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Study on Bitcoin

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Study on Bitcoin

  1. 1. Running Head: BITCOIN- THE INTERNET MONEY 1 Bitcoin- The Internet money Essentials of Marketng MBA 1st Year Presented By: Ketan Naik
  2. 2. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 2 Statement of purpose: I believe that bitcoin has the potential not to be just a digital currency, but it can become future of digital money. While it is still in the growing phase, we can look at bitcoin as a protocol or platform on which financial and non-financial transactions can be executed or conducted and verified as part of “global public ledger”. Bitcoins are generated as a pay-off for a “Mining” process. There is no physical form of bitcoins unlike currency notes, and balances are only kept on public ledger on the cloud, ahead with all the transactions related to it and is validated by an enormous load of computing energy or power. Bitcoins are not backed or issued by any form of government body or banks and they can be interchanged for commodities, and services or other currencies. Though it is not being a legal tender, Bitcoins are high on their popularity chart along with the other virtual currencies. Introduction Bitcoin is a virtual, cryptocurrency arising rapidly with influence on throughout the world. It is new form of money and an innovative payment network. It’s the 1st decentralized digital currency, as the whole system runs without any central administrator. The transaction fee offered by bitcoin all over the world is very low and it is handled by decentralized body, unlike government issued currencies. It was innovated by an individual or a batch of peoples under the name “Satoshi Nakamoto” in the year 2009. It is an open source software platform. Bitcoins are produced by a process called “Mining”. Bitcoin can be interchanged for commodities, and services or other currencies. Bitcoin just exists in Digital form, there is actually no physical existence of it. Bitcoin are stored and sent through e-wallets. 9 years since introduction, bitcoin is most widely used today and accepted digital currency worldwide. As per the research done by Cambridge University which estimates that in year 2017 there are 2.9 million to 5.8 million unique users are using a cryptocurrency wallet, maximum out of them are using a bitcoin.
  3. 3. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 3 Other forms of crypto-currencies/virtual currencies Bitcoins are the most sought-after cryptocurrency in the market. However, there are several other currencies which have gained momentum ever since the concept has been introduced. Here are some other of cryptocurrencies that exist: 1. Ethereum – it is the 2nd most famous name in the virtual currency market. It is somewhat similar to the concept of bitcoins however it has some additional attributes. It is purely a blockchain based platform. The thing that make it special is the Ethereum Virtual Machine. The blockchain in Ethereum is not used to store the data of the transaction but rather to make sure smooth run of a decentralized application. 3. NEM – It is Similar to bitcoin and is also a peer-to-peer blockchain platform which was introduced in the year 2015. It uses the unique Proof-of-Importance algorithm, it’s a way to authenticate the transactions and attain the distributed consensus. 4. Litecoin – Initially introduced in the year 2011, Litecoin is mostly identical to bitcoin. What makes it stand out is the use of the Lightning Network and the Segregated witness. There are some other form of crypto-currencies which have not gained much significance due to their technical shortcomings and inability to stand out.
  4. 4. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 4 Purpose of Creating Bitcoin Bitcoin were invented for the convenience of allowing the online transactions to done directly between the two entities without the use of any financial institution. The use of peer-to-peer payment network abolishes the need of trusted 3rd party service such as Visa or PayPal making the transaction charges cheap. The 3rd party services or intermediaries prevents double spending by maintaining a ledger, the bitcoin instead uses cryptography to prevents double spending and to verify transaction against a chain block, which is publicly distributed ledger. Each transaction being registered in ledger and the ledger is distributed among all the users of a bitcoin system via peer-to-peer network. Each and Every transaction is being checked to verify that it’s not the same bit coin which is spent previously Block Chain Technology Most cryptocurrencies are based on Blockchain technology. In simple terms, it is a system to transfer and store data or information that is generated while transacting in a cryptocurrency. “As per Few reports a Blockchain may be explained as a tamper-evident ledger shared within a network of entities, where the ledger holds a record of transactions between the entities earlier or later. To attain tamper-evidence in the ledger, Blockchain utilize cryptographic hash functions.” Blockchain technology is at the heart of how cryptocurrencies work. It helps to evade possibility of any sort of fraud and makes tampering if there of any kind, infeasible for the users. It’s a support system for the encrypted currency, whereby the transactions are recorded and accumulated on the ledger. So even if the users are anonymous, it still becomes difficult for anyone to possibly change the data without involving other members on the network. Example: Consider a person A is transferring a money to the person B from his bank account. Initially the bank verifies that A have that sum of amount and then subtracts that sum of amount from A’s account and credit’s it to the B’s account. Now if A log’s in to his account then he can see the status of transfer but the transfer is under the control of the bank. We are trusting the bank to transfer right amount of money and bank makes sure that we don’t spend the same money again. The blockchain is the database that executes those
  5. 5. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 5 tracking functions of the transactions but without any bank or other central authority. There are very low fees for transactions and transaction occur in peer-to-peer manner so there’s no other 3rd party involved. Market Capitalisation of bitcoins Market Capitalisation Volume (24h) Circulating Supply Maximum Supply $195,202,445,378 $5.216,460,000 16,716,975 BTC 21,000,000 BTC (16,716,975 BTC) (450,213 BTC) Source: https://coinmarketcap.com/currencies/bitcoin/ dated 3rd Dec, 2017 Market capitalization of bitcoin as on 3rd Dec 2017 has been computed to come up at US$ 195,202,445,378 while the maximum supply in the market is limited to 21,000,000 BTC as of now. There is also a talk about the maximum supply being raised to 45.000,000BTC in the upcoming years.
  6. 6. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 6 Business Model Not much later after the inception of bitcoins, bitcoins exchange quickly spread into the market. Since then several bitcoin exchanges are seen in India and elsewhere have come into picture. At a preliminary level, a bitcoin exchange is simply a common platform to the users for the purpose of buying and selling while matching mutual needs, in order to earn profits. For instances take an idea of a stock exchange, where a person has an account and he buys stock, by paying consideration in money, from a person who wants to sell it. Stock exchanges furnish a place for buyers and sellers where they can trade. On similar lines, a bitcoin exchange works by essentially providing ‘service’ to its users, however unlike stock trading where a broker may as well come into picture and charge commission in return for his services, in case of bitcoin exchanges, there is no third-party involvement, this service is provided by the exchange itself which thereby charges commission for the trade conducted and earns revenue. A basic business model of a bitcoin exchange is reiterated in the chart below. Bitcoin exchange trade model chart: The model explained above is the basic model adopted by most of the exchanges operating in the market. In addition, to trading services in bitcoins, these exchanges also facilitate the users to hold or own bitcoins, for which they provide the basic service of arranging a wallet which is nothing but an account
  7. 7. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 7 Rise of Bitcoin from $0.01 USD to $11,000 USD In initial days, back in 2010 the price of bitcoin was approximately a cent, and it was considered as the sector of Geeks, libertarian and smugglers, bitcoin now is getting millions of dollars from hedge funds. This is because of the late recognition and consideration by the financial community that crypto-currencies (digital form of money) are going mainstream. New investors and expectations of many new investors to follow has escalated the cost of a bitcoin about 10-fold to 12-fold so-far this year. Many companies had started to offer bitcoin future contracts, potentially enlarging bitcoin’s appeal. Knowing the due fact that bitcoin’s software guarantee’s that there will be finite supply of bitcoin’s in near future, this has added fear of missing the opportunity to buy bitcoins for some investors. Recently coin-base, a bitcoin exchange was overwhelmed by two to three times its normal traffic on 29 Nov 2017, as many new users signed up, thus making its service unavailable for many users around the globe. Source: https://www.bloomberg.com/news/articles/2017-12-01/understanding-bitcoin-s-rise-0-01-to-11- 000-quicktake-q-a The above figure shows the rise of bitcoin in past 12 months. At the start of the year 2017 the price of each bitcoin was around $1,000 USD. As with the passing months the price has increased exponentially. Today the cost of a single bitcoin has touched approximately more than $11,500 USD. As per the forecast report it is expected that till the end of year 2018 it will be around $40,000 USD.
  8. 8. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 8 What Makes Bitcoin Valuable: Let’s consider the example of gold as a currency. There is a quantifiable amount of gold on our planet. As the gold is mined, amount of gold left goes on reducing and it becomes more tough and more expensive to find it and mine. Same is the truth with Bitcoin. As of now there are only 21 million bitcoins, and as the times goes on, it will become harder and tough to mine. Let’s have glimpse at bitcoin’s inflation rate and Monetary rate: Source: https://bitcointalk.org/index.php?topic=130619.0
  9. 9. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 9 Risk Associated Ø High volatility: The cost of Bitcoin has a high volatility. Typically, 30-day volatility is around 40 % and a 90-day volatility is near about to 70 %. These swings in the value that are hard to cover-up for large number of people. Although now, the cryptocurrency has up trend, it's still risky. Ø Regulatory Risk: As there are no governing bodies managing the bitcoins, there is a high risk of any type of change in regulatory decision related to bitcoin. By far, as China is Largest market for trading of bitcoin, with more than 90% of trading occurring in People’s Republic of China. Hence, if China bans its citizen from trading bitcoin then it would directly impact the whole world’s bitcoin investment. And the same goes for leading Bitcoin hubs like United States & United Kingdom. If any large economy bans its citizen from holding bitcoin the value of bitcoin will collapse and it will struggle lot to recover from it. Ø Prone to illegal activity: Its feature of being untraceable is highly risky as it has attracted crime. People make use of such currency for trading of drugs, arms, guns with significant risk of being traced. This fact may bring undesired attention of government authorities and government may outlaw bitcoin. No safety mechanisms: Bitcoin has no safety mechanisms. Typically, you'll get a special key or random words or series of alphabets which will protect your wallet. And If you lose your special key, then your funds will be swiped out with it. There's no support to contact unlike customer care support provided by bank, and there is no process to change the password, and also there is no process to verify your identity to get your account back. When it's gone - it's gone, there's nothing anyone can do. Security of services/products: As there is no third-party involved in transaction process, and if there’s a breach of security then there is no one we can approach for the loss of Bitcoins. Ø Competition: Other cryptocurrencies could make Bitcoin a history. Offering faster transactions then bitcoin, complete anonymity of transaction, reliable storage space and other necessary improvements could lead to lower market the share of Bitcoin. If we consider the caliber of emerging cryptocurrencies to be high, then this scenario seems pretty possible. Ø Government Taxes: Bitcoin is not an official currency as of now. And most jurisdictions require you to pay different types of taxes like income tax, sales tax, payroll tax, capital gain tax etc. on anything which has a value. This is applicable to bitcoin too. It is individual’s responsibility to make sure that he pay’s respective tax and other legal mandates issued by government bodies.
  10. 10. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 10 Ø Bitcoin Payment are Irreversible: Any type of transaction done with bitcoin is irreversible, instead they can be returned by the person who has received the funds. This mean you should take care to do business with the people and organization you know and trust. Bitcoin can detect typo’s and won’t let user send money to invalid user by mistake. In future, there may be development of new services to be provided for more choice and security of the customer. Benefits of Bitcoin: Ø Cheap and Quick Transaction: The transaction fee of the bitcoin is very cheap as compared with the other digital currency as well as other conventional transfer method for moving money. Normal transfer fee for bitcoin is 0.0005 BTC / transfer, where as normal credit card transaction will cost 2-3% of transfer amount which is too expensive. Ø No paper work: Yes, there is No need of any paper documents like ID card, address proof etc. like bank needs. All that’s needed is just a Bitcoin address for starting to send and receive money and Bitcoin wallet program. No tax is being levied in transaction: As the process is anonymous and no 3rd party involved so there no sales tax or any type of transaction tax hat is being charged on the transaction. Ø Bitcoins can’t be stolen: The bitcoins cannot be stolen or transferred unless its ownership is changed by its owner or the other person who has an physical access to the user’s Computer. Conclusion: It is very important to learn how does Bitcoin actually works before we/you invest any money in Bitcoin. Bitcoin is still new to most of the people out there and also there’s no authority regulating it is case of any fraud no one is held responsible for. For a new user’s it may take months to understand Bitcoin and its impact on the world. Before investing take you should some time to know and understand Bitcoin, how it works, how to secure Bitcoin and how it differs from the normal flat money.
  11. 11. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 11 Disclaimer Investment in bitcoins are risky, please learn properly about bitcoins before investing. Bibliography : https://www.bloomberg.com/news/articles/2017-12-01/understanding-bitcoin-s-rise-0-01-to-11-000- quicktake-q-a http://raszl.com/blog/bitcoin-benefits-and-risks http://www.nasdaq.com/article/bitcoin-as-an-investment-opportunities-and-risks-cm740800 https://economictimes.indiatimes.com/wealth/invest/7-reasons-why-you-should-not-invest-in-bitcoins- cryptocurrencies/articleshow/60891341.cms https://www.quora.com/What-are-the-risks-of-Bitcoin https://en.wikipedia.org/wiki/Bitcoin#Energy_consumption https://www.buybitcoinworldwide.com/kb/investing-in-bitcoin/ https://bitcoin.org/en/you-need-to-know https://bitcoin.co.th/benefits-of-bitcoin/
  12. 12. BITCOIN- THE INTERNET MONEY PRESENTED BY: KETAN NAIK 12

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