Evaluating Bitcoin: A Detailed Analysis of Cryptocurrency Systems

This report provides a comprehensive analysis of Bitcoin, a decentralized digital currency. It explores Bitcoin's operational mechanisms, including its peer-to-peer technology and the absence of a central authority. The report discusses the advantages of Bitcoin, such as low transaction fees and the ability to conduct cross-border transactions, while also addressing its limitations, including limited acceptance and security risks. The analysis also covers the perspectives of various governments on Bitcoin, including their approaches to regulation and the concerns related to its use in illicit activities like money laundering. The report further examines the challenges faced by financial institutions in adopting Bitcoin and the need for policies to facilitate its mainstream acceptance. Overall, the report offers a detailed overview of Bitcoin's complexities and its impact on the financial landscape.

Running head: INTRODUCTION TO BIT COIN
Introduction to Bit coin
Name of the Student:
Name of University:
Author note:

1INTRODUCTION TO BIT COIN
Question 3
In the given scenario Darren who is interested in the mechanism of Crypto currency
such as the Bit coin wants to analyses the procedure and its pros and cons. The current
discussion deals with the evaluation of bit coin.
Solution 1
The Bit coin is a crypto currency and a worldwide decentralized digital currency
mechanism that can be operated without the involvement of the bank or a single
administrator. The Bit coin unlike the physical currency like the dollars and euros. There is
the rise in the growth in the bit coins among the current markets. The bit coins uses the peer
to peer technology for the digital process of transaction (Cheung, Roca and Su 2015). The
important benefit of bit coin is that does not involve any third party and the purchases are not
taxed. In addition to that the transaction fees are very low with the help of mobile payments.
However there are limitation pointed in the process of bit coin is that the there is a limited
acceptance in the global reserve currency and the balances of bit coin are not insured.
The risks that are attached to the system of bit coin is that they are not highly
secured, there is a tendency of having the risk of hacking where valuable information
regarding the financial matters can be lost (Narayanan et al. 2016).
Solution 2
Digital currencies are replacing the traditional cash currencies. When it comes to bit
coin, whether or not it should be considered as an investment money, the various risks are to
be analyzed. The Digital currency sanctions users to stay anonymous when making the
transactions (Tschorsch and Scheuermann 2016). Moreover to be a decentralized crypto
currency with no central authority detached from any government, bit coin is also a peer-to-

2INTRODUCTION TO BIT COIN
peer prodecdure of payment (Bonneau et al. 2015). As such, it deals a suitable way to
execute the cross-border transactions by having virtually no transaction costs or exchange
rate fees.
Solution 3
The point that bit coin can be namelessly used to implement the transactions between
the users, globally, makes it tremendously attractive to conduct activities that are crime this
includes money laundering (Garay, Kiayias and Leonardos 2015). Therefore the governments
blame the digital currencies for being a device for criminals to transact unlawful goods like
weapons or drugs.
The Australian government allows the businesses to transact, sell, or buy the bit coin.
The Australian Taxation Office (ATO) takes in hand bit coin transactions arrangement that
are subject to appropriate taxes that depends upon the use and user (Dwyer 2015).
The other government’s notions about Bit coin is the government of the United
States have taken a positive approach towards bit coin. At the same time, it has several
government agencies working on preventing or reducing the use of bit coin for the
transactions that are unlawful.
The. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) in
the United States has been provides guidance on bit coin. It has stated bit coin as not just
currency, but as a money services business (MSB). While concept of bit coin is tolerated
widely in some parts of the globe, there exists many countries who has an unfriendly attitude
towards the bit coin due to volatile and decentralized nature, perceived threat to the current
monetary system, and link to illicit activities like drug dealing and money laundering (Gipp,

3INTRODUCTION TO BIT COIN
Meuschke and Gernandt 2015). Some of these nations have banned Bit coin while others
have been trying to smother any support from the banking and financial industry.
Solution 4
In some financial institutions the mechanism of bit coin is widely tolerated. However,
there very less institutions who have an unfriendly approach towards bit coin mainly because
of its volatility, decentralized nature, perceived threat to the current monetary system, and
link to illicit activities like drug dealing and money laundering. Some of these nations have
banned Bit coin while others have been trying to suffocate any support from the banking and
financial industry (Böhme et al. 2015). Moreover, there are tax issues that lead to problem for
the financial institutions to assess.
The main concept lies that the bit coin along with the overall digital currency concept
is still very much in its initial stage, and several problems need to be solved by financial
institutions before bit coin achieves mainstream adoption as a form of currency. It is also
necessary figure out that this is not an exhaustive list, there exists are other challenges faced
by the financial institutions in the countries regarding bit coin (Eyal et al., 2016). For instance
it can be said that there exist always the persistent threat of government regulation that could
render bit coin illegal in certain areas of the world.
However, the approach of the financial institutions regarding the problems faced by
bit coin can be solved and the recent news involving Square Cash is certainly the right step.
The financial institutions must be aware that it will take consuming for the general public to
accept the bit coin as an acceptable currency (Narayanan et al. 2016). Therefore, they should
start implementing various policies in this matter to make the process faster.

4INTRODUCTION TO BIT COIN

5INTRODUCTION TO BIT COIN
References
Böhme, R., Christin, N., Edelman, B. and Moore, T., 2015. Bitcoin: Economics, technology,
and governance. Journal of Economic Perspectives, 29(2), pp.213-38.
Bonneau, J., Miller, A., Clark, J., Narayanan, A., Kroll, J.A. and Felten, E.W., 2015, May.
Sok: Research perspectives and challenges for bitcoin and cryptocurrencies. In Security and
Privacy (SP), 2015 IEEE Symposium on (pp. 104-121). IEEE.
Cheung, A., Roca, E. and Su, J.J., 2015. Crypto-currency bubbles: an application of the
Phillips–Shi–Yu (2013) methodology on Mt. Gox bitcoin prices. Applied Economics, 47(23),
pp.2348-2358.
Eyal, I., Gencer, A.E., Sirer, E.G. and Van Renesse, R., 2016, March. Bitcoin-NG: A
Scalable Blockchain Protocol. In NSDI(pp. 45-59).
Garay, J., Kiayias, A. and Leonardos, N., 2015, April. The bitcoin backbone protocol:
Analysis and applications. In Annual International Conference on the Theory and
Applications of Cryptographic Techniques (pp. 281-310). Springer, Berlin, Heidelberg.
Gipp, B., Meuschke, N. and Gernandt, A., 2015. Decentralized trusted timestamping using
the crypto currency bitcoin. arXiv preprint arXiv:1502.04015.
Narayanan, A., Bonneau, J., Felten, E., Miller, A. and Goldfeder, S., 2016. Bitcoin and
Cryptocurrency Technologies: A Comprehensive Introduction. Princeton University Press.
Tschorsch, F. and Scheuermann, B., 2016. Bitcoin and beyond: A technical survey on
decentralized digital currencies. IEEE Communications Surveys & Tutorials, 18(3), pp.2084-
2123.

6INTRODUCTION TO BIT COIN
Dwyer, G.P., 2015. The economics of Bitcoin and similar private digital currencies. Journal
of Financial Stability, 17, pp.81-91.
Narayanan, A., Bonneau, J., Felten, E., Miller, A. and Goldfeder, S., 2016. Bitcoin and
cryptocurrency technologies.