Bitcoin Price and Volatility

1560 Words4 Pages

I. Introduction

The bitcoin currency was created in the midst of the financial crisis of 2008-2009, as an experiment and political statement against the global government and central banks’ ability to manage monetary policy. Bitcoin is a digital currency based on an open-source, peer-to-peer internet communications protocol. The goal of the system was to create a private global traded currency without the need for third parties to guarantee transactions. The backbone of the bitcoin system is the decentralized blockchain, or the public register of all transactions that are verified by the network. The reason for the blockchain is to prevent the problem of “double spending” that past attempts at pure digital currencies failed. Additionally, the blockchain of the system controls the money supply of bitcoins, which are rewarded to “miners” or individuals who use their computers to verify transactions on the network, while they attempt to solve a time-extensive math algorithm that is hard to find a solution to, but once found is very easily verified (computer speak known as “hashing”). A mine who finds a solution to the algorithm creates the next block in the blockchain, which is verified by the network as a “true” solution to the algorithm. From then, that block records transactions for the time period until the next block is found, which at the current difficulty of the network is about 10 minutes. For finding a verified block, the miner is awarded a set amount of BTC or bitcoins (currently 25), which decreases over time, until all 22 million bitcoins are mined.

Figure 1. Expected total quantity of Bitcoins over time (2009-2033), measured in millions. Source: Blockchain.info

Another more economical characteristic of bit...

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...tious of shocks, good or bad, in bitcoins price when making investment or purchasing decisions with the currency.

V. References

1. Buchholz, Martis, Jess Delaney, and Joseph Warren. April 2012. “Bits and Bets: Information, Price Volatility, and Demand for Bitcoin.”

2. Šurda, Peter. 2012. “Economics of Bitcoin: is Bitcoin an alternative to fiat currencies and gold?” WU Vienna University of Economics and Business.

3. Cozmei, Cătălina, and Florentin Caloian. April 2012. “The Bitcoin Economy, an Anti-Crisis Remedy?” 156-163. Revista Economică.

4. Moore, Tyler and Nicolas Christin. April 2013. “Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk” Proceedings of Financial Cryptography 2013.

5. Mt.Gox Daily Bitcoin Closing Price. July 2010 – May 2013. Bitcoin Charts. http://bitcoincharts.com/charts/mtgoxUSD#m1g10zm2g25zv (accessed May 2, 2013).

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