Bitcoin And The Cryptocurrency

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Bitcoin is the world’s first decentralized digital currency. It is a “cryptocurrency” which is designed to replicate the function of cash on the Internet. A cryptocurrency is a medium of exchange that is made possible by the use of cryptographic techniques. Bitcoins value has been extremely volatile over the last year. The conversion rate between US Dollars and Bitcoins has ranged from $91.38 on 5/3/13 to a maximum of $1132.29 on 30/11/13. This extreme volatility has resulted in the knowledge of bitcoin spreading from hobbyists and enthusiasts to speculators, venture capitalists, and even Congress. Bitcoin’s growing popularity has led to the development of a bitcoin ecosystem, with companies dedicated to offering services within the bitcoin economy. Bitcoin’s decentralization entails the possibility of using pseudonyms in financial transactions over the Internet. Up until the advent of bitcoin, there existed no method to conduct pseudonymous transactions on the Internet. Pseudonymous or anonymous transactions enable the possibility of money laundering and illicit trading and as a result, bitcoin has attracted the interest of policymakers. Such has been the interest courted by this technology that both the US Department of the Treasury and the Department of Justice have made official statements regarding the use and regulation of virtual currencies such as bitcoin. Through this paper, I would like to discuss the motivation behind creating a protocol like bitcoin, the advantages of using such a protocol, potential pitfalls, issues concerning the legality of virtual currencies and use these to examine the sustainability of bitcoin, and its future iterations.

This paper has been divided into four sections. The first deals with the mo...

... middle of paper ...

...g candidate for establishing an inexpensive funds transfer system. International funds transfers today come with heavy fees. “In Q1 2014, the Global Average total cost of sending remittances was recorded at 8.36%” (World Bank). This price refers to remittances of value $200, or the local currency equivalent. The average transaction fee on a bitcoin transaction, on the other hand, tends to be less than 0.0005 BTC (Bitcoin). The potential savings made by simply using bitcoin, as a medium for funds transfer, is so large that established money transfer giants such as Western Union and MoneyGram are considering the possibility of using bitcoin. Apart from the established players in this market, venture capitalists are also investing in fresh enterprises looking to gain a foothold in the funds transfer business by using bitcoin to minimize the cost of global remittances.

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