Prepared by - Lovey Jain

College - RGNCLC (NLIU,Bhopal)

Course - MSCLIS

Presented at - Cyber Crime Cell, Gurgaon

1 Study on Bitcoin

• How did Bitcoins get started?

• What is Bitcoin?

• Basic Terminologies

• The Basic Mechanism

• What is it based on?

• What is the Vision of Bitcoins?

• The Technology Behind Bitcoins?

• Uses of Bitcoin

• Who Sells Bitcoins?

• Bitcoin Issues - Legality

• Who Accepts Bitcoin ?

• Comparison to US Dollar

• Will Bitcoin Succeed?

• Conclusion

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• In 31 October 2008, a technical paper was posted on the internet by

Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System.

• It described a system of cryptocurrency that was not backed by any

government or any form of existing currency.

• It is software-based online payment system described by Satoshi

Nakamoto in 2008 and released as open-source software in 2009

(Interestingly, this person is pseudonymn - his name is conjectured to be

fake by some, and who has not been heard from since April 2011)

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• Bitcoin is a form of digital currency (physical form is absent), created

and held electronically. It can be used to buy things electronically and

in that sense we can say that it is no different than conventional

dollars.

• Bitcoin is commonly referred to as cryptocurrency and it can be

divided into smaller unit called Satoshi (one hundred milionth ie. 108

of a BTC).

• Protected by strong encryption (that’s why it is also called as

cryptoCurrency). People who transmit the transactions are called

miners.

• The system is peer-to-peer and transactions take place between

users directly, without an intermediary.

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• The block chain is a public ledger (a book or other collection of

financial accounts) that records bitcoin transactions.

• The bitcoin transactions are verified by network nodes and recorded in

a public distributed ledger known as the block chain, which uses

bitcoin as its unit of account.

• The block chain is like a distributed database

• Approximately six times per hour, a new group of accepted

transactions, a block, is created, added to the block chain, and quickly

published to all nodes.

.

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• Bitcoins are created as a reward for payment processing work in which

users offer their computing power to verify and record payments into a

public ledger. This activity is called mining .

• Miners are rewarded with transaction fees and newly created bitcoins.

• Mining is a record-keeping service. Miners keep the block chain

consistent, complete, and unalterable by repeatedly verifying and

collecting newly broadcast transactions into a new group of transactions

called a block.

• Each block contains a cryptographic hash of the previous block, using

the SHA-256 hashing algorithm, which "chains" it to the previous block

thus giving the block chain its name

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• A wallet stores the information necessary to transact bitcoins.

• The best way to describe a wallet is something that "stores the

digital credentials for your bitcoin holdings"] and allows you to

access (and spend) them.

• There is also wallet software for managing accounts and

transactions.

• Since Bitcoins are valuable, wallets should also be encrypted

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• Transactions are published to the Bitcoin P2P network.

• Miners compete to solve a proof-of-work problem on average every

10 minutes.

• The winning miner publishes a summary of recent transactions in a

block.

• Miners are rewarded with new coins for having published a valid

block.

• Blocks are linked to previous blocks, creating a block chain

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• System is runned by The Bitcoin protocol

• It is based on mathematics unlike conventional currencies that had

been based on fixed quantity of metal (gold, silver…) or fiat

currencies.

• Bitcoin has several features that set it apart from fiat currencies:

1. It is decentralized

2. It is easy to set up and it is fast

3. It is anonymous

4. It is completely transparent

5. Transaction fees are miniscule

6. Transactions are irreversible

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• Base for the Bitcoin protocol is a peer-to-peer system which means

that there is no need for a third party.

• Therefore, in theory, bitcoin network is not controled by central

authority (fully decentralized monetary system).

• Bitcoins are being created by a community of people that anyone can

join.

• In theory, there is no authority (financial institution) which can tinker

with monetary policy and in that sense devalue or revalue Bitcoin

currency.

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• Easy to set up: Conventional banks make you jump through hoops

simply to open a bank account. Setting up merchant accounts for

payment is another tough task, beset by bureaucracy. However, you

can set up a bitcoin address in seconds, no questions asked, and with

no fees payable.

• Anonymous: Users can hold multiple bitcoin addresses, and they

aren’t linked to names, addresses, or other personally identifying

information.

• Transaction fees are miniscule: Your bank may charge you a decent

transaction fee for international transfers. Bitcoin doesn’t.

• Fast: You can send money anywhere and it will arrive minutes later, as

soon as the bitcoin network processes the payment.

• Non-repudiable: When your bitcoins are sent, there’s no getting them

back, unless the recipient returns them to you. They’re gone forever.

• Bitcoins are intended to be most successful digital currency.

• Buyers and sellers will use them and it is intended to eliminate

all the middlemen such as credit cards, ATM machines, etc.

• Bitcoins will be safer than carrying a plastic card.

• Bitcoins will be an international currency with no exchange

transaction fees.

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• Hashing (double-SHA256)

• Dual key encryption (Elliptical Curve Digital Signature

Algorithm)

• Peer-To-Peer Networking (Similar to IRC , Internet Relay chat)

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To interact on the Bitcoin network users first need to download the

free and open-source software. Once connected to the network, there

are three ways to obtain Bitcoins:

• A user can exchange conventional money (e.g., dollars, yen, and

euros) for a fee on an online exchange (e.g., Okcoin). The exchange

fee falls with the size of the transaction, ranging from 0.5% for

small transactions down to 0.2% for large transactions.

• A user can obtain Bitcoins in exchange for the sale of goods or

services, as when a merchant accepts Bitcoin from a buyer for the

sale of his product.

• A user can acquire new Bitcoins by serving as miner and applying

his or her computer’s processing power to successfully verify the

validity of new network transactions.

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• Convenient online purchases

• Tips and donations

• Transactions that must be irreversible

• When information is transferred

• When an irreversible action is performed

• Black-market transactions

• A store of value

• Investment

• Gambling

• International transactions and financing

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• Bitcoins are like diamonds or gold – no intrinsic value.

• As more people want to buy Bitcoins, sellers will charge

more.

• No rules, regulations or oversight.

• Speculators who think Bitcoins will be successful, buy as

many as they can and hold them price appreciation.

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• Larger Buyers go to Exchanges, An Exchange is a website with

significant software and funding.

• Exchanges act as a clearing house to match buyers and sellers

similar to Stock Exchanges. They keep a very small transaction

fee for each trade.

• There are at least 21 Bitcoin Exchanges in the U.S. alone. Mt

Gox (Magic The Gathering Online eXchange) was one of the

largest exchanges and was located in Japan

• Zebpay, an app-enabled bitcoin mobile wallet, earlier provided

for just trading of the currency. This June it entered the payment

sphere; its users can now buy vouchers of Amazon, Flipkart,

Freecharge, Bookmyshow and Makemytrip. 17 Study on Bitcoin

• Many small Dealers want to make money selling Bitcoin to

individuals who use them for e-commerce.

• The Dealer will withdraw Bitcoins from their account at an

Exchange and sell them to you.

• You can buy any fraction of a coin you wish. There is no “round

amount.”

• Search for local Bitcoin sellers and you will get the current prices

from each.

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• ATM’s that sell Bitcoin are in a very few locations.

• First one was in Texas in a gun store.

• Bitcoin ATM’s only take cash.

• They only sell Bitcoin, you can’t convert Bitcoin to cash.

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• Currently there are 60,000 to 70,000 Bitcoin transactions

each day

• The level hasn’t changed significantly in the last year.

• You can Log in to Blockchain.info to see the transaction

activity.

• 1 Bitcoin equals 751.00 US Dollar (50595.70 Indian

Rupee). It keeps on fluctuating according to the markets

condition.

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PERMISSIVE

CONTROVERSIAL

HOSTILE

UNKNOWN

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• In June 2013, the RBI issued a notice acknowledging that virtual

currencies posed legal, regulatory and operational challenges.

• On 24 December 2013, the Reserve Bank of India issued an

advisory to the Indian public to be cautious in buying or selling of

virtual currencies, including bitcoin. Following the announcement

bitcoin operators in the country began suspending operations.

• The first raid in India was undertaken a couple of days later

in Ahmedabad by the Enforcement Directorate (ED) on the office

of the website, buysellbit.co.in, that provided a platform to trade in

this virtual currency. The preliminary investigations found it to be

in violation of the Foreign Exchange Management Act (FEMA).

• On 28 December 2013, the Deputy Governor of the RBI, K. C.

Chakrabarty, made a statement that RBI had no plans to regulate

bitcoin.

• Russia was first to outlaw Bitcoin transactions

• They have enough corruption without Bitcoin

• China is restricting it use

• Too much speculation

• Korea outlaws it’s use – claims it’s not a legitimate

currency

• Thailand shutdown the Bitcoin exchange in their country.

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• Largest Exchange, Mt Gox (Magic The Gathering Online

eXchange) in Japan just went bankrupt

• Hackers were siphoning off their Bitcoins

• They lost $450 million dollars

• Account holders are the real losers

• Electronic Wallets

• Many websites have created “secure” electronic wallets for

you.

• There are Wallets for Windows, Mac, iPhone, and Android

• Some “Wallets” deduct a small fee for every transaction

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• Thousands of online merchants such as:

• Pirate Bay – Online sharing site for questionable materials.

• OKCupid – Online dating site

• Overstock.com – Sells clearance merchandise

• TigerDirect.com – Major electronics retailer

• 50,000 Retail stores (and counting) accept Bitcoin

• Hotels in Las Vegas

• Gift Cards for GAP, Lowes, Burger King, etc.

• Mostly small merchants who want to increase traffic

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1. Since value of a bitcoin fluctuates, one can generate net income

selling them at the higher price than the original purchase price.

2. If they are received by merchants as payment for goods and

services.

3. Bitcoins obtained through mining activities are a subject of

standard income taxation.

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US Dollar (Cash)

*Backed by United States?

*Controlled by US

*Primarily US-only

*Created by government

*Hard to steal by hackers

*Hard to transmit

*Hard to trace

*Non-refundable

*Used for crime

Bitcoin

*Backed only by other users

*Controlled by users

* International

*Created based on work done

*Easier to steal by hackers

*Easy to transmit

*Hard to trace

*Non-refundable

*Used for crime

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• Digital currency makes a lot of sense.

• It could eliminate a lot of middle man costs (credit cards,

wire fees, etc.)

• It could be extremely easy to use

• It could eliminate billions of dollars in credit card fraud and

identity theft.

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ADVANTAGES

* It is easy to set up and it is

fast

*Low and irreversible

transaction fees

*Without central authority

*Decentralized

*It is anonymous

*It is completely

transparent

DISADVANTAGES

*New and uninvestigated financial product

*Absence of relevant theoretical background

*Highly volatile value and an unknown issuer

*Unclear legal status

*Unregulated commodity and absence of

consumer protection

* Illegal or undefined in most countries of the

world

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• Bitcoin has received more adoption and popularity than any

other digital currency proposed date.

• Currently, Bitcoin holds the largest market share amongst

all existing digital currencies (eg. BlackCoin, DigitalNote,

Mastercoin, Primecoin etc), with a market cap exceeding 3

billion USD.

• Bitcoin has emerged as the most successful cryptographic

currency in history.

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• Bitcoin.org – The Bitcoin Foundation

• Bitcoin Wiki

• Bitcoin Forums

• Reddit Bitcoin

• Bitcoinity.org – Pretty real-time charts

• blockchain.info

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Thank you for your attention!

Questions, comments or remarks?

Study on Bitcoin