Bitcoin

New phenomena in online payment systems

Interesting Facts or

what can you do with Bitcoins

• 2010 – BitCoin enthusiast purchased 2 pizzas from Papa Johns. He paid 10 000 BTC or $25 that day. Since then, price for BTC flew sky-high turning $25 into $8 000 000.

• Jamaican Bobsleigh Olympic team went to Sochi only thanks to Reedit project which started an initiative to collect money for their sledge. All donations were accepted in BTC variation – DoggyCoins.

So…What is a Bitcoin?

• BitCoin is a peer-to-peer payment system and a digital

currency.

• BTC is a type of crypto currency. Crypto, because it uses

cryptography technology to work.

• It doesn’t exist as a physical object. BitCoin has a form of a

long string that carries all of its information.

How it works?

What are advantages of using Bitcoins

• Low price of transactions • Allows users to conduct transactions

anonymously, hiding their identity.

• Limited and fixed supply of currency

• Decentralized architecture of system

It’s very cheap

• Transaction fee is 40 cents for 10 000 kb file of BTC • You don’t need to

buy any software to conduct these operations.

It’s anonymous• BTC is a cryptocurrency. It uses

advanced methods of encryptions of BTC files.

• The HASH cipher method ensures that a transaction cannot be traced to a particular IP address.

• Though all history of transactions is open to a wide public, its almost impossible to link these transaction to one ID.

BTC supply

Bitcoin supply is fixed and unchangeable

• In a fully decentralized monetary system, there is no central authority that regulates the monetary base. Instead, currency is created by the nodes of a peer-to-peer network. The Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless.

• Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The Austrian school of thought counters this criticism, claiming that in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits.

Bitcoin’s cryptography structure provides fair level of security

Decentralized system architecture

• In a fully decentralized monetary system, there is no central authority that regulates the monetary base.

• If central authority organ fails the whole system fails. Having no central authority eliminates that chance. (Structure is alike as the Internet structure).

• Crowdsourcing ensures that there are always spare resources to use.

HoweverThere are some side-effects

• Decentralized System Architecture• Extreme volatility• Black Market and Illegal activity • Lack of international acknowledgment

Decentralized system architecture

Nobody regulates relations between the sender and the receiver.

Extreme volatility

BTC exchange rate chart

Black market and illegal activityBitcoins can’t be traced to a particular IP address very popular with criminals.

Most popular misuses of BTC : • Purchasing/paying for illegal products –

Drugs, weaponry, illegal software. (Latest research shows that 5-10% of all BTC transactions were used for drug purchase only on 1(!) web resource)

• Money laundry• Evasion of tax• Concealing income/spenditure

Lack of international acknowledgment

• Not all governments acknowledge BTC as a currency or as a good.

• Some governments intervene :oChina and Thailand have forbidden any use of that

technologyoUSA and Canada have developed set of laws

regulating activity of firms that work with BTC. oGermany imposed taxes on all income that comes in

the form of BTC for Germany citizens