Bitcoin and Cryptocurrency: Advantages and Disadvantages Written By: Dr. Jason J. Campbell Youtube Video Link:

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Dec 3, 2013 (3 years and 8 months ago)

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Bitcoin and Cryptocurrency: Advantages and Disadvantages
Written By:
Dr. Jason J. Campbell

Youtube Video Link:

http://www.youtube.com/watch?v=GczG02xLTwI&feature=channel_video_title



Abstract

Having lost confidence in centralized banking after the global financial collapse of 2008,
internet users have sought an increasingly decentralized means of currency exchange.
Cryptocurrency is an encrypted digital currency, which can be used to purchase goods and/or
services. Cryptocurrency is typically shared over a peer-to-peer system, which means the
exchange of digital cryptocurrency occurs between individuals, rather than from an individual to
a banking institution, thereby eliminating centralized banking or the need for brokers. Bitcoin is
the latest instantiation of digital cryptocurrency. There is, however, a seedier side to both bitcoin
and digital cryptocurrency. This brief investigation will analyze the potential advantages and
disadvantages of
p2p digital cryptocurrency
.

What is bitcoin
?
Bitcoin is a form of digital cryptocurrency. As a form of decentralized digital currency,
bitcoin is not associated with any banking institution, any nation, or any centralized source of
origin. Bitcoins are described as, "digital coins you can send through the internet."
1


Advantages of Using Bitcoins
:
It has been alleged that bitcoin has seen a 200,000% gain within the last year.
Giancarlos
Daniele writes
, "one year ago today a bitcoin was worth $.005USD. Yesterday, the value of a
bitcoin peaked at $10.50USD representing a 200,000% gain."
2
Currently, i.e., as of June 16,
2011 a bitcoin is value at $18.60001USD. Quite obviously, then, individuals who initially
invested in bitcoin have made a considerable profit, which is not to suggest however the
longevity of bitcoin as the standard digital cryptocurrency. [USD fluctuations can be tracked
here
]
There are a number of key advantages to using bitcoins as a means of virtual currency. One
of the benefits of participating in the exchange of bitcoins for products, services, or charitable
donations is the accessibility of the open-source code. Similar to a banking ledger, all p2p bitcoin
transactions are stored in publicly accessible open source codes, which allows authorities to track
organizations or individuals that are participating in black-market transactions, financed by
bitcoin digital currencies.
A complete record of all bitcoin transactions is stored at
http://blockexplorer.com/
, which
seemingly legitimizes the bitcoin transaction system by continuously tracking bitcoin exchanges.
Individuals are able to search for bitcoin transactions for a particular recipient by entering the
recipient's public-key. Searching
www.blockexplorer.com
using a recipient's public key. i.e., the
recipient's address, will result in all transactions for that particular address. However, individuals
interested in using bitcoin for illegal transactions, would simply cycle through and change their
public keys. Thus, each new transaction would conceivably have a new address, i.e., a new
public key. Unfortunately, however, for law enforcement officials, this presents another layer of
difficulty in attempting to link the public key to an IP address and thereby the individual.


1
http://www.weusecoins.com/
2
http://bitcoinproject.wordpress.com/author/gdan11/
Furthermore, individuals can conceal their identity by using the
Tor Network
. For individuals
seeking to mask their identity this is arguably the greatest selling point of bitcoin technology.
Decentralization is another advantage in using bitcoins as a form of digital cryptocurrency.
Since bitcoins are
not issued from a centralized banking institution
, and since Bitcoins are not
associated with national currencies, the accumulations of Bitcoins on the network is secured by
the decentralized nature of P2P networking, effectively securing the wealth of Bitcoins amassed
across the P2P network. Unlike traditional centralized banking institutions, it is impossible to
"freeze" an "account". As a form of digital cryptocurrency, Bitcoins have effectively eliminated
both centralized banking institutions and the need for "traditional banking accounts".
Exchanges of Bitcoins for goods services and or charitable donations are said to comply with
the Financial Crimes Enforcement Network of the United States Department of Treasury. Jeff
Garzik of www.bitcoin.org, said in an interview with reason.tv, "we are actually working with
the government to register bitcoin exchanges as MSbs or money service businesses, to make sure
the long arm of the government can indeed reach bitcoin."
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Preserving the anonymity of those exchanging Bitcoins across the P2P network reflects the
similar anonymity in cash exchanges. For example, when I purchase a carton of milk at my local
grocery store there is no need to disclose my identity and personal information. I can exchange
currency for a product without having to reveal my identity. Similarly, bitcoin digital
cryptocurrency exchanges preserve the anonymity of user exchanges without requiring that one's
identity be directly tied to the exchange of Bitcoins.

Disadvantages of Using Bitcoins:

Like all currency, bitcoin can be exploited for criminal use. Bitcoin can be laundered and
used to subsidize black-market enterprises. It is well-known that bitcoin has been used in the
purchase of illegal drugs on Silk Road, where anonymity safeguards the identity of both buyer
and seller. Bitcoin is also the preferred donation option for the notorious hacking group LulzSec.
In fact, LulzSec openly displays its bitcoin public key on its donation page.
4
LulzSec took
ownership of the infamous Sony Corporation hack, which left ps3 users without access for over a
month and compromised the security of millions. Infamously, LulzSec hacked the CIA public
main page on June 15, 2011. They tweeted, "Tango down-CIA.gov-for the Lulz". Recognizing
that criminal enterprises require huge subsidization of capital, creating a secure and completely
anonymous system of bitcoin exchange can severely hamper government agencies in their
attempts to identify criminals.

LulzSec
claimed the following:
we recently broke into Sonypictures.com and compromised over 1
million users personal information, including passwords, e-mail
addresses, home addresses, dates of birth, and all Sony opt in data
associated with their accounts. Among other things, we also
compromised all admin details of Sony pictures (including
passwords) along with 75,000 "music codes" and 3.5 million
"music coupons". Due to a lack of resources on our part (The Lulz
boat needs additional funding!) We aren't able to fully copy all of
this information, however we have samples for you in our files to
prove its own authenticity. In theory we could have taken every
last bit of information, but what it would have taken several more
weeks, (emphasis added).
5


3
http://www.youtube.com/watch?v=jYiWHNkZIes 7:17.
4
176LRX4WRWD5LWDMbhr94ptb2MW9varCZP
5
http://lulzsecurity.com/releases/sownage_PRETENTIOUS%20PRESS%20STATEMENT.txt
One should take note of the claim, "Due to a lack of resources on our part (The Lulz boat needs
additional funding!)". Bitcoin is their source of funding. Granted, it should be clearly noted that
in-and-of-itself bitcoin is a perfectly viable means of digital cryptocurrency exchange. I am in no
sense suggesting that there is anything inherently devious with either cryptocurrency in general
or bitcoin specifically. It is however interesting to note that many within the criminal underworld
resort to bitcoin and digital cryptocurrency exchange as their preferred means socialization,
selling illicit goods and services, and eliciting donations for illegal and/or malicious activities.
Recently,

The user known as "
allinvain
" is a long-time contributor to the
Bitcoin forums. He says he's been mining Bitcoins for over a year, and
had amassed a fortune of 25,000 BTC. This was a modest sum a few
months ago, when Bitcoins were worth pennies, but over the last two
months the value of a Bitcoin skyrocketed to around $20, which means
25,000 BTC would have been worth half a million dollars. "I remember
watching the price like a hawk," he wrote. And then disaster struck. "I
just woke up to see a very large chunk of my bitcoin balance gone," he
wrote. "Needles [sic] to say I feel like I have lost faith in bitcoin." He
speculated that a Windows security flaw may have allowed the culprit to
gain access to his digital wallet. "I feel like killing myself now," he said.
Some other members of the Bitcoin forum expressed skepticism
about allinvain's story, but most believed it. Another member of the
Bitcoin forums chimed in to report that he'd lost a smaller amount of
money to the same Bitcoin address.
Forum members discussed several options, including calling the
police and asking
MtGox
, the popular Bitcoin currency exchange, to
block the funds from being converted into more traditional currencies.
6

Like all forms of currency, both traditional and digital currencies, even cryptocurrencies, face the
risk of theft and corruption. There is no such thing as an entirely safe means of currency
exchange. Bitcoin is the latest instantiation of digital cryptocurrency but it will certainly not be
the last.

Conclusion

With some arguing that the Federal Reserve is unjustifiably printing money and thereby
contributing to hyperinflation, coupled with the global economic collapse of 2008, there is great
legitimacy in steps toward decentralizing our currency. If cryptocurrency is the vehicle with
which global currencies are decentralized, then the foundation of this new vehicle must be based
on sound and safe business practices which do not directly or intentionally contribute to money
laundering and black-market enterprises. If there is any hope to legitimize bitcoin as a
respectable form of digital cryptocurrency, steps must be taken to ensure that criminals and
deviance do not find financial safe havens within the architecture of the P2P bitcoin network.

Keywords/Resources
: Ben Bernanke, Alan Greenspan, proof-of-work, bitcoin address, Mt.
Gox, block, mining pool, BTC, mining, scalability, accepting sites, donation hash, nonce, GPU,
playstation, silver, gold, economic, collapse, debt default,
resource
,
resource
,
resource
,
resource
,
anonymous, Satoshi Nakamoto, digital signatures, transaction log, fiat currency, block chain,
C++, BitcoinJ, java, state backed,
The Ryan Haight Online Pharmacy Consumer Protection Act
(21 U.S.C. § 841)
,
21 U.S.C. 853(a)(2)
,
technology
,
mixer
,
censorship-resistant
,
wikileaks
,
Chuck Schumer,
Gavin Andresen


6
http://arstechnica.com/tech-policy/news/2011/06/bitcoin-the-decentralized-virtual-currencyrisky-currency-500000-
bitcoin-heist-raises-questions.ars