet, try a paper wallet Make sure to buy Bitcoins only from exchanges that have proven their reputation Buy Bitcoins through Dollar cost averaging – This means that you don’t buy all of your Bitcoins in one trade but instead buy a fixed amount every month, week or even day throughout the year This way you average the price over the course of a whole year Trading in Bitcoins Bitcoin trading is different than buying and holding When you are trading Bitcoins it means that you are actively trying to buy Bitcoins at a low price and sell them back at a higher price in relatively short time interval Trading successfully requires knowledge and practice The trading market is occupied by very large players who are just waiting for newbies to come in and throw their money away by trading aimlessly Investing in bitcoin Some people would like to invest their money into mining Bitcoin For the past few years mining Bitcoin is only profitable if done at large scales This means you LECTURER: TRUONG THI PHUONG TRANG 13 Bitcoin – The status, impacts and prospects will need to get expensive mining equipment and hopefully have access to free electricity Also it’s usually much more cost effective to buy Bitcoins with this money instead of using it to buy mining equipment Some of you may have heard of all sorts of sites that allow you to mine Bitcoins through them This is known as cloud mining and these sites fall into one out of two categories: They are complete scams that will run away with your money and don’t actually use it to mine Bitcoin They are not scams, but they are bad investments since you will probably get more Bitcoins if you just use that money to buy Bitcoins instead of paying the site LECTURER: TRUONG THI PHUONG TRANG 14 ... proof of work to be considered valid This proof of work is verified by other Bitcoin nodes each time they receive a block Bitcoin uses the hashcash proof -of- work function The primary purpose of. .. block dwindles, the fees will make up a much more important percentage of mining income II THE STATUS OF BITCOIN The status of Bitcoin in the world Picture 1: Chart of the legality of Bitcoin worldwide... number of people will use Bitcoin The impact of bitcoin 2.1 Power to the Dark Web LECTURER: TRUONG THI PHUONG TRANG Bitcoin – The status, impacts and prospects Dark web is the section of the web