Michal Kriziak MA1N0218 Financial Management The Bitcoin Currency

Introduction Introduction video: Bitcoin was first mentioned in a 2008 paper published under the pseudonym “Satoshi Nakamoto” It is established that there will be a limited and scheduled release of no more than 21 million BTC worth of coins, which will be fully issued by the year 2140 (en.bitcoin.it, 2013)

How Does It Work 1/3 Once you have installed a Bitcoin wallet (free download) on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how works. (Bitcoin.org, 2013)

How Does It Work 2/3 Transactions - private keys “A transaction is a transfer of value between Bitcoin wallets that gets included in the Blockchain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining”. (Bitcoin.org, 2013)

How Does It Work 3/3 Processing - mining “Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks.” (Bitcoin.org, 2013) You need to have a strong graphic cards that will do necessary calculations.

Advantages 1/6 Bitcoins is a revolutionary protocol for information synchronization. It can precisely and chronologically order all database entries and check their validity without any central authority. It means all data are shared worldwide. It is decentralised no government, no one can change for her/his own interest (no political, military incentives) Transactions are anonymous

Advantages 2/6 Bitcoin do not need a bank bailout; no need to print money Bitcoins are currently transferable to your local currency There are no transactions cost (only if you want transactions to speed up) Works everywhere; anytime Fast international payments Zero or low fees

Advantages 3/6 The database that this protocol keeps synchronized among peers over the world is referred to as “the Blockchain.” Blockchain is a giant public record of ownership that’s independently audited and verified by computers all over the world, with ownership rights secured by cryptography. It is a public record of everything that can be valuable. patents, book, DNA, contracts and other information can be included in the financial transaction – licence is publicly validated.

Advantages 4/6 An inventor could use the blockchain to verify and time- stamp a digital fingerprint called a “hash” of a document describing their convention -for free. Using the digital fingerprint means that, even without revealing the invention publically at the time of its conception, the record in the Blockchain could be used as proof of existence, if at some later point in time the origin of the invention was in question. You can include all things that include data. Creates protection to plagiarism, creates ownership, registration. (Molyneaux, 2013)

Advantages 5/6 Example: I can write a new novel and send it encrypted to me with a date stamp. This way nobody can read it. My encryption then would be an ultimate validation that it is mine, as I was the first who sent it (first in the Blockchain) and have a key. (no registration, no other payments are necessary) (Molyneaux, 2013) Possibility for multiple private encryption keys to send a balance to another owner. So more people need to agree to send balance (each include own private key) (Molyneaux, 2013)

Advantages 6/6 Very small transaction could be made Bit coins could be automatically delivered upon reaching a specific goal. A son reaching age of 18 will automatically receive Bitcoins, no need for lawyer to set up agreements. I might pay you 5 Bitcoins to create a website for me in 30 days. This information can be included in transaction, and if the page is not ready in 30 days these bitcoins would be automatically returned to me without needing a third party. (Molyneaux, 2013)

Where to Trade Bitcoins Stefan Molyneux about Colour Bitcoin: During November 2013, the China based Bitcoin exchange BTC China overtook Japan-based Mt. Gox and Europe-based Bitstamp to become the largest Bitcoin trading exchange by trade volume How to purchase Bitcoins:

Conclusion Foreign Exchange could vanish because Bitcoin is a global currency Could create more equality Elimination of need for a third party to validate financial transactions (no banks, western union, credit card companies) Some jobs in accounting and finance and staff in banks will not be needed. (Report, 2013)

References Bitcoin.org. (2013, 12 4). Retrieved 12 5, 2013, from en.bitcoin.it. (2013, 12). Retrieved 12 5, 2013, from Bitcoin: Howtobuybitcoins. (2013, 12). Retrieved 12 4, 2013, from Howtobuybitcoins.info: Molyneaux, S. (2013, 12). Youtube.com. Retrieved 12 4, 2013, from youtube: Project, B. (2013, 12). Bitcoin.org. Retrieved , from Bitcoin. Report, K. (2013, 3). Youtube.com. Retrieved 12 9, 2013, from Youtube.com: