Bitcoin cryptocurrency

Bitcoin is a cryptocurrency system as well as digital payment that operates with no a main repository. The payment transactions that involve bitcoins do not convern banks or other parties. Moreover, bitcoin users do not have to pay any transaction fees and they are not obligedto provide their real credentials. The bitcoin invention happened in 2009 by an unknown person named Satoshi Nakamoto. Prior bitcoin was a side product designed for another invention.

Bitcoin, as a cryptocurrency, is a peer-to-peer payment system that prevents double spending utilizing cryptography signature of transactions by bitcoin users. This crypto system is wholy decentralized and obtains no central authority or server. What is more, bitcoin is a crucial element of blockchain technology that has become a potential disruptor in the industry of finance. However, since the computer and internet security is extremely weak, bitcoin has helped ransomware attack, resulting in fraudulent activities by hackers.

History of Bitcoin

Finance has been one of the industries that evolve through most human inventions. The financial evolution began with exchanged of goods with other products, moved to the use of precious metals like gold and silver, then the use of cash and lately, the use of the bitcoin, a new form of currency (BRITO, 2018). A collective group of technological experts maintains this system of currency that is created and held in a digital form. The bottom-line of the creation of this currency lies on the fact that the community of users owns the currency and decides its value, unlike other currencies that the government owns.

The primary objective of bitcoin’s development was to enable organizations and individuals to perform their operations without the need for intermediaries like the central bank. It makes use of the sophisticated algorithms that verify the transactions of the users.

The development of the bitcoin began on August 2008 when three individuals filed an encryption patent application. Although they have denied having any connection with alleged inventor of bitcoin, Satoshi Nakamoto, they registered Bitcoin.org site during that period. People use the site to purchase domain names secretly. The three individuals are Vladimir Oksman, Neal Kin and Charles Bry. Despite the fact that they denied the connection, Satoshu Nakamoto released his white paper in October 2008 to reveal the idea of peer-to-peer electronic currency. The purpose of this kind of currency was to provide a solution to the problems where copying money and sometimes double transactions record. The fact that the bitcoin could solve such kind of problem was the crucial foundation of the currency.

The release of the first version of bitcoin took place in January 2009 and the firs transaction on bitcoins began soon after the release when a cryptographic activist, Satosh and Hal Finney did the transactions. The first block was nicknamed ‘Genesis” since it gave way to the original mining of Bitcoins. In October 2009, bitcoin exchange rate was established through the determination of the cost incurred when running a computer that generates bitcoins. The exchange rate was 1309.03 BTC per US dollar.

From 2010 to 2011, the Chaos Theory on bitcoins developed. Particularly, on May 2010, Laslo Hanyecz, who was a programmer from the Florida state, sent 10000 Bitcoins to someone in England. The person spent twenty five dollars to get a pizza for the programmer. This scenario became the big milestone in the history of Botcoin because the current prize of the pizza is 1961034 euros. Moreover, on August 2010, a fraudulent activity related to Bitcoins took place. Hackers took 184 billion of bitcoins and resulted to the generation of 184 billion bitcoins. The hacking was led to the discovery of the susceptibility that this currency system had in the verification of the value of bitcoin, therefore leading to a decrease in the currency value from a high of $0.8 to $1.

Furthermore, on October 2010, the bitcoin was thoroughly examined following the hacking in August year and other subsequent blockchain vulnerabilities that were discovered in September the same year. Through this examination, an inter-governmental group provided a public report on the use of new methods of payments on money laundering. Later, on November that year, the value of a bitcoin hit one million dollars and the amount of bitcoins that were in circulation during that time made the currency’s value to flow at $0.50/BTC.

In January 2011, another dark side of the bitcoin currency was seen. The currency became the Silk Road whereby drug dealers could buy and sell drugs online by using bitcoin since it was a ‘safe’ way to them. The use of bitcoin in this online market of illicit drugs was untraceable (BRITO, 2018). On February that year, bitcoin became uniform with the US dollar and by June, it was worth $31. Due to this uniformity, bitcoin gained $206 million as its market cap during that period.

From the year 2011, the next major progress in the use of bitcoin went on from June 2013 when the first major theft occurred. The founder of bitcoin reported that his digital wallet was robbed 25000 bitcoins that had a value of $375000. The theft further indicate the existence of vulnerabilities in the use of bitcoin system. The market capitalization of bitcoin was however able to reach on billion dollars in March that year. On August 2013, Fed Judge Mazzant made a judgement relating to bitcoin that the it could be used as money to perform transactions on goods and services. The judgement was made in response to the Bernie Madoff of bitcoin case that was filed by Trendon Shavers.

Furthermore, the issuance of the first bitcoin ATMS took place on November 2013 and the price of bitcoin went up to seven hundred dollars. Again, following the rise in the bitcoin’s price, the US Senate held the first hearing of this currency and the chairperson of Fed Reserve blessed the bitcoin. However, on December that year, the central bank of China stopped the handling of bitcoin transactions by the country’s financial institutions. The ban was a result of the claim by the People’s bank of China that the currency system of bitcoin did not have any tangible evidence to show its ownership of legal status like the normal currency. In spite of this ban, the storage of bitcoin had gone up by January 2014.The use of insured Bitcoin storage service was launched for the first time to help institutional clients.

On June 2014, the government of the United States the amount of bitcoins retrieved from the illicit drug marketplace in Silk Road. The consideration of bitcoin as a currency for criminals then stopped from that point and those who would use it could always have their identity verified. Later, on August that year, the application of Value Added Tax on the use of bitcoin came up from the proposal by George Osborn to offer an opportunity for digital currency businesses to analyze the benefits and risks and have the potential of bringing an impact on government policy in future.

On December 2014, payments by use of bitcoin began to be accepted Microsoft. The users could buy technology and electrical contents such as videos and games on Xbox screens, purchase Microsoft software or add applications to Windows phones. From then, the future of bitcoin was its adoption by large institutions that would implement tighter regulation on the currency’s use. For example, the first digital currency-specific regulation of bitcoin was the BitLicense in New York.

Future Predictions

From the history of bitcoin, the future of digital currency could be seen. The currency would be necessary, as it is evident by the journey of bitcoin towards the mainstream of finance. The engagement of the digital currency on tradition services of finance would promote consumer protection, anti-money laundering and technical standardization of the currency. There has been also suggestions by the European Banking Authority and European Central Bank on the regulation on finance industry involving the use of digital currency. The regulations would help EU to monitor properly the fluctuation in prices. Besides, the Winklevoss brothers are developing their platform that would involve currency exchange trade using bitcoins.

Moreover, bitcoin currency is the major element of blockchain technology, which is believed to bring solutions to the many challenges that face the banking industry. Mainly, blockchain technology can be an efficient way to enable more transparent, secure and faster financial transactions that normally take place at the banks. Since the technology uses the distributed ledger technology, it also has it as its other name.

Currently, the banking and finance sectors are working towards the provision of reliable services to their customers by using the blockchain technology that could be the best substitute for their systems which are dependent on third party and intermediaries validation of financial and other transactions. These sectors have the primary objective of leveraging the distributed ledger approach of the blockchain to come up with a system that has the capability of decentralizing trust, consequently, bring significant slash on the transaction fees, and minimize the time of transaction processing. With the reduced transactions fees and decreased time for processing the transactions, the banks would be able to handle an increased number of operations within a short time, and in the long run, they will be able to make more money from the efficiency.

A blockchain is a crucial tool to the financial sector in the sense that it has the potential of figuring out business models as well as creating new products and services and more importantly disrupt and reinvent the whole value chains and industries. Therefore, banks and other financial organizations are increasingly switching to virtual-oriented systems to solve the problems of delays and high transactional costs to their customers. As a result, many hierarchies and structures are becoming more horizontal and porous while most of their products and services acquire a digital presence in the market. Besides, industrial fragmentation has also increased, and a large portion of competitors is reaching across value chains to revolutionize and pool resources for new ways.

Comparison of Bitcoin with Other Currencies

Bitcoin has no political and geographic, discreet towards the actual economy that it dominates. This feature is not like the traditional currencies such as dollars and euros which can discrete the real economies that they dominate. Despite the fact that bitcoin is hardly used by vendors in the real economy, it still has the potential of bringing sufficient disruption that the banking sector has to embrace.

Compared to other cryptocurrencies, bitcoin is the original of them all and it has the most significant network and liquidity effect (How bitcoin, 2017). Besides, its brand name is recognizable worldwide with a record of accomplishment of eighty years. Its early alternative, Litecoin have lost some of its market share to other altcoins but it has the advantage of having strong network effects and being an early mover. Moreover, bitcoin is different from Ripple because the latter settles the global currencies such as EUR, USD, GBP and others. Further, Ethereum is an element of blockchain technology that has rapidly grown to displace the value of bitcoin. It is a software platform, which allow developers to create and organize decentralized applications.

Fraudulent Activities by Bitcoin

Blockchain technology can be a perfect solution to the challenges in the banking sector. The technology provides a way or recording transactions in a manner that is transparent, secure, auditable, efficient and highly resistant to outages. Therefore, it has high potential in bringing disruption to industries, mainly the financial services hence re-creating business activities such as auditing and accounting and bring new financial and business models.

However, the anonymous and easy nature of criminals provide favorite opportunities for criminals to carry out their operations. Therefore, the bitcoin’s technology lend itself to fraudulent activities by creating conducive environments for scammers and hackers that have the aim of stealing the currency of the users or destroying the users’ computers. An example of the fraudukent activity that has resulted from use of bitcoin technology was was WannaCry attack in Europe. The attack involved the use of malware software to carry out the exploitation of flaws in Windows security. The role of the malware was to remove the users from their computers and ask for money in bitcoin currency form to unlock their accounts. As a result, many users lost their money in bitcoin dollars. In general, bitcoin has facilitated ransomware attacks that has been rising as it can be seen in the following chart:

Source: Symantec

In addition, bitcoin is not completely untraceable and the public can access the transactions concerning bitcoins. The most appropriate measure to take in addressing these fraudulent activities in the enforcement of laws that would provide the ability to trace bitcoin transactions and get any users liable for any fraud act. In addition, computer scientists ought to be involved in enhancing the security of the bitcoin platform to make sure that the platform is free from theft, frauds. This could be done by through the development of security software that would enable computers to detect any fraud or fraud before they take into effects.

References

BRITO, J. (2018). BITCOIN. [S.l.]: AGENDA PUBLISHING.

Burgwinkel, D. Blockchain technology.

Hoegner, S., & Brito, J. (2015). The Law of Bitcoin. Bloomington: iUniverse.

How bitcoin, a. (2017). How bitcoin, Ethereum, and the other major cryptocurrencies compare to one another. Business Insider. Retrieved 26 November 2017, from http://www.businessinsider.com/bitcoin-price-etherum-and-other-cryptocurrencies- compare-2017-9?IR=T