Characteristics of Bitcoin

The following paragraphs are from my master's thesis, "Bitcoin: Cash, Commodity, or Crypto-Bubble?" (Chapter 3. The Fundamentals of Bitcoin — An Overwiev) , which I submitted on November 20, 2017: I will try to share bits and pieces from my thesis in a logical and reasonable manner in the next few weeks. Since I am interested to continue working on the topic (hopefully on the next academic level and with more depth), I am open to suggestions and ideas. Anyone who is seriously interested in working with me on this topic and has tangible ideas, or just wants to quote from my thesis, please contact me via personal message on LinkedIn.

Limited Supply and Pseudo-Anonymity

“Inflation is just like alcoholism, in both cases the good effects come first, and the bad effects only come later. With the cure it’s the other way around.”         

—Milton Friedman (1980)

As Nobel Prize winner Milton Friedman suggested on many occasions, the money supply has a major impact on economic growth and recession. Therefore, the control of the money supply by governments and central banks is often criticized, and their policies made publicly responsible for economic crises worldwide. Since monetary policy is not an exact science, economic scholars like Jost even argue that the cultural background and preferences of the population in a democratic economy may have an impact on the country’s monetary policy (2017, p. 42-48). Bitcoin mainly attracted the attention of economists, politicians, and investors because of the key properties that determine the supply of its economy: the decentralized, peer-to-peer, open-source operating system; the predictable growth of the steadily released volume; and the fixed limit of its total supply (Barman, 2017a).

Decentralized, Peer-to-Peer Operating System

In his 2008 white paper, Satoshi Nakamoto describes the benefits of a purely peer-to-peer version of digital cash, in which transactions are sent directly from one party to another without the need for a trusted third party. He also points out the use of digital signatures as part of making such a payment system work. Still, the double-spending problem of one unit of payment prevails, if no governing body guarantees the bookkeeping of transactions (p. 1). To solve this problem, Nakamoto suggested a peer-to-peer network in which the so-called miners timestamp transactions by “hashing” them into the Blockchain, an ongoing chain of hash-based proof-of-work. Peer-to-peer networks have no central server and no difference between users and servers: information about transactions is secured and completely decentralized at the same time. Hashing is a programming function that allows the user to map data of arbitrary size to data of fixed size (p. 2). A decentralized network of miners who provide the CPU power for approving transactions and embedding them into the Blockchain are rewarded with newly generated Bitcoins for every group of verified transactions (the so-called block), which they verify (p. 4). Ownership of any amount of the cryptocurrency is realized in the Bitcoin protocol through the general Bitcoin ledger, which contains every transaction ever conducted.

This concept of a completely decentralized network provides absolute independence from any governing body. The only way to corrupt the Blockchain protocol, a so-called 51 percent attack (Narayanan, Bonneau, Felten, Miller & Goldefgerder, p. 49), is to control the majority of the network’s CPU power, and the collaboration of the majority of miners for such an attack is highly unlikely to happen (Nakamoto, 2008a, p. 1).

Predictable Growth and Fixed Limit of the Supply

New Bitcoins are released into the system solely through the mining process. Each verified set of transactions results in a fixed mining block reward. The reward per block is set to be divided in half every 210’000 blocks, which takes around four years to generate. This process ensures a steady decrease of the growth of Bitcoin’s total supply. The genesis block (i.e., the first block generated by Satoshi Nakamoto, the first-ever miner), was set to release a reward of 50 Bitcoins. Since then, the amount has been halved two times. The second halving day was in July 2016, resulting in a current mining block reward of 12.5 Bitcoins; the next halving is predicted to take place in June 2020. The block reward is programmed to be halved until halving day 32 is reached, at which time the predefined total amount of 21 million Bitcoins will have been released — presumably in the year 2140 if the mining rate stays at a constant level (Barman, 2017d).

Pseudo-Anonymity of Bitcoin Transactions

Since every transaction of Bitcoins is embedded in the distributed Blockchain ledger, the movements of Bitcoins are publicly displayed in the network. It is possible however for anyone with a computer and internet connection to join the Bitcoin network without submitting their name or any other personal information. The identity of an owner of certain amounts of Bitcoin stays hidden, but the amounts moved around are publicly displayed in the ledger, resulting in a so-called “pseudo-anonymity” (Dombrowski, 2014, p. 19). Because of this fact, Bitcoin developer Sergio Lerner was able to estimate that inventor Satoshi Nakamoto may own around 1 million Bitcoins (Lerner, 2013). This characteristic of the Bitcoin network was also the reason why the hackers behind the ransomware attack WannaCry, which took place in May 2017, did not cash out their Bitcoin ransom immediately. The ransom was spread across three Bitcoin wallets where victims were encouraged to send the cryptocurrency payments. All three wallets stayed inactive for nearly three months before the attackers used special techniques to carefully extract their ill-gotten gains (Gibbs, 2017).

The Blockchain

The most important innovation introduced in Satoshi Nakamoto’s white paper, the Blockchain technology, provides the missing link that makes a decentralized digital currency possible (Franco, 2015, p. 95). The verification of the origin and path of every Bitcoin movement requires an official reference obtained through the hashing process. As illustrated in Figure 1, the transaction history on the distributed ledger is created through the compilation of Bitcoin movements occurring at the same time into blocks. The subsequent linkage of each block results ultimately in the Blockchain. Once embedded into the Blockchain protocol, transactions cannot be removed from the distributed ledger. Bitcoin payments are irreversible. The Blockchain ledger contains a chronological record of every verified transaction since the very first block was created by founder Nakamoto (Dombrowski, 2014, p. 21).

Figure 1: Continuous Hashing in the Blockchain (Source: Nakamoto, 2008a, p. 2).

The so-called proof of work ensures that only one version of the Blockchain is generally accepted and is constantly verified by the network, resulting ultimately in stability and security without the need for a central governing body. A proof of work is specific data that needs to be produced to be able to attach data to the Blockchain. The proof of work is difficult to produce but easy to verify by the network. The difficulty in producing such data makes sure that no one server has enough computational power to corrupt the Blockchain singlehandedly by writing its own transaction history. The difficulty level is programmed to rise continuously with each verified block (Dombrowski, 2014, p. 21).

Technical Limitation: Scalability

While Bitcoin has consistently gained popularity in the last few years, the effect of increased usage on the Blockchain size has become the most significant threat to the cryptocurrency’s future (Simonite, 2015). The Bitcoin network often faces criticism because it would not scale the block size to handle a rate of transactions comparable to that of established online payment systems like PayPal (Franco, 2015, p. 20). The Blockchain is only able to process about four transactions per second, while Paypal does hundreds and Mastercard or Visa even thousands (White, 2017). Founder Nakamoto limited the size of a block to 1 MB to keep Bitcoin nodes from coming under attack. Security and transaction capacity per second are counterparts of the cryptography-based digital currency. The discussion about increasing the block size or changing the verification process to handle more transactions has been present in mainstream media since the Blockchain size started to increase rapidly in 2014, as seen in Figure 2. To solve the problem, the Bitcoin community came up with a solution called Segregated Witness (SegWit). Developer Dr. Peter Wuille suggested the SegWit process through which the block size limit on the Blockchain can be increased by removing signature data from the transaction data (sender and recipient), resulting in a higher capacity for transactions per second (van Wildrum, 2015). 

Figure 2: Increase of the Blockchain size (in MB) throughout Bitcoin’s lifetime (Source: blockchain.info, 2017, October 26).

In summer 2017, the majority of the Bitcoin community supported the “New York Agreement” (NYA) to the two-stage adaptation, SegWit and SegWit2x, of the Bitcoin protocol. While SegWit separated the signature from transactions, Segwit2x raises the block size to 2 MB, resulting in a hard fork in the Blockchain protocol (van Wildrum, 2017). SegWit was implemented in August 2017. SegWit2x is set to be implemented in November 2017, around the same time I submitted my master's thesis.

Altcoins

Since the Blockchain technology was developed as an open source project without a registered patent and with an unknown inventor, the concept was copied in the third year after the first Bitcoin was mined, resulting in the development of many alternative coins to Bitcoin, the so-called Altcoins. Software developers like Ethereum programmer Vitalik Buterin even adapted the Blockchain technology, in an attempt to remove what was seen as some of Bitcoin’s flaws (Vigna & Casey, 2015, p. 102). Today, approximately 900 different digital coins are listed on coinmarketcap.com. Appendix A1 shows an overview of the top 30 Altcoins by market capitalization. Bitcoin currently has the highest market capitalization by far, with over 100 billion dollars; it is followed by Ethereum with around 28 billion dollars. Ripple, Bitcoin Cash, Litecoin, Dash, Monero, and Ethereum Classic are the most prominent Altcoins, with market capitalizations between 1 and 8 billion dollars (2017).

References

Abbey, B. S. & Doukas, J. A. (2012). Is Technical Analysis Profitable for Individual Currency Traders? Journal of Portfolio Management, 39(1), 142-150.

Back, A. (2002). Hashcash – A Denial of Service Counter-Measure [Proposal for cryptographic proof-of-work]. Retrieved from https://www.hashcash.org/papers/hashcash.pdf

Barman, Y. (2017a, February 18). Digitales Geld auf dem Vormarsch. St. Galler Tagblatt.Retreived from https://www.tagblatt.ch/nachrichten/wirtschaft/Digitales-Geld-auf-dem-Vormarsch;art149,4907485

Barman, Y. (2017b, February 18). Zuger Firma Xapo macht Bitcoin alltagstauglich. St. Galler Tagblatt. Retrieved from https://www.tagblatt.ch/nachrichten/wirtschaft/Zuger-Firma-Xapo-macht-Bitcoin-alltagstauglich;art149,4907505

Barman, Y. (2017c, February 18). Bitcoin trotzt der chinesischen Regierung. St. Galler Tagblatt. Retrieved from https://www.tagblatt.ch/nachrichten/wirtschaft/Bitcoin-trotzt-der-chinesischen-Regierung;art149,4907486

Barman, Y. (2017d, February 18). Die Zahl: 21 Millionen ist die Obergrenze für das gesamte Bitcoin-Angebot. St. Galler Tagblatt, p. 9.

Berentsen, A. & Sch?r, F. (2017). Bitcoin, Blockchain und Kryptoassets. Eine umfassende Einführung. Norderstedt: BoD – Books on Demand

Bennett, T. (2011, May 26). Moneyweek Investment Tutorials: What is technical analysis? [Investment tutorial on Youtube]. Retrieved from https://www.youtube.com/

watch?v=_2sa3TC58Qo

Blitz, R. (2017, October 2). Haven currencies are not always a safe bet: Carry trade behaviour often a better explanation for currency moves. Financial Times. Retrieved from https://www.ft.com/content/32e5b37a-a747-11e7-93c5-648314d2c72c

Bloomberg, J. (2017, June 26). What Is Bitcoin's Elusive Intrinsic Value? Forbes. Retrieved from https://www.forbes.com/sites/jasonbloomberg/2017/06/26/what-is-bitcoins-elusive-intrinsic-value/#3886f8ab7194

Bovaird, C. (2017a, February 26). What Bitcoin Traders Should Know About Technical Analysis. Coindesk. Retrieved from https://www.coindesk.com/bitcoin-traders-know-technical-analysis/

Bovaird, C. (2017b, April 29). What Bitcoin Traders Should Know About Fundamental Analysis. Coindesk. Retrieved from https://www.coindesk.com/bitcoin-traders-know-fundamental-analysis/

Bovaird, C. (2017c, September 1). Bitcoin Price Tops $5’000 For First Time. Forbes. Retrieved from https://www.forbes.com/sites/cbovaird/2017/09/01/bitcoin-price-tops-5000-for-first-time/#677ad2485d97

Browne, R. (2017, October 9). Bitcoin price bubble ‘will collapse` while the tech that underpins it lives on, Kenneth Rogoff predicts. CNBC. Retrieved from https://www.cnbc.com/

2017/10/09/bitcoin-price-bubble-will-collapse-kenneth-rogoff-predicts.html

Brunnermeier, M. K., Oehmke, M. (2012). Bubbles, Financial Crisis, and Systemic Risk (NBER working paper, no. 18398). Cambridge: National Bureau of Economic Research. Retrievd from https://www.nber.org/papers/w18398.pdf

Burniske, C. & White, A. (2016) Bitcoin: Ringing the Bell for a New Asset Class. (Research white paper). ARK Invest + Coinbase.

Busstra, H. (Director). (2015). The Bitcoin Gospel. [Documentary film]. Hilversum, North Holland, The Netherlands: VPRO

Cannucciari, C. (Director). (2016). Banking on Bitcoin [Documentary film]. New York City, New York, USA: Periscope Entertainment

Carron, K. (2015). Calibration of Bubble Indicators for Foreign Exchange Markets[Electronic version]. (Unpublished master’s thesis). University of St. Gallen.

Century, A. (2013). Bitcoin Gets a Cautious Nod From China’s Central Bank. The New York Times. Retrieved from https://sinosphere.blogs.nytimes.com/2013/11/22/bitcoin-gets-a-cautious-nod-from-chinas-central-bank/?_php=true&_type=blogs&_r=2

Chaum, D. (1983). Blind Signatures for Untraceable Payments. Santa Barbara, CA: Department of Computer Science, University of California. Retrieved from https://www.hit.bme.hu

/~buttyan/courses/BMEVIHIM219/2009/Chaum.BlindSigForPayment.1982.PDF

Chen, A. (2011, June 1). The Underground Website Where You Can Buy Any Drug Imaginable. Gawker. Rertrieved from https://gawker.com/the-underground-website-where-you-can-buy-any-drug-imag-30818160

Chilton, B. (2017, November 1). Bitcoin's $6,400 Price Tag Explained By Initial Coin Offering Craze. Forbes. Retrieved from www.forbes.com/sites/insideasia/2017/11/01/bitcoins-6400-price-tag-explained-by-initial-coin-offering-craze/#7dcaa17e37d6

Chowdhury, A. (2016). Is Bitcoin the "Paris Hilton" of the Currency World? Or Are the Early Investors onto Something That Will Make Them Rich. Journal of Investing. 25(1), 64-72.

Coinmarketcap (2017). Cryptocurrency Market Capitalization [List of known cryptocurrencies by market capitalization]. Retrieved from https://coinmarketcap.com/coins/views/all/

Cooper, G. (2008). The Origin of Financial Crisis; Central Banks, Credit Bubbles and the Efficient Market Fallacy. London: Harriman House.

Coppola, F. (2016, August 16). Theft and Mayhem in the Bitcoin World. Forbes. Retrieved from https://www.forbes.com/sites/francescoppola/2016/08/06/theft-and-mayhem-in-the-bitcoin-world/#303b47c1644f

Cox, J. (2013, March 25). Bitcoin Bonanza: Cyprus Crisis Boosts Digital Dollars. CNBC. Retrieved from https://www.cnbc.com/id/100597242

Darby, M. (1998, December). In Ponzi We Trust: Borrowing from Peter to pay Paul is a scheme made famous by Charles Ponzi. Who was this crook whose name graces this scam?. Smithsonian magazine. Retrieved from https://www.smithsonianmag.com/history/in-ponzi-we-trust-64016168/

Davis, J. (2011, October 10). The Crypto-Currency: Bitcoin and its mysterious inventor. The New Yorker. Retrieved from https://www.newyorker.com/magazine/2011/10/10/the-crypto-currency

Day, W. (1988). B-money [Proposal for an anonymous, distributed electronic cash system]. Retrieved from https://www.weidai.com/bmoney.txt

De, N. (2017, October 26). 'A Real Bubble': Billionaire Warren Buffett Doubles Down on Bitcoin Doubt. Coindesk. Retrieved from https://www.coindesk.com/real-bubble-billionaire-warren-buffett-doubles-bitcoin-doubt/

Demirguc-Kunt, A., Klapper, L., Singer, D & Van Oudheusen, P. (2015). The Global Findex Database 2014: Measuring Financial Inclusion around the World [Policy Research Working Paper]. World Bank Development Research Group. Retrieved from documents.worldbank.org/curated/en/187761468179367706/pdf/WPS7255.pdf

Di Lorenzo, R. (2013). Basic Technical Analysis of Financial Markets: A Modern Approach. Milano: St. Springer-Verlag Italia.

Dietrich, V. (2013). The Emergence of Asset Price Bubbles: The Role of Banks in 1920s United States and 1980s Japan — An Economic and Historical Analysis [Electronic version]. (Unpublished master’s thesis). University of St. Gallen.

Dombrowski, E. (2014). Analysis of Bitcoin as a Viable Currency [Electronic version]. (Unpublished master’s thesis). University of St. Gallen.

Eller, R. & Sagerer, C. (2008). An Overview of Commodity Sectors. In F. J. Fabozzi, R. Füss & D. G. Kaiser (Eds.), The Handbook of Commodity Investing (pp. 681‐735). New Jersey: John Wiley & Sons.

European Central Bank [ECB]. (2012). Virtual Currency Schemes [ECB Report]. Frankfurt am Main: Author

Fabozzi, F., Füss, R. & Kaiser, D. (Eds.). (2008). The Handbook of Commodity Investing. New Jersey: John Wiley & Sons.

Foerster, J.-H. (2017, November 2). Bitcoin Is the ‘Very Definition’ of a Bubble, Credit Suisse CEO Says. Bloomberg. Retrieved from https://www.bloomberg.com/news/

articles/2017-11-02/bitcoin-is-very-definition-of-a-bubble-credit-suisse-ceo-says

Farrell, M. (2013, March 28). Bitcoin prices surge post-Cyprus bailout. CNN Money. Retrieved from https://money.cnn.com/2013/03/28/investing/bitcoin-cyprus/

Franco, P. (2015). Understanding Bitcoin: Cryptography, Engineering and Economics. West Sussex: John Wiley & Sons.

Frisby, D. (2014). Bitcoin: The Future of Money? Retrieved from https://books.google.ch/

books?id=htliCAAAQBAJ&printsec=frontcover&hl=de#v=onepage&q&f=false

Frunza, M. C. (2016). Solving Modern Crime in Financial Markets: Analytics and Case Studies. Retrieved from: https://books.google.ch/books?id=EokpCgAAQBAJ&pg=PA65&dq= mt.+gox+70&hl=en&sa=X&redir_esc=y#v=onepage&q=mt.%20gox%2070&f=false

Gao, L. (2013). Essays on the Commodity Futures Markets (Doctoral dissertation, University of St. Gallen, No. 4146). St. Gallen: D-Druck-Spescha.

Gibbs, S. (2017, August 3). WannaCry: hackers withdraw ￡108,000 of bitcoin ransom. The Guardian. Retrieved from https://www.theguardian.com/technology/2017/aug/03/

wannacry-hackers-withdraw-108000-pounds-bitcoin-ransom

Greenberg, A. (2011, June 14). WikiLeaks Asks For Anonymous Bitcoin Donations. Forbes. Retrieved from https://www.forbes.com/sites/andygreenberg/2011/06/14/wikileaks-asks-for-anonymous-bitcoin-donations/#2e6c12614f73

Greenberg, A. (2014, March 25). Nakamoto's Neighbor: My Hunt For Bitcoin's Creator Led to a Paralyzed Crypto Genius. Forbes. Retrieved from https://www.forbes.com/sites/

andygreenberg/2014/03/25/satoshi-nakamotos-neighbor-the-bitcoin-ghostwriter-who-wasnt/#489794424a37

Greenberg, A. (2016, January 6). The Father of Online Anonymity Has a Plan to End the Crypto War. WIRED Magazine. Retreived from https://www.wired.com/2016/01/david-chaum-father-of-online-anonymity-plan-to-end-the-crypto-wars/

Greenberg, A. (2017, January 25). Monero, the Drug Dealer's Cryptocurrency of Choice, Is on Fire. WIRED magazine. Retrieved from https://www.wired.com/2017/01/monero-drug-dealers-cryptocurrency-choice-fire/

Grimes, A. (2012). The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies. Hoboken: Wiley.

Higgins, S. (2015, July 1). Details of $5 Million Bitstamp Hack Revealed. Coindesk. Retrieved from www.coindesk.com/unconfirmed-report-5-million-bitstamp-bitcoin-exchange/

Hody, P. (2017, October 16). Kryptow?hrungen: Das neue “Bankgeheimnis” der Schweiz?. finews.ch. Retrieved from https://www.finews.ch/news/finanzplatz/29223-schweiz-bankgeheim nis- krypwaehrungen-blockchain-wettbewerbsvorteil

Hoffmann, T. & Watchulonis, M. (Directors). (2015). Bitcoin: The End of Money as We Know It [Documentary film]. New York City, New York, USA: 4K Content Hub

Hsu, S. (2017, October 19). After Cracking Down on Bitcoin, China Contemplates Its Own Digital Currency. Forbes. Retrieved from www.forbes.com/sites/sarahsu/2017/10/19/will-china-host-the-worlds-biggest-state-backed-digital-currency/#11108d841231

Iyengar, R. (2017, March 3). Bitcoin price exceeds gold for the first time ever. CNN Money.Retrieved from https://money.cnn.com/2017/03/03/investing/bitcoin-gold-price-value/

Jost, A. (2017). Central Banks, Monetary Policy and the Public (Doctoral dissertation, University of St. Gallen, No. 4667). Zurich: PublishingCenter Swiss National Bank.

Kandur, J. L. (2017, October 20). Stardust is gold dust. Daily Sabah. Retrieved from https://www.dailysabah.com/feature/2017/10/21/stardust-is-gold-dust

Kaye, B. & Wagstaff, J. (2017, March 2). Bitcoin’s “creator” races to patent technology with gambling tycoon. Reuters. Retrieved from www.reuters.com/investigates/special-report/bitcoin-wright-patents/

Keirns, G. (2017, March 31). Japan's Bitcoin Law Goes Into Effect Tomorrow. Coindesk. Retrieved from https://www.coindesk.com/japan-bitcoin-law-effect-tomorrow/

Kelion, L. (2013, December 18). Bitcoin sinks after China restricts yuan exchanges. BBC News. Retrieved from https://www.bbc.com/news/technology-25428866

Kelly, J. & Keidan, M. (2017, October 23). Big money stays away from booming bitcoin. Reuters. Retrieved from https://www.reuters.com/article/us-markets-bitcoin-institutional/big-money-stays-away-from-booming-bitcoin-idUSKBN1CS0EB

Kiviat, T. (2015). Beyond Bitcoin: Issues in Regulating Blockchain Transactions. Duke Law Journal. 65(11), 569-608.

Levy, S. (2013, June 14). How Google Will Use High-Flying Balloons to Deliver Internet to the Hinterlands. WIRED. Retrieved from www.wired.com/2013/06/google_internet_ balloons/all/google.com/loon/

Lerner, S. (2013). The Well Deserved Fortune of Satoshi Nakamoto, Bitcoin Creator, Visionary and Genius. Retrieved from bitslog.wordpress.com/2013/04/17/the-well-deserved-fortune-of-satoshi-nakamoto/

Lovelace, B. (2017, June 7). Cramer says it's possible bitcoin could reach $1 million one day. CNBC. Retrieved from https://www.cnbc.com/2017/06/07/cramer-says-its-possible-bitcoin-could-reach-1-million-one-day.html

Lewis, N. (2017, June 30). Gold or Bitcoin? Gold and Bitcoin. Forbes. Retrieved from www.forbes.com/sites/nathanlewis/2017/06/30/gold-or-bitcoin-gold-and-bitcoin/# 5ee1cd0e3e4b

Mallya, P. (2017, October 16). Volatility keeping gold prices in check; commodity may soon fall towards Rs 28,000. The Economic Times. Retrieved from economictimes.indiatimes.com/markets/commodities/views/volatility-keeping-gold-prices-in-check-commodity-may-soon-fall-towards-rs-28000/articleshow/61099494.cms

Mamudi, S. (2008, September 15). Lehman folds with record $613 billion debt.MarketWatch. Retreived from https://www.marketwatch.com/story/lehman-folds-with-record-613-billion-debt

Marta, T. J. & Brusuelas, J. (2009). Forex Analysis and Trading: Effective Top-Down Strategies Combining Fundamental, Position, and Technical Analyses [Adobe Digital version]. doi: 10.1002/9781119204367

Matonis, J. (2012, September 27). Bitcoin Foundation Launches to Drive Bitcoin’s Advancement. Forbes. Retrieved from https://www.forbes.com/sites/jonmatonis/2012/09/27/bitcoin-foundation-launches-to-drive-bitcoins-advancement/#60ef3ef1d868

McGrath Goodman, L. (2014, March 19). The Face Behind Bitcoin. Newsweek. Retrieved from https://www.newsweek.com/2014/03/14/face-behind-bitcoin-247957.html

Mitchell, F. (2016). A Profile of Bitcoin Currency: An Explanatory Study. International Journal of Business & Economics Perspectives. 11(1), 80-92.

Mross, N. (Director). (2014). The Rise and Rise of Bitcoin [Documentary film]. El Segundo, California, USA: Gravitas Ventures

Nakamoto, S. (2008a). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved from https://Bitcoin.org/Bitcoin.pdf

Nakamoto, S. (2008b, 31 October). Bitcoin P2P e-cash paper [Post on Cryptography Mailing List]. Retrieved from https://article.gmane.org/gmane.comp.encryption.general/12588

Narayanan, A. (2013). What Happened to the Crypto Dream?, Part 1. IEEE Security & Privacy. 11(2), 15-16. Retrieved from https://randomwalker.info/publications/crypto-dream-part1.pdf

Narayanan, A., Bonneau, J., Felten, E., Miller, A. & Goldfeder, S. (2016). Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. Princeton: Princeton University Press.

O’Mahony, P. (2017, July 11). Charting the stock markets: does technical analysis work?. The Irish Times. Retrieved from https://www.irishtimes.com/business/personal-finance/ charting-the-stock-markets-does-technical-analysis-work-1.3148453

Orphanides, A. (2014). What Happened in Cyprus? The Economic Consequences of the Last Communist Government in Europe. LSE Financial Markets Group Special Paper Series, (232). Retrieved from https://www.lse.ac.uk/fmg/dp/specialPapers/PDF/SP232-Final.pdf

Pagliery, J. (2013, October 2). FBI shuts down online drug market Silk Road. CNN Tech.Retrieved from https://money.cnn.com/2013/10/02/technology/silk-road-shut-down/

Peterson, A. (2014, January 3). Hal Finney received the first Bitcoin transaction. Here’s how he describes it. The Washington Post. Retrieved from https://www.washingtonpost.com/ news/the-switch/wp/2014/01/03/hal-finney-received-the-first-bitcoin-transaction-heres-how-he-describes-it/?utm_term=.feeb15d59014

Ponsi, E. (2016). Technical Analysis and Chart Interpretations: A Comprehensive Guide to Understanding Established Trading Tactics for Ultimate Profit. New Jersey: John Wiley & Sons.

Popper, N. (2014, August 30). Hal Finney, Cryptographer and Bitcoin Pioneer, Dies at 58. The New York Times. Retrieved from https://www.nytimes.com/2014/08/31/business/hal-finney-cryptographer-and-bitcoin-pioneer-dies-at-58.html?ref=obituaries

Popper, N. (2015, May 15). Decoding the Enigma of Satoshi Nakamoto and the Birth of Bitcoin. The New York Times. Retrieved from https://www.nytimes.com/2015/05/17/business/decoding-the-enigma-of-satoshi-nakamoto-and-the-birth-of-bitcoin.html

Popper, N. (2016, May 25). Mt. Gox Creditors Seek Trillions Where There Are Only Millions. The New York Times. Retrieved from www.nytimes.com/2016/05/26/business/dealbook/mt-gox-creditors-seek-trillions-where-there-are-only-millions.html

Reitman, R. (2011). Bitcoin — a Step Toward Censorship-Resistant Digital Currency.Electronic Frontier Foundation. Retrieved from https://www.eff.org/deeplinks/2011/01/Bitcoin-step-toward-censorship-resistant

Riley, C. & Dayu, Z. (2013, December 5). China cracks down on Bitcoin. CNN Money. Retrieved from https://money.cnn.com/2013/12/05/investing/china-bitcoin/

Roberts, J. J. (2017, November 3). Bitcoin's Coming Split: What You Need to Know. Fortune. Retrieved from https://fortune.com/2017/11/03/bitcoin-segwit2x/

Rogoff, K. (2017, October 9). Bitcoin’s price buble will burst under government pressure.The Guardian. Retrieved from https://www.theguardian.com/technology/news-blog/2017/oct/09/bitcoin-price-bubble-government-cryptocurrency

Simonite, T. (2015, August 28). The Looming Problem That Could Kill Bitcoin. MIT Technology Review. Retrieved from https://www.technologyreview.com/s/540921/the-looming-problem-that-could-kill-bitcoin

Strassel, K. A. (1996, May 17). Deutsche Bank to Test 'E-Cash' With DigiCash in Pilot Project. The Wall Street Journal. Retreived from www.wsj.com/articles/SB831416067295410500

Shell, A. (2016, November 6). Street processes Trump win; Dow 46 from record close. USA Today. Retrieved from www.usatoday.com/story/money/markets/2016/11/09/global-markets-tailspin-trump-victory-declared/93531114/

Shin, L. (2017, October 23). Will This Battle for the Soul of Bitcoin Destroy It? Forbes. Retrieved from https://www.forbes.com/sites/laurashin/2017/10/23/will-this-battle-for-the-soul-of-bitcoin-destroy-it/#7fecbae83d3c

Southhurst, J. (2014, April 19). Bitcoin Price Drops 10% as Chinese Exchanges Stop Bank Deposits. Coindesk. Retrieved from https://www.coindesk.com/bitcoin-price-crashes-chinese-exchanges-stop-bank-deposits/

Suberg, W. (2017, October 9). Bitcoin: $4600, 50% Dominance, Forks Leave Altcoins No Room For Moon. The Cointelegraph. Retrieved from cointelegraph.com/news/bitcoin-4600-50-dominance-forks-leave-altcoins-no-room-for-moon

Sutter, B. C. (2013). Three Essays in Monetary Economics — Liquidity and its Effects on Inflation and Interest Rates (Doctoral dissertation, University of St. Gallen, No. 4201). Zurich: PublishingCenter Swiss National Bank.

Teeter, P. & Sandberg, J. (2017). Cracking the enigma of asset bubbles with narratives. Strategic Organization, 15(1), 91-99.

Temin, P. (2010). The Great Recession & the Great Depression. MIT Press Journals: Daedalus. 139(4), 115-124. Retrieved from https://www.nber.org/papers/w15645.pdf

The Economist (2015, October 31). The trust machine: The technology behind bitcoin could transform how the economy works. The Economist. Retrieved from https://www.economist.com/news/leaders/21677198-technology-behind-bitcoin-could-transform-how-economy-works-trust-machine

The New Liberty Standard (2009). Mid-Market Bitcoin Exchange Rate History.Retrieved from https://newlibertystandard.wikifoundry.com/page/2009+Exchange+Rate

Trütsch, T. (2017). The Economics of Payment: Essays on the Impact of Payment Innovations on Individual Payment Behavior (Doctoral dissertation, University of St. Gallen, No. 4697). Bamberg: Difo-Druck GmbH.

United States Senate Committee on Homeland Security and Governmental Affairs (2013, November 18). Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies [Full Committee Hearing]. Retrieved from https://www.hsgac.senate.gov/ hearings/beyond-silk-road-potential-risks-threats-and-promises-of-virtual-currencies

Vigna, P. (2014, February 25). 5 Things About Mt. Gox’s Crisis. The Wall Street Journal. Retrieved from https://blogs.wsj.com/briefly/2014/02/25/5-things-about-mt-goxs-crisis/

Vigna, P., Casey, M. J. (2015). The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order. New York: St. Martin’s Press.

Wafi, A. S., Hassan, H. & Mabrouk, A. (2015). Fundamental Analysis Models in Financial Markets — Review Study. Amsterdam: Elsevier B.V. doi: 10.1016/S2212-5671(15)01344-1

White, L. H. (2017, October 26). Blockchain + Gold. Cato Institute. Retrieved from https://www.cato.org/blog/blockchain-gold

Whitehouse, K. (2015, June 3). ‘Bitlicense’ rules regulating bitcoin released. USA Today.Retrieved from https://www.usatoday.com/story/tech/2015/06/03/bitcoin-bitlicense-lawsky-rules-final/28405317/

van Wildrum, A. (2015, December 19). Segregated Witness, Part 1: How a Clever Hack Could Significantly Increase Bitcoin's Potential. Bitcoin Magazine. Retrieved from https://bitcoinmagazine.com/articles/segregated-witness-part-how-a-clever-hack-could-significantly-increase-bitcoin-s-potential-1450553618/

van Wildrum, A. (2017, June 20). Bitcoin Miners Are Signaling Support for the New York Agreement: Here’s What that Means. Bitcoin Magazine. Retrieved from miners-are-signaling-support-new-york-agreement-heres-what-means

Williams, M. T. (2014, January 28). Testimony to The New York State Department of Financial Services for the Hearing Regarding Vritual Currencies [Written testimony]. Retrieved from https://www.dfs.ny.gov/about/hearings/vc_01282014/williams.pdf

Williams-Grut, O. & Price, R. (2017, March 26). A Bitcoin civil war is threatening to tear the digital currency in 2 – here’s what you need to know. Business Insider. Retrieved from https://www.businessinsider.com/bitcoins-hard-fork-bitcoin-unlimited-segregated-witness-explained-2017-3

Winter, A. (Director). (2015). Deep Web: The Untold Story of BitCoin and Silk Road[Documentary film]. New York City, New York, USA: BOND/360

World Gold Council [WGC]. (2011). The evolving structure of gold demand and supply. Retrieved from https://www.gold.org/download/pub_archive/pdf/The_evolving_ structure_of_gold_demand_and_supply.pdf

Table of Contents (of my entire master's thesis)

1. Introduction 1

1.1 Motivation 1

1.2 Methodology 3

1.3 Outline 3

2. Literature Review 4

3. Theoretical Foundation 6

3.1 The Fundamentals of Bitcoin — An Overview 6

3.1.1 History 6

3.1.2 Characteristics: Limited Supply and Pseudo-Anonymity 12

3.1.3 Altcoins 14

3.1.4 The Blockchain 14

3.1.5 Technical Limitation: Scalability 15

3.1.6 Who is Satoshi Nakamoto? 16

3.2 What Is Money? 17

3.2.1 The End of Commodity Money 18

3.2.2 Definition of Money 18

3.2.3 Functions and Properties of Money 19

3.2.4 Electronic Cash: Digital but Different 20

3.3 What Are Commodities? 20

3.3.1 Classification of Asset Class Commodities 20

3.3.2 What Is Gold? 21

3.4 What Is a Bubble? 22

3.4.1 Predictability of Economic Bubbles 22

3.4.2 Definition of a Bubble 22

3.4.3 Delaying Effects on Bubble Bursts 23

4. Technical and Fundamental Analysis of Bitcoin 24

4.1 Adaptations and Assumptions Based on Traditional Financial Analysis 24

4.2 Technical Analysis 26

4.2.1 How to Perform a Technical Analysis of Bitcoin 26

4.2.2 Analysis of the Overall Price History 28

4.2.3 Where Is the Long-Term Price Heading? 37

4.3 Fundamental Analysis 38

4.3.1 How to Perform a Fundamental Analysis on Bitcoin 39

4.3.2 Impact of Major Historic Events 39

4.3.3 Impact of Limited Supply 44

4.3.4 Drivers for Bitcoin Demand 45

4.3.5 The Value of the Blockchain Technology 46

4.3.6 The Impact of the Scalability Problem 48

4.4 Where Is the Long-Term Price Really Heading? 49

4.5 Bitcoin’s Market Behavior 50

5. Classification of Bitcoin as a Financial Asset 51

5.1 Is Bitcoin reliable E-Cash? 51

5.1.1 Functions of Money 51

5.1.2 Properties of Money 52

5.1.3 Conclusion 52

5.2 Is Bitcoin a Commodity? 53

5.2.1 Bitcoin in the Classification of Asset Class Commodities 53

5.2.2 Bitcoin vs. Gold 53

5.2.3 Conclusion 54

5.3 Crypto Bubble and the Possibility of a Pyramid Scheme 54

5.3.1 Satoshi Nakamoto vs. Charles Ponzi 54

5.3.2 The People Behind the Pseudonym 55

5.3.3 Is Bitcoin Just a Bubble? 57

5.4 What Is Bitcoin? 58

6. Conclusion 59

References 61

Appendices 73

A1 Top 30 Altcoins by Market Capitalization 73

A2 Weekly Bitcoin Price and Volume Chart 74

A3 Weekly Historic Bitcoin Prices and Volumes 75