Introduction

1.1 Introduction
A bitcoin is a virtual currency first introduced in the year 2008 by an anonymous
groupcalled Satoshi Nakamoto. It’s an open source peer-to-peer cryptographical
system(direct connections without an intermediary) where transactions happen
through apublic ledger called blockchain, handling users’ data anonymously. Eight
years since its introduction, bitcoin is today the most widely used and accepted
digital currency.
Simply A crypto currency is a digital currency. A medium of exchange like normal
currencies. Crypto currencies are classified as a subset of digital currencies and are
also classified as a subset of alternative currencies and virtual currencies .
In 1998, Wei Dai Published a Description of “B-Money”, an anonymous,
distributed electronica cash system. Nick Szabo created "bit gold" Like bit-coin
and other crypto currencies. The first crypto-currency to capture the public
imagination was Bit-coin,
The digital currency created and used in the system is also called bitcoin and
is alternatively referred to as a virtual currency, electronic money, or
cryptocurrency. The bitcoin system is not controlled by a single entity, like a central
bank, which has led the US Treasury to call bitcoin a decentralized currency.
Economists generally agree that it does not meet the definition of money
Bitcoins are created as a reward for payment processing work in which users who
offer their computing power verify and record payments into a public ledger. Called
mining, individuals engage in this activity in exchange for transaction fees and
newly minted bitcoins. Besides mining, bitcoins can be obtained in exchange for
other currencies, products, and services. Users can buy, send, and receive bitcoins

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electronically for a nominal fee using wallet software ona personal computer,
mobile device, or a web application.
The price of bitcoins has fluctuated wildly since its inception, going through various
cycles of appreciation and depreciation, which have been referred to by some as
bubbles and busts. In 2011, the value of one bitcoin rapidly rose from about
US$0.30 to US$32 before returning to US$2.
In the latter half of 2012 and during the 2012-2013 Cypriot Financial Crisis, the
bitcoin price began to rise, reaching a peak of US$266 on 10 April 2013, before
crashing to around US$50. In the end of 2013, the cost of one bitcoin rose to the all-
round peak of US$1135, but fell to the price of US$693 three days later.
In the latter half of 2012 and during the 2012-2013 Cypriot Financial Crisis, the
bitcoin price began to rise, reaching a peak of US$266 on 10 April 2013, before
crashing to around US$50. In the end of 2013, the cost of one bitcoin rose to the all-
round peak of US$1135, but fell to the price of US$693 three days later.
Some mainstream websites began accepting bitcoins c. 2013. WordPress started in
November 2012 followed by OKCupid in April 2013, TigerDirect in January 2014,
andOverstock.com that same month. Certain non-profit or advocacy groups such as
the Electronic Frontier Foundation allow bitcoin donations. (Although this
organization subsequently stopped accepting bitcoin.)

1.2 Other forms of crypto-currencies/virtual currencies

Bitcoins are the most sought after cryptocurrency in the market. However there are
several other currencies which have gained momentum ever since the concept has
been introduced.

Below are some other of cryptocurrencies that exist:

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  Ethereum – Ethereum is the second most famous name in the virtual
currencymarket. It somewhat similar to the concept of bitcoins however it
possesses some additional attributes. It is purely a blockchain based platform.
What makes it special is the Ethereum Virtual Machine. The blockcain in
ethereum is used not to store the data of the transaction but to make sure
smooth run of a decentralized application.
 Ripple – Ripple is more in the nature of a payment protocol created and
developed by a company named Ripple, which is based on the concept of Real
time Gross Settlement. It was initially released in the year 2012.
 NEM – Similar to bitcoin, NEM is also a peer-to-peer block chain platform
launched in the year 2015. It uses the unique Proof-of-Importance algorithm , a way
to validate transactions and achieve the distributed consensus.
 Litecoin – Initially introduced in the year 2011, litecoin is mostly identical to
bitcoin. What makes it stand out is the use of Segregated Witness and the
Lightning Network.
Some other cryptocurrencies are bbqcoins and dogecoins which have not
gained much significance due to their technical shortcomings and inability to
stand out.

1.3 Blockchain technology

Most cryptocurrencies are based on blockchain technology. In simple terms, it is a

system to transfer and store data or information that is generated while transacting
in a cryptocurrency.
Most cryptocurrencies are based on blockchain technology. In simple terms,
it is asyste m to transfer and store data or information that is generated while

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transacting in a cryptocurrency. A recent Whitepaper on Blockchain2 **1 has
broken down the concept of blockchain technology in detail.
As per the paper, “A Blockchain may be described as a tamper-evident ledger
shared
within a network of entities, where the ledger holds a record of transactions
between the entities. To achieve tamper-evidence in the ledger, Blockchain exploits
cryptographic hash functions.”
Blockchain technology is at the heart of how cryptocurrencies work. It helps to
evade any possibility of fraud and makes any kind of tampering infeasible for the
users. It is a support system for the encrypted currency, whereby the transactions
are recorded and stored on the ledger. So even if the users are anonymous, it still
becomes difficult for anyone to possibly change the data without involving other
members on the network.

1.4 Bitcoin Pricing

Since pricing in bitcoin transactions is demand based, it is exceptionally volatile.

Volumes of trading happen every second. The price of a bitcoin is largely
dependenton the trading i.e. demand and supply factors. More the demand, higher is
the price.
The prices remained under the range of US$ 300 until late 2015 In the following
year, around June 2016, in a positive hunch, the price rose to US$ 755. After March
2017 the prices have only increased.

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 Chart 1.1 Bit Coin Pricing Chart

1.5 Bitcoin Exchanges

Typically, a bitcoin exchange is a business platform that facilitates exchange of

bitcoins for another currency including a fiat currency, thereby allowing the users to
trade and make profit. Bitcoin exchanges quickly spread in the market in early
2011, as more and more people started exchanging bitcoins, mostly for speculative
purposes. Given the high volatility and a ready market without any regulatory
intervention, people find it suitable to trade, invest and hold and make profits out of
the same. Also bitcoins are not backed by any particular asset or security, because
of which its value is not driven by any factor but demand and supply in the market.

1.6 Volumes of Trading in Bitcoins

LocalBitcoins is an internationally renowned bitcoin exchange, primarily used for
trading purposes by users round the globe. Presented in chart 6.2 above is data

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showcasing volume of trading in bitcoins in Indian Rupee (INR) in the given
exchange since the beginning till June 27, 2017. As on the date, the aggregate
volume in trades is equivalent to almost INR 2.5 million. Evidently, high trading
volumes can be ascertained in late 2015 compared to pre 2015, however the
numbers reduce and then move on a normal pace while gradually increasing up to
the beginning of the year 2017, where excessive trading is evident. Trading came up
abnormally in the year 2017 in India and everywhere else too.

Chart 1.2 Volumes of Bit Coin

1.7 Virtual currency v. Cryptocurrency

Digital currency is largely backed and regulated by the Central Bank, more like
Electronic money. Virtual currency, on the other hand is unregulated and
decentralized. Financial Crimes Enforcement Network’s ruling on ‘Application of
FinCen’s regulations to virtual currency mining operations ’ clarifies that virtual

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currency is a medium of exchange that operates like a currency in some
environments but does not have all the attributes of a real currency. It does not hold
any legal tender status anywhere. Similar view was expressed in European Central
Bank’s publication, ‘Virtual Currency Schemes’

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 Literature Review

2.1 Introduction:
A literature review is an evaluative report of information found in the
literature related to your selected area of study. The review should describe,
summarise, evaluate and clarify this literature. It should give a theoretical base for
the research and help you (the author) determine the nature of your research. Works
which are irrelevant should be discarded and those which are peripheral should be
looked at critically.

A literature review is more than the search for information, and goes beyond
being a descriptive annotated bibliography. All works included in the review must
be read, evaluated and analysed. Relationships between the literature must also be
identified and articulated, in relation to your field of research.

(Mkiers et al. 3013). The world has globalized and so are the operations and
the business carrying out in the market of this world. As suggested by TReid and
Harrigan (2013), world is now a global village. The importance of economy and
currency cannot be neglected. Where there raised a situation where the business is
taking place without any consideration of boundaries and walls, there should be
easy availability of currency as well. Several approaches have been made towards
making the payment method easier and faster. The concept of e-money and e-
commerce has long been used in the market (Mkiers et al. 3013). Contemporary
situation has witnessed the importance of mobile wallet and transfer of money using
applications in mobile phones. All these things are welcoming an approach towards
a kind of money that could be used in the business. One such concept is the
introduction of Bitcoin.

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 The literature review section is done to evaluate the concepts related to the
topic of research. In order to gain a lot of information, various academic materials
are consulted. The theories and models proposed by eminent scholars are taken into
consideration for gaining a fruitful result. All these things are important at the time
on conducting a research. Thus, in this paper a literature review will be done on the
topic “Bitcoin, the future currency in the era of globalization”

Bitcoin is a digital currency designed for the recent market scenario. The
currency was created in the year 2009. The idea set out behind the creation of the
coin is to use the white paper by one of the mysterious individual Satoshi
Nakamoto, whose identity has not yet been recognized (Nakamloto 2013). The idea
of the named of Bitcoin is that a paper is termed as bit and the currency as the coin.
The concept behind the creation of Bitcoin is the easy transfer of the money without
paying a large amount of transaction fees. In the view point of Ron and Shamir
(2013), the traditional online payment charges some amount of transaction amount
that is to be paid to the bank or other financial organization related to the
transaction. As pointed out by Jarecki et al. (2016), it must be a clear concept that
there is no physical evidence of the Bitcoin. It is shown only as balance in the
account of the user of the Bitcoin profile. The balance is maintained keeping all the
accounting in mind such as the ledger or the balance sheet. At the time of
transaction, a kind of verification is done as to undertake that the transaction of the
money has been done without any kind of trouble or mishandling. The coin was
available in various denominations as swell such as millibitcoin and microbitcoin.
There have been more that 21 millions of bitcoins issued till 2016 (McCallum 2014)

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 Bitcoin Blockchain Dynamics (Bitcoin Blockchain Dynamics): In the
context of the ‘selfish-mine’ strategy proposed by Eyal and Sirer, we study the
effect of propagation delay on the evolution of the Bitcoin blockchain. First, we use
a simplified Markov model that tracks the contrasting states of belief about the
blockchain of a small pool of miners and the ‘rest of the community’ to establish
that the use of block-hiding strategies, such as selfish-mine, causes the rate of
production of orphan blocks to increase. Then we use a spatial Poisson process
model to study values of Eyal and Sirer’s parameter γ, which denotes the proportion
of the honest community that mine on a previously-secret block released by the
pool in response to the mining of a block by the honest community. Finally, we use
discrete-event simulation to study the behavior of a network of Bitcoin miners, a
proportion of which is colluding in using the selfish-mine strategy, under the
assumption that there is a propagation delay in the communication of information
between miners.
On the Scalability and Security of Bitcoin,” by Christian Decker
In this paper, Christian Decker discusses the possibilities the scalability
aspects of Bitcoin technology due to its peer to peer networking capabilities that has
become on the fundamental reasons to its fast growing market. He discusses some
major advantages of Bitcoin technology that could also pose risks due to the fast
paced scalability of the technology. Some of the discussed advantages are
micropayments and escrow transactions that are useful in case of dispute of
transactions occur (Decker 2016). While there are growing benefits to Bitcoin
Technology, several limitations remain as more and more users are implementing
bitcoin principles. Some of these limitations are speeds at which transactions occur
along with growing problems in transactional disputes which contribute to
transaction delays. (Decker 2016). In the early parts of the paper, scalability

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setbacks are discussed because of specific limitations with the block chain which
only allows only certain amount of transactions to take place over a network.
Possible remediation to the amount of transactions that can take place are using a
‘Duplex
Micropayment Channel’ which assists is maximizing the number of
transactions that can take place by isolating the block chain to focus only on dispute
limitations. (Decker 2016). Along with limitations of the number of transactions
that can take through using the block chain, more block chain platforms are being
created and implemented rapidly which poses risks to the number of unresolved
attacks that can place. It is nature of technology as it progresses and allows for
increased productivity of a product, it also increases the chances of new attacks to
take which needs to be looked into. PeerCensus is proposed to increase the
consistency of blockchain mechanisms by allowing sharing of the blockchain
between many applications. (Decker 2016).
Bitcoin is also analyzed from a network perspective by looking into the
network topology
mechanisms and propagation methods are introduced for the secure updating
and synchronization of transactions using network nodes and testing of how they
interact with neighboring nodes to ensure that transactions are being successfully
verified. (Decker 2016). Furthermore, study is done within block chain forks to
remediate the process of blocks that conflict with each slowing down transaction
times. Often times, block chain forks are hard to detect and for this reason it is
difficult to mitigate this process. The possibilities of finding the fork block in a
large network of nodes is implemented through the use of timestamp techniques.
(Decker 2016). In addition to this, some techniques in the article that contribute to
increased speed of propagation techniques is to minimize verification, usage of
pipelining and increasing the chance of connectivity between network nodes.

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Transactional fraud is common on a regular basis with the use of credit cards and
cash payments and bitcoin technology is also prone to transaction frauds through
implementation of double-spend attacks. Once again, the use of PeerCensus is used
to mitigate the risks of attacks by making the blockchain stronger against such
attacks. (Decker 2016). Furthermore, byzantine protocols are also studied to help
reduce the chances of Sybil attacks taking place to increase the overall security of
bitcoin cryptocurrency (Decker 2016). In order to make PeerCensus a more
productive system to be implemented within Bitcoin. ‘Discoin’ cryptocurrency is
used to track balances in currency accounts by using public and private key
encryption. In comparison to bitcoin, it is discussed that Discoin is a less
complicated protocol and accounts can be migrated from Bitcoin to Discoin to
ensure a high level of consistency and security using the PeerCensus system. The
possibilities of using Duplex Micropayment channels in order to increase the
Bitcoin transaction security is also discussed as it helps deceasing transaction
conflicts. This is the case because Duplex channels offer options where transactions
can not be easily reversed as these transactions take place in real time cases.
(Decker 2016. Adding into the conflict issues, ‘double spending attacks’ problems
are analyzed where more than one transaction can occur and transaction conflicting
occurs. This type of attack involves double charging of a transaction by the attacker
and convincing the vendor that a successful transaction took place, when it in fact
did not. (Decker 2016).

Security Concerns and Issues for Bitcoin Chinmay A. Vyas: This paper
focuses on the unique characteristics of Bitcoin as a cryptocurrency and the major
security issues regarding the mining process and transaction process of Bitcoin.
Nowadays, Bitcoin is emerging as the most successful implementation of the

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concept known as cryptocurrency. The Bitcoin records its transactions in a public
log called the blockchain. The distributed protocols that maintain the blockchain are
responsible for the security of the Bitcoin. The blockchain is run by
participants known as the miners. The Bitcoin technology - the protocol and the
cryptography - has a strong security track record, and the Bitcoin network is known
as one of the largest distributed computing project in the world. The security aspect
of the Bitcoin is the major area of research. This currency may be vulnerable during
the transactions or it can be also attacked on its online storage pools or exchanges.
The recent researches, mainly focused on the protocol of the Bitcoin, shows that the
currency is not fully secure against the colluding groups of users that uses different
attacks to fraud the ‘Honest’ miners of the Bitcoin.
The Bitcoin is the purely digital currency that has no physical existence. The
issues related to the security of the currency are the center of the discussion from
the beginning. The efforts are made to make the currency as well as its transaction
and mining secure but there are still some threats exist in front of this virtual
currency. The mining process as well as transaction is not fully secure and
colluding users can
take the advantage of the flaws in the process. There are some services that provide
the facility of online digital wallet for the clients and thus can be the target of
hacking attacks. Even the exchange services can also be the target for the attackers.

Majority is not Enough:Bitcoin Mining is Vulnerable By Ittay Eyal and Emin

G¨un Sirer : In this paper, we show that the conventional wisdom is wrong: the
Bitcoin mining protocol, as prescribed and implemented, is not incentive-
compatible. Authors describe a strategy that can be used by a minority pool to
obtain more revenue than the pool’s fair share, that is, more than its ratio of the total

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mining power. The key idea behind this strategy, called Selfish Mining, is for a pool
to keep its discovered blocks private, thereby intentionally forking the chain. The
honest nodes continue to mine on the public chain, while the pool mines on its
own private branch. If the pool discovers more blocks, it develops a longer lead
on the public chain, and continues to keep these new blocks private. When the
public branch approaches the pool’s private branch in length, the selfish miners
reveal blocks from their private chain to the public. This strategy leads honest
miners that follow the Bitcoin protocol to waste resources on mining cryptopuzzles
that end up serving no purpose. Our analysis demonstrates that, while both honest
and selfish parties waste some resources, the honest miners waste proportionally
more, and the selfish pool’s rewards exceed its share of the network’s mining
power, conferring it a competitive advantage and incentivizing rational miners to
join the selfish mining pool.

Bitcoin Protocol: Model of ‘Cryptographic Proof’ Based Global Crypto-

Currency & Electronic Payments System By Yogesh Malhotra :
This is the first research report with specific technical focus on cryptographic
‘proof of work’ in the context of virtual crypto-currencies such as Bitcoin. Situated
somewhere along the trajectory between real money and quantum money, virtual
crypto-currencies based upon ‘cryptographic proof’ represent a natural stage in the
evolution of global finance. Its cryptographic solution enables creation and
regulation of issue of crypto-currency, preventing its counterfeiting and double-
spending, and securing its global transmission at minimal transaction cost while
using little time. Specific cryptographic vulnerabilities however need attention to
ensure its integrity as a reliable medium of exchange and store of value.

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 Evaluating User Privacy in Bitcoin by Elli Androulaki , Ghassan O.
Karame : Bitcoin is quickly emerging as a popular digital payment system.
However, in spite of its reliance on pseudonyms, Bitcoin raises a number of
privacyconcerns due to the fact that all of the transactions that take place are
publicly announced in the system.
In this paper, we investigate the privacy provisions in Bitcoin when it is used
as a primary currency to support the daily transactions of individuals in a university
setting. More specifically, we evaluate the privacy that is provided by Bitcoin
(i) by analyzing the genuine Bitcoin system and (ii) through a simulator that
faithfully mimics the use of Bitcoin within a university. In this setting, our results
show that the profiles of almost 40% of the users can be, to a large extent,
recovered even when users adopt privacy measures recommended by Bitcoin. To
the best of our knowledge, this is the first work that comprehensively analyzes, and
evaluates the privacy implications of Bitcoin.

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