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The History and the Future of Bitcoin

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The History and the Future of Bitcoin Bankovní institut vysoká škola Praha Katedra financí a ekonomie The history and the future of Bitcoin Bachelor thesis Author: Vladimir Malik Supervisor: Ing. Petr Musil, Ph.D. Praha April 2016 Page 1 of 43 Declaration: I declare that I processed the final work on my own and I added all used literature in the list. I confirm that the submission of the electronic form of the work is identical to the printed version, and I am aware of the fact that the work will be archived in the Library BIVŠ and will be made available to third parties through an internal database to electronic works. Prague, date …………… name and surname of the author……………………….. Page 2 of 43 Acknowledgements The author gratefully thanks Ing. Petr Musil, Ph.D. for supervision and active participation in the thesis project consisting of the present study project. Moreover, the author kindly thanks to his family and friends for support while developing and writing the thesis report. The author wishes to acknowledge all the other specialists involved for active advice and support in the entire process. Page 3 of 43 Key words Blockchain BTC Crypto Fiat currencies MMORPG Steam platform Volatility Annotation The thesis submitted aims to map and evaluate development of cryptocurrency Bitcoin. Firstly, the thesis describes basics and general money theory. Next part has a deeper overview of Bitcoin and topics directly connected to it. And to summarize, the last topic includes theories connected to the topic together with future predictions. Page 4 of 43 Table of contents Acknowledgements ......................................................................................................................... 3 Key words and definitions .............................................................................................................. 4 Annotation....................................................................................................................................... 4 Table of contents ............................................................................................................................. 5 List of figures .................................................................................................................................. 8 1. Introduction ........................................................................................................................... 10 1.1. Problem statement .......................................................................................................... 10 1.2. Research questions ......................................................................................................... 11 1.3. Limitations ..................................................................................................................... 11 1.3.1. Geographical limitation .......................................................................................... 11 1.3.2. Time limitation........................................................................................................ 11 1.3.3. Academic limitation ................................................................................................ 12 1.4. Materials and methods ................................................................................................... 12 1.4.1. Methodology ........................................................................................................... 12 1.4.2. Theory ..................................................................................................................... 13 1.5. Literature review ............................................................................................................ 15 1.6. Structure of the thesis ..................................................................................................... 15 2. The evolution of money ........................................................................................................ 16 2.1. Medium of exchange .......................................................................................................... 17 2.2. Unit of account ............................................................................................................... 18 2.3. Store of value ................................................................................................................. 18 2.4. Mainstream currencies ................................................................................................... 20 2.5. Payment systems ............................................................................................................ 20 Page 5 of 43 2.5.1. Commodity money.................................................................................................. 21 2.5.2. Fiat money .............................................................................................................. 21 2.5.3. Checks ..................................................................................................................... 21 2.5.4. Electronic payment and E-Money .......................................................................... 21 3. Bitcoin ................................................................................................................................... 22 3.1. The crypto currency ........................................................................................................... 22 3.2. The history of Bitcoin ..................................................................................................... 23 3.2.1. Before Bitcoin ......................................................................................................... 24 3.2.2. The beginning of Bitcoin ........................................................................................ 25 3.2.3. Bitcoin ..................................................................................................................... 27 3.2.4. Bitcoin mining ........................................................................................................ 27 3.2.5. Different meanings of Bitcoin ................................................................................ 29 3.2.6. Wallets .................................................................................................................... 30 3.2.7. Spending of Bitcoins ............................................................................................... 31 3.2.8. Online merchants .................................................................................................... 32 3.2.9. Brick and mortar merchants .................................................................................... 32 3.2.10. Other Opportunities ............................................................................................. 33 3.3. Pros and cons of Bitcoin................................................................................................. 33 3.3.1. Pros ......................................................................................................................... 33 3.3.2. Cons ........................................................................................................................ 35 4. Monetary systems ................................................................................................................. 38 4.1. The Gold Standard ............................................................................................................. 38 4.2. The Austrian School of Economics ................................................................................ 39 5. Future Predictions ................................................................................................................. 39 6. Conclusion ............................................................................................................................ 40 Page 6 of 43 7. Bibliography ......................................................................................................................... 41 Page 7 of 43 List of figures Figure 1: Number of transactions per day from 2009 until 2016 ................................................. 17 Figure 2: Market price for Bitcoin from 2009 until 2016 ............................................................. 19 Figure 3:Bitcoin wealth concentration .......................................................................................... 19 Page 8 of 43 Page 9 of 43 1. Introduction Bitcoin was launched in 2009 by Satoshi Nakamoto, but the crypto currencies represented already a concept for a period of time. In the beginning there were both positive and negative opinions about crypto currency due to the fact that it was launched after the financial crisis from 2007-2008. The acceptance of this currency was relatively slow in the beginning even though the media covered on a high extend the idea of Bitcoin. Bitcoin is known as an actual and innovative way of doing anonymous transfers without making use of the financial intermediaries. An advantage of using this currency is the decrease in transaction costs together with the opportunity of having privacy. Even though Bitcoin has several benefits, there are also some challenges in increasing its popularity and acceptance. This currency is decentralized which implies that there is no control from the government authorities. Therefore, Bitcoin can also be associated with illicit activities. Several government agencies such as FBI, DHS or SEC are already aware of
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