{"id":2202,"date":"2015-05-27T23:03:43","date_gmt":"2015-05-27T23:03:43","guid":{"rendered":"https:\/\/courses.candelalearning.com\/masterybusiness1xngcxmaster\/?post_type=chapter&p=2202"},"modified":"2019-01-05T01:41:27","modified_gmt":"2019-01-05T01:41:27","slug":"gt","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wmintrobusiness\/chapter\/gt\/","title":{"raw":"Reading: Bitcoin","rendered":"Reading: Bitcoin"},"content":{"raw":"\"Different\r\n\r\nToday, there are more than seven hundred<\/i>\u00a0digital currencies in existence. Entering\u00a0the marketplace is undertaken by so many due to the low cost of entry and the profit opportunity. In 2014, the European Banking Authority defined virtual currency<\/b> as \"a digital representation of value that is neither issued by a central bank nor a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored, or traded electronically.\" The first and most widely known instance\u00a0of such\u00a0digital, virtual, or cryptocurrency is Bitcoin.\r\n

Bitcoin Background<\/h2>\r\nBitcoin, a peer-to-peer digital currency or cryptocurrency, operates without the involvement of traditional financial institutions, and it provides a direct digital alternative to physical currencies. Bitcoin transactions take place online directly between the buyer and seller, with each transaction having a unique encryption. Transactions are recorded on a decentralized public ledger available for network users to verify valid transactions. Special users on the network (\u201cminers\u201d) oversee this verification process. After verifying a block of transactions, miners are paid with twenty-five newly generated Bitcoins and the transactions are processed and approved; this is how the total number of Bitcoins grows. The number in circulation as of January 2015 was approximately 13.7 million, with the maximum set at 21 million. As of April 2015, their total value was $3 to $4 billion.\r\n\r\nGovernments worldwide generally do not yet see it and other digital currencies as a\u00a0destabilizing \u201cthreat,\u201d\u00a0and some scholars\u00a0have argued\u00a0that it may best be seen as a speculative investment. Bitcoin has certainly had its ups and downs:\u00a0As of April 1, 2015, its value stood at $242 per Bitcoin, after a January 14 low of $177 and a March 11 high of $296. The currency has also had a long run of troubles with hackers and fraud, most spectacularly in 2014 when the exchange Mt. Gox\u00a0declared bankruptcy\u00a0after Bitcoins worth $460 million at the time were\u00a0apparently stolen. Bitcoin\u2019s decentralized model and degree of anonymity have also raised concerns over its use in illegal money transfers, fueling potential illicit commerce across the \u201cdark Web\u201d and on\u00a0sites such as Silk Road.\r\n\r\nThe organization Bitcoin.org, meanwhile, touts the currency\u2019s potential for opening up a \u201cwhole new platform for innovation\u201d:\r\n\r\nhttps:\/\/youtu.be\/Gc2en3nHxA4\r\n

Advantages and Disadvantages<\/h2>\r\nA 2015 Congressional Research Service (CRS) report, \u201cBitcoin: Questions, Answers and Analysis of Legal Issues,<\/a> explores the following technical, functional, and legal issues associated with Bitcoin\u2014and, by extension, all virtual currencies.\r\n\r\nBitcoin advantages:\r\n
    \r\n \t
  • Lower transaction costs:\u00a0Because Bitcoin operates without a third-party intermediary, merchants are able to avoid the fees traditionally charged by payment systems such as credit cards.<\/li>\r\n \t
  • The possibility of increased privacy:\u00a0Bitcoin provides a heightened degree of privacy for purchases and transactions, though by the system\u2019s nature, a complete list of all transactions is forever recorded to each user\u2019s encrypted identity.<\/li>\r\n \t
  • Protection from inflation:\u00a0Since Bitcoin\u2019s circulation is not linked to currency or government regulation, it is not subject to standard inflation. However, it more than makes up for this in volatility.<\/li>\r\n<\/ul>\r\nBitcoin disadvantages:\r\n
      \r\n \t
    • Severe price volatility:\u00a0The value of a Bitcoin is determined by supply and demand and, as a result, can fluctuate rapidly. The value was as high as $1,100 in December 2013, then hit a low of $177 in January 2015. This extreme fluctuation is more characteristic of a commodity than a currency.<\/li>\r\n \t
    • Not legal tender:\u00a0Debtors are not required to accept it, and without any formal backing other than the computer program to which it is linked, Bitcoin can be seen as an \u201cunattractive vehicle\u201d for holding and accumulating wealth.<\/li>\r\n \t
    • Uncertain security against\u00a0theft and fraud:\u00a0While the counterfeiting of Bitcoins is allegedly impossible, the system has at times found itself vulnerable to large security breaches and cyberattacks. Most recently, Bitstamp, a large European Bitcoin exchange, lost 19,000 Bitcoins (valued at about $5 million) in a digital security breach. This follows the massive problems with Mt. Gox in 2014 and the collapse of\u00a0other exchanges\u00a0in 2011.<\/li>\r\n \t
    • Vulnerability of Bitcoin \u201cwallets\u201d:\u00a0Purchased or mined Bitcoins are stored in a\u00a0digital wallet\u00a0on the user\u2019s computer or mobile device, and digital keys can be lost, damaged, or stolen. Paper or offline storage is an option, but it's not always practiced.<\/li>\r\n<\/ul>\r\nFederal banking regulators have yet to issue guidance or regulations governing how banks are to deal with Bitcoins. In a\u00a0February 2014 statement, Federal Reserve chair Janet Yellen said: \u201cBitcoin is a payment innovation that\u2019s taking place outside the banking industry. . . . There\u2019s no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate.\u201d Some state financial authorities have taken steps to devise regulations, with\u00a0New York\u2019s Department of Financial Services\u00a0(NYDFS) in the lead.\r\n\r\nThe responsibility to oversee digital currency falls upon Congress. As of now, Congressional actions remain in the exploratory phase. <\/del> The tax code lacks clarity on how such currency should be treated: Is it digital currency, property, barter, or foreign currency? Early concerns have focused more on tackling consumer-protection issues than tax ambiguities, and as a result, the Consumer Financial Protection Bureau has become involved regarding questions related to Bitcoin.\r\n\r\nThe following video explains further some of the\u00a0gray areas in which this virtual currency is operating.\r\n\r\nhttps:\/\/youtu.be\/kqTJU7XNxwk\r\n\r\nWhether it's Bitcoin or another cryptocurrency, the fact that\u00a0more than seven hundred\u00a0of these unregulated digital currencies have emerged in just the last two years is just one more indication that consumers may be breaking off their longstanding love affair with traditional cash.","rendered":"

      \"Different<\/p>\n

      Today, there are more than seven hundred<\/i>\u00a0digital currencies in existence. Entering\u00a0the marketplace is undertaken by so many due to the low cost of entry and the profit opportunity. In 2014, the European Banking Authority defined virtual currency<\/b> as “a digital representation of value that is neither issued by a central bank nor a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored, or traded electronically.” The first and most widely known instance\u00a0of such\u00a0digital, virtual, or cryptocurrency is Bitcoin.<\/p>\n

      Bitcoin Background<\/h2>\n

      Bitcoin, a peer-to-peer digital currency or cryptocurrency, operates without the involvement of traditional financial institutions, and it provides a direct digital alternative to physical currencies. Bitcoin transactions take place online directly between the buyer and seller, with each transaction having a unique encryption. Transactions are recorded on a decentralized public ledger available for network users to verify valid transactions. Special users on the network (\u201cminers\u201d) oversee this verification process. After verifying a block of transactions, miners are paid with twenty-five newly generated Bitcoins and the transactions are processed and approved; this is how the total number of Bitcoins grows. The number in circulation as of January 2015 was approximately 13.7 million, with the maximum set at 21 million. As of April 2015, their total value was $3 to $4 billion.<\/p>\n

      Governments worldwide generally do not yet see it and other digital currencies as a\u00a0destabilizing \u201cthreat,\u201d\u00a0and some scholars\u00a0have argued\u00a0that it may best be seen as a speculative investment. Bitcoin has certainly had its ups and downs:\u00a0As of April 1, 2015, its value stood at $242 per Bitcoin, after a January 14 low of $177 and a March 11 high of $296. The currency has also had a long run of troubles with hackers and fraud, most spectacularly in 2014 when the exchange Mt. Gox\u00a0declared bankruptcy\u00a0after Bitcoins worth $460 million at the time were\u00a0apparently stolen. Bitcoin\u2019s decentralized model and degree of anonymity have also raised concerns over its use in illegal money transfers, fueling potential illicit commerce across the \u201cdark Web\u201d and on\u00a0sites such as Silk Road.<\/p>\n

      The organization Bitcoin.org, meanwhile, touts the currency\u2019s potential for opening up a \u201cwhole new platform for innovation\u201d:<\/p>\n