Assignment

of
eCommerce
on
Bit Coin

Submitted By: Submitted To:

Nishedh Dhungana Mr. Nawaraj Paudel

MBAe A18
1) What is BitCoin ?

Bitcoin is a form of digital currency, created and held electronically. No one controls it.
Bitcoins aren't printed, like dollars or euros – they're produced by people, and increasingly
businesses, running computers all around the world, using software that solves
mathematical problems.

Bitcoin is an online payment system invented by Satoshi Nakamoto, who published his
invention in 2008, and released it as open-source software in 2009. The system is peer-to-
peer; users can transact directly without needing an intermediary. Transactions are
verified by network nodes and recorded in a public distributed ledger called the block
chain. The ledger uses its own unit of account, also called bitcoin. The system works
without a central repository or single administrator, which has led the US Treasury to
categorize it as a decentralized virtual currency. Bitcoin is often called the
first cryptocurrency, although prior systems existed. Bitcoin is more correctly described as
the first decentralized digital currency. It is the largest of its kind in terms of total market
value.

2) What makes it different from normal currencies?

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars,
euros, or yen, which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to
conventional money, is that it is decentralized. No single institution controls the bitcoin
network. This puts some people at ease, because it means that a large bank can’t control
their money.

3) What are its characteristics?

Bitcoin has several important features that set it apart from government-backed
currencies.

 It's decentralized
The bitcoin network isn’t controlled by one central authority. Every machine that mines
bitcoin and processes transactions makes up a part of the network, and the machines work
together. That means that, in theory, one central authority can’t tinker with monetary
policy and cause a meltdown – or simply decide to take people’s bitcoins away from them,
 as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the
network goes offline for some reason, the money keeps on flowing.

 It's 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 Kafkaesque task, beset by bureaucracy.
However, you can set up a bitcoin address in seconds, no questions asked, and with no fees
payable.

 It's anonymous
Well, kind of users can hold multiple bitcoin addresses, and they aren’t linked to names,
addresses, or other personally identifying information.

 It's completely transparent

Bitcoin stores details of every single transaction that ever happened in the network in a
huge version of a general ledger, called the blockchain. The blockchain tells all.
If we have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at
that address. They just don’t know that it’s yours.

There are measures that people can take to make their activities more opaque on the
bitcoin network, though, such as not using the same bitcoin addresses consistently, and not
transferring lots of bitcoin to a single address.

 Transaction fees are miniscule

Our bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.

 It’s fast
We can send money anywhere and it will arrive minutes later, as soon as the bitcoin
network processes the payment.

 It’s non-repudiable
When our bitcoins are sent, there’s no getting them back, unless the recipient returns them
to you. They’re gone forever.

So, bitcoin has a lot going for it, in theory. But how does it work, in practice? Read more to
find out how bitcoins are mined, what happens when a bitcoin transaction occurs, and how
the network keeps track of everything.
4) How does Bitcoin work?
Unlike traditional currencies, which are issued by central banks, Bitcoin has no central
monetary authority. Instead it is underpinned by a peer-to-peer computer network made
up of its users’ machines, akin to the networks that underpin BitTorrent, a file-sharing
system, and Skype, an audio, video and chat service. Bitcoins are mathematically generated
as the computers in this network execute difficult number-crunching tasks, a procedure
known as Bitcoin “mining”. The mathematics of the Bitcoin system were set up so that it
becomes progressively more difficult to “mine” Bitcoins over time, and the total number
that can ever be mined is limited to around 21m. There is therefore no way for a central
bank to issue a flood of new Bitcoins and devalue those already in circulation.
The entire network is used to monitor and verify both the creation of new Bitcoins through
mining, and the transfer of Bitcoins between users. A log is collectively maintained of all
transactions, with every new transaction broadcast across the Bitcoin network.
Participating machines communicate to create and agree on updates to the official log. This
process, which is computationally intensive, is in fact the process used to mine Bitcoins:
roughly every 10 minutes, a user whose updates to the log have been approved by the
network is awarded a fixed number (currently 25) of new Bitcoins. This has prompted
Bitcoin fans to build powerful computers, or even to hijack other people’s computers, for
use in Bitcoin mining.

Bitcoins (or fractions of Bitcoins known as satoshis) can be bought and sold in return for
traditional currency on several exchanges, and can also be directly transferred across the
internet from one user to another using appropriate software. This makes Bitcoin a
potentially attractive currency in which to settle international transactions, without
messing around with bank charges or exchange rates. Some internet services (such as web
hosting and online gambling) can be paid for using Bitcoin. The complexity and opacity of
the system means it also appeals to those with more nefarious purposes in mind, such as
money laundering or paying for illegal drugs. But most people will be reluctant to adopt
Bitcoin while the software required to use it remains so complex, and the value of an
individual Bitcoin is so volatile. Just as BitTorrent was not the first file-sharing service and
Skype was not the first voice-over-internet service, it may be that Bitcoin will be a pioneer
in the field of virtual currencies, but will be overshadowed by an easier-to-use rival.
5) What are the Advantages and Disadvantages of Bitcoin?

Bitcoin Advantages:

Freedom in Payment

 With Bitcoin it is very possible to be able to send and get money anywhere in the world
at any given time.
 You don’t have to worry about crossing borders, rescheduling for bank holidays, or any
other limitations one might think will occur when transferring money.
 You are in control of your money with Bitcoin. There is no central authority figure in the
Bitcoin network.

Control and Security
 Allowing users to be in control of their transactions help keep Bitcoin safe for the
network.
 Merchants cannot charge extra fees on anything without being noticed. They must talk
with the consumer before adding any charges.
 Payments in Bitcoin can be made and finalized without one’s personal information being
tied to the transactions.
 Due to the fact that personal information is kept hidden from prying eyes, Bitcoin
protects against identity theft.
 Bitcoin can be backed up and encrypted to ensure the safety of your money.

Information is Transparent
 With the block chain, all finalized transactions are available for everyone to see,
however personal information is hidden.
 Your public address is what is visible; however, your personal information is not tied to
this.
 Anyone at anytime can verify transactions in the Bitcoin block chain.
 Bitcoin protocol cannot be manipulated by any person, organization, or government.
This is due to Bitcoin being cryptographically secure.
Very Low Fees
 Currently there are either no fees, or very low fees within Bitcoin payments.
 With transactions, users might include fees in order to process the transactions faster.
The higher the fee, the more priority it gets within the network and the quicker it gets
processed.
 Digital Currency exchanges help merchant process transactions by converting bitcoins
into fiat currency. These services generally have lower fees than credit cards and PayPal.

Fewer Risks for Merchants

 Due to the fact that Bitcoin transactions cannot be reversed, do not carry with them
personal information, and are secure, merchants are protected from potential losses
that might occur from fraud.
 With Bitcoin, merchants are able to do business where crime rates and fraud rates may
be high. This is because it is very hard to cheat or con anyone in Bitcoin due to the public
ledger, otherwise known as the block chain.

Bitcoin Disadvantages:

Lack of Awareness & Understanding

 Fact is many people are still unaware of digital currencies and Bitcoin.
 People need to be educated about Bitcoin to be able to apply it to their lives.
 Networking is a must to spread the word on Bitcoin.
 Businesses are accepting bitcoins because of the advantages, but the list is relatively
small compared to physical currencies.
 Companies like Tigerdirect and Overstock accepting Bitcoin as payment is great.
However, if they do not have a knowledgeable staff that understands digital currencies,
how will they help customers understand and use Bitcoin for transactions?
 The workers need to be educated on Bitcoin so that they can help the customers. This
will definitely take some time and effort. Otherwise, what is the benefit of such large
companies accepting Bitcoin if its staff doesn’t even know what digital currencies are?

Risk and Volatility

 Bitcoin has volatility mainly due to the fact that there is a limited amount of coins and
the demand for them increases by each passing day.
 However, it is expected that the volatility will decrease as more time goes on.
 As more businesses, medias, and trading centers begin to accept Bitcoin, its’ price will
eventually settle down.
 Currently, Bitcoin’s price bounces everyday mainly due to current events that are
related to digital currencies.

Still Developing
 Bitcoin is still at its infancy stage with incomplete features that are in development.
 To make the digital currency more secure and accessible, new features, tools, and
services are currently being developed.
 Bitcoin has some growth to do before it comes to its full and final potential.
 This is because Bitcoin is just starting out, and it needs to work out its problems just like
how any currency in its beginning stage would need to.