Bitcoin (Technology and UX Project) 1

Course: Digital Marketing Certificate

College: National College of Ireland

Module: Technology and User Experience

Lecturer: Dermot Bradfield

Project Title: Bitcoin

Authors: Shane Hickey

Barry Regan

John Torsney

Submission date: November 12th 2014

Bitcoin (Technology and UX Project) 2

1.0) Executive Summary

Summary of the Technology

2.0) Traditional Currency and Money

2.1) What is Bitcoin?

2.2) How does the Technology work?

2.3) Balances

2.4) Transactions, Public and Private Keys

2.5) Finite Supply

2.6) Processing Mining

2.7) Summary

The Current Uses of Bitcoin

3.0) Introduction: The Current Uses of Bitcoin

3.1) Acquiring Bitcoin

3.2) Storing Bitcoin

3.3) Making Purchases with Bitcoin

3.4) Investing in Bitcoin

3.5) Bitcoin and the Dark Web

3.6) Bitcoin in Ireland

Competition

4.0) Bitcoin Competition: An Introduction

4.1) Traditional Currencies as Competition

4.2) Other Crypto-currencies

4.3) Government/ Privately backed Crypto-currencies

4.4) Online Payment Systems as Competition

Bitcoin (Technology and UX Project) 3

The Future of Bitcoin

5.0) The Future of Bitcoin: An Introduction

5.1) Entrepreneurial Rubber Stamping

5.2) Governmental and International Institutional Backing

5.3) MasterCard and Patent Filing

5.4) Circle Bitcoin Bank and Mt. Gox

5.5) Don’t cry for me Argentina

5.6) Conclusion: The Future of Bitcoin, the 64,000 Bitcoin Question

Bibliography

Appendices

Appendix A

Appendix B

Bitcoin (Technology and UX Project) 4

1.0) Executive Summary

Bitcoin is in simple terms a digital currency. It was originally developed in 2009 by a pseudonymous

developer named Satoshi Nakamoto.

It is a decentralized peer to peer innovative payment network that is powered by its users with no

central authority, banks or middlemen.

Bitcoins are transferred directly from person to person via the internet without the need to go

through a bank or clearing house. This means there are no transaction fees.

The technology behind Bitcoin is open source whereby no one owns it. You can send, trade and

purchase Bitcoins from your computer, tablet, smartphone or other device to anyone in the world,

day or night. This means you can use them in every country, your account cannot be frozen and

there are no pre requisites or arbitrary limits (Bitcoin, 2014).

Before we explore the technology of Bitcoin and how it works, it is first worth exploring the concept

of traditional currency and how money works in today’s market place.

Bitcoin (Technology and UX Project) 5

Summary of the Technology

2.0) Traditional Currency and Money

According to the International Monetary Fund website (2014), money is something that holds value

over time, can be easily translated into prices and is widely accepted in exchange for goods or

services. Many different things have been used as money throughout history, among them gold and

silver. Money gradually took the place of the bartering system when commodities like precious

metals became more widely accepted as forms of payment. Because these commodities are rare,

they became more valuable.

Nowadays, we use paper as money which is commonly known as Fiat money. Fiat money is

materially worthless but has value simply because a nation collectively agrees to ascribe a value to it.

Once paper became the accepted form of currency globally Governments had to provide a

guarantee on the value because the paper itself was worthless. Countries control the printing of

money which directly affects the value of the money. As more is printed, each note is worth less.

Therefore, the Government limits the overall supply of money, meaning that the money becomes

more valuable (Gobry, 2013).

Chris Dunn in his video series on Bitcoin (2013) explores the concept of money further and lists four

properties that define what money is.

1. It needs to be divisible i.e. broken down into small amounts. 2. It has to be durable – it needs to be able to stand the test of time i.e. it won’t evaporate into

thin air. 3. It must be fungible. The Investopedia website (2014) refers to fungibility as “a good or

asset’s interchangeability with other individual’s goods or assets of the same type”. To give you an example, this is where one US dollar is equal to the value of another US dollar.

4. It has to be verifiable. You need to be able to verify that it is real and not counterfeit.

So how does Bitcoin compare to that of traditional currency and does it have any similarities or

significant differences?

In many ways Bitcoin is similar to traditional currencies. It is recognised and has value. It can be used

to buy things and its value can change according to market variables. Unlike most traditional

currencies, however, Bitcoin is not bound to an institution or country. It is not subject to authorities

Bitcoin (Technology and UX Project) 6

like banks or governments that are typically associated with other currencies. Despite its complex

technology Bitcoin is based on a simple idea – that people all over the world can exchange products,

services and credits freely, instantly and easily without the need for intermediary bodies like banks,

merchant accounts or payment gateways (Bit Trade Australia, 2014).

2.1) What is Bitcoin?

Bitcoin is an open source peer to peer digital payment network that offers an alternative to regular

bricks and mortar banking. Unlike traditional currency such as Dollars, Euros or Yen, Bitcoin is a

decentralised digital currency also commonly referred to as a crypto-currency (Ball, 2011). In simple

terms it is digital money being transferred and exchanged from person to person over the internet

with no central authority, bank or intermediaries involved. It is like electronic cash that you can use

to pay friends and merchants. Exchanges are made via wallet software rather than the traditional

wallet in your back pocket (Bitcoin, 2014). According to the We Use Coins website (2014), there are a

number of advantages with Bitcoin. The fees are much lower than online banking as you don’t have

to pay an intermediary. You can use them in every country, your account cannot be frozen and there

are no pre-requisites or arbitrary limits.

2.2) How does the technology work?

From a user perspective, Bitcoin is nothing more than a mobile app or computer programme that

provides a personal bitcoin wallet and allows a user to send and receive bitcoins with them.

The Bitcoin website (2014) breaks the technology down into three parts

Balances – the Block Chain

Transactions – Private Keys

Processing – Mining

Bitcoin (Technology and UX Project) 7

2.3) Balances

Until the invention of Bitcoin in 2009, online transactions always required a trusted third-party

intermediary. Jerry Brito and Andrea Castillo (2013) provide a nice example of this in action.

“If Alice wanted to send $100 to Bob over the internet, she would have to rely on a third party service like Paypal or MasterCard, Intermediaries like PayPal keep a ledger of the account holder’s balances. When Alice sends Bob $100, PayPal deducts the amount from her account and adds it to Bob’s account. Without such intermediaries, digital money could be spent twice. Imagine there are no intermediaries with ledgers and digital cash is simply a computer file, just as digital documents are computer files. Alice could send a $100 to Bob by attaching a money file to a message. But just as with email, sending an attachment does not remove it from one’s computer. Alice would retain a copy of the money file after she had sent it. She could then easily sell the same $100 to Charlie. In computer science this is known as the ‘double spending’ problem and until Bitcoin it could only be solved by employing a ledger-keeping trusted third-party” (Britto and Castillo, 2013).

Bitcoin has solved this double spending problem which is one of the reasons why it has gained so

much popularity. The way it does this is through its distributed peer to peer network which works

similarly to bit torrents.

Every transaction that occurs in the Bitcoin economy is registered in a public, distributed ledger,

which is called a block chain. Bitcoin protects against double spending by verifying each transaction

added to the block chain to ensure that the inputs for the transaction had not previously been spent.

In essence, the global peer-to-peer network takes the place of the intermediary (Ramzan, 2013)

In other words, the Bitcoin currency is controlled by the consensus of the market participants and to

reiterate no one person or one group controls the Bitcoin network. (Dunn, 2013)

Bitcoin (Technology and UX Project) 8

2.4) Transactions, Public Keys and Private Keys

According the Bitcoin.org website (2014), “a transaction is a transfer of value between Bitcoin

wallets that gets included in the block chain”. When a user wants to buy, sell and transfer Bitcoin

they are given a Bitcoin address. A Bitcoin address is the pairing of a public key and a private key. A

public key is a code you share with people to receive money and transfers. A private key is used to

protect Bitcoin user’s transactions. Essentially it is a secret number that allows Bitcoins to be spent

securely. This key is needed to spend and move available funds in your Bitcoin account. Private keys

can be kept on computer files and also if the code is short enough they can be printed on a piece of

paper.

“The private key acts as a digital signature during a transaction to verify the identity of the Bitcoin

user. The signature also prevents the transaction from being altered once it has been issued”

(Bitcoin, 2014).

The Bitzuma website (2014) provides valuable insights into the important role that Private Keys and

Public Keys play in the Bitcoin network.

“Imagine Alice wants to pay Bob 10 bitcoin (BTC). She begins by creating a transaction identifying Bob as the payee and 10 BTC as the amount to be transferred. Alice then broadcasts this transaction to all users of the Bitcoin network. In using this system, Alice faces two fundamental problems. First, she needs a way to identify both herself and Bob in the transaction. Alice can't employ a central authority such as a government registry or email provider because that would conflict with Bitcoin's decentralized, trustless nature. Second, Alice needs a way to prevent others from changing her transaction and forging transactions in her name. Bitcoin solves these problems through a system called public key cryptography. This system uses two pieces of information to authenticate messages. A public key identifies a sender or recipient, and can be distributed to others. A private key is used together with the public key to create an unforgeable message signature. The private key must be kept secret. Public and private keys are mathematically linked” (Bitzuma, 2014).

So in summary the public and private keys are designed to protect the security of Bitcoin users’

transactions.

Bitcoin (Technology and UX Project) 9

2.5) Finite Supply

Bitcoin was designed as an online currency and commodity that is deflationary by nature. It is

modelled on existing commodities such as gold. Therefore, the Bitcoin supply is finite. There will only

ever be 21 million bitcoins in circulation and it is believed that at the current rate of creation, the

final bitcoin will be mined in the year 2140 (Volastro, 2014). This maintains the value of the Bitcoin

currency.

2.6) Processing – Mining

The process of mining is to add authority, security and value to the Bitcoin network. Mining is how

new bitcoins are created. So how does Bitcoin achieve this and how does one mine Bitcoin?

The production of bitcoins is called mining with millions of dollars mined or exchanged electronically

each day. Every Bitcoin transaction is verified using an extremely complex algorithm and these

verifications are done by a large network of mining computers competing against each other

(Coindesk, 2014). When a miner successfully verifies a transaction, he or she is rewarded with a

small amount of bitcoin and can also receive a transaction fee. This is also how new bitcoins are

introduced into the system (Bitcoin, 2014).

According to the Bitcoin website;

“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 cryptography 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, 2014).

A considerable amount of mining is required to verify a block of transactions. This amount is

automatically generated by the network so that the bitcoins are always created at a predictable and

limited rate.

Bitcoin (Technology and UX Project) 10

The Bitcoin Wikipedia page states;

“Mining is intentionally designed to be resource intensive and difficult so that the number of blocks found each day remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block” (Wikipedia, 2014)

Your bitcoins are stored in your digital wallet similar to an online banking account. When you

purchase, transfer or exchange bitcoins an electronic signature is added. After a few minutes the

transaction is verified by a miner and permanently and anonymously stored in the network (Bitcoin,

2014).

2.7) Summary

The Bitcoin technology is highly complex and this section is very much an introduction to how the

technology works. Over the next number of sections we will provide a more detailed breakdown of

how to acquire bitcoins, how to make purchases with bitcoins, how to invest bitcoins, competitors to

Bitcoin and what future we see for Bitcoin.

Bitcoin (Technology and UX Project) 11

3.0) The current uses of Bitcoin: An Introduction

So you now understand the general concept of Bitcoin and how the technology works. In order to

see what you can do with Bitcoin we need to examine how you can acquire Bitcoin and then what

you can use Bitcoin for.

3.1) Acquiring Bitcoin

Chris Dunn deals with the first scenario in terms of the acquisition of Bitcoins. Essentially there are

three different ways to acquire Bitcoins (Dunn, 2013):

1) Buy (From a person or an Exchange) 2) Barter (Sell product or service for Bitcoins) 3) Mine (Run software to find Bitcoins)

Most people will not have the resources to set up as a merchant selling products or services just to

acquire bitcoins. Similarly, mining bitcoins requires expertise and very expensive software. Buying is

simplest and there are two routes to acquiring Bitcoins; to buy them from a person or from an

exchange.

Peer to Peer:

In order to make a peer to peer Bitcoin transaction you need to set up a Bitcoin wallet which will

allow you to digitally send and receive Bitcoin. As a working example if you want to buy .1 of a

Bitcoin from someone, remember it’s a highly divisible currency, you need to physically or digitally

pay them in real currency and give them your Bitcoin address. They will send the Bitcoin to your

wallet and then wait several minutes for the transaction to be verified by the Bitcoin miners.

Bitcoin (Technology and UX Project) 12

Purchase from an Exchange:

There are number of online Bitcoin exchanges such as Coinbase (US only) and Bitstamp

(Passport/Utility Bill required). They will typically charge in the region of 1% as a fee on the

transaction. So if you are purchasing €100 worth of Bitcoin you will pay €1 in commission to the

exchange (Weusecoins, 2014).

There is another exchange which is very popular in the US called localbitcoin.com where you can

arrange to meet Bitcoin sellers in your local area. For example you can search for sellers within a

certain postal code and arrange to meet them locally (Weusecoins, 2014). You can also find sellers of

Bitcoin on sites such as EBay but there are a number of security concerns when pursuing this option

(Sun, 2014).

3.2) Storing your Bitcoins.

Once you have Bitcoins you will need to store them somewhere and there are normally four types of

Bitcoin wallet (Dunn, 2014):

1) Software on local hard drive 2) Mobile 3) Hosted Online 4) Paper

3.3) Making purchases with Bitcoin

The next decision is what you are going to do with your Bitcoins. You can either spend Bitcoins or

you can use them as an investment. If spending, there are a number of retailers that are accepting

Bitcoins both online and offline.

Bitcoin has been making great strides in terms of receiving worldwide recognition and also

increasing numbers of high profile businesses are now set up to accept Bitcoin. These companies

include EBay, PayPal, WordPress, Expedia and Dell (Nasdaq, 2014).

Interestingly and in some ways unsurprisingly other companies to back Bitcoin include the Richard

Branson owned space travel company, Virgin Galactic (Virgin, 2014).

Bitcoin (Technology and UX Project) 13

3.4) Investing in Bitcoin

In terms of investing in Bitcoin one should take extreme precaution. Bitcoin has been a very volatile

crypto-currency. Since its 2009 introduction, Bitcoin has increased in value by over 10,000% and

there have been multiple price crashes of over 50% or more (Dunn, 2014).

The first bubble occurred in June 2011 when the price went from 50 cent to $32 and then crashed to

$2 over the course of a few months. In November 2013 the price went from $100 to $1242 dollars

and at time of writing, is trading at $325 (Forbes, 2013).

There have been some incredible stories regarding early investors in Bitcoin. In 2009 a Norwegian

man bought $27 worth of Bitcoin which was the equivalent of 5,000 Bitcoin. He did this as part of a

research project that he was writing on encryption. He then forgot about them until 2013 when

media coverage reminded him of Bitcoin. When he checked the value of his Bitcoin wallet he found

that his 5,000 Bitcoin has a value of $886,000 which allowed him to buy an apartment in a wealthy

suburb of Oslo (Gibbs, 2013).

Please see the Appendix A with charts from Bitcoincharts.com to see a graphical representation of

what has happened to the price of Bitcoin over the last four years.

3.5) Bitcoin and the Criminal Underworld

Given the anonymous nature of Bitcoin transactions it has been adopted as the new currency of the

criminal underworld. A detailed BBC documentary titled “Inside the Dark Web” highlighted how

criminals using Tor, free software for enabling online anonymity, and one of its online anonymous

marketplaces Silk Road were facilitating the sale and purchase of drugs.

The payment of these drugs was made in Bitcoin which given the anonymity of its users was a

perfect match (BBC, 2014). While the Silk Road website was eventually shut down and criminal

charges were brought against those involved this has tainted the public’s perception of Bitcoin.

Unfortunately given the anonymity of Bitcoin owners and their transactions Bitcoin will always be

very alluring currency to the criminal world.

Bitcoin (Technology and UX Project) 14

3.6) Bitcoin in Ireland

In Ireland, the very first Bitcoin ATM arrived in late 2013 and is located in the GSM solutions store in

Upper Abbey Street in Dublin (Irish Bitcoin Foundation, 2014). The Irish Bitcoin foundation also

provides a list of businesses that now accept Bitcoin and these range from bakeries and takeaways

to web design companies (Irish Bitcoin Foundation, 2014).

Bitcoin (Technology and UX Project) 15

4.0) Bitcoin Competition: An Introduction

Bitcoin is revolutionising two overlapping areas; traditional currency systems, and online payment

systems. As a decentralised crypto-currency, Bitcoin offers many advantages over traditional

currencies. These are listed above. However, as with so many emerging and disruptive technologies,

it is very far from being dominant or even secure in either area. Let’s look at currency first.

4.1) Traditional currencies as competition.

Traditional currencies are the world’s default system for trade and reserves. Over 6,000 years of

currency as a system has left it so embedded in our consciousness that it will take a seismic shift in

attitudes before bitcoin or any other crypto-currency becomes as universally understood and

trusted. This is not impossible (the move from barter to currency was a far greater leap of the

imagination). This does not need to be a long process. The increasingly rapid adaptation of disruptive

technologies is well documented. The rapid development of technology from the personal computer

to the smartphone has shown that we will adapt to new systems and will do so faster and less warily

with each new wave of technology. However we have never had so much of our personal wealth

riding on the right decision to adapt or not to adapt. This offers a natural brake to wholesale

adaptation of Bitcoin as a fully-fledged and globally recognised currency.

So where is Bitcoin in its journey towards its “tipping point “? We’re well past the early adopters,

through the mavens and tantalisingly close to widespread acceptance. The trick for Bitcoin is simply

that already achieved by traditional currencies – the stability and value of Bitcoin will be assured

when enough of us decide collectively that it is stable and valuable. Watch this space.

4.2) Alternative crypto-currencies.

There are many other crypto-currencies. Here are some of the most prominent;

Litecoin is Bitcoin’s closest competitor in terms of market valuation, $3.828 per litecoin vs. $325 per

bitcoin at time of writing (Plus500, 2014). The International Business Times (2014) points out that it

also has the advantage of offering faster transactions through more efficient mining.

Bitcoin (Technology and UX Project) 16

Peercoin has a valuation of $0.89 (Preev.com, 2014) but its unique selling point is not having a cap

on the number of coins that can be created. Its developers maintain an inflation rate of 1%

(International Business Times, 2014). Supporters claim this will ensure longevity and scalability as

the inflation balances devaluation by uncapped production of coins.

Freicoin has its unique properties too. Its use of proof-of-work blockchain is based on Bitcoin’s but it

levels a “demurrage fee” on those holding or hoarding the currency (IBT, 2014). The intention of this

demurrage fee is to ensure continuous circulation of currency, stimulating continuous investment

and upswing. The International Business Times (2014) explains that this is to sidestep the boom and

bust cycles caused by our current system.

Dogecoin is the joker in the pack. It was set up to poke fun at the whole “craze” but has become

incredibly popular. To mix metaphors, Dogecoin could be the dark horse of this race to global

acceptance as a full currency (Wilmoth, 2014). Valuations at time of writing show it at $0.2438

(Plus500, 2014), but this snapshot belies the fact that it has increased its value since January 2014

from a base of $0.000328 (International Business Times). This currency offers low barriers to entry,

low risk and has an aura of “fun” about it that might paradoxically see it overcome security and trust

issues for a large enough section of the public and embed itself as a currency globally.

4.3) Government/Privately backed crypto-currencies;

Many institutions and exchanges are easing the anxiety the public feels about getting involved in this

strange world of crypto-currency. Through tying it in with established financial instruments they can

offer the excitement of an entirely new currency with the safety of insurance against a catastrophic

crash. Circle is one such exchange. The Ecuadoran Government has announced a ban on Bitcoin and

all decentralised crypto-currencies as it brings in its own version, backed by the Ecuadoran Central

Bank. This hybrid could potentially be the strongest competitor and threat to Bitcoin and its

alternatives (Perry, 2014).

Bitcoin (Technology and UX Project) 17

4.4) Online payment systems;

While often compared to Bitcoin, the many varied payment systems available online are not a true

threat to Bitcoin as all offer centralised validation of your transactions through a banking system.

Apple Pay offers one touch validation through Near Field Communication (NFC) of your purchase

(Apple, 2014), Paypal offers a deeply embedded and well established system of online payments. It

looks increasingly cumbersome and outdated yet it is trustworthy and backed by the established

banking system. Stripe is making huge inroads into Paypal’s territory, but again services a different

requirement to Bitcoin. Rather than competition, Stripe has blogged an intriguing premise – the use

of Bitcoin as the “backend” to all financial transaction systems (Stripe, 2014).

Bitcoin (Technology and UX Project) 18

5.0) The Future of Bitcoin: An Introduction

In order to discuss the future of Bitcoin it is important to be balanced in our approach. There are a

number of reasons why Bitcoin should have a bright future such as the lack of transaction fees, the

ease of use and the support Bitcoin has received both commercially and institutionally. However,

there is also evidence to suggest that the future of Bitcoin may be overshadowed by a lack of

consumer confidence, security issues and the fact that its anonymity has been embraced by the

criminal underworld.

5.1) Entrepreneurial Rubber Stamping

The best way to start is with a quote from Bill Gates who regards Bitcoin as a “Technological Tour de

Force” (Igotbitcoin, 2013).

Other notable commentators on Bitcoin such as Google CEO Eric Schmidt have remarked “Bitcoin is

a remarkable cryptographic achievement and the ability to create something that is not duplicable in

the digital world has enormous value” (Epicenterbitcoin, 2014).

Notable business figures such as the Winkelvoss brothers, who famously won a $65 million

settlement from Facebook after claiming Mark Zuckerberg had robbed their idea of a Harvard social

network are firm believers and investors in Bitcoin. According to the Guardian they believe Bitcoin

can be even bigger than Facebook and are said to own 1% of all Bitcoin which has a current market

capitalisation in the region of $6 billion (Channer, 2014).

It must be noted though that not everyone is backing Bitcoin. Warren Buffet one of the world’s

richest men has labelled Bitcoin a mirage and many take the view that Bitcoin is a glorified Pyramid

scheme but we must also recognise that Bitcoin is officially recognised by a growing number of

International Governments and companies (Forbes, 2014).

Bitcoin (Technology and UX Project) 19

5.2) International Governmental Backing

The US has taken a relatively positive stance toward crypto-currencies and Bitcoin. In an interesting

twist of fate, the closure of the Silk Road site and resulting Bitcoin seizure has seemingly worked in

the favour of Bitcoin. The Wall Street Journal reported that when the United States Marshals office

auctioned off the seized bitcoins, the bidders included law firms and major hedge funds thus

inadvertently giving institutional and US Governmental support to Bitcoin (Forbes, 2014).

In the International community, opinion is divided. China’s Central Bank recently barred financial

institutions from handling Bitcoin transactions although private individuals are still allowed to trade

in Bitcoin (Bloomberg 2014). Russia has gone further and is drafting a proposal to ban Bitcoin being

exchanged into real money given its use by terrorists and criminals (Reuters, 2014).

On a more positive note Bitcoin has been recognised by Germany as private money, distinguishing it

from a foreign currency or E money, and that it can be used for trading and will be subject to tax

(CNBC, 2013). This is similar to the status that is has in the United Kingdom. For a full list of all

countries stance’s on Bitcoin please see the Appendix B.

5.3) Financial Institution Reaction

Many Financial Institutions though are now instigating research reports into Bitcoin and its

ramifications. PayPal’s acceptance of Bitcoin was a massive step forward for the crypto-currency and

Forbes have reported that MasterCard has filed for patent allowing them to accept other forms of

payment such as Bitcoin and in the same article the suggestion is that “Western Union, Gemalto and

Visa have also filed patents to support non-traditional currencies” (Forbes, 2014).

Bitcoin (Technology and UX Project) 20

5.4) Circle Bitcoin Bank and Mt. Gox

In September of 2014 a new Bitcoin bank was launched called Circle with the objective of competing

with PayPal. The company has raised $25 million from venture capitalists in Silicon Valley. Circle is a

graduate, like Dropbox and Stripe, of the Y Combinator accelerator programme for technology start-

ups. Their aim is to provide a level of professionalism which is not associated with Bitcoin (Hern,

2014). Clients will be able to deposit money from their own banks into Circle which will convert this

into Bitcoin. They are also attempting to alleviate investor fears, by fully insuring deposits.

Those fears escalated following the collapse of the Bitcoin exchange Mt. Gox, based in Tokyo, which

went bankrupt in February of 2014 when 850,000 Bitcoins went missing. At the time they had an

estimated value of $450 million. There was a suggestion that hackers were responsible for the

missing Bitcoins (Wikipedia, 2014).

5.5) Don’t cry for me Argentina

There are many really great advantages to Bitcoin and as to why we it may be a huge success. A real

life working example is an excellent way to demonstrate this. Let’s create a scenario where Sergio is

a self-employed business man in Buenos Aries. His life savings which have a value of 535,000

Argentinian Peso’s (€50,000) are in a savings account in Banco de la Nacion Argentina. Argentina has

experienced economic crashes and huge inflation wiping thousand from citizen’s savings. If Sergio

was to convert his Peso savings into Bitcoin he could arguably avoid the effects of Argentinian

monetary policy and protect the value of his savings.

Bitcoin has a number of advantages to our modern day currencies and their financially backed

institutions including the fact that you do not need to open a bank account in order to purchase

Bitcoin making it very appealing in developing countries.

A real world example of this was observed during the Cypriot Currency Crisis where consumers

fearing for the safety of their deposits in terms of the value being wiped from them and new taxes

being introduced turned to Bitcoin as an alternative to having their life savings in a government

backed currency (CNBC, 2013).

Bitcoin (Technology and UX Project) 21

5.6) Conclusion: The Future of Bitcoin, The 64,000 Bitcoin Question

This really is, if you pardon the pun, the 64,000 Bitcoin question. Opinion is divided across the

International Financial, Political and Technology communities. In order to best predict the future of

Bitcoin we have looked at some high profile entrepreneurs, governments and Institutions that have

made favourable comments and actions.

We must also say though that Bitcoin, much like the Internet has been dogged with issues about

how it can be abused by the more sinister aspects of society. Bitcoin can be used by criminals and

terrorists but these people still use bank accounts and modern day currency so why should we

blame Bitcoin and not the governments and institutions who fail to prosecute such activities.

The Bitcoin user experience and technology is highly complex. With the current Bitcoin interface, it is

difficult to navigate the various Bitcoin online purchase points and ultimately to buy bitcoins. We

would be concerned that a competitor such as Apple may be able to simplify the experience and

become the dominant player in the emerging digital currency market.

Many of the commentators featured in the documentary film “The Rise and Rise of Bitcoin” believe

that Bitcoin will have most success in the developing world where millions of people still have no

access to bank accounts and that the Bitcoin will foster trade and stimulate the economies in these

regions (The Rise and Rise of Bitcoin, 2014).

We think the biggest threat to Bitcoin are its own security issues but once this can be addressed this

digital currency which has no borders, no transaction fees, no government intervention and no time

delays has a very bright future with a capital B.

Bitcoin (Technology and UX Project) 22

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Appendices

Appendix A

Bitcoin (Technology and UX Project) 29

Appendix B