Hannah favor of bitcoins or not, they are quickly

 Hannah CompianoIgnatova3750-10111 December 2017The Bitcoin A relatively new cryptocurrency has been making its way into the mainstream, affecting society, technology, and the environment. In this paper I will be discussing how the bitcoin has begun to revolutionize how we interact with others, how technology has responded to the bitcoin, and what this all means for the environment. Bitcoin has become more and more recognized by businesses all around the world, making its way into the economy. The use for bitcoins is vast and several countries are quick to jump on the bandwagon. People are drawn to the bitcoin because of its freedom from banks and its ability to give control back to the consumer. But whether the general public is in favor of bitcoins or not, they are quickly gaining more traction and notoriety. There is uncertainty present of whether or not this cryptocurrency will truly take off, but the future looks bright to those in favor. Bitcoin’s fan base is growing in size and diversity as there is only a limited supply of bitcoins to be mined. Cryptocurrencies are lines of computer code that hold monetary value and those lines of code are created by electricity and high-performance computers (Gil, 2017). Bitcoins are known as a digital currency, created by mathematical computations, patrolled by millions of computer users called ‘miners’ (Gil, 2017). There is no physical bitcoin a user could physically hold. Started in 2009 by an unknown user under the alias Satoshi Nakamoto, bitcoins are a cryptocurrency and a worldwide payment system, being he first decentralized digital currency. It works without a central bank or single administrator and is completely anonymous (Gil, 2017). Designed for maximum anonymity, bitcoins were the first cryptocurrency ever invented. Since then, Satoshi Nakamoto has disappeared leaving behind the Bitcoin fortune. Since the introduction of Bitcoin, all other digital currencies created since then are called Altcoins, short for alternative coins. Some examples of this would be Litecoin, Peercoin, Feathercoin, Ethereum, as well as hundreds of others, but none have grown as large as Bitcoin (Gil, 2017). Bitcoins can be stored offline on the user’s local hardware such as a computer or cell phone. This storage is called cold storage and it is effective in protecting the user from their bitcoins being stolen. When the bitcoins are stored on the internet, also known as hot storage, there is a high risk of it being stolen. Losing access to the hardware that stores bitcoins could result in the loss of money completely–about 30 billion dollars worth of bitcoins have been lost by miners and investors (Gil, 2017). But despite all this, bitcoins remain popular as the most famous cryptocurrency. These virtual coins are designed to be ‘self-contained’ for their value without the need for banks to move and store the money. Once obtained by the user, bitcoins share trading properties similar to real physical gold. Bitcoins can be used to buy goods and services on the internet or they may be tucked away in hopes of the value increasing over time. They are traded from one personal online wallet to another. A wallet is a small personal database that is stored on a computer drive on a smartphone, tablet, or cloud. Bitcoins are also forgery-resistant; it is so computationally-intensive to create a bitcoin it is not financially worth manipulating the system (Gil, 2017). Bitcoins are controversial for an array of reasons. From 2011-2013, illegal traders made bitcoins famous by buying large quantities of millions of dollars so they could move the money outside the eyes of law enforcement. As result, the value of bitcoins shot up exponentially (Casey, 2017). In the cryptocurrency world, scams are a real possibility; investors can lose hundreds or thousands of dollars. Most of all, bitcoins are controversial because they take the power of making money away from central federal banks, and give it to the general public. The value of the bitcoin fluctuates daily; it may be found at sites like Coindesk.com to see the current value. Currently, there are over two billion dollars worth of bitcoins in existence. Allegedly, bitcoins will stop being created once the amount in circulation reaches 21 billion coins. This expected to happen sometime around 2040, and as of 2017, over half of those have been made. The currency is considered as being self-contained and un-collateralized which means there is no precious metal behind the bitcoin—the value of each bitcoin is found within the bitcoin itself (Gil, 2017). A massive network of people who contribute their computers to the Bitcoin network are called miners. They are essentially the ledger keepers and auditors for Bitcoin transactions. These miners make money off of their accounting work by getting more bitcoins for each week they contribute to the network. Each bitcoin has a data ledger file called a blockchain. Individual users have their own personal wallets and each blockchain is unique to it (Gil, 2017). The public ledger makes all bitcoin transactions logged and available, preventing fraud and guarantees authenticity. Doing this prevents duplicated transactions and people from copying bitcoins (Gil, 2017).The anonymity is what draws in many of the bitcoin users. Bitcoin does record the digital address of each individual it comes in contact with, the system does not save or record the names of the owners of those wallets. Each transaction is digitally confirmed but remains completely anonymous simultaneously. Others cannot view your personal identity but they can see your bitcoin wallet history. Some argue that keeping a public history encourages transparency and security as well as keeping bitcoins away from illegal purchases (Casey, 2017).As of now, there are three known ways that this currency can be abused. The first is when people take advantage of the bitcoin’s technical weakness. In some cases, bitcoins can be double-spent during the confirmation interval due to the time delay in confirmation. Due to the peer-to-peer system, it takes several seconds for a transaction to be confirmed across the vast amount of computers. These brief moments of time allow a dishonest person to submit a second payment of the same bitcoins to a different recipient. The system will eventually figure out the double-spending and negate the second transaction if the second recipient transfers the goods to the buyer before they get the confirmation and the second recipient will lose both the bitcoin payment and the goods (Gil, 2017).Human dishonesty and human mismanagement are the two other ways bitcoins may be abused. Human dishonesty comes into play when pool organizers take more than their fair share of bitcoins. Since mining is best reached through joining a group of thousands of other miners, the person organizing each pool has the responsibility of diving up any discovered bitcoins. This allows some mining pool organizers to take more mining shares for themselves. Human mismanagement of online exchanges is the third way: people may run unregulated online exchanges that swap money for bitcoins can be dishonest or inept (Gil, 2017).Whether or not bitcoins are bad for the environment is up in the air. Mining can be very energy-intensive but defenders of the bitcoin say that it is in fact not an environmental disaster. A site that tracks data on bitcoin mining called Blockchain.info estimates that in just 24 hours miners used around $147,000 of electricity to keep the hardware running (Berne, 2017). This number assumes that the average price of energy is about 15 cents per kilowatt hour. This does not take into account the resources and energy used to buy and build mining rings. Hypothetically if bitcoin were to be adopted for large-scale commerce, the electricity demand of mines would largely increase (Worstall, 2013). Those in favor of the bitcoin respond to these arguments first by recognizing that mining will allegedly cease at 21 million bitcoins and that bitcoins use the same amount of energy as any other payment methods. In a 2014 study by Karl J. O’Dwyer and David Malone, their research showed that the consumption of the bitcoin network was likely to be about the same as the electricity consumption of Ireland (Berne, 2017). The global money supply in circulation is about $11,000 billion, if the bitcoin currency becomes widespread the energy consumption would be eight times the electricity consumption of France and twice of the United States (Berne, 2017). Because every blockchain is a ledger and a file with several copies, computer energy and resources are required for the calculation, transmission, and storage of the information. As the amount of information increases, the larger the energy footprint even if the underlying technology has been improved (Berne, 2017). The length of the blockchain and the number of copies are very important to the amount of energy consumed, computer transactions become increasingly complex over time. The bitcoin blockchain length grew very quickly: in early 2015 it was 27 GB and in mid-2016 it rose to 74 GB. Genesis Mining in 2015 revealed in Business Insider that Bitcoin was one of the more energy-consuming companies in Iceland despite having a lower price per kW and a good economic climate for bitcoins (Berne, 2017). The bitcoin is another man-made technology that does not take into account the energy needed for consumption and is denied by those in favor. The proposed technological solutions to decarbonizing the energy system is risky and it does not guarantee it can manage the large worldwide increase in energy consumption which also reducing greenhouse gas emissions. Not only have bitcoins changed how we interact with technology, it has also altered how society connects with one and other. Though bitcoins put the control in the user this created a new network in which people are communicating with one and other differently. Transactions between two parties may be seen as a form of communication as money may be viewed as a form of speech. Because bitcoins were not created nor regulated by banks it allows transparency from one user to another. Though Bitcoin is anonymous, each user has an identification code which not only protects their identity but it lets the recipient of the goods know where the bitcoins have been and if they have been used in any illicit activities. Bitcoin has also help develop a movement of a group who call themselves “cypherpunks”. Prior the 1970s, only the military and spy agencies practices cryptography. Interest in cryptography grew when the United States government released a publication of the Data Encryption Standard and the first publicly available work on public-key cryptography, the “New Directions in Cryptography”, written by Dr. Whitfield Diffie and Dr. Martin Hellman (Lopp, 2016). Then in the 1980s, a man named Dr. David Chaum publically wrote on topics like anonymous digital cash and pseudonymous reputation systems. These ideas developed over the next several years, slowly starting a movement. This group of individuals gained the name “cypherpunks”, a hybrid of the word “cipher” and “cyberpunk”. A mailing list formed as result around the same time and a few months later a cypherpunk published “A Cyperpunk’s Manifesto”, a manifesto that discussed the importance of privacy for an open society in the electronic age (Lopp, 2016). Satoshi Nakamoto triggered immense progress by releasing Bitcoin and establishing a working system that people could use and extend. Bitcoin strengthened the cypherpunk movement by allowing organizations like WikiLeaks to continue operating through bitcoin donations. Wikileaks has seen a return greater than 50,000 percent since 2010 on their investments in Bitcoin. The founder Julian Assange has even publicly “thanked” the U.S. government for “forcing” Wikileaks to get into bitcoins. The Wikileak’s investment in bitcoins occured because global payment processors like Visa, Mastercard, and Paypal were pressured by the government to block the ability of Wikileaks to take payments. This in turn benefitted Bitcoin, they have seen over a 9 million percent return over the time period Assange referenced. During certain points in 2010, Bitcoin was trading for pennies, they were essentially worthless. According to coindesk.com, one bitcoin is now worth about $5,700, a record high (Wile, 2017). Bitcoin has allowed Wikileaks to flourish, which ultimately leads to more information being leaked to the public. Visa and Mastercard officially cut ties with Bitcoin when in 2010, Chelsea Manning released classified information of the U.S. military, saying that they did not want to be “engaging in or facilitating” illegal activity. Without mainstream global payment processors, Wikileaks fell unto Bitcoin to keep them afloat (times). Though Wikileaks may be as controversial as bitcoins, this unbiased source of information may not currently exist without the help of Bitcoin. Both Wikileaks and Bitcoin promote transparency and anonymity, that information is a right to the people and that regulation and overwatch should be kept at a minimum. People are in favor of Wikileaks saying that it is information that should not be withheld from the American public. Not only has our relationships with one and other changed due to the use of bitcoins, but our relationships with banks has also shifted. Before the rise of the bitcoin, people were still weary of banks but the growing popularity of Bitcoin has caused some who may have not previously doubted banks to think twice about where they store and manage their money. Rainer Michael Preiss the executive director at Taurus Wealth Advisors has suggested that bank CEOs are “likely to be very afraid” of what bitcoins may do to the banking industry (cnbc). These comment come after JPMorgan CEO Jamie Dimon called Bitcoin a fraud. Cryptocurrencies could give investors with viable alternative due to the lack of transparency in banking. “The concerns are about the fractional reserve banking system, and the balance sheet of the Federal Reserve at $4.5 trillion, where the Fed officially refuses an audit,” Preiss said. “On the other hand, on the bitcoin blockchain, you have an audit everyday because it’s open-sourced.” Preiss also added that cryptocurrencies could be a “systemic hedge” against the risk of asset price inflation which central banks possibly helped to create (cnbc). The hike in bitcoin price signals a good store of value for some. Preiss also noted that Dimon made claims of the exact opposite about the bitcoin’s value in a 2014 interview with CNBC (Yuen, 2017).Due to the limited supply of bitcoins, some are calling it the digital age gold rush. Bitcoins are also similar to gold because the value of bitcoins fluctuates daily. The growing user base and quickly evolving network of Bitcoin-related companies also alludes to the time of the gold rush. Big investments in mining equipment has had the movement grow quickly; it is challenging to say whether or not the excitement of this currency is warranted but it is undeniable that business and the larger economy are taking note. Similar to gold, bitcoins can be sent anywhere in the world, there is a finite number, and it is impossible for the government to stop the bitcoin rush (Gil, 2017). This may have implications in the technology industry where much of the current action is happening but also for other industries such as retail and financial services. All of this raises the question: of the 11 million bitcoins in circulation, who has been using bitcoins and what are they using them for. Bitcoins were widely used on the Silk Road, the black market of the web, until the government shut it down. The Silk Road did not necessarily build the success of Bitcoin alone, but it definitely fueled its success. Anything from drugs, to fake drivers licenses, to people, the Silk Road allowed anyone to buy anything as long as it was with bitcoins. This relation between the Silk Road and Bitcoin was partially why bitcoins carry a negative stigma, that bitcoins were for the use of criminals. But after the Silk Road was shut down, the growth of Bitcoin continued. Along with the United States, some of the countries with the most widespread use of bitcoins are Estonia, Sweden, Denmark, and South Korea. Estonia has a history of joining the world’s latest technological innovations. The government is aiming to use blockchain technology for healthcare, banking services, and governance by allowing its people to become “e-Residents”. This would give citizens and businesses digital authentications. Estonia was also one of the first to use blockchain-based voting services (Scott, 2016). The country now hosts Bitcoin ATMs and global peer-to-peer buying and selling services for bitcoins. Denmark has proven itself to have some of the highest living standards and technology development. But Denmark is also in favor of eliminating cash for 100 percent digital currency. So it is not a question of if Bitcoin will take off, it is when. It is unclear whether Bitcoin will be used as a means of exchange or as a replacement to central banking or both. While rejected by the Danish Central Bank, Denmark is home to several Bitcoin startups and exchanges.The way in which people can communicate with others as well as the workings of society have been impacted by the introduction of Bitcoin. It also has shown how technology has developed since 2009 and where it might take us in the near future. Of course, the environment will feel the effect of Bitcoin to a degree; scholars are uncertain to what degree the environment will be impacted. But it is unavoidable for innovation to occur without the environment needing to be taken into consideration. In 2017, many people still disregard the use and legitimacy of the bitcoin. There is no guarantee Bitcoin will be the top cryptocurrency in the end, but Bitcoin as an invented, man-made technology surely has changed the world forevermore. As new technologies are released and time passes the world can only wait and see what the future of Bitcoin entails. Works CitedBerne, M., Flipo, F. (2017, May 16). The bitcoin and blockchain: energy hogs. http://theconversation.com/the-bitcoin-and-blockchain-energy-hogs-77761Casey, M. (2017, Dec. 13). Bitcoin has Gone Mainstream. That’s a Big Deal.https://www.coindesk.com/bitcoin-gone-mainstream-thats-big-deal/Gil, P. (2017, Dec. 7)What Are Bitcoins? How Do Bitcoins Work? https://www.lifewire.com/what-are-bitcoins-2483146Lopp, J. (2016, Apr. 9). Bitcoin and the Rise of the Cypherpunks. https://www.coindesk.com/the-rise-of-the-cypherpunks/Scott, A. (2016, Mar. 29). These are the World’s Top 10 Bitcoin-Friendly Countries. https://news.bitcoin.com/worlds-top-10-bitcoin-friendly-countries/Wile, R. (2017, Oct. 16). Julian Assange Says Wikileaks Has Made a 50,000% Return on Bitcoin. Here’s What That Means http://time.com/money/4983676/bitcoin-investment-return-julian-assange-wikileaks/Worstall, T. (2013, Apr. 14). Bitcoin Mining Is Not A Real World Environmental Disaster. https://www.forbes.com/sites/timworstall/2013/04/14/bitcoin-mining-is-not-a-real-world-environmental-disaster/Yuen, S. (2017, Sep. 20). US bank CEOs are likely ‘very afraid’ of bitcoin, says wealth advisor. https://www.cnbc.com/2017/09/20/us-bank-ceos-are-likely-very-afraid-of-bitcoin-says-wealth-advisor.html


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