In a fiat money mechanism, governments print money when needed. Instead, Bitcoin money has to be discovered. Miners are at the center of this process. Through the use of computer power they compete with each other by computing increasingly hard mathematical algorithms. Miners around the world compete to achieve the solution, the first one will be entitled to a reward in Bitcoin. Nevertheless, as more Bitcoins are discovered, computations are harder to solve thanks to the “proof of work”, and rewards in Bitcoins are lower and lower.


Miners are also in charge of confirming transactions in Bitcoins and writing them into a general ledger, known as blockchain.

MINERS

CONSUMERS

The use of Bitcoin provides several advantages to the consumers of its service.


Cost savings: Perhaps the most compelling benefit for bitcoin consumers is cost savings. On the merchant’s side, cost savings are tangible through interchange fees, assessment fees, chargeback fees and false decline fees which are constant in the common payment methods.


Thanks to these savings on the merchant side, consumers benefit from discounts when using Bitcoins. Tiger Direct, for example offered a $20 off on all orders covered with bitcoin that are over $100. Fancy.com offered a 25% off coupon for bitcoin purchases. While these offers may be temporary, long term discounts on bitcoin purchases will become more prominent as merchants will not have to overprice their goods to cover for credit cards companies.


Privacy: Many consumers of Bitcoins worldwide are attracted by the pseudonymity of the Bitcoin. Significant breaches of security have occurred at large retailers such as Target and Neiman Marcus with the use of traditional online payment methods. Debit or credit cards disclose personally identifiable information on your person to the merchant. This information is susceptible to theft.


Instead, using Bitcoins, consumers only disclose their public key and the amount of payment in the transaction. No personal information is being shared, so the consumer is protected from the possibility of identity theft.


Ease of use: while transactions using bitcoins are still far too long for daily transactions, they may take up to 40 minutes, the use of bitcoin is simple. A Coinbase wallet is sufficient to purchase on Overstock or any of the 25,000 merchants that recognize bitcoin. Check-out is simply a two-click process.

REFERENCES

Bitcoin was created by libertarian-minded programmers. The 2008 financial crisis has damaged the reputation and credibility of banks. Hence, thanks to the blockchain technology, intermediaries such as banks are undermined. This technology makes transactions more transparent, thus harder to cheap, and reduced the value of credibility of the so-called “middle-man” . Overall, a lack of trust becomes less of an impediment to trade, transactions are less costly by getting rid of intermediaries, and operational risks are minimized.


Still, central banks have seen an opportunity in the use of bitcoin technology, hoping to be able to utilize the decentralized method -- “blockchain” -- to complete and record real time transactions in a more efficient, transparent and faster way. Central banks are thus increasingly under the pressure of joining forces in order to avoid being cut out from intermediation and surveillance.


The Bank of England and the People’s Bank of China are currently discussing how to implement their national currencies into a distributed ledger, inspired from the blockchain technology. This would ultimately allow several different parties to keep transaction records simultaneously.

GOVERNMENTS

Governments, through central banks, issue their own central currency. Given that the cryptocurrency is not under their control when it is discovered by miners, it may disrupt the the sovereignty over a country’s own system. Hence governments are starting to release official statements or laws on their position towards bitcoins. They have the authority to regulate the currency’s framework.

However, many experts estimate that a ban on bitcoins is impossible to enforce for a government since the cryptocurrency is the symbol of financial liberation. Governments cannot freeze and control bitcoin accounts neither devalue bitcoin. However they are able to regulate bitcoin exchanges and other third party platforms that offer bitcoin-based services.

LOBBY GROUPS

Their main task is to demystify Bitcoin’s reputation and to explain its benefits to influence public opinion. They communicate on the serious, thoughtful people and businesses working together to deliver those benefits to society. Furthermore, their objective is “to support law and policy changes that best advance the Bitcoin community’s interest and the Bitcoin ecosystem’s development” mentions Jim Harper, Bitcoin Foundation’s global policy counsel. Lobby groups should have the capacity to discourage uninformed negative treatment of Bitcoin and lay the groundwork for law and policy changes that both maintain Bitcoin’s independence and permit its fuller integration into mainstream financial services systems.

Intermediaries

Bitcoin offers a valuable service for purchases, P2P payments, and donations while securely keeping track of money in a state of pseudonymity. Yet, this means that transactions are not truly anonymous. Indeed, Bitcoin exchanges are recorded and publicly available on the comprehensive database of bitcoin transactions: the blockchain.

While performing a transaction Bitcoin users have to provide names and addresses, especially for delivery purposes. Ultimately, it is not impossible for a third party to track one’s activities and access ID information. Thus, security and privacy can be compromised.


Mixing Services:

Mixing services have mushroomed to provide periodical exchange of bitcoin for different ones that cannot be associated with the original owner. These services help to enhance the security and privacy of transactions. Bitcoin mixer services include BitMixer, Helix by Grams, Bitcoin Blender and more.


Wallet Providers:

Wallet providers such as Airbitz, and Bitreserve (now called Uphold) store the private keys needed to access a bitcoin address and spend the funds associated to it. Such online services allow access from anywhere, regardless of the devices being used. Still, a main disadvantage is that the organization running the website is in charge of an owner’s private keys and therefore of the Bitcoins in the account.


Exchange Services:

Bitcoin exchanges such as Mt. Gox, which ultimately failed, control the Bitcoin-fiat currency trading volumes, They aim at making exchanges faster and easier for Bitcoin holders. Before its fall, Mt. Gox was a monopolist and dominated approximately 80-90% of the Bitcoin-Dollar exchange volume. Today, exchanges claim to have learned fro Mt. Gox and utilize more advanced models of security mechanisms.


Payment Services:

Payment service providers such as BitPay have revolutionized the financial industry by allowing the making of payments using Bitcoin to be faster, more secure, and less expensive on a global scale. They make it easier for businesses to accept bitcoin payments.


Venture Capital:

Venture capital services such as Bitcoin Venture Capital work to connect Bitcoin Investors with Tech Startups that accept Bitcoin payments. Blockchain Capital, a pioneer venture capital firm investing in Blockchain enabled technology companies has invested in 42 companies in the past three years.


Mixing Pools:

Mining pools such as Slush Pool, first Bitcoin mining pool worldwide, provides a mining infrastructure through a system of servers distributed around the world. Bitcoin mining pools are a means for Bitcoin miners to pool their resources together, sharing their hashing power, and finally splitting the reward in Bitcoins equally. The mining pools originate from the fact that difficulty for mining Bitcoins is increased to where some slow miners would have needed years to generate a block. By pooling their resources together, mining pools ultimately generate blocks faster and receive in exchange a Bitcoin reward on a consistent basis.

Nevertheless, while the mining pools is a very clever system it comes with its weaknesses. One prominent issue is that as mining pools have become increasingly bigger it might amass a capacity to amount ot a 51% attack. An example is GHash.IO , which in June 2014 almost reached this level until some miners voluntarily switched to different mining pools. Yet another worry is that mining might end as a monopoly, which would result in the opposite of the decentralized system envisaged by Satoshi Nakamoto. Finally, mining makes use of an increasingly amount of electricity. This leads mining pools to be concentrated in countries where electricity is cheap, such as China. Ultimately, this may pose a threat of hostile governments to seize control of such mining pools.

INTERNATIONAL 
ORGANIZATIONS

Research shows that International Organizations, as the United Nations, have had no major role in bitcoin projects. IOs being implied in some initiatives but not as main actors and instigators, NGOs and associations’ margin of action increased considerably. These have seized their chance and proliferated rapidly. However what is missing is not additional proposals, various projects have tried to approach International Organizations as for example BitGive which wants to help the United Nations to achieve greater transparency.

Credits:
Rachele Miscioscia, Téo VANDER HEYDEN

Sources:
Shin, L. (2016, October 12). Central Banks Explore Blockchains: Why Digital Dollars, Pounds Or Yuan Could Be A Reality In 5 Years. Retrieved from http://www.forbes.com/sites/laurashin/2016/10/12/central-banks-explore-blockchains-why-digital-dollars-pounds-or-yuan-could-be-a-reality-in-5-years/#6f1f67c976d8

Niepelt, D. (2016, October 19). Central banking and Bitcoin: Not yet a threat | VOX, CEPR's Policy Portal. Retrieved November 27, 2016, from http://voxeu.org/article/central-banking-and-bitcoin-not-yet-threat

Popper, N. (2016, October 11). Central Banks Consider Bitcoin’s Technology, if Not Bitcoin. Retrieved November 27, 2016, from http://www.nytimes.com/2016/10/12/business/dealbook/central-banks-consider-bitcoins-technology-if-not-bitcoin.html?_r=0

S., L. "How Bitcoin Mining Works." The Economist. The Economist Newspaper, 20 Jan. 2015. Web. 29 Nov. 2016. .

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