Topics to be covered

Advantages of using bit coinInherent risks of using bit coinApplications of bit coinEconomic aspects of bitcoi

What are the advantages of

Difficult to block

Cheaper than wired money transfer

-$30.0

-$0.001

A safe haven for merchants

Bitcoin protects your money from inflation

Other Benefits of Bitcoin

Payment without going to bank

Free acceptance

No fee

No charge-backs

Simple form for transaction

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

Some more Important advantages of using a Bit coin

1) An Inflation Hedge for Long-term 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.

2) A World-Wide System Unlike current payment processing

systems, Bit coins are inherently world-wide 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.

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.

What are the inherent risks of

Disadvantages of BitcoinVolatile pricePayments are

irreversibleNon 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 applicableNo central authority

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?

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.

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.

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.

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.

Applications Well-suited to Bitcoin

1)Online sales of digital goods Customers can receive delivery

immediately and the merchant gets a guaranteed irrevocable payment.

2) Online donations Payments can optionally be publicly

visible to demonstrate social proof of support for a charitable cause.

3) Super vault A Bitcoin wallet can be created from a

passphrase or stored on one or more USB-keys.

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).

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.

Economic aspects of Bitcoin

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.

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.

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.

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.

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.

What does the future hold?

A positive feedback loop

4 sided network effect

Consumers

Merchants

Miners

Developers

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.