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   Executive SummaryBitcoin market capitalization has increased since June 2017 from 41 billion to 281 billion by December 2017. Recently, the rate of growth of market capitalization of bitcoin is impressive but also worrisome. Bitcoin possesses threat to the global economy and to the society. Loss of value overnight, use of bitcoins for funding of illegal activities in deep web marketplace, anonymous user/merchant identity, regulation by an algorithm, deflating nature of bitcoin with fixed limit the of 21 million bitcoins issuance by 2140 and irreversible bitcoin transactions put the global economy and the whole society at risk. Government and third-party financial institutes should create policies to serve the underneath need that is not suffered and that lead to the creation of the bitcoin. These policies should be made as quickly to limit the growing market capitalization of bitcoins to minimize the impact on the global economy and society.2.    Introduction”Money won’t create success, the freedom to make it will.

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– Nelson Mandela”This paper will try to understand the problem with the bitcoin and impact of cryptocurrencies on the society and the global economy that is the structural financial change that the bitcoin is pushing from present centralized regulated financial network to distributed financial network. There is symbolic, political and human resource implications of this problem that will be discussed. The paper will elaborate what bitcoin is, history of money as example to showcase the underneath need that lead to bitcoin, how bitcoin works, highlight the key indicator of bitcoin to demonstrate volatility of bitcoin and benchmark and valuation of bitcoin to understand the magnitude of impact, list some of the bitcoin theft to demonstrate security issues with bitcoin, barriers that bitcoin faces to become a mainstream currency, four frame analyses of bitcoin and recommendation that will minimize the risk that bitcoin possess for its user and global economy.3.    Problem DescriptionBitcoinBitcoin is the name of the digital currency traded online on a digital money ecosystem.

Unit of this digital currency is also called Bitcoins. Bitcoins are used to transfer value among the members in the bitcoin network. Bitcoin ecosystem is based on primarily on the internet, where its members communicate.

There are other mediums apart from the internet, available to host bitcoin network. Bitcoins can be transferred among members over their chosen network to conduct similar transactions that members would perform with traditional currencies. Transactional activities could vary from selling goods, lending money (credit line), sending money to people or organization. Bitcoins like traditional currencies can be traded for other currencies at specialized currency exchanges. Bitcoin is the most suitable and practical form of money available for the internet because it matches the properties of internet borderless and fast. Bitcoin, unlike the traditional currencies, is completely virtual. At present, there are no physical coins in circulation. Problem with the cryptocurrencies (the discussed example is bitcoin), is the structural financial change that the bitcoin is pushing from present centralized regulated financial network to distributed unregulated financial network.

There are symbolic, political and human resource implication also with this problem. To understand that better, we need to look into the history of money and go deeper into the actual meaning money or unit of money i.e. currency holds that is the power that money resonate.

Another aspect to understand the symbolic, political and human resource implication would be to the aspect of distributed unregulated financial network from the trust point of view.History of MoneyThe history of money goes back to 9000 BC or even earlier than that. During 9000 BC, bartering system was put in practice by early men who would barter goods that they had in excess of the goods they need. The need was the driver for the first claimed form of value exchange. During 1100 BC in China, small pieces of goods cast from bronze were used as a way to exchange value. This value exchange created the evolution of money from just the exchange of goods to the collection of value by gathering replicas of goods cast from bronze.One of the fascinating form of currency was écu de marc that was exchanged by the merchant bankers who were associated with the Italian Renaissance period.

The écu de marc helped the merchant bankers to take their businesses internationally. The Merchant bankers were mutually agreeing on the exchange rate and exchanging the bill of trade between different banks in different countries. Thus, leading to the creation of international exchange rate. The bill of trade was for the exchange of goods from selling Italian shoes to a buyer in Paris that resulted in value for the manufacturer and it was not limited to that it also created values for the bankers. During Italian resonance period, Monarchs in each region were tightly controlling their currency, and this wealth creation by merchant bankers threaten their power. The merchant bankers didn’t want power instead they used the private money to seal the deal with monarchs to generate more wealth. This example shows the correlation between money and power. Especially since the money transformed from good exchange to collectible currency (coins or paper bills).

Trust is the vital intangible connection that holds the cryptocurrencies existence between the community and the currency. The whole notion of the unregulated distributed form of digital cryptocurrency like bitcoin is the loss of trust from the third party (government & banks) involved in the exchange of value. The system on which digital cryptocurrencies stands is instilled on the fact that the decentralized computer program cannot fraud people. If the cryptocurrency (like bitcoin) want to become one of the mainstream currency, then the trust must be established between the users and the currency. The government can exercise the right of defunct the notes as it happened in India (for the purpose of restricting the shadow economy).

This could cause loss of trust and could open the window of cryptocurrencies, where there is no third party involved and users can trust that the money they have would maintain its value and power lies at their hands. Basically, Cryptocurrencies are trying to offer its users a financial ecosystem of trust.How Bitcoin works?Bitcoin, a cryptocurrency, has four main characteristics that resonate with its users. It is fast, peer to peer, unregulated and borderless. Let’s try to understand how bitcoin works.

To understand bitcoin financial system, we will assume a simplest one transaction like buying a book online with the merchant who accepts bitcoin. Both the user and the merchant must have an online wallet where the bitcoins will be stored. Users of bitcoin own keys that confirm their ownership of bitcoin in the bitcoin network. These keys provide the user the right to sign the transaction to gain the value and spend the value by transmitting to a new owner. These keys are stored in the owner’s digital wallet on their device (computer or mobile). The keys are the only action required for making the transaction and this gives power entirely to the owner without any third-party involvement. The transaction follows the process called mining that creates Bitcoin. Any member of the bitcoin network that has the device which runs the full bitcoin protocol stack, may operate as a miner.

Miners perform two main task that are verification and recording of the transaction using their device computing power. The Bitcoin protocol contains built-in algorithms that control the mining function on the bitcoin network. As soon as the transaction is made, it will be broadcasted on the bitcoin network where there are miners (members of bitcoin network) present. Once the transaction is broadcasted then the miners package the transaction along with other miners in order to contend for the bid. These miners are given incentives in form of bitcoins.

Selection criteria for winning the bid is to solve the complex mathematical problem which requires high computing capacity. The difficulty of the mathematical problem is increasing proportionally to the increasing transactions. The Miner that wins the bid seals the package and broadcast the proof of work.

This proof of work is authenticated by other miners present in the bitcoin network. Once the proof of work is declared authenticated then the block becomes the part of the chain of blocks that become the unbreakable record of activity.The bitcoin protocol dynamically adjusts the difficulty of the mathematical problem that is still increasing in complexity so that every 10 minutes a miner succeeds regardless of how many miners are bidding. The bitcoin protocol also halves the rate with which the bitcoins are created every four years and the protocol also provides a fixed limit to the creation of the total number of bitcoins just below 21 million coins.  Due to this fixed limit, bitcoins follow a diminishing rate of issuance over the long term and makes bitcoin currency deflationary. Furthermore, the bitcoin currency cannot be inflated as it is regulated by the algorithm above and beyond the issuance rate.

Bitcoin currency consists of the distributed peer to peer network with consensus rule of validation. Bitcoin Wallets (Antonopoulos, 2016) can be listed as per the platform the application is made available. Here are some of the examples of the wallets: Desktop Wallet, Mobile Wallet, Web wallet, Hardware wallet and Paper wallet.

The most important part of the bitcoin wallet is the bitcoin address. Bitcoin addresses usually start with 1 or 3. For example, email user id can be treated as the address of the user but unlike email, the bitcoin address can be changed as many times as per user choice. A wallet comprises the list of addresses and the keys that verify the ownership and enable the transaction. The bitcoin currency acts as a cash currency. Unlike credit cards, bitcoin transactions are irreversible. This increase the risk on the buyer sides where it would be hard to identify the seller as a legitimate seller.

Bitcoin Market Data To understand the current state of bitcoin ecosystem and bitcoin valuation, we need to look at some facts about the bitcoin’s market price, Average Block Size, Mempool Size and Transaction per day. Data has been extracted from (Blockchain, 2017) Figure 7 Bitcoins in Circulation  Figure 8 Bitcoin Market Price in USDAs of 13th December 2017, there were 16,739 thousand bitcoins in circulations. Since 31st Jan 2017, there were 603 thousand bitcoins created. The Market price of the bitcoins fluctuate and since 1st Dec 2017 to 13th Dec 2017the value of bitcoin moved from 10884 to 16808. The trend can be seen from the figure below  Figure 9 Bitcoin’s Market CapitalizationThe market capitalization for bitcoin is 281 Billion as of 13th Dec 2017.

The trend of market capitalization going towards a steep increase. The amount of coins that are created is not less but the value of bitcoins keeps fluctuating bringing instability in bitcoin network. In June 2017, the market capitalization was 41 billion only. Figure 10 Bitcoin’s BenchmarkThe figure 10 (Raul, 2017)gives the benchmark of bitcoin value to other currency’s value and even people’s net worth. Bill Gates’s net worth is twice the bitcoin value and gold market which is considered the most stable asset to invest in is 200 times the total value of bitcoin.

Keeping the benchmark in mind and the rate with which the bitcoin market capitalization is increasing, Bitcoin value soon will overtake the gold market. Bitcoin Theft IncidentsBitcoin has been in news lately and it was not because of the increasing market capitalization rate but it was because of the bitcoin theft incidents.  Let’s look at the history of theft and bitcoin fraud since 2011 (LEE, TIMOTHY B., 2017).

In June 2011, bitcoin’s user lost 25,000 bitcoins worth $500,000 to hackers and in August 2011, Wallet service named “MyBItcoins” disappeared from the web and this made bitcoin community loss trust on online wallet services that claim to secure bitcoins on behalf of users. In March 2012, Hackers stole 46,703 bitcoins worth $200,000 and 43,000 of these 46,703 were stolen from bitconia, an early bitcoin exchange. Bitcoin network was shocked by the loss of 850,000 bitcoins worth $450 million. The victim of this theft was the one of biggest bitcoin exchange Mt.

Gox.In January 2015, another bitcoin exchange named Bitstamp was hacked and 19,000 coins worth $5 million were lost. In August 2016, another exchange lost 120,000 bitcoins worth $ 77 million to hackers. Most recently on 7th December 2017, the company named NiceHash became the victim of the bitcoin theft by hackers. Approximately 4700 bitcoins were stolen and they were worth 75$ million.

(LEE, TIMOTHY B., 2017)Bitcoin’s Barriers to becoming a mainstream currencyThere are several barriers that bitcoin has to cross over before it can be even considered for mainstream currency. These barriers are the fluctuation of bitcoin market price and the security of the currency. I have left trust out of the barriers which I think that it would be the most difficult task that bitcoin has to do. The fact the bitcoin is regulated by an algorithm shows that there is huge mistrust between third party and users. With technology advances, hackers are becoming more capable as technology advances that put bitcoin network on a huge risk. Bitcoin currency was initially created for the Deep Web black market which is managed on an underneath layer of the internet and the cryptocurrencies like bitcoin were used to transfer values for illegal activities.

Without regulation on cryptocurrencies like bitcoin, bitcoin will lead to increase in illegal activities that will make it even harder to gain trust from the society. One of the examples of the hidden digital market site was silk road that was Deep Web black market (Knight, 2014). Another fact that bitcoin transactions are like cash transaction i.e. irreversible put the users at a huge risk. Bitcoin’s users need to carefully analyze the risk associated with the merchant as it near to impossible to know the identity of the merchant that puts again user at high risk. Four Frame Analysis of BitcoinUnder the structural frame, Bitcoin financial ecosystem is pushing the distributed peer to peer financial system. There is peer to peer mobile payment application like M-pesa available but it is regulated by third party and transaction are recorded in centralized as with normal currency.

Bitcoin is removing regulation out of the picture from the financial system and distributing to people. Bitcoin bypasses all the fees that are imposed by the third party on users for making a transaction like spending money abroad. Under Political frame, the power has moved from third-party financial regulation institutes like governments, banks & credit card Issuance institutes and distributed to the users under the consensus rule of validation and of authentication.Under Human resources frame, the bitcoin’s users need to be technically aware of a lot of technical aspects to secure their currency especially in awake of bitcoin theft. Under Symbolic frame, the bitcoin represents the Conesus decision making demand of the bitcoin users and it is because of the loss of the trust between the users and the third party involved in the transaction. The bitcoin is the rebel from the government and other third party and a solution for those who don’t trust these third-party institute. 4.    RecommendationsThe government and third-party financial institutes have to serve the underneath need that leads to the creation of bitcoin and that is trust between the people and them.

Society is evolving at a much faster rate since the evolution of the internet. The public is more informed than it has ever been. Government and other third-party financial institutes need to evolve themselves alongside the society. Technology is advancing at a much faster rate and paving the path for the solution to simplify the life of people and serve needs that are not catered yet.

Technology is a tool that can be used in the development of a positive creation or of a negative creation of the solution that can risk global economy and fund illegal activities. Government and central banks have to come up with policies that will form the new financial structure that builds trust between people and centralized authorities. Third-party institutes (including government) policies have to change the deflating nature of the bitcoin currency and impose identification of the user as a mandatory step before to complete a transaction. The present structure has multiple fees and involves multiple parties and it leads to mistrust among people and third-party financial institutes. Third-party institutes (including government) has to monitor the bitcoin transactions that are distributed and sealed in blocks as the market capitalization of bitcoin is ever increasing and this put user’s money at risk and in turn the global economy at risk.

Government and third-party financial institutes should warn the people about the risk of using cryptocurrencies and the impact the bitcoin currencies can have on global economy when the huge amount of value is lost overnight by theft. Third-party institutes (including government) needs to gain accesses to the blockchain transaction and to the identity of merchants so as to minimize the risk that is associated with cryptocurrencies.  Figure 12 Key issues that the policies should fixBenefitsFirstly, if the Third-party institutes (including government) play an important role to curb the cryptocurrencies then that will allow 241 billion to return back to the mainstream financial market that will stabilize this value.  As the market price of bitcoin is highly volatile, the price can decrease below 50% of its value overnight so stabilizing the value of users is crucial. Secondly, it will allow stopping funding illegal activities as the transaction will be regulated and identity of users will not be anonymous.

Thirdly, the change from deflating nature to inflating which is current nature of all mainstream currencies would allow the currency to contribute to the economy and decrease the volatility of the bitcoin.  Fourthly, the change from irreversible transaction to reversible would be possible as the identification of merchant would be made mandatory before the transaction is made. Finally, this all would be possible when the society will trust more on government and third-party financial institute than an algorithm for regulation and the trust will eliminate the need for consensus validation by miners.5.

   ConclusionThe objective of this paper was to understand the impact of bitcoin, a cryptocurrency, on the global economy and on the society. The bitcoin currency is pushing the distributed consensus online financial system with increased risk to the global economy and society. These are the issues with the bitcoin currency that puts the global economy and the society at risk, Loss of value overnight, use of bitcoins for funding of illegal activities in deep web marketplace, anonymous user/merchant identity, regulation by an algorithm, deflating nature of bitcoin with fixed limit of 21 million bitcoins issuance by 2140 and irreversible bitcoin transactions. Third-party institutes (including government) has to take control of the online cryptocurrency and impose certain policies that fix the issues with the currency as highlighted above. Future works involve a lot of work in understanding how government can take control of cryptocurrencies and apply those policies and if after policies will there be the need for this online currency.  

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