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Bitcoin Essay

bitcoin essay



In this bitcoin essay, we will discuss Bitcoin and other types of cryptocurrency.  The essay will include a definition of cryptocurrency, the history of cryptocurrencies, the emerging role of cryptocurrency in the economy, and the role that Bitcoin, in particular, has taken in the cryptocurrency market.  In addition, we will discuss how Bitcoin is used as the primary currency in the internet black markets one finds on the dark net.  In this dark net essay, we will investigate the dark net.  Using that information, the essay will discuss the future of bitcoin and whether it can sustain current market high values.  In addition to explaining Bitcoin, this example essay will also highlight appropriate academic essay format.  After reviewing the essay, you should have a better idea how to write different parts of an academic essay, including the: introduction, thesis statement, body paragraphs that combine evidence and analysis, and the conclusion. 

Related Topics

Cryptocurrency- While bitcoin is arguably the most well-recognized of the cryptocurrencies, it is not the only cryptocurrency.  This topic explores P2P currencies and how they are used in the marketplace.  While they have a well-established role in the black market and are often used for transactions where the customer, the supplier, or both do not want to create a traceable log of monetary transactions, they can also play a role in a legitimate economic system.  This essay would not only focus on the role the cryptocurrency currently plays, but also on the role that it is expected to play in the economy in the future. 

Currency Speculation- Although the high dollar value of bitcoin is headline-making, currency speculation, or the practice of buying, selling, and holding securities in order to profit from favorable exchange rates, is nothing new.  This topic would look at currency speculation in general, focus on how people can profit from currency speculation, and also investigate the risks of currency speculation.  It would contain a specific discussion of cryptocurrencies, and how, since they are, at least at the time being, not impacted by governmental policies, they might respond differently to market forces than other types of currency.      

The Dark Net-  This topic would discuss the dark net or dark web, including information about what it is, how to access it, how it is used by political activists, and how it is used for criminal activity.  It would focus on the types of crimes that are often committed in dark net black markets, including counterfeit trafficking, buying and selling identities, weapons sales, drug sales, and even human trafficking.  It would discuss the history of the dark net, including famous black market locations like Silk Road.   

Understanding Blockchain- Without blockchain, bitcoin could not work as it currently does.  Blockchain allows bitcoin transactions to remain anonymous.  However, many people do not understand how blockchain functions.  Originally created by an unknown person or persons who go by the pseudonym, Satoshi Nakamoto, blockchain is essentially a shared database that exists on multiple servers at the same time and is continually reconciled.  The article discusses how the lack of a central server means that the information is very difficult for a hacker to corrupt, while simultaneously being publicly viewable and verifiable.  This article would discuss the role that blockchain plays in cryptocurrencies like Bitcoin, but also delve into an examination of potential alternate uses for blockchain technology. 

Titles

Mining for Gold: The Bitcoin Phenomenon

Cryptocurrency Goes Mainstream: What the Current Value of Bitcoin Means for Mainstream Businesses

The Pros and Cons of Bitcoin

Is Bitcoin Going to be Necessary in the Future, or it is Just a Fad? 

Outline

I.  Introduction

II.  Body

A.  Define Bitcoin

B.  Cryptocurrency

C.  Blockchain

D.  How to buy Bitcoin

E.  History of Bitcoin’s Value

F.  Bitcoin as a Future Investment

III.  Conclusion

Introduction

The end of 2017 and the beginning of 2018 were full of news reports about Bitcoin.  Bitcoin values had skyrocketed, but many people were unaware that this type of cryptocurrency even existed until the skyrocketing prices hit the news.  This essay will serve as a Bitcoin primer.  It will start by defining Bitcoin.  Next, it will talk about cryptocurrency, in general.  From there, it will discuss how blockchain technology has enable Bitcoin and other cryptocurrencies.  After discussing some of the history and technology of Bitcoin, the essay will then look at the practical aspects of Bitcoin.  It will examine how to buy Bitcoin.  Next, it will look at Bitcoin’s current value and how that value has changed historically.  Finally, it will examine whether Bitcoin is a valid option for future investments. 

Essay Hook

Although some people may have concerns about digital currency, digital currency is a perfect way to pay for things in the digital age. 

Thesis Statement

The value of Bitcoin may currently be prohibitively high for newcomers to buy into the market; however, its success suggests that cryptocurrency is going to continue to become an important part of the economy and that people should consider diversifying their holdings to include some types of cryptocurrency. 

Body

Define Bitcoin

Bitcoin is a currency, which was developed by Satoshi Nakamoto and released in 2009.  Bitcoin is accepted worldwide.  Unlike other types of currency, it is not government-issued, but is instead a decentralized form of digital currency.  Digital means that it is online; unlike many other types of currency, it is not guaranteed by gold, silver, or other valuables.  It is also a cryptocurrency, which means that it is not administrated by a government or a bank, but by the users.  To use Bitcoin, users do not have to access an intermediary, but can simply engage in peer-to-peer transactions.  However, while the transactions are called peer-to-peer transactions, they do not just involve two users.  The transactions are verified by nodes, which exist because of other users, and appear in a public ledger that is accessible to all users. 

There are a number of reasons that users might choose to use Bitcoin.  One of the biggest reasons users choose Bitcoin is because of anonymity; the Bitcoin system has built in anonymity making it a logical currency choice for black-market transactions, but also when users have a legitimate reason to keep their purchases secret.  Bitcoin makes international trade easier; “because bitcoins are not tied to any country or subject to regulation” they do not require conversion or fees for international trade (Yellin, Aratari, and Pagliery 2017).  Finally, they are a logical choice for small business, because they can facilitate online purchases without the credit card fees that are associated with debit cards and credit cards. 

Cryptocurrency

Probably the most important characteristic of Bitcoin is that it is a cryptocurrency.   Cryptocurrencies are simultaneously classified as digital currencies, alternative currencies, and virtual currencies.  To understand what a cryptocurrency is, it is important to first understand what currency and money are.  While they may be backed by a standard, such as a gold standard or a silver standard, currency is all about establishing a base value.  “Money is all about a verified entry in some kind of database of accounts, balances, and transactions” (Mills 2016).  Cryptocurrency fulfills this obligation; it involves entries in a database that no one can change unless they fulfill certain obligations, giving the currency some type of permanence, even if its value can change relative to other types of currency. 

A cryptocurrency is simply a type of digital currency that uses cryptography to secure its system.   There are a number of ways that use of cryptography impacts the use of cryptocurrency.  The use of cryptography allows for the currency to be user-regulated, rather than being regulated by a centralized control.  In addition, it allows for anonymity in transactions. 

Decentralized control is, perhaps, the most important characteristic of cryptocurrency.  In a centralized banking system, which you find in all government-controlled banking systems, there is a controlling organization, usually a government, but sometimes a board of directors, what control the total supply of money.  This control can be physical, such as controlling the number of dollar bills in circulation, but it can also be digital or virtual by directing changes in digital banking ledgers.  Usually, though not always, this paper or digital currency is backed, at least partially, by some type of physical asset.  Traditionally, those assets have been things like gold or silver.

In contrast, in decentralized system, there is no central system that can produce new currency.  There is a limited number of units, and those units, once exhausted, can increase or decrease in relative value, but will not be increased.  In addition, cryptocurrencies are unsecured currencies.  There are no gold, silver, or other material reserves backing the value of cryptocurrencies.  Bitcoin was the first cryptocurrency, and remains the best-known cryptocurrency system, but is not the world’s only cryptocurrency.  Other cryptocurrencies include: Litecoin, Namecoin, SwiftCoin, Bytecoin, Peercoin, Dogecoin, Emercoin, Gridcoin, Omni, Primecoin, Ripple, Auroracoin, BlackCoin, Burstcoin, Dash, DigitalNote, Neo, MazaCoin, Monero, NEM, Tether, NXT, PotCoin, Synero Amp, Titcoin, Verge, Stellar, Vertcoin, Ethereum, Ethereum Classic, Iota, SixEleven, Decred, Waves Platform, Lisk, Zcash, Bitcoin Cash, and Ubiq. 

Blockchain

Bitcoin relies on a technology known as blockchain, which is critical to its success. Stated succinctly, blockchain simply refers to the digital ledger in which cryptocurrencies are recorded.  In other words, blockchain refers to the way that the data is structured.  The data is placed in “concatenated blocks of transactions” and these blocks allow competitors to share a common ledger across a digital network (Hackett, 2016).  What keeps users from committing fraud is that the ledger is public and the math in the ledger enforces honesty; in addition, because the ledgers are simultaneous, the blockchain system is hacker-resistant, unlike a centrally-controlled ledger system.

Blockchain facilitates transactions by allowing a user to reduce the number of Bitcoins in their ledger while simultaneously increasing the number of Bitcoins in someone else’s ledger.  These transactions are public.  Furthermore, these transactions operate to keep people honest; once the transaction is begun, the users cannot halt it. Therefore, the integrity of the transaction does not depend on either user, once begun, or on the trustworthiness of a third-party.

How to Buy Bitcoin

There are two ways to acquire Bitcoin: purchasing it and mining it.  Because mining was the way that users initially were able to acquire Bitcoin, it will be discussed before purchases.  Bitcoin mining refers to two things.  First, it is the process by which transactions are verified and added to the blockchain ledger.  Second, it is the process by which new Bitcoins are released.  Any person with internet access can theoretically participate in mining, and early mining was done primarily by individual internet users.  To mine, the user compiles transactions into blocks to solve a puzzle; the first person who solves the puzzle gets to play the block on the block chain, and claim the reward.  The reward is a set amount of Bitcoin, and reflect transaction fees and newly released Bitcoin (Investopedia 2017). 

For each block mined, there is a corresponding new amount of Bitcoin released.  This amount is referred to as the block reward.  Block rewards are established to provide diminishing returns; “the block reward is halved every 210,000 blocks or roughly every 4 years” (Investopedia 2017).  It is projected that this will result in approximately 21 million Bitcoins in circulation.  In addition, the difficulty of the mining is adjusted to reflect the amount of computational power devoted to the process, with the goal of providing a steady release of Bitcoin. 

Mining still remains a viable way to get Bitcoins, but, because there is a lot of competition and the number of rewards per block are decreased, mining is unlikely to yield significant results, quickly. Therefore, many people are looking at purchasing Bitcoin.  The steps for buying Bitcoin are simple: 1) create your wallet; 2) select your exchange: 3) select the amount of Bitcoin you want to buy; and 4) complete your transaction. 

Before making a Bitcoin purchase, a user first needs a “wallet.”  These wallets are not actual wallets, but are physical devices where users can store their private encryption keys that allow them access to their money.  Wallets come in different formats and can be either hardware or software.  Software wallets are apps that you connect to your bank account.  Many of the digital currency exchanges offer their own versions of wallets, but Mycelium and Electrum are well-known version of digital wallets that are not tied to exchanges.  There are also hardware wallets, which basically look and function like memory sticks.  Some people believe that hardware wallets are more secure because they have to be physically connected to the internet to be compromised or stolen.  Others believe that software wallets are a better choice, because users will not inadvertently misplace or lose them.

There are a number of online marketplaces where people buy and sell cryptocurrency.  In addition, there are digital currency exchanges and brokers that facilitate these transactions.  Coinbase, Bitstamp, Kraken, and Gatehub are all well-known digital currency exchanges (Korosec 2018).  Some of these exchanges may have their own affiliated wallets, and one may need to download apps in order to use them.  Once on the exchange, one looks for the buy section.  It will display Bitcoin for sale, as well as the price to purchase it.  The price is generally going to reflect a transaction fee for the exchange in addition to the exchange rate.  Generally, exchanges require a user to connect banking information in order to complete Bitcoin purchases.

History of Bitcoin’s Value

Although how to buy Bitcoin may be relatively straightforward, many people wonder why people would want to purchase Bitcoin.  Despite its relatively astronomical value at the current point in time, there is a question of whether this type of growth is sustainable.  The best predictor of future behavior is past behavior, therefore it is important to look at a history of Bitcoin’s value. 

Bitcoin began as essentially a valueless currency when it was released in January of 2009.  By October of that year, Bitcoin had an established value that was approximately $0.008; this value was said to reflect the cost of the electricity it took to mine one Bitcoin.  Later that month, once a system to buy and sell Bitcoin was established, it was valued at roughly $0.010.  In a semi-famous transaction, the first time that Bitcoins were used to make a material purchase was when one user ordered two pizzas with Bitcoin and paid 10,000 Bitcoins for $25 worth of pizza, making their real-life value at the time about $0.0025.  By July of 2010, Bitcoin valuation rose to $0.08, but then fell to $0.06 when Mt. Gox, a Bitcoin trading firm, opened.  By February 2011, Bitcoin hit the $1.00 mark, but this, combined with new exchanges targeting foreign currencies, actually led to a temporary decrease in value down to $0.72 in March of 2011.   In June of 2011, Gawker publishes an article about Silk Road and how Bitcoin can be used for black market transactions on that dark net website, causing the value to soar to $17.61.  The prices remain high, despite a successful hack of Mt. Gox that results in a temporary, but significant, devaluation of Bitcoin due to fraudulent sales.    Bitcoin hovers around $4.00 through March of 2012, but is back at $13.31 by mid-August of 2012.  By mid-March 2013, the value is up to $68.89 and it more than triples that in April, driven in part by the bailouts of the Cyprus banking system.  The value falls back down to around $120, where it stays until October.  Then it begins another dramatic climb in value, worth $1072.83 by late November 2013, then dropping in value till April of 2014, largely in response to government actions such as the IRS taxing Bitcoin and China declaring it unacceptable currency.  Values climb again until June of 2014, when the U.S. Marshalls auction Bitcoins that were seized as part of the Silk Road operation, causing a temporary influx in the market.  Despite several large companies announcing that they would accept the currency, overall values fell until early 2015, where it stalled just under $200 and began to rise again, ping-ponging in the $200 to $450 range through May of 2016.    The second half of 2016 saw Bitcoin prices begin to rise and by April of 2017, they were valued at over $1200 per Bitcoin.  By December, there had been price fluctuations, but Bitcoin hit an all-time high of $17,900, only to drop one-third of that value in a 24 hour period. 

Bitcoin as a Future Investment

Looking at the history of Bitcoin valuation, two things seem clear.  First, the Bitcoin market is very volatile, and temporary highs are almost always followed by dramatic and significant drops in value.  Second, while the market may be volatile day-to-day, market conditions, including a growing recognition of Bitcoin as a currency by many governments and a growing number of companies accepting Bitcoin for transactions, means that the overall trend of sustained growth in value is probably sustainable for a future investment.  While it would be foolish to purchase Bitcoin at a historic high, given its demonstrated volatility, it would probably be a wise investment decision after another one of its rapid crashes.

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Conclusion

While once dismissed as simply a tech-geek tool, Bitcoin has established a significant position in the global marketplace.  It is used as currency in a number of different countries, and is accepted by many legitimate businesses.  It is also used as black market currency, which increases its value to investors, regardless of whether investors intend to make black market purchases, because the black market it not going anywhere.  As soon as federal agencies can shut down one online black market, there are new ones to replace it.  Therefore, investors should probably consider adding Bitcoin to their investment portfolio.

Works Cited

Hackett, Robert.  “Wait, What is Blockchain?”  Fortune.  23 May 2016. http://fortune.com/2016/05/23/blockchain-definition/.  Accessed 8 January 2018.

Investopedia.  “Bitcoin Mining.”  Investopedia.  2017. https://www.investopedia.com/terms/b/blocktrade.asp.  Accessed 8 January 2018. 

Korosec, Kristen.  “This is Your Guide to Buying Bitcoin.”  Fortune.  3 January 2018. http://fortune.com/2018/01/03/bitcoin-buy-how-to-cryptocurrency/.  Accessed 8 January 2018.

Mills, Brad.  “What is Cryptocurrency: Everything You Need to Know [Ultimate Guide].”BlockGeeks.   2017.  https://blockgeeks.com/guides/what-is-cryptocurrency/.  Accessed 8 January, 2018. 

Yellin, Tal, Dominic Aratari, and Jose Pagliery.  “What is Bitcoin?”  CNN.  2017.  http://money.cnn.com/infographic/technology/what-is-bitcoin/.  Accessed 1 January 2018. 

Closing

After reading this Bitcoin tutorial essay, you should be much better informed about Bitcoin, how it works, how you use it, how you mine it, how you buy it, and its value relative to the American dollar.  In addition to the factual information about Bitcoin, this essay should also help you understand how to write an expository essay.  As this essay makes clear, the Bitcoin story is one that is constantly evolving; details in this story may have changed by the time you read it.  If you have any questions about how to include new Bitcoin developments in your own essays, contact us and we would be happy to assist you. 

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