A purely peer-to-peer version of electronic cash would allow onlinepayments to be sent directly from one party to another without going through afinancial institution. Digital signatures provide part of the solution, but the mainbenefits are lost if a trusted third party is still required to prevent double-spending.We propose a solution to the double-spending problem using a peer-to-peer network.The network timestamps transactions by hashing them into an ongoing chain ofhash-based proof-of-work, forming a record that cannot be changed without redoingthe proof-of-work. The longest chain not only serves as proof of the sequence ofevents witnessed, but proof that it came from the largest pool of CPU power. Aslong as a majority of CPU power is controlled by nodes that are not cooperating toattack the network, they'll generate the longest chain and outpace attackers. Thenetwork itself requires minimal structure. Messages are broadcast on a best effortbasis, and nodes can leave and rejoin the network at will, accepting the longestproof-of-work chain as proof of what happened while they were gone. "Formalist positions towards money are considered from a perspective of formal methods in computing. The Formaleuro (FEUR) as a dimension for monetary quantities is proposed as well as the Formalbitcoin (FBTC) which represents an item ready for circulation in a model of informational money. An attempt is made to understand the concept of money from scratch. In order to provide a definition of money the need is felt to make use of a tailored theory of definition. To that end a theory of imaginative definitions is presented and its implications for definitions of money are sketched. It is argued that a theory of money may be dependent on the role of its holder. A survey of some roles is given, with the so-called subordinate administrative role (SAR) in a central position. The concepts of virtual memory and virtual machine are taken as the point of departure for a definition of the notion of virtual money. It is argued that from the perspective of a component (division) of a large organization (ORG) its local financial system (LFS) provides a virtual money vm(LFS, ORG) which may well fail to meet the most common general and acknowledged moneyness criteria. Inverse moneyness preference is coined as phrase to assert the tendency of top-management of ORG to make its virtual money deviate from these criteria. " This paper describes the development of Bitcoin NFC, an Android app designed to send bitcoins from one Android device to another. The technology used for sending information between devices is Near Field Communication (NFC), a very close-ranged wireless protocol. NFC allows devices to communicate by simply touching two devices together. There is no need for any configuration or pairing. Bitcoin NFC makes it possible to use bitcoins for point-of-sale transactions. Rather than swiping a credit card, a phone running Bitcoin NFC could be swiped instead. X X Bitcoin is a peer-to-peer cryptocurrency; which is entirely decentralized, open-source, and non-institutional. A comprehensive history of Bitcoin transactions is constantly distributed among users, while partial anonymity is accomplished through public/private key transactions. Bitcoin differs from digital currencies like Zynga, Second Life, and E-Gold, because no central authority issues new currency, instead it is ‘mined’ by self-interested individuals. States have an interest in regulating Bitcoin, due to its purported desirability as a medium for funding the drug trade, terrorism, and other subversive activities. Bitcoin’s architecture will encourage continued adoption, which will result in mounting pressure on the legal systems of interested states to codify a solution. Anonymity in Bitcoin, a peer-to-peer electronic currency system, is a complicated issue. Within the system, users are identified by public-keys only. An attacker wishing to de-anonymize its users will attempt to construct the one-to-many mapping between users and public-keys and associate information external to the system with the users. Bitcoin tries to prevent this attack by storing the mapping of a user to his or her public-keys on that user's node only and by allowing each user to generate as many public-keys as required. In this chapter we consider the topological structure of two networks derived from Bitcoin's public transaction history. We show that the two networks have a non-trivial topological structure, provide complementary views of the Bitcoin system and have implications for anonymity. We combine these structures with external information and techniques such as context discovery and flow analysis to investigate an alleged theft of Bitcoins, which, at the time of the theft, had a market value of approximately half a million U.S. dollars. "To incentivize nodes to participate in the peer to peer network and invest effort in authorizing transactions, rewards have to be allocated" In this paper we describe the various scoring systems used to calculate rewards of participants in Bitcoin pooled mining, explain the problems each were designed to solve and analyze their respective advantages and disadvantages. The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost of power. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result is a breach of Gresham's Law: stolen electricity will drive out honest mining. This has unfortunate effects for the stability of the Bitcoin economy, and the result is inevitable collapse. Bitcoin is an innovative concept of a decentralised, peer-to-peer virtual currency. Its functions are autonomous from any centralised influence. This report discusses the various security features and vulnerabilities of Bitcoin, as well as various applications relating to it. It provides the wide view of the most notable parts of the Bitcoin ecosystem - ranging from the cryptographic algorithms underlying the Bitcoin Protocol, through applications allowing one to trade Bitcoins for traditional money, and ending up with a look on the behaviour of Bitcoin users. In order to gain the necessary expertise, a prolonged study of Bitcoin was undertaken, so as to be able to design independent Bitcoin applications running on Google App Engine. Such an undertaking allowed one to better understand all the inner workings of Bitcoin. "Bitcoin is a new decentralized electronic currency which gained popularity in the last two years. The usage of Bitcoin is facilitated by software commonly called Bitcoin clients. This thesis provides an overview of Bitcoin and cryptography behind it, discusses different types of Bitcoin clients and researches additional features implemented by them. It also analyzes further enhancements that can be made to clients and the Bitcoin protocol. Bitcoin clien ts are grouped into types and analyzed from a usability and security perspective. Security is very important for Bitcoin clients as they are used to manipulate money, and poor security leads to direct loss of money. Various threats are evaluated, including malware infestations, theft of files, hostile takeover of servers and hardware failures. Security implications of additional features and future enhancements are also assessed. Various client types rely on significantly different security assumptions. While some clients are immune to hostile takeover of servers , for other clients this results in theft of money. None of the current clients is able to resist malware effectively. Additional features usually increase either security or usability, though some features improve both. The current choice of Bitcoin clients and their feature set is much richer than that one year ago. New versions with more features are released very often. One of the future enhancements, multisignature transactions, significantly increases security as it protects the money even if a client is totally compromised" Bitcoin is a decentralized payment system that is based on Proof-of-Work. Bitcoin is currently gaining popularity as a digital currency; several businesses are starting to accept Bitcoin transactions. An ex- ample case of the growing use of Bitcoin was recently reported in the media; here, Bitcoins were used as a form of fast payment in a local fast-food restaurant. In this paper, we analyze the security of using Bitcoin for fast payments, where the time between the exchange of currency and goods is short (i.e., in the order of few seconds). We focus on double- spending attacks on fast payments and demonstrate that these attacks can be mounted at low cost on currently deployed versions of Bitcoin. We further show that the measures recommended by Bitcoin de- velopers for the use of Bitcoin in fast transactions are not always effective in resisting double-spending; we show that if those recommendations are integrated in future Bitcoin implementations, double-spending attacks on Bitcoin will still be possible. Finally, we leverage on our findings and propose a lightweight countermeasure that enables the detection of double- spending attacks in fast transactions. This paper concerns the open source software project Bitcoin. Bitcoin is often described as virtual cash and this paper asks what the term ‘virtual’ signifies when applied to ‘cash’ and in turn what ‘virtual cash’ says about Bitcoin. Bitcoin is related to the 1990s activist movement of libertarian cryptographers known as ‘cypherpunks’ and to the cyber-libertarian political philosophy, demonstrating the historical intertwining of cryptography and politics. Cypherpunks argued that privacy is a prerequisite for an open society and that cryptography and anonymous transaction systems were needed as assurance. Bitcoin is the latest effort by cryptographers to create digital tokens similar to cash, where Bitcoin’s designer Nakamoto argues that with Bitcoin users no longer have to trust a third party, traditionally the bank. Bitcoin does not fulfill this promise as trust remains to be established, albeit in a different manner. Power is not destroyed, but transferred from banks to Bitcoin’s protocol. The paper concludes that ‘virtual’ refers to Bitcoin’s model of how cash appears to function in everyday exchange, allowing user privacy. Bitcoin does not model another aspect of cash, namely that it is a credential referring to debt. Bitcoin discontinues the concept of debt. show less This paper presents an economic analysis of Bitcoin from a libertarian point of view. The theoretical part analyses the applicability of the Austrian School of Economics at Bitcoin. Of particular interest are the evolution of money, competition among media of exchange, and the concept of money supply. The empirical part analyses the following variables: price, price volatility, liquidity, visibility and velocity. I come to the conclusion that theoretically, Bitcoin can be closer to the Austrian ideal of money than either fiat money or gold, and it is possible that it will evolve into that position. The results of the empirical analysis are consistent with Bitcoin being a medium of exchange. X We propose an electronic payment protocol for typical customer-merchant relations which does not require a trusted (signed) payment descriptor to be sent from the merchant to the customer. Instead, the destination "account" number for the payment is solely created on the customer side. This eliminates the need for any encrypted or authenticated communication in the protocol and is secure even if the merchant's online infrastructure is compromised. Moreover, the payment transaction itself serves as a timestamped receipt for the customer. It proves what has been paid for and who received the funds, again without relying on any merchant signatures. In particular, funds and receipt are exchanged in a single atomic action. The asymmetric nature of the customer-merchant relation is crucial. The protocol is specifically designed with bitcoin in mind as the underlying payment system. Thereby, it has the useful benefit that all transactions are public. However, the only essential requirement on the payment system is that "accounts" are arbitrary user-created keypairs of a cryptosystem whose keypairs enjoy a homomorphic property. All ElGamal-type cryptosystems have this feature. For use with bitcoin we propose the design of a deterministic bitcoin wallet whose addresses can be indexed by clear text strings. In 2009, a curious new virtual currency called Bitcoin made its first appearance on the Internet. While it remains a “niche” currency relative to other major denominations like the U.S. dollar, Bitcoin has experienced significant growth since its inception. The total number of Bitcoins in circulation is about 12.5 million, with a recent market price of about $500 each. Today, Bitcoin’s total market capitalization is about $6 billion, and in the past it has been as high as $13 billion. The average number of Bitcoin transactions per day has averaged over 60,000 since January 2014, reflecting between $20 million and $100 million worth of transactions per day. The numbers show that in the five years since its first appearance, Bitcoin has grown tremendously in popular knowledge and usage. Although it is clear that Bitcoin can be used to purchase goods and services, and can be given an explicit dollar value, questions remain about the economic and legal status of Bitcoin and other virtual currencies that have emerged in its wake. Members of the Bitcoin developer and user community believe “Bitcoin is an innovative payment network and new kind of money.” Others, like the U.S. Internal Revenue Service, take the position that Bitcoin is a type of commodity or property. Whether Bitcoin is a new form of virtual money or simply an electronic commodity requires an investigation into what constitutes money, and an assessment of whether Bitcoin comfortably fits into the parameters of what we consider to be money. This paper finds that, at this stage in its development, Bitcoin is not money and more closely resembles a commodity or property. X This paper begins by giving a brief overview of Bitcoin and how it operates. It then describes two major theories of money — the conventional and constitutional theories — that differ in their accounts of how money emerges within a society or political grouping. The paper assesses how well Bitcoin fits under each theory by assessing Bitcoin’s economic properties and implementation. It then turns to the impact of the Bitcoin on the two theories of money, finding it likely does not support the conventional creation story of money and instead lends credence to the constitutional theory. X X The conventional dichotomy of “commodity” and “fiat” base monies overlooks a third possibility that shares some features of each. This third type, which I call “synthetic commodity money,” resembles fiat money in having no nonmonetary value; but it resembles commodity money in being not just contingently but absolutely scarce. I discuss some actual examples of synthetic commodity monies, and then argue that special characteristics of synthetic commodity money are such as might allow such a money, if properly designed, to supply the foundation for a monetary regime that does not require oversight by any monetary authority, yet is able to provide for a high degree of macroeconomic stability. Proof-of-Work (PoW), a well-known principle to ration resource access in client-server relations, is about to experience a renaissance as a mechanism to protect the integrity of a global state in distributed transaction systems under decentralized control. Most prominently, the Bitcoin cryptographic currency protocol leverages PoW to (1) prevent double spending and (2) establish scarcity, two essential properties of any electronic currency. This chapter asks the important question whether this approach is generally viable. Citing actual data, it provides a first cut of an answer by estimating the resource requirements, in terms of operating cost and ecological footprint, of a suitably dimensioned PoW infrastructure and comparing them to three attack scenarios. The analysis is inspired by Bitcoin, but generalizes to potential successors, which fix Bitcoin’s technical and economic teething troubles discussed in the literature. X In the standard definition of a commitment scheme, the sender commits to a message and immediately sends the commitment to the recipient interested in it. However the sender may not always know at the time of commitment who will become interested in it. Further, when the interested party does emerge, it could be critical to establish when the commitment was made. Employing a proof of work protocol at commitment time will later allow anyone to “carbon date” when the commitment was made, approximately, without trusting any external parties. We present CommitCoin, an instantiation of this approach that harnesses the existing computational power of the Bitcoin peer-to-peer network; a network used to mint and trade digital cash. Bitcoin is a distributed digital currency which has attracted a substantial number of users. We perform an in-depth investigation to understand what made Bitcoin so successful, while decades of research on cryptographic e-cash has not lead to a large-scale deployment. We ask also how Bitcoin could become a good candidate for a long-lived stable currency. In doing so, we identify several issues and attacks of Bitcoin, and propose suitable techniques to address them. Anonymity in Bitcoin, a peer-to-peer electronic currency system, is a complicated issue. Within the system, users are identified only by public-keys. An attacker wishing to de-anonymize users will attempt to construct the one-to-many mapping between users and public-keys, and associate information external to the system with the users. Bitcoin tries to prevent this attack by storing the mapping of a user to his or her public-keys on that user’s node only and by allowing each user to generate as many public-keys as required. In this chapter we consider the topological structure of two networks derived from Bitcoin’s public transaction history. We show that the two networks have a non-trivial topological structure, provide complementary views of the Bitcoin system, and have implications for anonymity. We combine these structures with external information and techniques such as context discovery and flow analysis to investigate an alleged theft of Bitcoins, which, at the time of the theft, had a market value of approximately US$500,000. Digital technology has created a new playing field for illicit financial transactions. Governments and industry will have to be as fast-moving and adaptable as the criminals and terrorists to meet the threat. This paper presents an analysis of the money laundering risks of two virtual currencies, the Linden dollar, the in-world currency of the interactive online environment Second Life, and Bitcoin, an experimental virtual currency that allows for the transfer of value through peer-to-peer software. The paper will demonstrate that although these virtual currencies have money laundering utility, they are currently unsuitable for laundering on a large scale. The paper also considers whether either of these virtual currencies fall under the scope of the Money Laundering Regulations 2007 and draws on similarities with online gambling to suggest a method of incorporating the Linden dollar and Bitcoin within the anti-money laundering framework. X the Internet and other telecommunications systems have reshaped the means by which markets are accessed, generated, and transformed. Recent innovations in computer science have led to the development of a virtually bound, decentralized, encrypted currencysystem known as bitcoin. Unlike conventional currency systems, the Bitcoin protocol is cryptologically defined with a virtual structure that allows it to simultaneously operate as currency, commodity, and market shaping socio-political force. Its decentralized design permitsit to functionas a free-market response to fiat currencies vulnerable to inflation, regulation, and manipulation. Given the cultural significance anthropologists and other social scientists have assigned to various modes and mediums of exchangeover the years, the socio-economic impact of this novel currency system warrants particular consideration. This research describes the Bitcoin community that has emerged alongside the currency,including the entrepreneurs, developers, and consumers who are dedicated to bitcoin’s perpetuation and acceptance as an internationally recognized medium of exchange. Ethnographic interviews and participant observation were utilized to collect information from users in the Central Florida area, detailing their experiences and interactions with the Bitcoin protocol and its associated community. Thisresearch providesnew levels of anthropological insight into currency development, market interaction, and economically embodied social commentary. Moreover,itsexploratory nature helps create a viable framework around which qualitative inquiry of virtualcrypto-currencies may be designed in future studies. "the famous new money Bitcoin is classified as a technical informational money (TIM). Besides introducing the idea of a TIM, a more extreme notion of informational money will be developed: exclusively informational money (EXIM). The informational coins (INCOs) of an EXIM can be in control of an agent but are not owned by any agent. INCOs of an EXIM cannot be stolen, but they can be lost, or thrown away. The difference between an EXIM and a TIM shows up when considering a user perspective on security matters. Security for an EXIM user is discussed in substantial detail, with the remarkable conclusion that computer security (security models, access control, user names, passwords, firewalls etc.) is not always essential for an EXIM, while the application of cryptography based information security is unavoidable for the use of an EXIM. Bitcoin seems to meet the criteria of an EXIM, but the assertion that ""Bitcoin is an EXIM"", might also be considered problematic. As a thought experiment we will contemplate Bitguilder, a hypothetical copy of Bitcoin that qualifies as an EXIM. A business ethics assessment of Bitcoin is made which reveals a number of worries. By combining Bitguilder with a so-called technical informational near-money (TINM) a dual money system, having two units with a fluctuating rate, may be obtained. It seems that a dual money can remedy some, but not all, of the ethical worries that arise when contemplating Bitcoin after hypothetically having become a dominant form of money. The contributions that Bitcoin's designers can potentially make to the evolution of EXIMs and TIMs is analyzed in terms of the update of the portfolio of money related natural kinds that comes with Bitcoin. " " A collection of questions about Bitcoin and its hypothetical relatives Bitguilder and Bitpenny is formulated. These questions concern technical issues about protocols, security issues, issues about the formalizations of informational monies in various contexts, and issues about forms of use and misuse. Some questions are formulated in the more general setting of informational monies and near-monies. We also formulate questions about legal, psychological, and ethical aspects of informational money. Finally we formulate a number of questions concerning the economical merits of and outlooks for Bitcoin. " Digital payment schemes show an ever increasing importance. Out of the countless different schemes available this article focuses on the popular Bitcoin system. The authors provide a description of Bitcoin's unique technological basis and its accompanying ecosystem of users, miners, trading platforms and vendors. Furthermore, this article discusses Bitcoin's currency-like features and the first regulatory actions take in the European Union and in the United States of America. Bitcoin is a "crypto currency", a decentralized electronic payment scheme based on cryptography which has recently gained excessive popularity. Scientific research on bitcoin is less abundant. A paper at Financial Cryptography 2012 conference explains that it is a system which "uses no fancy cryptography", and is "by no means perfect". It depends on a well-known cryptographic standard SHA-256. In this paper we revisit the cryptographic process which allows one to make money by producing bitcoins. We reformulate this problem as a Constrained Input Small Output (CISO) hashing problem and reduce the problem to a pure block cipher problem. We estimate the speed of this process and we show that the cost of this process is less than it seems and it depends on a certain cryptographic constant which we estimated to be at most 1.86. These optimizations enable bitcoin miners to save tens of millions of dollars per year in electricity bills. Miners who set up mining operations face many economic incertitudes such as high volatility. In this paper we point out that there are fundamental incertitudes which depend very strongly on the bitcoin specification. The energy efficiency of bitcoin miners have already been improved by a factor of about 10,000, and we claim that further improvements are inevitable. Better technology is bound to be invented, would it be quantum miners. More importantly, the specification is likely to change. A major change have been proposed in May 2013 at Bitcoin conference in San Diego by Dan Kaminsky. However, any sort of change could be flatly rejected by the community which have heavily invested in mining with the current technology. Another question is the reward halving scheme in bitcoin. The current bitcoin specification mandates a strong 4-year cyclic property. We find this property totally unreasonable and harmful and explain why and how it needs to be changed. Designed to compete with fiat currencies, bitcoin proposes it is a crypto-currency alternative. Bitcoin makes a number of false claims, including: bitcoin can be a reserve currency for banking; hoarding equals saving, and that we should believe bitcoin can expand by deflation to become a global transactional currency supply. Bitcoin's developers combine technical implementation proficiency with ignorance of currency and banking fundamentals. This has resulted in a failed attempt to change finance. A set of recommendations to change finance are provided in the Afterword: Investment/venture banking for the masses; Venture banking to bring back what investment banks once were; Open-outcry exchange for all CDS contracts; Attempting to develop CDS type contracts on investments in startup and existing enterprises; and Improving the connection between startup tech/ideas, business organization and investment. BitCoin transactions are malleable in a sense that given a transaction an adversary can easily construct an equivalent transaction which has a different hash. This can pose a serious problem in some BitCoin distributed contracts in which changing a transaction's hash may result in the protocol disruption and a financial loss. The problem mostly concerns protocols, which use a "refund" transaction to withdraw a deposit in a case of the protocol interruption. In this short note, we show a general technique for creating malleability-resilient "refund" transactions, which does not require any modification of the BitCoin protocol. Applying our technique to our previous paper "Fair Two-Party Computations via the BitCoin Deposits" (Cryptology ePrint Archive, 2013) allows to achieve fairness in any Two-Party Computation using the BitCoin protocol in its current version. "A widespread security claim of the Bitcoin system, presented in the original Bitcoin white-paper, states that the security of the system is guaranteed as long as there is no attacker in possession of half or more of the total computational power used to maintain the system. This claim, however, is proved based on theoretically flawed assumptions. In the paper we analyze two kinds of attacks based on two theoretical flaws: the Block Discarding Attack and the Difficulty Raising Attack. We argue that the current theoretical limit of attacker's fraction of total computational power essential for the security of the system is in a sense not 12 but a bit less than 14, and outline proposals for protocol change that can raise this limit to be as close to 12 as we want. The basic idea of the Block Discarding Attack has been noted as early as 2010, and lately was independently though-of and analyzed by both author of this paper and authors of a most recently pre-print published paper. We thus focus on the major differences of our analysis, and try to explain the unfortunate surprising coincidence. To the best of our knowledge, the second attack is presented here for the first time. " We provide a first systematic account of opportunities and limitations of anti-money laundering (AML) in Bitcoin, a decentralized cryptographic currency proliferating on the Internet. Our starting point is the observation that Bitcoin attracts criminal activity as many say it is an anonymous transaction system. While this claim does not stand up to scrutiny, several services offering increased transaction anonymization have emerged in the Bitcoin ecosystem - such as Bitcoin Fog, BitLaundry, and the Send Shared functionality of Blockchain.info. Some of these services routinely handle the equivalent of 6-digit dollar amounts. In a series of experiments, we use reverse-engineering methods to understand the mode of operation and try to trace anonymized transactions back to our probe accounts. While Bitcoin Fog and Blockchain.info successfully anonymize our test transactions, we can link the input and output transactions of BitLaundry. Against the backdrop of these findings, it appears unlikely that a Know-Your-Customer principle can be enforced in the Bitcoin system. Hence, we sketch alternative AML strategies accounting for imperfect knowledge of true identities but exploiting public information in the transaction graph, and discuss the implications for Bitcoin as a decentralized currency. Dependability in cloud computing applications can be negatively affected by various attacks or service abuses. To come ahead of this threat, we propose an economic measure to deter attacks and various service abuses in cloud computing applications. Our proposed defense is based on requiring a service user to pay a small deposit, using digital currency, before invoking the service. Once they are done using the service, and there has been no detected abuse or attack, the deposit is paid back by the service provider to the service user. If an attack or an abuse is detected, the service user is not paid back and the service provider gets to keep the deposit. We propose the use of micro payments with a decentralized nature and small transaction fees, such as the Bit coin digital currency. Moreover, thanks to the existence of money exchanges which convert the Bit coin currency to real world currency, service providers can recoup loses when they exchange the confiscated deposits for real world currency. Dependability in cloud computing applications can be negatively affected by various attacks or service abuses. To come ahead of this threat, we propose an economic measure to deter attacks and various service abuses in cloud computing applications. Our proposed defense is based on requiring a service user to pay a small deposit, using digital currency, before invoking the service. Once they are done using the service, and there has been no detected abuse or attack, the deposit is paid back by the service provider to the service user. If an attack or an abuse is detected, the service user is not paid back and the service provider gets to keep the deposit. We propose the use of micro payments with a decentralized nature and small transaction fees, such as the Bit coin digital currency. Moreover, thanks to the existence of money exchanges which convert the Bit coin currency to real world currency, service providers can recoup loses when they exchange the confiscated deposits for real world currency. " Recently, the Bitcoin cryptocurrency has been an international sensation. This paper tells the story of Bitcoin hardware: how a group of early-adopters self-organized and financed the creation of an entire new industry, leading to the development of machines, including ASICs, that had orders of magnitude better performance than what Dell, Intel, NVidia, AMD or Xilinx could provide. We examine this story for clues as to how we can foster greater innovation in the semiconductor industry and enable this phenomenon to occur more broadly for more application areas, spawning a new age of hardware innovation tailored to emerging application domains---an Age of Bespoke Silicon. " Bitcoin is the first e-cash system to see widespread adoption. While Bitcoin offers the potential for new types of financial interaction, it has significant limitations regarding privacy. Specifically, because the Bitcoin transaction log is completely public, users' privacy is protected only through the use of pseudonyms. In this paper we propose Zerocoin, a cryptographic extension to Bitcoin that augments the protocol to allow for fully anonymous currency transactions. Our system uses standard cryptographic assumptions and does not introduce new trusted parties or otherwise change the security model of Bitcoin. We detail Zerocoin's cryptographic construction, its integration into Bitcoin, and examine its performance both in terms of computation and impact on the Bitcoin protocol. Cashless payments are nowadays ubiquitous and decentralized digital currencies like Bitcoin are increasingly used as means of payment. However, due to the delay of the transaction confirmation in Bitcoin, it is not used for payments that rely on quick transaction confirmation. We present a concept that addresses this drawback of Bitcoin and allows it to be used for fast transactions. We evaluate the performance of the concept using double-spending attacks and show that, employing our concept, the success of such attacks diminishes to less than 0.09%. Moreover, we present a real world application: We modified a snack vending machine to accept Bitcoin payments and make use of fast transaction confirmations. Digital currencies have emerged as a new fascinating phenomenon in the financial markets. Recent events on the most popular of the digital currencies – BitCoin – have risen crucial questions about behavior of its exchange rates and they offer a field to study dynamics of the market which consists practically only of speculative traders with no fundamentalists as there is no fundamental value to the currency. In the paper, we connect two phenomena of the latest years – digital currencies, namely BitCoin, and search queries on Google Trends and Wikipedia – and study their relationship. We show that not only are the search queries and the prices connected but there also exists a pronounced asymmetry between the effect of an increased interest in the currency while being above or below its trend value. As the world’s first decentralized digital currency, Bitcoin has the potential to revolutionize online payments systems in a way that benefits consumers and businesses. Instead of using an intermediary such as PayPal or submitting credit card information to a third party for verification—both of which often include transaction fees and other restrictions—Bitcoin allows individuals to pay each other directly for goods or services. "Bitcoin, a distributed, cryptographic, digital currency, gained a lot of media attention for being an anonymous e-cash system. But as all transactions in the network are stored publicly in the blockchain, allowing anyone to inspect and analyze them, the system does not provide real anonymity but pseudonymity. There have already been studies showing the possibility to deanonymize bitcoin users based on the transaction graph and publicly available data. Furthermore, users could be tracked by bitcoin exchanges or shops, where they have to provide personal information that can then be linked to their bitcoin addresses. Special bitcoin mixing services claim to obfuscate the origin of transactions and thereby increase the anonymity of its users. In this paper we evaluate three of these services { Bitcoin Fog, BitLaun- dry, and the Send Shared functionality of Blockchain.info { by analyzing the transaction graph. While Bitcoin Fog and Blockchain.info successfully mix our transaction, we are able to nd a direct relation between the input and output transactions in the graph of BitLaundry" X X X Cryptocoins are peer-to-peer monetary assets emitted not by a central authority but by a decentralised network of economy{\textquoteright}s participants. Their existing implementations combine the state of the art cryptographic methods with notions of {\guillemotleft} transparency of coin{\textquoteright}s history {\guillemotright} and {\guillemotleft} pseudonymity of usage {\guillemotright}. While the market value of Bitcoin -which was the first among the cryptocoins - is very volatile, it nonetheless becomes more and more demanded an asset due to its a priori defined limited amount. Thus, a billion dollar economy has already formed in the cryptosphere, which includes the stock markets, currency exchange offices or a biggest existing online drug market. By this paper we aim to address the questions like {\guillemotleft} To whom do the structures like Bitcoin ultimately serve ? {\guillemotright} and to propose an idea that further growth of cryptocoin economy could induce a sort of Nietzche{\textquoteright}s {\guillemotleft}transvaluation of values{\guillemotright}. Bitcoin is a purely online virtual currency, unbacked by either physical commodities or sovereign obligation; instead, it relies on a combination of cryptographic protection and a peer-to-peer protocol for witnessing settlements. Consequently, Bitcoin has the unintuitive property that while the ownership of money is implicitly anonymous, its flow is globally visible. In this paper we explore this unique characteristic further, using heuristic clustering to group Bitcoin wallets based on evidence of shared authority, and then using re-identification attacks (i.e., empirical purchasing of goods and services) to classify the operators of those clusters. From this analysis, we characterize longitudinal changes in the Bitcoin market, the stresses these changes are placing on the system, and the challenges for those seeking to use Bitcoin for criminal or fraudulent purposes at scale. "Bitcoin is a potentially disruptive new crypto-currency based on a decentralized open-source protocol which is gradually gaining popularity. Perhaps the most important question that will affect Bitcoin's success, is whether or not it will be able to scale to support the high volume of transactions required from a global currency system. We investigate the restrictions on the rate of transaction processing in Bitcoin as a function of both the bandwidth available to nodes and the network delay, both of which lower the efficiency of Bitcoin's transaction processing. The security analysis done by Bitcoin's creator Satoshi Nakamoto~\cite{nakamoto2008bitcoin} assumes that block propagation delays are negligible compared to the time between blocks---an assumption that does not hold when the protocol is required to process transactions at high rates. We improve upon the original analysis and remove this assumption. Using our results, we are able to give bounds on the number of transactions per second the protocol can handle securely. Building on previously published measurements by Decker and Wattenhofer~\cite{Decker2013Information}, we show these bounds are currently more restrictive by an order of magnitude than the bandwidth needed to stream all transactions. We additionally show how currently planned improvements to the protocol, namely the use of transaction hashes in blocks (instead of complete transaction records), will dramatically alleviate these restrictions. Finally, we present an easily implementable modification to the way Bitcoin constructs its main data structure, the blockchain, that immensely improves security from attackers, especially when the network operates at high rates. This improvement allows for further increases in the number of transactions processed per second. We show that with our proposed modification, significant speedups can be gained in confirmation time of transactions as well. The block generation rate can be securely increased to more than one block per second -- a 600 fold speedup compared to today's rate, while still allowing the network to processes many transactions per second. " We perform a comprehensive measurement analysis of Silk Road, an anonymous, international online marketplace that operates as a Tor hidden service and uses Bitcoin as its exchange currency. We gather and analyze data over eight months between the end of 2011 and 2012, including daily crawls of the marketplace for nearly six months in 2012. We obtain a detailed picture of the type of goods sold on Silk Road, and of the revenues made both by sellers and Silk Road operators. Through examining over 24,400 separate items sold on the site, we show that Silk Road is overwhelmingly used as a market for controlled substances and narcotics, and that most items sold are available for less than three weeks. The majority of sellers disappears within roughly three months of their arrival, but a core of 112 sellers has been present throughout our measurement interval. We evaluate the total revenue made by all sellers, from public listings, to slightly over USD 1.2 million per month; this corresponds to about USD 92,000 per month in commissions for the Silk Road operators. We further show that the marketplace has been operating steadily, with daily sales and number of sellers overall increasing over our measurement interval. We discuss economic and policy implications of our analysis and results, including ethical considerations for future research in this area. X X X X "The Bitcoin digital currency depends for its correctness and stability on a combination of cryptography, distributed algorithms, and incentive- driven behavior. We examine Bitcoin as a consensus game and deter- mine that it relies on separate consensus about the rules and about game state. An important aspect of Bitcoin's design is the mining mechanism, in which participants expend resources on solving computational puzzles in order to collect rewards. This mechanism purportedly protects Bitcoin against certain technical problems such as inconsistencies in the system's distributed log data structure. We consider the economics of Bitcoin min- ing, and whether the Bitcoin protocol can survive attacks, assuming that participants behave according to their incentives. We show that there is a Nash equilibrium in which all players behave consistently with Bitcoin's reference implementation, along with innitely many equilibria in which they behave otherwise. We also show how a motivated adversary might be able to disrupt the Bitcoin system and \crash"" the currency. Finally, we argue that Bitcoin will require the emergence of governance structures, contrary to the commonly held view in the Bitcoin community that the currency is ungovernable" Cryptocurrencies are digital alternatives to traditional government-issued paper monies. Given the current state of technology and skepticism regarding the future purchasing power of existing monies, why have cryptocurrencies failed to gain widespread acceptance? I offer an explanation based on network effects and switching costs. In order to articulate the problem that agents considering cryptocurrencies face, I employ a simple model developed by Dowd and Greenaway (1993). The model demonstrates that agents may fail to adopt an alternative currency when network effects and switching costs are present, even if all agents agree that the prevailing currency is inferior. The limited success of bitcoin — almost certainly the most popular cryptocurrency to date — serves to illustrate. After briefly surveying episodes of successful monetary transition, I conclude that cryptocurrencies like bitcoin are unlikely to generate widespread acceptance in the absence of either significant monetary instability or government support. We model the Bitcoin transaction graph in small time slices using several different models, including one of our own. In order to gauge the effectiveness of each model, we compare some of the attributes of the generated graphs, like diameter, clustering, etc. While our model captures some features of the Bitcoin graph, none of the models fully capture its complexity. We also present a possible algorithm for detection of money laundering, and show that it does detect abnormalities present in Bitcoin but not present in our models. The online drug marketplace called ‘Silk Road’ has operated anonymously on the ‘Deep Web’ since 2011. It is accessible through computer encrypting software (Tor) and is supported by online transactions using peer to peer anonymous and untraceable crypto-currency (Bit Coins). The study aimed to describe user motives and realities of accessing, navigating and purchasing on the ‘Silk Road’ marketplace. Background: The online promotion of ‘drug shopping’ and user information networks is of increasing public health and law enforcement concern. An online drug marketplace called ‘Silk Road’ has been operating on the ‘Deep Web’ since February 2011 and was designed to revolutionise contemporary drug consumerism. Methods: A single case study approach explored a ‘Silk Road’ user's motives for online drug purchasing, experiences of accessing and using the website, drug information sourcing, decision making and purchasing, outcomes and settings for use, and perspectives around security. The participant was recruited following a lengthy relationship building phase on the ‘Silk Road’ chat forum. Results: The male participant described his motives, experiences of purchasing processes and drugs used from ‘Silk Road’. Consumer experiences on ‘Silk Road’ were described as ‘euphoric’ due to the wide choice of drugs available, relatively easy once navigating the Tor Browser (encryption software) and using ‘Bitcoins’ for transactions, and perceived as safer than negotiating illicit drug markets. Online researching of drug outcomes, particularly for new psychoactive substances was reported. Relationships between vendors and consumers were described as based on cyber levels of trust and professionalism, and supported by ‘stealth modes’, user feedback and resolution modes. The reality of his drug use was described as covert and solitary with psychonautic characteristics, which contrasted with his membership, participation and feelings of safety within the ‘Silk Road’ community. Conclusion: ‘Silk Road’ as online drug marketplace presents an interesting displacement away from ‘traditional’ online and street sources of drug supply. Member support and harm reduction ethos within this virtual community maximises consumer decision-making and positive drug experiences, and minimises potential harms and consumer perceived risks. Future research is necessary to explore experiences and backgrounds of other users. This article surveys developments in the laws relating to virtual currencies and their regulation by the Department of Treasury's Financial Crimes Enforcement Network, and enforcement actions taken by the Departments of Treasury, Homeland Security and Justice against funds held in deposit accounts owned by Dwolla, Mt. Gox, and Mutum Sigillum, LLC, and DOJ's action against Liberty Reserve. It also analyses changes to the CFPB's cross-border remittance transfer regulations, and its first use of its preemption authority to preempt portions of the Maine and Tennessee gift card laws pertaining to expiry, and the first action by the FDIC against a bank for unsafe and unsound banking practices related to prepaid cards managed by the bank. Finally, it evaluates section 311 and designation of institutions as institutions of primary money laundering concerns and correspondent banking relationships. The conventional dichotomy of “commodity” and “fiat” base monies overlooks a third possibility that shares some features of each. This third type, which I call “synthetic commodity money,” resembles fiat money in having no nonmonetary value; but it resembles commodity money in being not just contingently but absolutely scarce. I discuss some actual examples of synthetic commodity monies, and then argue that special characteristics of synthetic commodity money are such as might allow such a money, if properly designed, to supply the foundation for a monetary regime that does not require oversight by any monetary authority, yet is able to provide for a high degree of macroeconomic stability. Bitcoin has been described as a decentralised virtual currency. Virtual currencies such as Bitcoins are a form of money and a payment system. However, being a decentralised system, there is no central issuer, authority or register-keeper. Bitcoin is unique not because it is a virtual currency, but because it is proof of concept of a decentralized non-issued electronic currency. Regulation of virtual currencies is at a very early stage. Most regulatory regimes are not well designed to cater for this type of payment system. However, creating and protecting trust is a crucial issue in the regulation and public acceptance of new payment services. It is generally accepted that adequate regulation is a key pre-cursor to consumer acceptance of new payment methods, including mobile banking and payments. This paper examines the legal and regulatory status of virtual currencies. This paper will discuss and evaluate the design features of Bitcoin in relation to the libertarian and metallist philosophies that have shaped the cryptocurrency. Bitcoin has failed to be perfectly decentralized or particularly anonymous. Furthermore, its hyperdeflationary design features have made Bitcoin a currency dependent on outside, more stable currencies (e.g., the U.S. dollar), which serve as units of account. Finally, despite the view of money taken by its creators, this supposedly stateless currency is far from apolitical in nature. Although its creators tend to espouse apolitical accounts of money, Bitcoin has been from the beginning a political project -- an evolving, distributed constitutional project, with many goals, visions, and factions. Furthermore, depending on the shape of these political goals, Bitcoin advocates may or may not have a vested interest in creating mechanisms to stabilize the currency and make it a viable unit of account. In recent years, the Bitcoin community has collectively developed an open source platform that allows for the mining of the Bitcoin currency as well as instant global peer-to-peer payments and financial transactions using Bitcoins - without any central authority. With its theoretical roots in the Austrian School of Economics, the community can be seen as a potential threat to the mega financial institutions and governments in Europe and across the globe as the Bitcoin currency and its underlying principles challenge the long-standing fiat money system. Designed and implemented in only 2009, Bitcoin has rapidly grown from being an idea in the head of a “Japanese programmer” to becoming a legitimate currency as Bitcoin-Central was awarded an International Bank ID number and became a Payment Services Provider equal to organizations such as PayPal. However, perhaps due to its rapid growth during the past four years and the fact that the currency is primarily a virtual one, the Bitcoin community has been subject to external threats such as fraud, hacker attacks, and a lawsuit. Despite this, the community has shown significant resilience and has even shown continued exponential growth in recent months. As such, our research purpose is to investigate the process through which the Bitcoin community acts as an institutional entrepreneur. As a first step in fulfilling our research purpose, we conduct an exploratory analysis in this research-in-progress paper of the formal and informal “organizations” of Bitcoin as well as of the topical network structure of the Bitcoin community using secondary sources and the complete archive of 1.15 million English posts written by 21,903 members between 2009 and 2013. Some preliminary results and findings as well as future steps are discussed. X We maintain that the crypto-currency bitcoin is a practical application of what is termed “memory” in the monetary economics literature. After reviewing the theoretical literature on money and memory, we offer a brief overview of the bitcoin protocol and argue that, like memory, bitcoin functions as a public record-keeping device. Finally, we provide evidence that — in line with the standard theoretical account of memory — bitcoin use has soared as the expected cost of storing traditional monies increased. Cryptocurrencies are digital alternatives to traditional government-issued paper monies. Given the current state of technology and skepticism regarding the future purchasing power of existing monies, why have cryptocurrencies failed to gain widespread acceptance? I offer an explanation based on network effects and switching costs. In order to articulate the problem that agents considering cryptocurrencies face, I employ a simple model developed by Dowd and Greenaway (1993). The model demonstrates that agents may fail to adopt an alternative currency when network effects and switching costs are present, even if all agents agree that the prevailing currency is inferior. The limited success of bitcoin — almost certainly the most popular cryptocurrency to date — serves to illustrate. After briefly surveying episodes of successful monetary transition, I conclude that cryptocurrencies like bitcoin are unlikely to generate widespread acceptance in the absence of either significant monetary instability or government support. "This write-up among other things seeks to analyse the nature of the 'BITCOIN' crypto-currency, especially the destabilizing effect and dangers it poses to the financial sector, the regulators and the anti-money laundering regime as a whole. It will also look at the possibility of effectively regulating the currency 'Bitcoin' in its virtual environment in order to curb the risks associated with its use, such as drug dealing, tax avoidance, terrorist financing and blackmailing. Furthermore, this write-up will discuss how far civil liberty can go in limiting online surveillance activities of enforcement agencies which are done in a bid to retrieve electronic data that might reveal financial crimes and terrorist financing. It concludes by suggesting effective measures which can be used to police Bitcoin transactions rather than prohibit its use." Bitcoin is a major virtual currency. Using weekly data over the 2010-2013 period, we analyze a Bitcoin investment from the standpoint of a U.S. investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Bitcoin investment has highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets is remarkably low. Spanning tests confirm that Bitcoin investment offers significant diversification benefits. We show that the inclusion of even a small proportion of Bitcoins, say 3%, may dramatically improve the risk-return trade-off of well-diversified portfolios. I describe the mechanisms by which cryptocurrencies — a subcategory of virtual currencies — could replace tax havens as the weapon-of-choice for tax-evaders. I argue such outcome is reasonably expected in the foreseeable future due to the contemporary convergence of two processes. The first process is the increasing popularity of cryptocurrencies, of which Bitcoin is the most widely recognized example. The second process is the transformation of financial intermediaries to agents in the service of tax authorities, as part of the fight against offshore tax evasion. Financial institutions are faced with increased governmental pressure to deliver information about account holders, to withhold taxes from earnings accumulating in financial accounts, and to remit such taxes to taxing authorities around the world. Significantly, cryptocurrencies possess all the traditional characteristics that tax haves do; Earnings are not subject to taxation, and taxpayers’ anonymity is maintained. The operation of cryptocurrencies, however, is not dependent on the existence of financial intermediaries. Thus, cryptocurrencies have the potential of defeating the recent successes of governments in battling offshore tax evasion. I further suggest that while governments have paid some attention to this issue, they have so far failed to identify the acuteness of the potential problem. In recent years, the use of virtual economies has skyrocketed. These virtual economies include their own virtual currencies, the most well-known of which is the “bitcoin.” There are an estimated 11 million bitcoins in use today, valued at up to $237 per bitcoin in 2013. Because these bitcoins can, in some circumstances, be used to purchase goods or services with a monetary value or where they can be converted to legal tender, the proper income tax treatment of bitcoin transactions presents both compliance and substantive questions for the IRS. To date, there remains little legal or academic guidance on the use of bitcoins, or the taxation of bitcoin transactions. This article explores the current state of the law as it relates to bitcoins as well as proposed methods for applying existing federal income tax laws to the virtual economy. Based upon the current state of the law and the information available on the various systems through which bitcoins may flow, the article sets forth a series of recommendations as to the proper federal income tax treatment of bitcoin transactions and suggests methods for addressing the compliance issues related to these transactions. X X X "This position paper discusses two related questions: 1. Using the framework of network economics, what are success factors behind the adoption of Bitcoin (a cryp- tographic curreny), and can we copy them for other protocols? 2. Can we design more successful protocols if we have in- band payment mechanisms to internalize the external- ities that emerge during adoption and in steady state?" Bitcoin is the first decentralized digital-currency. Due to the infancy and only recent popularity, consumers transacting in bitcoins are likely unaware of the tax implications involved. At this time, there are no known legal decisions on how Bitcoin transactions should be taxed. This paper explores the likely tax implications for everyday consumers exchanging bitcoins for property and services. Bitcoin is the first decentralized digital-currency. Due to the infancy and only recent popularity, consumers transacting in bitcoins are likely unaware of the tax implications involved. At this time, there are no known legal decisions on how Bitcoin transactions should be taxed. This paper explores the likely tax implications for everyday consumers exchanging bitcoins for property and services. Multi-player online games have own virtual currencies. These game currencies are similar to other virtual currencies like Bitcoin, in that both of the currencies are created and managed by non-government entities. Competitions in multi-player online games naturally formed markets that exchanges game currency with real currency. These markets have liquidity and efficiency comparable to that of US major stock exchanges and the markets tightly connects virtual economies with real economies. With the markets, game currencies have a larger potential than other virtual currencies to substitute some of real currencies’ role as a method of transaction. A bona fide currency functions as a medium of exchange, a store of value, and a unit of account, but bitcoin largely fails to satisfy these criteria. Bitcoin has achieved only scant consumer transaction volume, with an average well below one daily transaction for the few merchants who accept it. Its volatility is greatly higher than the volatilities of widely used currencies, imposing large short-term risk upon users. Bitcoin's daily exchange rates exhibit virtually zero correlation with widely used currencies and with gold, making bitcoin useless for risk management and exceedingly difficult for its owners to hedge. Bitcoin prices of consumer goods require many decimal places with leading zeros, which is disconcerting to retail market participants. Bitcoin faces daily hacking and theft risks, lacks access to a banking system with deposit insurance, and it is not used to denominate consumer credit or loan contracts. Bitcoin appears to behave more like a speculative investment than a currency. X X The Bitcoin network was launched in 2009 by the mysterious Satoshi Nakamoto, a developer who worked extensively on the project but only interacted with people on developer forums. At the end of 2010, Nakamoto disappeared from view, announcing his departure and handing off the project to the open source community. No one knows his (or her) true identity, but what is known is Nakamoto's wealth. He is said to have roughly $100m worth of bitcoins by today's value, and hasn't spent any of it. This paper investigates the semiotics of Bitcoin, an electronic cash system that uses decentralized networking to enable irreversible payments. For enthusiasts, Bitcoin provides an alternative to currencies and payment systems that are seen to threaten users' privacy, limit personal liberty, and undermine the value of money through state and corporate oversight. Bitcoin's promise lies in its apparent capacity to resolve these concerns not through regulatory institutions or interpersonal trust, but through its cryptographic protocols. We characterize this semiotics as a “practical materialism” and suggest it replays debates about privacy, labor, and value. X Proof-of-Work (PoW), a well-known principle to ration resource access in client-server relations, is about to experience a renaissance as a mechanism to protect the integrity of a global state in distributed transaction systems under decentralized control. Most prominently, the Bitcoin cryptographic currency protocol leverages PoW to (1) prevent double spending and (2) establish scarcity, two essential properties of any electronic currency. This chapter asks the important question whether this approach is generally viable. Citing actual data, it provides a first cut of an answer by estimating the resource requirements, in terms of operating cost and ecological footprint, of a suitably dimensioned PoW infrastructure and comparing them to three attack scenarios. The analysis is inspired by Bitcoin, but generalizes to potential successors, which fix Bitcoin’s technical and economic teething troubles discussed in the literature. The Bitcoin scheme is a rare example of a large scale global payment system in which all the transactions are publicly accessible (but in an anonymous way). We downloaded the full history of this scheme, and analyzed many statistical properties of its associated transaction graph. In this paper we answer for the first time a variety of interesting questions about the typical behavior of users, how they acquire and how they spend their bitcoins, the balance of bitcoins they keep in their accounts, and how they move bitcoins between their various accounts in order to better protect their privacy. In addition, we isolated all the large transactions in the system, and discovered that almost all of them are closely related to a single large transaction that took place in November 2010, even though the associated users apparently tried to hide this fact with many strange looking long chains and fork-merge structures in the transaction graph. Bitcoin has enjoyed wider adoption than any previous crypto- currency; yet its success has also attracted the attention of fraudsters who have taken advantage of operational insecurity and transaction irreversibility. We study the risk investors face from Bitcoin exchanges, which convert between Bitcoins and hard currency. We examine the track record of 40 Bitcoin exchanges established over the past three years, and find that 18 have since closed, with customer account balances often wiped out. Fraudsters are sometimes to blame, but not always. Using a proportional hazards model, we find that an exchange’s transaction volume indicates whether or not it is likely to close. Less popular exchanges are more likely to be shut than popular ones. We also present a logistic regression showing that popular exchanges are more likely to suffer a security breach. Bitcoin is quickly emerging as a popular digital payment system. However, in spite of its reliance on pseudonyms, Bitcoin raises a number of privacy concerns due to the fact that all of the transactions that take place are publicly announced in the system. The Information Age has created a new concept of money – virtual currencies existing solely in the cyberspace in the form of intangible computer code. The most prominent virtual currency scheme, Bitcoin, grabbed the public attention as its value skyrocketed at the beginning of 2012. Whereas Bitcoin has many proper ties that could make it an ideal currency for mainstream consumers and merchants, its main drawback is lack of clarity regarding its legal status and tax treatment. The European Central Bank predicts that the use of virtual currencies will increase in the future. Therefore, it is important both tax authorities and taxpayers are prepared to deal with those currencies and to incorporate them into the existing legal framework. This book describes the phenomenon and nature of virtual currencies, and provides a detailed analysis of tax implications that result from trade in, and mining of, virtual currencies. It seeks to answer three questions: (1) how virtual currency should be taxed; (2) how it is actually treated under income and indirect tax laws of selected countries; and (3) how the current situation can be improved. The aim of this thesis is to provide a holistic analysis and an economic understanding of Bitcoin, answering two key questions: (i) Why do bitcoins have value? (ii) Why and how will governments seek to regulate the use of bitcoin? To answer these questions, the thesis begins with a discussion of money itself, developing a framework of different types of monies in terms of their uses and properties that will form the basis of the analysis. Based on the technical properties of Bitcoin the framework developed above is then applied to identify bitcoin as a digital commodity money. Following this identification, potential uses of bitcoin supporting its value will be discussed, drawing particular attention to Bitcoin s resilience to regulation. In addition, real world examples of other commodity monies will be used to support the claim that bitcoin may circulate without use value and state backing. Governments tend to seek economic control through controlling money, and it will be argued that there are good reasons to expect governments to be hostile towards widespread use of bitcoin. This is to be expected, as use of bitcoin undermines governments capacity to control money. This thesis aims to explore whether digital crypto-currencies such as Bitcoin can be considered money from the perspective of the Austrian school of economics. It begins by describing the functions and design of the Bitcoin system in detail. Other innovations that either build on or improve Bitcoin will be explained as well. The functions of money are then defined from the origins of money, providing a categorical approach toward a comparison between Bitcoin and incumbent money. The risks and complications of Bitcoin will be discussed in this thesis with an emphasis on the role of policymakers. One of the main reasons why Bitcoin has yet to be regarded as money in a traditional narrow sense is the barrier generated by network effects, in particular, the presence of excess inertia. Other risks and complications that are present within the context of this thesis will also be discussed. The promising cryptocurrency Bitcoin has attracted a lot of attention recently, but the high volatility of the Bitcoin price has so far been a barrier to widespread adoption. Given the way Bitcoin transactions work, users will be exposed to exchange rate risk even for short intraday horizons. This paper analyzes this risk, and compares it to more traditional assets, namely Gold and the Euro/USD exchange rate. To do this we make use of the recent literature on market risk measures for ultra-high-frequency data to construct an intraday Value at Risk measurement. This IVaR is based on a Monte Carlo simulation, where a log-ACD-ARMA-EGARCH model is used to describe the price movements. The results clearly indicate that for the intradaily horizon, Bitcoin is far more risky than Gold and Euro, which may challenge the applicability of Bitcoin as a medium of transaction. However in our opinion this risk is not large enough to outweigh the potential benefits that Bitcoin offers. The peer-to-peer digital currency Bitcoin has gained increased prominence since its 2008 launch. Economists have not thoroughly studied the currency, however, and researchers have not tested the efficient market hypothesis (EMH) on Bitcoin exchanges despite the abundance of exchanges and trading data. This paper tests for runs in returns and for the day-of-the-week effect that researchers have observed in traditional financial markets as well as whether the moving average convergence/divergence (MACD), relative strength index (RSI), or filter technical trading can outperform a buy-and-hold strategy. Although the trading rules do not outperform the buy-and-hold strategy, a robust day-of-the-week effect emerges and autocorrelation in returns suggestions a violation of the EMH. The mixed results do not definitely answer the question of whether the bitcoin market achieves weak-form efficiency. In January 2009 a payment system that enabled transactions in a new digital currency, called bitcoin, were launched. Bitcoin is based on a peer-to-peer (P2P) network where users in the network collectively process and verifies the transactions. One of the main attributes in Bitcoin is independency from financial institutions and trusted third parties. Hence, no centralize third party is involved when performing payments. Bitcoin also enables the opportunity to perform pseudo anonymous payments and it is voluntary to pay transaction fees. With the evolvement of such a radical new payment system, the interesting question yet to be answered is how it will affect established online payment systems. Thus, the purpose of this thesis is to build a model that enables the investigation of the future adoption of Bitcoin relative to the current dominating online payment system, PayPal.A payment system is a classic example of a service that operates in a two-sided market where customers and merchants represents the two distinct user groups. Since development in such complex markets are affected by numerous factors and that multiple dependencies often are present, a theory foundation through a background study on network effects, two-sided markets and system dynamics is given in the first part of the thesis. Secondly, a presentation of PayPal, alongside with a more in depth examination of Bitcoin is used to perform a feature analysis that compare the two systems. Areas that are investigated in the analysis include, among others; anonymity, convertibility, cost, payment speed, stability and security.A model that accounts for feedback loops, network effects, and two-sided market dynamics, as well as specific features in each system and irrational users, are then developed. Finally the model is used to simulate the future adoption of Bitcoin relative to PayPal. Different scenarios including a cost only scenario, a Bitcoin favorable scenario, a PayPal favorable scenario, and a complete scenario where all the examined information was included in the model, were run.It is shown that PayPal has a clear advantage early in the adoption life cycle due to strong cross- and same-side network effects, which is caused by an initial large user base. Thus, during simulations that values network effects as the most important main variable, PayPal retains its market position and fights of the new Bitcoin system. However, largely due to Bitcoin?s cost advantage on the merchant side, Bitcoin is able to experience substantial market traction in most simulation scenarios, and surpass PayPal when the focus on network effects is less dominant. Collect and analyse threat models to the Bitcoin ecosystem and its software. The create misuse case, attack trees, and sequence diagrams of the threats. Create a malicious client from the gathered threat models. Once the development of the client is complete, test the client and evaluate its performance. From this, assess the security of the Bitcoin software. "Bitcoin has over the years dominated the headlines for good and bad reasons. Examples of this range from the first introduction of a Bitcoin Automatic Teller Machine (ATM) to the recent attack on the Bitcoin exchange, MT Gox, where 850000 bitcoins were stolen worth hundreds of millions USD. The fundamental questions that this research answers are what Bitcoin exactly is and whom the actors are using this digital currency. Furthermore, an empirical research is conducted to highlight how actors expect Bitcoin to develop in the future. Bitcoin is depicted as a self-evolving system that has its own community. This research draws similarities with the traditional theory of ecosystem and the business ecosystem theory by Moore (1996). The Bitcoin ecosystem is presented as a model that consists out of internal and external factors. The methods that are used in this research are mostly of quantitative nature, though a qualitative way of analysing is also incorporated in this research. An electronic questionnaire was sent to users, investors and companies that use Bitcoin. These electronic questionnaires were sent to companies by email and to different Bitcoin forums to reach users and investors in Bitcoin. A total of 51 actors have completed the questionnaire. The empirical analysis focused on the present and the future of Bitcoin. The subjects that are covered consisted of legal, economic and technological factors that determine the Bitcoin system. The present situation shows that the main reason people use Bitcoin is that it offers the actors an alternative for fiat currencies and low transaction costs when making payments. The current drawbacks of the Bitcoin system are, regarded by scholars and actors, to be the high volatility in the value of Bitcoin and the security concerns that are caused by hackers of the system. Finally, the overall sentiment amongst users, investors and companies is that the future of Bitcoin is considered to be a bright one based on the legal, economic and technological factors" "In today’s digital world digital money has become a reality. With the introduction of Bitcoin and this new branch of digital currency, cryptocurrency, digital money has begun competing with traditional official currencies, e.g. US dollar and Euro. Bitcoin is a decentralized peer-to-peer currency allowing anonymous transactions. The currency’s value is solely based on supply and demand and is mainly used for e-commerce. However, in order to really compete with traditional currencies and further push the evolution forward physical transaction that can be used in stores is necessary. The objective of the thesis is thus to explorer how this can be realized as well as investigate how physical stores that accept bitcoins can be mapped and turned into a service. The method used for this exploratory study is an extensive literature study. A survey is also used to give additional depth for the research and analyze the current situation concerning bitcoins and wireless communications technologies in Sweden. The analysis and findings concluded that it is very much possible to realize the idea with the existing technologies. By using QR-codes and NFC for its intuitive way of communicating, transactions can reach the same accessibility as traditional system like credit/debit cards. Regarding mapping of service points the findings suggest to use both user based input and PoS/store based input. In other words, to utilize the Bitcoin community and its peer-to-peer nature by letting user contribute with information about bitcoin enabled stores as well as using the marketing argument to encourage stores to submit information about themselves" "This study looks at the price mechanism of the digital quasi-currency bitcoin. Through statistical analysis of secondary data a probable significant results regarding correlation and regression between price and different independent variables have been established. The final analysis is pointing towards network effects being a part of the determinants for the crypto-currency’s price. Complimentary to the quantitative study explained above, an implementation of hermeneutic analysis based on secondary theoretical sources, journalistic opinion and a professional qualified judgment has aided the author and study in conceptual understanding. This interpretation has semantic character, and takes a Socratic kickoff regarding the nature of bitcoin as a financial instrument. The analysis runs back and forth throughout the course of the study and finally intertwines with qualitative results in the discussion. It is the author’s impression that a significant dimorphism surrounds bitcoin, calling for a conceptual differentiation leading to practical rethinking. The study takes the shape of a case-study conducted over four months. The author’s location during the process of writing was Stockholm Sweden, but the gathered data is of transnational character." X Bitcoin is a "crypto currency", a decentralized electronic payment scheme based on cryptography. Bitcoin economy grows at an incredibly fast rate and is now worth some 10 billions of dollars. Bitcoin mining is an activity which consists of creating (minting) the new coins which are later put into circulation. Miners spend electricity on solving cryptographic puzzles and they are also gatekeepers which validate bitcoin transactions of other people. Miners are expected to be honest and have some incentives to behave well. However. In this paper we look at the miner strategies with particular attention paid to subversive and dishonest strategies or those which could put bitcoin and its reputation in danger. We study in details several recent attacks in which dishonest miners obtain a higher reward than their relative contribution to the network. In particular we revisit the concept of block withholding attacks and propose a new concrete and practical block withholding attack which we show to maximize the advantage gained by rogue miners. Bitcoin is the world's first decentralized digital currency. Its main technical innovation is the use of a blockchain and hash-based proof of work to synchronize transactions and prevent double-spending the currency. While the qualitative nature of this system is well understood, there is widespread confusion about its quantitative aspects and how they relate to attack vectors and their countermeasures. In this paper we take a look at the stochastic processes underlying typical attacks and their resulting probabilities of success. In this short note we show that the Bitcoin network can allow remote parties to gamble with their bitcoins by tossing a fair or biased coin, with no need for a trusted party, and without the possibility of extortion by dishonest parties who try to abort. The superfluousness of having a trusted party implies that there is no house edge, as is the case with centralized services that are supposed to generate a profit. We calculate the probability of success of block-hiding mining strategies in Bitcoin-like networks. These strategies involve building a secret branch of the block-tree and publishing it opportunistically, aiming to replace the top of the main branch and rip the reward associated with the secretly mined blocks. We identify two types of block-hiding strategies and chart the parameter space where those are more beneficial than the standard mining strategy described in Nakamoto's paper. Our analysis suggests a generalization of the notion of the relative hashing power as a measure for a miner's influence on the network. Block-hiding strategies are beneficial only when this measure of influence exceeds a certain threshold. The question "what is Bitcoin" allows for many answers depending on the objectives aimed at when providing such answers. The question addressed in this paper is to determine a top-level classification, or type, for Bitcoin. We will classify Bitcoin as a system of type money-like informational commodity (MLIC). Bitcoins have emerged as a possible competitor to usual currencies, but other crypto-currencies have likewise appeared as competitors to the Bitcoin currency. The expanding market of crypto-currencies now involves capital equivalent to 1010 US Dollars, providing academia with an unusual opportunity to study the emergence of value. Here we show that the Bitcoin currency in itself is not special, but may rather be understood as the contemporary dominating crypto-currency that may well be replaced by other currencies. We suggest that perception of value in a social system is generated by a voter-like dynamics, where fashions form and disperse even in the case where information is only exchanged on a pairwise basis between agents. There are some alternative Cryptocurrency systems which claim that they are based on PoS are actually based on PoSTW which denotes the Proof of Stake(coin), Time(day) and Work(hashing), while the other pure PoS Cryptocurrency systems are actually centralized. In this paper we propose a new framework of Cryptocurrency system. The major parts what we have changed include, a fast transparent distribution solution which can avoid deceptions between the sponsor and the audience, removing the bloated history transactions from data synchronization, no mining, no blockchain, it's environmentally friendly, no checkpoint, no exchange hub needed, it's truly decentralized and purely based on proof of stake. The logic is very simple and intuitive, 51% of stakes talk. The highlight of this paper is a proposal of a new concise data synchronization mechanism named "Converged Consensus" which ensures the system reaches a consistent distributed consensus. We think the famous blockchain mechanism based on PoW is no longer an essential element of a Cryptocurrency system. In aspect of security, we propose TILP & SSS strategies to secure our system. At the end, we try to give an explicit definition of decentralization. In this paper we revisit some major orthodoxies which lie at the heart of the bitcoin crypto currency and its numerous clones. In particular we look at The Longest Chain Rule, the monetary supply policies and the exact mechanisms which implement them. We claim that these built-in properties are not as brilliant as they are sometimes claimed. A closer examination reveals that they are closer to being... engineering mistakes which other crypto currencies have copied rather blindly. More precisely we show that the capacity of current crypto currencies to resist double spending attacks is poor and most current crypto currencies are highly vulnerable. Satoshi did not implement a timestamp for bitcoin transactions and the bitcoin software does not attempt to monitor double spending events. As a result major attacks involving hundreds of millions of dollars can occur and would not even be recorded. Hundreds of millions have been invested to pay for ASIC hashing infrastructure yet insufficient attention was paid to network neutrality and to insure that the protection layer it promises is effective and cannot be abused. In this paper we develop a theory of Programmed Self-Destruction of crypto currencies. We observe that most crypto currencies have mandated abrupt and sudden transitions. These affect their hash rate and therefore their protection against double spending attacks which we do not limit the to the notion of 51% attacks which is highly misleading. In addition we show that smaller bitcoin competitors are substantially more vulnerable. In addition to small hash rate, many bitcoin competitors mandate incredibly important adjustments in miner reward. We exhibit examples of 'alt-coins' which validate our theory and for which the process of programmed decline and rapid self-destruction has clearly already started. A hard-fork reconfiguration of the peer to peer Bitcoin network is described that substitutes tamper-evident logs and proof-of-stake consensus for proof-of-work consensus. The block creation rewards and transaction fees are reallocated to establish and staff a secure financial data network capable of handling the world's transactions with subsecond response time. The new system pays dividends to stake-offering bitcoin holders. In contrast to Satoshi Nakamoto's mesh network consisting of competing peers, this system uses an enterprise class network that is efficient, robust, and scalable, consisting of cooperating peers. The network backbone nodes host trustless nomadic agents. Thousands of distributed full nodes are paid to replicate a singleton blockchain built upon every 10 minutes by a nomadic mint agent whose actions are verified by its peers. This arrangement enables immediate acknowledgment to an issuing node that its transaction has been accepted. Less effort means that subsidized transaction costs will be lower. Network reconfiguration enables the processing of numerous microtransactions. Stake-weighted distributed consensus is achieved when necessary with less than one-half arbitrarily faulty nodes. Important invariants of the Satoshi Social Contract between core developers and users are maintained: The reward schedule, the blockchain format, the fixed number of bitcoins, and the decentralized, trustless protocol are untouched. The system remains a global distributed database, with additions to the database by consent of the majority, based on a set of transparent rules they follow. "Bitcoin is a digital currency which relies on a distributed set of miners to mint coins and on a peer-to-peer network to broadcast transactions. The identities of Bitcoin users are hidden behind pseudonyms (public keys) which are recommended to be changed frequently in order to increase transaction unlinkability. We present an efficient method to deanonymize Bitcoin users, which allows to link user pseudonyms to the IP addresses where the transactions are generated. Our techniques work for the most common and the most challenging scenario when users are behind NATs or firewalls of their ISPs. They allow to link transactions of a user behind a NAT and to distinguish connections and transactions of different users behind the same NAT. We also show that a natural countermeasure of using Tor or other anonymity services can be cut-off by abusing anti-DoS countermeasures of the Bitcoin network. Our attacks require only a few machines and have been experimentally verified. The estimated success rate is between 11% and 60% depending on how stealthy an attacker wants to be. We propose several countermeasures to mitigate these new attacks. " On February 2014, $650.000.000 worth of Bitcoins disappeared. Currently it is unclear whether hackers or MtGox, the largest Bitcoin exchange, are to be blamed. In either case, the anonymous and unregulated nature of the Bitcoin system makes it practically impossible for innocent victims to get their money back. We have investigated the technical possibilities, solutions and implications of introducing a regulatory framework based on redlisting Bitcoin accounts. Despite numerous proposals, the Bitcoin community has voiced a strong opinion against any form of regulation. However, most of the discussions were based on speculations rather than facts. We strive to contribute a scientific foundation to these discussions and illuminate the path to crypto-justice. "This paper presents an agent-based artificial cryptocurrency market in which heterogeneous agents buy or sell cryptocurrencies, in particular Bitcoins. In this market, there are two typologies of agents, Random Traders and Chartists, which interact with each other by trading Bitcoins. Each agent is initially endowed with a finite amount of crypto and/or fiat cash and issues buy and sell orders, according to her strategy and resources. The number of Bitcoins increases over time with a rate proportional to the real one, even if the mining process is not explicitly modelled. The model proposed is able to reproduce some of the real statistical properties of the price absolute returns observed in the Bitcoin real market. In particular, it is able to reproduce the autocorrelation of the absolute returns, and their cumulative distribution function. The simulator has been implemented using object-oriented technology, and could be considered a valid starting point to study and analyse the cryptocurrency market and its future evolutions. " This paper describes early work on the correlation between Bitcoin price indicators and Bitcoin-related Twitter posts. Within a timeframe of 104 days, a total of 161,200 Twitter posts containing "bitcoin" in combination with positive or negative sentiments and signals of uncertainty has been collected. Positive and negative sentiments were ex-ante filtered with the help of API queries, by using identifiers such as the words "happy, love, fun, good" or "bad, sad, unhappy" respectively. Additionally, tweets on "hope, fear" and "worry" have been collected to derive insights on market dynamics and uncertainties. Current results show a significant positive correlation of emotional tweets with intraday close prices and trading volumes of Bitcoin. Data suggests: When Bitcoin transactions fly high, emotions fly high on Twitter, too. Another observation is that a balanced ratio of negative and positive sentiments positively correlates with the trading volume and thus may designate Twitter as place that reflects the "speculative momentum" within the market. Summarizing, the microblogging platform Twitter may be interpreted as a virtual trading floor that heats up with virtual emotions and reflects market movements. Off-Chain transactions allow for the immediate transfer of Cryptocurrency between two parties, without delays or unavoidable transaction fees. Such capabilities are critical for mainstream Cryptocurrency adaption. They allow for the "Coffee-Coin Criteria"; under which a customer orders a coffee and pays for that coffee in bitcoins. This is not possible with On-Chain transactions today. Unfortunately, all existing Off-Chain transaction protocols are notoriously unreliable The current generation of third-party facilitators are vulnerable to hacker-based attacks. As Mt. Gox tragically demonstrated, centralized-transaction institutions are easy targets for Cryptocurrency thieves. The slightest security flaw in a third-party system will pounced on by hackers, who will proceed to devour it like ants devouring a crab. Under such circumstances, it no wonder that the Public treats most Cryptocurrency services with a constant shadow of suspicion. For Bitcoin to flourish, its anti-hierarchy principles must be applied to safe Off-Chain transactions. First and foremost, we need a new hacker-proof protocol that can easily be executed by any experienced developer. Preferably, the protocol will be open-sourced for full reliability and transparency. This paper presents one such procedure, which allows for he safe transmission of Bitcoin private key control by way of Cryptocubic transactions. Sensing-as-a-Service (S2aaS) is an emerging Internet of Things (IOT) business model pattern. To be technically feasible and to effectively allow for broad adoption, S2aaS implementations have to overcome manifold systemic hurdles, specifically regarding payment and sensor identification. In an effort to overcome these hurdles, we propose Bitcoin as protocol for S2aaS networks. To lay the groundwork and start the conversation about disruptive changes that Bitcoin technology could bring to S2aaS concepts and IOT in general, we identify and discuss the core characteristics that could drive those changes. We present a conceptual example and describe the basic process of exchanging data for cash using Bitcoin. A soft control of the network activity through varying reward in a proof-of-work (PoW) cryptocurrency is reported. Rewards are the necessity to incent the contributors activities (i.e., mining) in order to maintain the PoW network. Contrary to constant rewarding in a certain period implemented in most of cryptocurrency, such as bitcoin, we propose a network-dependent rewarding model system, primarily including two phases: 1) activities encouraging phase in which higher rewards are issued at higher network activities; and 2) discouraging further increase of activities by reducing rewards. The advantages of this system include 1) fair distribution of rewards among a variety of contributors, and 2) enforcing a limit to the network activity and hence the cost of maintaining the PoW network. This mechanism requires network contributors to show their participation in order to earn maximum rewards, i.e., proof-of-mining. In this paper, we discuss the method of Bayesian regression and its efficacy for predicting price variation of Bitcoin, a recently popularized virtual, cryptographic currency. Bayesian regression refers to utilizing empirical data as proxy to perform Bayesian inference. We utilize Bayesian regression for the so-called “latent source model”. The Bayesian regression for “latent source model” was introduced and discussed by Chen, Nikolov and Shah [1] and Bresler, Chen and Shah [2] for the purpose of binary classification. They established theoretical as well as empirical efficacy of the method for the setting of binary classification. In this paper, instead we utilize it for predicting real-valued quantity, the price of Bitcoin. Based on this price prediction method, we devise a simple strategy for trading Bitcoin. The strategy is able to nearly double the investment in less than 60 day period when run against real data trace. Bitcoin is a decentralized P2P digital currency in which coins are generated by a distributed set of miners and transaction are broadcasted via a peer-to-peer network. While Bitcoin provides some level of anonymity (or rather pseudonymity) by encouraging the users to have any number of random-looking Bitcoin addresses, recent research shows that this level of anonymity is rather low. This encourages users to connect to the Bitcoin network through anonymizers like Tor and motivates development of default Tor functionality for popular mobile SPV clients. In this paper we show that combining Tor and Bitcoin creates an attack vector for the deterministic and stealthy man-in-the-middle attacks. A low-resource attacker can gain full control of information flows between all users who chose to use Bitcoin over Tor. In particular the attacker can link together user's transactions regardless of pseudonyms used, control which Bitcoin blocks and transactions are relayed to the user and can \ delay or discard user's transactions and blocks. In collusion with a powerful miner double-spending attacks become possible and a totally virtual Bitcoin reality can be created for such set of users. Moreover, we show how an attacker can fingerprint users and then recognize them and learn their IP address when they decide to connect to the Bitcoin network directly. We show that the behaviour of Bitcoin has interesting similarities to stock and precious metal markets, such as gold and silver. We report that whilst Litecoin, the second largest cryptocurrency, closely follows Bitcoin's behaviour, it does not show all the reported properties of Bitcoin. Agreements between apparently disparate complexity measures have been found, and it is shown that statistical, information-theoretic, algorithmic and fractal measures have different but interesting capabilities of clustering families of markets by type. The report is particularly interesting because of the range and novel use of some measures of complexity to characterize price behaviour, because of the IRS designation of Bitcoin as an investment property and not a currency, and the announcement of the Canadian government's own electronic currency MintChip. "An open distributed system can be secured by requiring participants to present proof of work and rewarding them for participation. The Bitcoin digital currency introduced this mechanism, which is adopted by almost all contemporary digital currencies and related services. A natural process leads participants of such systems to form pools, where members aggregate their power and share the rewards. Experience with Bitcoin shows that the largest pools are often open, allowing anyone to join. It has long been known that a member can sabotage an open pool by seemingly joining it but never sharing its proofs of work. The pool shares its revenue with the attacker, and so each of its participants earns less. We define and analyze a game where pools use some of their participants to infiltrate other pools and perform such an attack. With any number of pools, no-pool-attacks is not a Nash equilibrium. With two pools, or any number of identical pools, there exists an equilibrium that constitutes a tragedy of the commons where the pools attack one another and all earn less than they would have if none had attacked. For two pools, the decision whether or not to attack is the miner's dilemma, an instance of the iterative prisoner's dilemma. The game is played daily by the active Bitcoin pools, which apparently choose not to attack. If this balance breaks, the revenue of open pools might diminish, making them unattractive to participants. " In this paper we discuss Bitcoin, the leader among the existing cryptocurrencies, to analyse its trends, success factors, current challenges and probable solutions to make it even better. In the introduction section, we discuss the history and working mechanism of Bitcoin. In the background section, we develop the ideas that evolved in the process of making a stable cryptocurrency. We also analyze the survey matrices of the present day cryptocurrencies. This survey clearly shows that Bitcoin is the clear winner among its kind. Section 3 is about the success factors of Bitcoin and the proceeding sections are a discussion about current challenges which pose as hurdles in making Bitcoin a better currency in the digital world. We finally discuss the balance between anonymity and reduced trust in the cryptocurrency world, before concluding the survey. The Bitcoin system only provides eventual consistency. For everyday life, the time to confirm a Bitcoin transaction is prohibitively slow. In this paper we propose a new system, built on the Bitcoin blockchain, which enables strong consistency. Our system, PeerCensus, acts as a certification authority, manages peer identities in a peer-to-peer network, and ultimately enhances Bitcoin and similar systems with strong consistency. Our extensive analysis shows that PeerCensus is in a secure state with high probability. We also show how Discoin, a Bitcoin variant that decouples block creation and transaction confirmation, can be built on top of PeerCensus, enabling real-time payments. Unlike Bitcoin, once transactions in Discoin are committed, they stay committed. Under Bitcoin protocol and payment scheme, anyone can send any amount of bitcoins that he owns to anywhere in the world via internet, near instantly for near zero fees. While the popular crypto-currency enjoys low transaction fees, a feature that is highly promoted and is working fine for the current state of the Bitcoin ecosystem, we argue that in an unforeseeable future, zero or infinitesimal transaction fees will not be sustainable. We apply a financial reasoning via depicting the interrelation of fees with mining, securing the network against 51% attacks, scarcity of supplies and the price of bitcoin, which in addition are the essential parameters involved in the problem of setting the right transaction fee in the future that we briefly discuss. X "Bitcoin has provided a creative way to solve several long-standing problems in computer science yet despite its innovations, there are still fundamental technical and governance hurdles that limit its growth. This includes the financial incentives for operating a centralized mining pool, the centralization of infrastructure without the benefits of centralization, the lack of financial incentives for working as a developer and the various public goods issues surrounding a communal effort beholden to lobbying by special interest groups " "Since the introduction of Bitcoin[Nak09] in 2009, and the multiple computer science and electronic cash innovations it brought, there has been great interest in the potential of decentralised cryptocurrencies. At the same time, implementation changes to the consensus- critical parts of Bitcoin must necessarily be handled very conservatively. As a result, Bitcoin has greater difficulty than other Internet protocols in adapting to new demands and accommodating New innovation. We propose a new technology, pegged sidechains , which enables bitcoins and other ledger assets to be transferred between multiple blockchains. This gives users access to new and innovative cryptocurrency systems using the assets they already own. By reusing Bitcoin’s currency, these systems can more easily interoperate with each other and with Bitcoin, avoiding the liquidity shortages and market fluctuations associated with new currencies. Since sidechains are separate systems, technical and economic innovation is not hindered. Despite bidirectional transferability between Bitcoin and pegged sidechains, they are isolated: in the case of a cryptographic break (or malicious design) in a sidechain, the damage is entirely confined to the sidechain itself. This paper lays out pegged sidechains, their implementation requirements, and the work needed to fully benefit from the future of interconnected blockchains." A new white paper on cryptocurrency sidechains by Back et. al.2 formalizes and advances the innovative sidechain concept and examines pros and cons in terms of both technical and economic factors. The current reply focuses on likely factors in market valuations of bitcoin-pegged units on sidechains, which might be called sidecoins. For added clarity, however, I will term these {\textquotedblleft}sidechained bitcoin substitutes{\textquotedblright} (SBSs), in contrast to {\textquotedblleft}onchain bitcoin{\textquotedblright} or simply bitcoin. Statements in the white paper create, and other statements and press descriptions reinforce, a general impression that {\textquotedblleft}bitcoin the currency{\textquotedblright} can in effect be carried over from the Bitcoin blockchain onto sidechains, where users can then trade it, taking advantage of the distinctive features of each sidechain. However, SBSs could easily trade at open market values that diverge from onchain bitcoin. This is an important topic for clarification as people begin to imagine and work to develop practical uses for sidechains. Bitcoin, a peculiar crypto-currency has been the loudest buzzword in global finance over the last year or so, both for its spectacular and seemingly robust appreciation trend as well as for more recent equally ostentatious demise. After reviewing the history of bitcoin and specificities of its cyber-construct, this paper adds to the critical analysis of bitcoin as an international currency alternative. Lately, its volatility has been so excessive that it arguably cannot serve as a store of value. In addition, notwithstanding bitcoin's rising if bumpy credibility as a medium of exchange, since it has been immediately converted (by chief vendors) in either of the leading world currencies upon payment due to its extraordinary exchange rate volatility, bitcoin's unit of account potential appears to be dubious too. Moreover, bitcoin's next to none correlation with other major currencies' movements renders it unsuitable for managing FX risk or hedging purposes. Finally, having in mind that it lacks formal reserves or deposit-insurance scheme to back it up yet it's also prone to hacking, bitcoin resembles and behaves more like a pyramidal investment vehicle than a global currency alternative. Nevertheless, technology that made it be may still spawn an evolution in the way we posses things, transfer ownership and pay for goods and services in the near IT-ridden future. "n the present paper we remark that the absence of an intrinsic or fundamental value represents a problem for the stability of the bitcoinís price as an asset. In addition, we consider some Önancial stability concerns that derive from the hypothesis that the bitcoin will survive as an asset subject to high speculation" The Bitcoin has emerged as a fascinating phenomenon in the Financial markets. Without any central authority issuing the currency, the Bitcoin has been associated with controversy ever since its popularity, accompanied by increased public interest, reached high levels. Here, we contribute to the discussion by examining the potential drivers of Bitcoin prices, ranging from fundamental sources to speculative and technical ones, and we further study the potential influence of the Chinese market. The evolution of relationships is examined in both time and frequency domains utilizing the continuous wavelets framework, so that we not only comment on the development of the interconnections in time but also distinguish between short-term and long-term connections. We find that the Bitcoin forms a unique asset possessing properties of both a standard financial asset and a speculative one. This paper deals with the economics of Bitcoins in two ways. First, it broadens the discussion on how to capture Bitcoins using economic terms. Center stage in this analysis take the discussion of some unique characteristics of this market as well as the comparison of Bitcoins and gold. Second, the paper empirically analyses Bitcoin prices using an autoregressive jump-intensity GARCH model; a model tested and proven by the empirical finance community. Results suggest that Bitcoin price are particularly marked by extreme price movements; a behaviour generally observed in immature markets. This paper analyses the relationship between BitCoin price and supply-demand fundamentals of BitCoin, global macro-financial indicators and BitCoin attractiveness for investors. Using daily data for the period 2009-2014 and applying time-series analytical mechanisms, we find that BitCoin market fundamentals and BitCoin attractiveness for investors have a significant impact on BitCoin price. Our estimates do not support previous findings that the macro-financial developments are driving BitCoin price. Many cryptocurrencies have come into existence in recent years, with Bitcoin the most prominent among them. Although its short history has been volatile, the virtual currency maintains a core group of committed users. This paper presents an exploratory analysis of Bitcoin users. As a virtual currency and peer-to-peer payment system, Bitcoin may signal future challenges to state oversight and financial powers through its decentralized structure and offer of instantaneous transactions with relative anonymity. Very little is known about the users of Bitcoin, however. Utilizing publicly available survey data of Bitcoin users, this analysis explores the structure of the Bitcoin community in terms of wealth accumulation, optimism about the future of Bitcoin, and themes that attract users to the cryptocurrency. Results indicate that age, time of initial use, geographic location, mining status, engaging online discourse, and political orientation are all relevant factors that help explain various aspects of Bitcoin wealth, optimism, and attraction. In this paper we introduce a new decentralized digital currency, called NRGcoin. Prosumers in the smart grid trade locally produced renewable energy using NRGcoins, the value of which is determined on an open currency exchange market. Similar to Bitcoins, this currency offers numerous advantages over fiat currency, but unlike Bitcoins it is generated by injecting energy into the grid, rather than spending energy on computational power. In addition, we propose a novel trading paradigm for buying and selling green energy in the smart grid. Our mechanism achieves demand response by providing incentives to prosumers to balance their production and consumption out of their own self-interest. We study the advantages of our proposed currency over traditional money and environmental instruments, and explore its benefits for all parties in the smart grid. Fair-exchange and anonymity are two important attributes in e-commerce. It is much more difficult to expect fairness in e-commerce transactions using Bit coin due to anonymity and transaction irreversibility. Genuine consumers and merchants who would like to make and receive payments using Bit coin may be reluctant to do so due to this uncertainty. The proposed protocol guarantees strong-fairness while preserving anonymity of the consumer and the merchant, using Bit coin as a payment method which addresses the aforementioned concern. The involvement of the trusted third party (TTP) is kept to a minimum, which makes the protocol optimistic and the exchanged product is not revealed to TTP. It achieves dispute resolution within the protocol run without any intervention of an external judge. Finally we show how the protocol can be easily adapted to use other digital cash systems designed using public ledgers such as Zerocoin/Zerocash. Bit coin is a decentralized digital currency, introduced in 2008, that has recently gained noticeable popularity. Its main features are: (a) it lacks a central authority that controls the transactions, (b) the list of transactions is publicly available, and (c) its syntax allows more advanced transactions than simply transferring the money. The goal of this paper is to show how these properties of Bit coin can be used in the area of secure multiparty computation protocols (MPCs). Firstly, we show that the Bit coin system provides an attractive way to construct a version of "timed commitments", where the committer has to reveal his secret within a certain time frame, or to pay a fine. This, in turn, can be used to obtain fairness in some multiparty protocols. Secondly, we introduce a concept of multiparty protocols that work "directly on Bit coin". Recall that the standard definition of the MPCs guarantees only that the protocol "emulates the trusted third party". Hence ensuring that the inputs are correct, and the outcome is respected is beyond the scope of the definition. Our observation is that the Bit coin system can be used to go beyond the standard "emulation-based" definition, by constructing protocols that link their inputs and the outputs with the real Bit coin transactions. As an instantiation of this idea we construct protocols for secure multiparty lotteries using the Bit coin currency, without relying on a trusted authority (one of these protocols uses the Bit coin-based timed commitments mentioned above). Our protocols guarantee fairness for the honest parties no matter how the loser behaves. For example: if one party interrupts the protocol then her money is transferred to the honest participants. Our protocols are practical (to demonstrate it we performed their transactions in the actual Bit coin system), and can be used in real life as a replacement for the online gambling sites. We think that this paradigm can have also other applications. We discu- s some of them. Bit coin is the first digital currency to see widespread adoption. While payments are conducted between pseudonyms, Bit coin cannot offer strong privacy guarantees: payment transactions are recorded in a public decentralized ledger, from which much information can be deduced. Zero coin (Miers et al., IEEE S&P 2013) tackles some of these privacy issues by unlinking transactions from the payment's origin. Yet, it still reveals payments' destinations and amounts, and is limited in functionality. In this paper, we construct a full-fledged ledger-based digital currency with strong privacy guarantees. Our results leverage recent advances in zero-knowledge Succinct Non-interactive Arguments of Knowledge (zk-SNARKs). First, we formulate and construct decentralized anonymous payment schemes (DAP schemes). A DAP scheme enables users to directly pay each other privately: the corresponding transaction hides the payment's origin, destination, and transferred amount. We provide formal definitions and proofs of the construction's security. Second, we build Zero cash, a practical instantiation of our DAP scheme construction. In Zero cash, transactions are less than 1 kB and take under 6 ms to verify - orders of magnitude more efficient than the less-anonymous Zero coin and competitive with plain Bit coin. X Since its introduction in 2009, Bitcoin, an open source, peer to peer, digital crypto currency has been growing in popularity and wide spread use. Growing attention, recognition by major financial institutions and high valued currency units (BTC) ascertains Bitcoin to a sturdy and ever increasing choice of currency. A public transaction log called the “Blockchain” keeps records of all committed transactions and Bitcoin ownership details, that is, addresses derived by cryptographic keys. Bitcoin mining, a process which results in the generation of new Bitcoins, is performed by miner operators for reception of incentives in the form of Bitcoins. This mining process is essentially operations of SHA-256 hashing of values in search of a hash digest smaller than a specific value. Once this winning hash has been discovered, a new block to Blockchain is added and BTC incentives are furnished by the Bitcoin network to the miner. This paper discusses methods of performing Bitcoin mining on non-custom hardware which results in contextually faster mining by combined usage of computing elements within machines in mining networks, both illegal and legal. We propose techniques for decentralizing prediction markets and order books, utilizing Bitcoin{\textquoteright}s security model and consensus mechanism. Decentralization of prediction markets offers several key advantages over a centralized market: no single entity governs over the market, all transactions are transparent in the block chain, and anybody can participate pseudonymously to either open a new market or place bets in an existing one. We provide trust agility: each market has its own specified arbiter and users can choose to interact in markets that rely on the arbiters they trust. We also provide a transparent, decentralized order book that enables order execution on the block chain in the presence of potentially malicious miners. "The Bitcoin ecosystem has suered frequent thefts and losses aecting both businesses and individuals. The insider threat faced by a business is particularly serious. Due to the irre- versibility, automation, and pseudonymity of transactions, Bitcoin currently lacks support for the sophisticated inter- nal control systems deployed by modern businesses to deter fraud. We seek to bridge this gap. We show that a threshold- signature scheme compatible with Bitcoin's ECDSA signa- tures can be used to enforce complex yet useful security policies including: (1) shared control of a wallet, (2) secure bookkeeping, a Bitcoin-specic form of accountability, (3) secure delegation of authority, and (4) two-factor security for personal wallets." "In this work as authors one of scenarios of development of the worldwide after transition to a post-capitalist state is considered for the present not received an extensive discussion in scientific community. In article the description of today’s economic space which is on the verge of disorder and uncertainty is given. The idea of formation of absolutely new world market with the network states in the conditions of globalization is reduced to a question of creation of the mechanism of implementation of the international payments. Authors of article see the future behind the cryptocurren- cies, capable to provide requirements of already created post-capitalist society. In this regard the relations of the governments of various countries of the world to information innovation were analyzed, and also recommendations are stated to the government of Russia on introduction of virtual currencies in payment system. " "The proliferation of technology emphasized new forms of payment. During the last years, current literature highlighted the role of virtual currency, the channels of payment through digital coins and the importance of assimilation of such platforms. Bitcoin or BTC is known as a digital coin, issued for the first time in 2009 and based on a peer to peer system. The difference from other forms of payment is that BTC is not controlled by any institution or central authority. BTC transactions have grown rapidly, ”asking"" for regulation measures or legal approval of governments. Although BTC has become very popular, the market is poor and unfortunately of no confidence. There is a lack of regulation which can determine a number of risks associated with criminal financing activities. However, the legal status of Bitcoin is present in many European countries like Belgium, Bulgaria, Denmark, Finland, Germany, Lithuania, Norway, Poland, Slovenia, Switzerland or Turkey. Also, this type of currency has experienced a rapid evolution among coffee shops and restaurants. " The present paper seeks to effectively address the following question: What Bitcoin looks like? To do so, we regress Bitcoin price on a number of variables (Bitcoin fundamentals recorded in the literature) by applying an ARDL Bounds Testing approach for daily data covering the period from December 2010 to June 2014. Our findings highlight the speculative nature of Bitcoin. We also provide insightful evidence that Bitcoin may be used for economic reasons but there is any sign of being a safe haven or a long-term promise. By considering the Chinese trading bankruptcy, the contribution of users’ interest stills sharply dominant, indicating the robustness of our results. The sweeping success of the original (2008) bitcoin protocol proves that digital currency has arrived. The mounting opposition from the financial establishment indicates an overshoot. We propose to tame bitcoin into bitcoin.BitMint: keeping the bitcoin excitement -- fitted into real world security, stability and fraud concerns. The basic idea is to excise the bitcoin money generation formula, and otherwise apply bitcoin essentially “as is” over digital coins which are redeemable by the mint that minted them. This will preserve the bitcoin assured anonymity. The new bitcoin.BitMint solution will benefit from bitcoin’s double-spending prevention, and would otherwise enjoy all the benefits associated with money in a digital form. bitcoin.BitMint will allow traders to invest in US$, gold, or any other commodity while practicing their trade in cyberspace, anonymously, securely, and non-speculatively. This “mint-in-the-middle” protocol will allow law enforcement authorities to execute a proper court order to enforce the disclosure of a suspected fraudster, but the community of honest traders will trade with robust privacy as offered by the original bitcoin protocol. We envision interlinked bitcoin.BitMint trading environments, integrated via an InterMint protocol: a framework for the evolution of a cascaded super currency – global and highly stable. The year 2013 witnessed a remarkable increase in public interest and awareness of digital currenciessuch as Bitcoin. Hailed by some as the currency of the future, these “cryptocurrencies”have gained notoriety for their use un online black makerts but have yet to gain widespread acceptance. Given their novelty and the lack of central regulating authorities, digital currencies experience high volatility and uncertainty regarding value. Taking Bitcoin as a representative example, this paper first sues autoregressive moving average (ARMA) fucntions to explain trading values, then applies log-periodic power law (LPPL) models in an attempt to predict crashes. The results of ARMA modeling show that Bitcoin values react to the CBOE Volatility Index, suggesting that a primary force currently driving Bitcoin values is speculation by investors looking outside traditional markets. In addition, the LPPL models accurately predcit ex-ante the crash that occurred in December 2013, making LPPL models a potentially valuable tool for understanding bubble behaviour in digital currencies. X X X X The spectacular rise late last year in the price of bitcoin, the dominant virtual currency, has attracted much public attention as well as scholarly interest. This policy brief discusses how some features of bitcoin as designed and executed to date, have hampered its ability to perform the functions required of fiat money – as a medium of exchange, unit of account, and store of value. Furthermore, we document how various forms of intermediaries have emerged and evolved within the Bitcoin network, particularly noting the convergence toward concentrated processing, both on and off the blockhain. We argue that much of this process would have been predicted by established theories of financial intermediation, and we consider the theories' implication for the future of intermediares serving users of bitcoin or alternative virtual currencies. We then compare Bitcoin with other innovations to facilitate payment services, from competing alternative currencies to electronic payment protocols. We conclude with a broad consideration of the major factors that will likely shape the future development of Bitcoin versus other alternative payments systems. We predict that Bitcoin's legacy wll be innovations it has spurred to payment technology, although the payment system will remain dominated by large processors because of economies of scale. Trustless public ledgers (“TPLs”)—the technology underneath Bitcoin—do more than just create online money. The technology permits people to directly exchange money for what they want, with no intermediaries, such as credit card companies. Contract law is the law of bargained-for exchange, so a technology that enables direct exchange online will change the reality of online contracting. The current problem with consumer contracting online is that courts and companies have collaborated to create an online system in which consumers cannot bargain. Under the current regime, consumers have no choice but to click the “I Accept” button. Online, contract law is not the law of bargained-for exchange; it has become the law of company-dictated exchange. Smart contracts—automated computer programs able to execute trades through TPLs—may offer a solution. This brief Essay explores the possibilities of smart contracts and their potential to correct the badly off-course law of online contract. X Bitcoin is a digital cryptocurrency that has generated considerable public interest, including both booms in value and busts of exchanges dealing in Bitcoins. One of the fundamental concepts of Bitcoin is that work, called mining, must be done in checking all monetary transactions, which in turn creates Bitcoins as a reward. In this paper we look at the energy consumption of Bitcoin mining. We consider if and when Bitcoin mining has been profitable compared to the energy cost of performing the mining, and conclude that specialist hardware is usually required to make Bitcoin mining profitable. We also show that the power currently used for Bitcoin mining is comparable to Ireland's electricity consumption. The present study addresses one of the most problematic phenomena: Bitcoin price. We explore the Granger causality for two relationships (Bitcoin price and transactions; Bitcoin price and investors’ attractiveness) from a frequency domain perspective using Breitung and Candelon’s (2006) approach. Intuitively, this research gauges empirically the causal links between these variables unconditionally on the one hand and conditionally to the Chinese stock market and the processing power of Bitcoin network on the other hand. The observed outcomes reveal some differences with respect to the frequencies involved, highlighting the complexity of assessing what Bitcoin looks like and the difficulty to gain clearer insights into this nascent crypto-currency. Beyond the nuances of short-, medium- and long-run frequencies, this paper confirms the extremely speculative nature of Bitcoin without neglecting its usefulness in economic reasons (trade transactions). The consideration of the Chinese market index and the hash rate has led to solid and unambiguous findings connecting further Bitcoin to speculation. X The complexity and interdependence of the economies of various geographical and political entities have one generic binder - money. The economic history of the last century, replicated in the first decade of our century, can be {\textquotedblleft}written{\textquotedblright} with money. Indeed, money, a multiple discovery of the civilization in its historical way, was and still is the guardian of hope for prosperity. The disputes about money clearly indicate the need, opportunity and the possibility of monetary competition, which would provide, from the point of view of entrepreneurs, the most suitable production of money based on expectations of their economic preferences. Increasingly more, theorists, practitioners and analysts bring to the fore the issue of simultaneously using the official currency and the digital one. Thus, the issue of the public debate regarding the private money is still of interest. Based on these considerations, this paper aims to highlight how the digital currency Bitcoin can meet the challenges of the economic environment, taking into account both the opportunities and the threats to which it is subject, and the records emphasized by the history of economic thought and adapted to the current reality. Bitcoins have recently become an increasingly popular cryptocurrency through which users trade electronically and more anonymously than via traditional electronic transfers. Bitcoin's design keeps all transactions in a public ledger. The sender and receiver for each transaction are identified only by cryptographic public-key ids. This leads to a common misconception that it inherently provides anonymous use. While Bitcoin's presumed anonymity offers new avenues for commerce, several recent studies raise user-privacy concerns. We explore the level of anonymity in the Bitcoin system. Our approach is two-fold: (i) We annotate the public transaction graph by linking bitcoin public keys to "real" people - either definitively or statistically. (ii) We run the annotated graph through our graph-analysis framework to find and summarize activity of both known and unknown users. "The Bitcoin marketplace provides a unique opportunity for information and social scientists to explore familiar patterns in new light. Trade manias, also often referred to controversially as econom ic bubbles, have been widely discussed in political-economy. In this paper, we identify moments of transition from sharp increases to sharp drops in the price of Bitcoin an d apply network and conversation analyses around th em. We isolate our analysis to the four largest peaks in the history of Bitcoin. Our findings illustrate how computationally intensive techniques may uncover signals of emergence of such phenomena in complex soc ial systems. " There has been a lot of uncertainty surrounding the sustainability of the Bitcoin network, with this fascinating nascent technology facing several unsubstantiated claims by uninformed individuals that Bitcoin is highly unsustainable from a social, economic and environmental point of view. This paper aims to disprove or support these claims about the sustainability of the Bitcoin network, and provide an order-of-magnitude comparison of the relative sustainability of Bitcoin when compared with the incumbent banking industry, the gold production industry, and the process of printing and minting of physical currency. Widely available public information strongly refutes claims that Bitcoin is unsustainable, and shows that the social, environmental and economic impacts are a minuscule fraction of the impacts that the legacy wealth and monetary systems have on our society and environment. "Bitcoin is the first and most popular decentralized cryptocurrency to date. In this work, we extract and analyze the core of the Bitcoin protocol, which we term the Bitcoin backbone, and prove two of its fundamental properties which we call common prefix and chain quality in the static setting where the number of players remains fixed. Our proofs hinge on appropriate and novel assumptions on the “hashing power” of the adversary relative to network synchronicity; we show our results to be tight under high synchronization. Next, we propose and analyze applications that can be built “on top” of the backbone protocol, specifically focusing on Byzantine agreement (BA) and on the notion of a public transaction ledger. Regarding BA, we observe that Nakamoto’s suggestion falls short of solving it, and present a simple alternative which works assuming that the adversary’s hashing power is bounded by 1/3. The public transaction ledger captures the essence of Bitcoin’s operation as a cryptocurrency, in the sense that it guarantees the liveness and persistence of committed transactions. Based on this notion we describe and analyze the Bitcoin system as well as a more elaborate BA protocol, proving them secure assuming high network synchronicity and that the adversary’s hashing power is strictly less than 1/2, whi" X An implicit goal of Bitcoin{\textquoteright}s reward structure is to diffuse network influence over a diverse, decentralized population of individual participants. Indeed, Bitcoin{\textquoteright}s security claims rely on no single entity wielding a sufficiently large portion of the network{\textquoteright}s overall computational power. Unfortunately, rather than participating independently, most Bitcoin min- ers join coalitions called mining pools in which a central pool administrator largely directs the pool{\textquoteright}s activity, leading to a consolidation of power. Recently, the largest mining pool, GHash.IO, has accounted for more than half of network{\textquoteright}s total mining capacity.1 Relatedly, {\textquotedblleft}hosted mining{\textquotedblright} service providers offer their clients the benefit of economies-of-scale, tempting them away from independent participation. We argue that the prevalence of mining coalitions is due to a limitation of the Bitcoin proof-of-work puzzle {\textendash} specifically, that it supports an effective mechanism for enforcing cooper- ation in a coalition. We present several definitions and con- structions for {\textquotedblleft}nonoutsourceable{\textquotedblright} puzzles that thwart such enforcement mechanisms, thereby deterring coalitions. We also provide an implementation and benchmark results for our schemes to show they are practical. Bit coin is widely regarded as the first broadly successful e-cash system. An oft-cited concern, though, is that mining Bit coins wastes computational resources. Indeed, Bit coin's underlying mining mechanism, which we call a scratch-off puzzle (SOP), involves continuously attempting to solve computational puzzles that have no intrinsic utility. We propose a modification to Bit coin that repurposes its mining resources to achieve a more broadly useful goal: distributed storage of archival data. We call our new scheme Perm coin. Unlike Bit coin and its proposed alternatives, Perm coin requires clients to invest not just computational resources, but also storage. Our scheme involves an alternative scratch-off puzzle for Bit coin based on Proofs-of-Retrievability (PORs). Successfully minting money with this SOP requires local, random access to a copy of a file. Given the competition among mining clients in Bit coin, this modified SOP gives rise to highly decentralized file storage, thus reducing the overall waste of Bit coin. Using a model of rational economic agents we show that our modified SOP preserves the essential properties of the original Bit coin puzzle. We also provide parameterizations and calculations based on realistic hardware constraints to demonstrate the practicality of Perm coin as a whole. We present a formal model of synchronous processes without distinct identifiers (i.e., anonymous processes) that com- municate using one-way public broadcasts. Our main contribu- tion is a proof that the Bitcoin protocol achieves consensus in this model, except for a negligible probability, when Byzantine faults make up less than half the network. The protocol is scalable, since the running time and message complexity are all independent of the size of the network, instead depending only on the relative computing power of the faulty processes. We also introduce a requirement that the protocol must tolerate an arbitrary number of passive clients that receive broadcasts but can not send. This leads to a tight 2f + 1 resilience bound. X Law enforcement efforts to combat money laundering are increasingly misplaced. As money laundering and other underlying crimes shift into cyberspace, U.S. law enforcement focuses on prosecuting financial institutions’ regulatory violations to prevent crime, rather than going after criminals themselves. This article will describe current U.S. anti-money laundering laws, with particular criticism of how attenuated prosecution has become from crime. The article will then describe the use of Bitcoin as a money-laundering vehicle, and analyze the difficulties for law enforcement officials who attempt to choke off Bitcoin transactions in lieu of prosecuting underlying criminal activity. The article concludes with recommendations that law enforcement should look to digital currency exchangers not as criminals, but instead as partners in the effort to eradicate money laundering and — more importantly — the crimes underlying the laundering. It is a widely spread belief that crypto-currencies implementing a proof of stake transaction validation system are less vulnerable to a 51% attack than crypto-currencies implementing a proof of work transaction validation system. In this article, we show that it is not the case and that, in fact, if the attacker’s motivation is large enough (and this is common knowledge), he will succeed in his attack at no cost. This working paper presents a simple model for the macroeconomic behavior of bitcoin based on the economic equation of exchange. According to this model, the value of bitcoin is determined largely by the willingness of bitcoin holders to save bitcoin and not by its transactional use. This model therefore predicts that increased use of bitcoin will not cause its value to rise, but that the value of bitcoin in terms of fiat currency will be almost solely determined by the willingness of bitcoin holders to pull bitcoin out of circulation. This model suggests that bitcoin will not fall victim to a liquidity trap as suggested by some economists. We study the economics of Bitcoin transaction fees in a simple static partial equilibrium model with the specificity that the system security is directly linked to the total computational power of miners. We show that any situation with a fixed fee is equivalent to another situation with a limited block size. In both cases, we give the optimal value of the transaction fee or of the block size. We also show that making the block size a non binding constraint and, in the same time, letting the fee be fixed as the outcome of a decentralized competitive market cannot guarantee the very existence of Bitcoin in the long-term. This paper overviews the entire landscape of Bitcoin-like cryptocurrencies. Bitcoin has not emerged out of cryptocurrency competition, but rather became a dominant currency as the first broad market based cryptocurrency. But there are more than a hundred of cryptocurrencies in the market, and some are catching up to Bitcoin. This is a healthy sign of currency competition á la Hayek. Through this competition new technological and security innovations may emerge. In this paper, we point out potential problems with Bitcoin and propose some ideas for an alternative cryptocurrency. Bitcoin is a decentralised cryptographic virtual currency scheme based on a peer-to-peer network that has attracted substantial number of users in recent years. In this paper, we investigate reasons behind its success and explosive behaviour in its exchange rates in 2013-14. We debate whether bitcoin is a currency or commodity. By employing Perron (1997) unit root tests, we investigate whether shocks in Bitcoin-USD exchange rate have a permanent effect or a transitory effect and try to locate the date of structural break. We attempt to find an evidence for existence of speculative bubble in bitcoin exchange markets. This paper introduces sequential unit root tests into analysis of bubble in Bitcoin exchange rates which were recently developed by Phillips et al. (2011a, b). We find strong evidence of explosive behaviour in bitcoin exchange rates. "This manuscript builds on my existing research program that (a) broadly seeks to analyze laws, regulations, instruments, and policy levers that inhibit a market’s ability to recognize an asset’s intrinsic value, whether in terms of financial, social, or human capital, and (b) explores and advances interdisciplinary corporate governance theories by employing a heterodox economic analytic to derive its proposal to the paradox of an unregulated virtual currency market (Bitcoins) and an overly regulated crowdfunding market (Kickstarter). The manuscript functions not only as an homage to Charles MacKay’s legendary 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, which described the human, social, and economic psychology of financial bubbles — particularly the Dutch tulip bulb bubble — but also as an offering of problems and proposals that crowdfunded and Kickstarted entrepreneurial businesses, including those funded by Bitcoin currencies, present for a wide swath of societal stakeholders. To describe the problem, this manuscript (i) describes behavioral finance, (ii) details the new entrepreneurial business possibilities that virtual currencies and crowdfunded entities can explore, (iii) describes how current rules and regulations represent unnecessary constraints to traditional equity-based funding models and concerning governance models of entrepreneurial enterprises, and (iv) questions why one form of capital deployment (currencies) may provide equity-like returns and unique governance, while the other form of investing (crowdfunding), provides only soft-dollar-like returns and no governance for middle-class investors. While both virtual currencies and crowdfunding represent risks, including economic bubble risk, this Article believes that a heterodox economic analysis demonstrates unnecessary constraints on entrepreneurial businesses imposed by extant regulation, regulators, and law and policymakers. To assuage these paradoxic problems for emerging business enterprises, this Article proposes a minarchist heterodox solution of modest statutory language that requires market-based solutions that employ needed risk reduction strategies while redeploying necessary capital to private startup business enterprises. This proposal thus benefits the middle class entrepreneurs, suppliers of capital, and job seekers harmed by the current regulatory regime, while permitting for an expansion of the U.S. and global economies." This paper considers whether the stability of Bitcoin in the market as a method of payment using a dual currency money-search model. In the model, there is traditional money and Bitcoin. The two currencies are classified by the storage cost and the probability that sellers accept particular money for payments. Agents are randomly matched for transactions. To consider substitution effect between monies, we allow new entries every period. In the beginning of each period, new entrants come into the matching process with a unit of money of their choice. A certain number of sellers also come into the same process to maintain the population share of sellers at a constant level. With appropriately chosen parameters, we find that there can be stable and unstable equilibria of the share of bitcoiners. In this case, a stable equilibrium is a success (bitcoiners take a large share) while the other (unstable) is a failure (bitcoiners take a marginal share or vanish). However, if the inflation rate of traditional money decreases, the successful equilibrium disappears to start approaching the failure even if Bitcoin is currently widely accepted. Furthermore, welfare comparisons suggest that an increase in the share of bitcoiners has a negative effect; hence, the benefit from reductions in the transaction costs must compensate for the welfare erosion if Bitcoin is accepted as a new kind of payment system. If we are to succeed, the Bitcoin community or the public authorities need to be prepared for protecting the system from several illicit activities. An uncommon approach to US monetary reform, exemplified by F. A. Hayek’s 1976 monograph Choice in Currency, is to end legal barriers to alternative monies, whether as units of account or as media of exchange. Alternative monetary standards might then arise in the marketplace to operate in parallel with the fiat dollar, perhaps gradually to displace it. Here I look at two private alternative monetary systems that were available until disallowed by the federal government, the silver “Liberty Dollar” (a hand-to-hand currency) and e-gold (a system for online transfers among gold accounts). Their suppressions illustrate how legal restrictions are currently blocking monetary innovation. The same restrictions may be used against Bitcoin and other crypto-currencies. When processing transactions in a block, a miner increases his reward but also decreases his probability to earn any reward because the time needed for his block to reach consensus depends on its size. We show that this leads to a game situation between miners. We analytically solve this game for two miners. Then, we show that miners do not play a Nash equilibrium in the current Bitcoin mining environment, instead, they should not process any transaction. Finally, we show that the situation where no transaction is ever processed would stop being a Nash equilibrium if the transaction fee was multiplied or, equivalently, the fixed reward divided by a factor of about 12. During 2013, the U.S. Treasury Department evoked the first use of the 2001 Patriot Act to exclude virtual currency provider Liberty Reserve from the U.S. financial system. This article will discuss: the regulation of virtual currencies; cybercrimes and payment systems; darknets, Tor and the “deep web”; Bitcoin; Liberty Reserve; Silk Road and Mt. Gox. Virtual currencies have quickly become a reality, gaining significant traction in a very short period of time, and are evolving rapidly. Virtual currencies present particularly difficult law enforcement challenges because of their: ability to transcend national borders in the fraction of a second; unique jurisdictional issues; and anonymity due to encryption. Due primarily to their anonymous characteristic, virtual currencies have been linked to numerous types of crimes, including facilitating marketplaces for: assassins; attacks on businesses; child exploitation (including pornography); corporate espionage; counterfeit currencies; drugs; fake IDs and passports; high yield investment schemes (Ponzi schemes and other financial frauds); sexual exploitation; stolen credit cards and credit card numbers; and weapons. Innovation in the pace of development of new currencies and technologies continue to create ongoing challenges for responsible users of technology and regulators alike. While technological advances create great opportunities to improve the health, living conditions, and general wellbeing of mankind; new technologies also create great challenges for nation states. This paper investigates a simple question: What are the determinants of a Non-Fiat Anonymous Digital Payment Method’s (N-FAD) value? The investigation illuminates a unique characteristic of money that is not widely discussed in the economic literature, which distinguishes commonly accepted methods of payment from N-FAD’s. Highlighting the difference between money and N-FAD’s lays a foundation for exposing previously unmentioned valuation concepts to N-FAD’s that provide a theoretical upper bound to the equilibrium price of N-FAD’s and a description of the determinants affecting the rate of stochastic convergence toward equilibrium. In particular, the paper finds that the characteristics of a Bitcoin-type N-FAD algorithm inefficient and entail avoidable risks to the payment methods value. Bitcoin is likely doomed as an alternative to national currencies, but its key engineering elements offer us the possibility of imagining a radically different approach for architecting electronic payment systems. The technologies embedded within bitcoin have the potential for supporting the development of more open, contestable and interconnected ecosystems for the delivery of payment and financial services, much like the internet did for the delivery of communication and content services. By lowering costs and encouraging innovation, the adoption of bitcoin-like protocols could radically expand access and relevance of financial services globally, especially across borders and in developing countries. Bitcoin is a novel digital currency which is slowly gaining visibility. This paper sets out to answer some basic questions: What is it? How does it work? What are the risks? It introduces the Bitcoin technology, considers the call for regulation and answers it with a light-touch approach which bears the big picture in mind: looking at the micro, macro and international views of Bitcoin regulation while at the same time not quashing innovations like Bitcoin with heavy-handed regulation of manageable risks. This piece seeks to present to its readers the fundamental prospects in the digital currency alongside the inherent risks associated with its wide acceptability and surge. It further suggests principles that can be adopted in the wake of crises that might result from the use of the said currency for illegal purpose. Finally, this paper looks at what might become of the digital currency in the near future in view of upcoming and intended regulations. Digital currencies are a globally spreading phenomenon that is frequently and also prominently addressed by media, venture capitalists, financial and governmental institutions alike. As exchange prices for Bitcoin have reached multiple peaks within 2013, we pose a prevailing and yet academically unaddressed question: What are users' intentions when changing their domestic into a digital currency? In particular, this paper aims at giving empirical insights on whether users’ interest regarding digital currencies is driven by its appeal as an asset or as a currency. Based on our evaluation, we find strong indications that especially uninformed users approaching digital currencies are not primarily interested in an alternative transaction system but seek to participate in an alternative investment vehicle. A number of internet-based digital currency platform based on decentralized public ledgers have started since the introduction of the blockchain concept by the founder of Bitcoin in 2008. An important element of these public ledger platforms is an incentive system that elicits efforts from a distributed global workforce to verify and record transactions on the public ledger and a governance system for the platform. The economic efficiency and possibly viability of a public ledger platform ultimately depend on the design of these incentive and governance systems. Even if a decentralized public ledger were a more efficient technology for conducting financial transactions, and for providing a platform for distributed innovation, deficiencies in its incentive and governance systems could make it overall inferior to alternatives, including existing systems. Current claims that public ledger platforms can conduct financial transactions more efficiently ignore the inefficiencies associated with the incentive and governance systems and the likely costs associated with regulation of these platforms and complementary service providers such as vaults, wallets, and exchanges. It is possible that public ledger platforms are more efficient than other alternative platforms for conducing financial transactions, but as of now the proposition is based on apples-to-oranges comparisons compounded with speculation. Competition will lead to better incentive and governance systems for public ledger platforms. This paper describes the main characteristics of the most famous digital currency scheme – Bitcoin. It examines the question whether Bitcoin should be regarded as money in the economic and legal sense, and whether income in the form of virtual currency should be subject to tax. The paper does not try to determine whether such income is actually taxable in particular countries, but whether it would be a right and good policy to tax it in general. Kenya, the first market for Telco-led payments systems, through the use of mobile, to be successful. As a result, other payments systems such as crypto payment system Bitcoin see Kenya as a market worth investing in. This paper analyzes how M-PESA gained traction in a payment system that was bank led. The paper looks at the journey M-PESA took to effectively break into a market normally the preserve of banking. The paper further makes recommendations and provides steps for Bitcoin and other payments systems to follow to enter the payments market in Kenya. This paper is a roadmap for payment services providers with an interest in Kenya’s local and international money remittance business from the lessons I learnt while working in Safaricom, as Counsel for M-PESA. This paper uses simple monetary economic theory in order to extract implied BTC interest rates from exchange rates, interest rates and monetary supply data. Uncovered interest rate parity permits to derive a theoretical risk free BTC interest rate that is supposed to apply in a no arbitrage environment with rational expectations. Application to BTC/US$ exchange rates, Libor and Money supply US M2 data on the period September 2010 to January 2014 provides estimates, which illustrate what a risk free BTC interest rate could look like. Bitcoin seems to create a great confusion among Austrian economists, leading to contradictory statements and a fictional history for Bitcoin. In this paper, I attempt to explain the origin of Bitcoin, its classification and utility from Austrian perspective. At present, bitcoin is held mostly as a speculative vehicle, little used to pay for goods and services. Its value has been unstable, which impedes bitcoin’s wider use as a payment medium. We explain why the value of bitcoin has been so unstable. Then, we discuss entrepreneurial efforts that might enable bitcoin to become a more commonly accepted payment medium. Kevin Dowd argues that states must allow a level playing field as far as private money is concerned. For too long the government has stifled competition between state-backed and private currencies. Instead, central banks should welcome competition as it forces them to offer consumers greater choice and improved quality. A weakened ability to store value, growing restrictions on finance, oppressive taxes and a lack of financial privacy have resulted in growing frustration at state controlled money. The superior nature of private currencies combined with the financial freedom they offer has led to their increasing attraction. Bitcoin enables its owners, among other things, to protect their wealth, make investments free from government control and retain a level of privacy, making it increasingly attractive. The price of Bitcoin rose from 3 cents in April 2010 when first traded, to over $900 in January 2014. The relationship between restrictions on individual freedom and demand for private money is also identified in the paper. The increasing constraints on personal freedom have led to private money becoming more and more popular as it enables people to do what would otherwise be illegal. The market for private monies will continue to thrive as long as states restrict and prohibit various forms of commerce. "This paper is a study into some of the regulatory implications of cryptocurrencies using the CAMPO research framework (Context, Actors, Methods, Methods, Practice, Outcomes). We explain in CAMPO format why virtual currencies are of interest, how self-regulation has failed, and what useful lessons can be learned. We are hopeful that the full paper will produce useful and semi-permanent findings into the usefulness of virtual currencies in general, block chains as a means of mining currency, and the profundity of current ‘media darling’ currency Bitcoin as compared with the development of block chain generator Ethereum. While virtual currencies can play a role in creating better trading conditions in virtual communities, despite the risks of non-sovereign issuance and therefore only regulation by code (Brown/Marsden 2013), the methodology used poses significant challenges to researching this ‘community’, if BitCoin can even be said to have created a single community, as opposed to enabling an alternate method of exchange for potentially all virtual community transactions. First, BitCoin users have transparency of ownership but anonymity in many transactions, necessary for libertarians or outright criminals in such illicit markets as #SilkRoad. Studying community dynamics is therefore made much more difficult than even such pseudonymous or avatar based communities as Habbo Hotel, World of Warcraft or SecondLife. The ethical implications of studying such communities raise similar problems as those of Tor, Anonymous, Lulzsec and other anonymous hacker communities. Second, the journalistic accounts of BitCoin markets are subject to sensationalism, hype and inaccuracy, even more so than in the earlier hype cycle for SecondLife, exacerbated by the first issue of anonymity. Third, the virtual currency area is subject to slowly emerging regulation by financial authorities and police forces, which appears to be driving much of the early adopter community ‘underground’. Thus, the community in 2016 may not bear much resemblance to that in 2012. Fourth, there has been relatively little academic empirical study of the community, or indeed of virtual currencies in general, until relatively recently. Fifth, the dynamism of the virtual currency environment in the face of the deepening mistrust of the financial system after the 2008 crisis is such that any research conclusions must by their nature be provisional and transient. All these challenges, particularly the final three, also raise the motivation for research – an alternative financial system which is separated from the real-world sovereign and which can use code regulation with limited enforcement from offline policing, both returns the study to the libertarian self-regulated environment of early 1990s MUDs, and offers a tantalising prospect of a tool to evade the perils of ‘private profit, socialized risk’ which existing large financial institutions created in the 2008-12 disaster. The need for further research into virtual currencies based on blockchain mining, and for their usage by virtual communities, is thus pressing and should motivate researchers to solve the many problems in methodology for exploring such an environment." This paper approaches the PPP puzzle by using the Bitcoin/US Dollar exchange rate. The use of the virtual currency as macroeconomic laboratory allows us to remove frictions that previously impeded the empirical demonstration of the law of one price. We show that price adjustments are still far from perfect due to information asymmetry between agents. Nevertheless, the real exchange rate is stationary and adjusts by 81% within one day. Finally, because of the different speed of information spread, good market arbitrage takes place in the Bitcoin economy but not in the US economy. Thus, we conclude that in a frictionless economy the PPP holds and the speed of arbitrage for the good market depends on the speed of information spread among agents. Recent innovations have made it feasible to transfer private digital currency without the intervention of an organization such as a bank. Any currency must prevent users from spending their balances more than once, which is easier said than done with purely digital currencies. Current digital currencies such as Bitcoin use peer-to-peer networks and open source software to stop double spending and create finality of transactions. This paper explains how the use of these technologies and limitation of the quantity produced can create an equilibrium in which a digital currency has a positive value. This paper also summarizes the rise of 24/7 trading on computerized markets in Bitcoin in which there are no brokers or other agents. The average monthly volatility of returns on Bitcoin is higher than for gold or a set of foreign currencies in dollars, but the lowest monthly volatilities for Bitcoin are less than the highest monthly volatilities for gold and the foreign currencies. "In order to evolve beyond bitcoins, which are still speculative, volatile and small in terms of market cap, cryptocurrencies need decentralized financial intermediaries. In this work we first show that one fundamental role they can take regards price stability. The Economist and the Center for Financial Stability focus on the importance of regulating money supply for stable prices in a digital currency, and http://ssrn.com/abstract=2425270 designs a cryptocurrency where money supply is regulated to match money demand. This first proposal, however, has a limitation: the mechanism for stable prices implies that the amount of money in every account is continuously modified. This way the instability of prices typical of bitcoins is transferred to accounts, so that the purchasing power of savings is still less protected from inflation/deflation than in standard fiat currencies. The solution is to give wallet owners the freedom to choose how much they want to be affected by changes of money supply, by introducing two types of wallets: Inv wallets and Sav wallets. Money in Sav wallets is protected from instability thanks to the presence of Inv wallets, that take the risk, and the reward, of being the target of changes in money supply. This role of channel and cushion for monetary policy is taken by banks in fiat currencies, and is needed also in digital currencies, where it can be taken by decentralized financial intermediaries. This is a starting point to analyze the other roles that financial intermediaries can have in a digital currency, linking the ownership of Inv wallets to proof-of-stake validation of transactions and to lending. The appendix explores the possibility of currencies indexed to property prices registered in a block chain" X The next major wave of Bitcoin regulation will likely be aimed at financial instruments, including securities and derivatives, as well as prediction markets and even gambling. While there are many easily regulated intermediaries when it comes to traditional securities and derivatives, emerging bitcoin- denominated instruments rely much less on traditional intermediaries such as banks and securities exchanges. Additionally, the block chain technology that Bitcoin introduced for the first time makes completely decentralized markets and exchanges possible, thus eliminating the need for intermediaries in complex financial transactions. In this Article we survey the type of financial instruments and transactions that will most likely be of interest to regulators, including traditional securities and derivatives, new bitcoin-denominated instruments, and completely decentralized markets and exchanges. We find that Bitcoin derivatives would likely not be subject to the full scope of regulation under the Commodity Exchange Act to the extent that such derivatives involve physical delivery (as opposed to cash settlement) or are non-fungible and not independently traded. .. I will address eight common claims about bitcoin: 1. Physical bitcoins exist; 2. The founder of bitcoin is a person called Satoshi Nakamoto; 3. Bitcoin is mainly used for criminal activity; 4. A lack of security plagues bitcoin; 5. Mining is a waste of energy; 6. Bitcoin too small today to be an important economic force; 7. Bitcoin is currently too volatile to be viable; 8. Bitcoin is just another currency. Bitcoin extreme deflationary price instability has hampered its usability, making it impractical for spot transactions and unserviceable for deferred payments. Ametrano (2014) has proposed as Hayek Money a cryptocurrency price stability paradigm of elastic non-discretionary monetary policy. An implementation using a dual asset ledger for stable coins and seigniorage shares is presented here. A DeCentralized Reserve Bank (as Decentralized Autonomous Organization) is introduced as active market agent using bitcoin as reserve asset to preserve price parity. The socially inefficient over-investment of seigniorage revenues in transaction verification can be avoided using proof-of-payment. Bitcoin is the first decentralised, peer-to-peer network that allows for the proof and transfer of ownership of virtual currencies without the need for a trusted third party. It has created a platform for tremendous financial innovation, but at the same time the role of traditional regulatable financial intermediaries is bypassed. The purpose of this article is to address the important policy question of how we can capture Bitcoin’s potential benefits for the economy while addressing new regulatory challenges. To do so, we first conceptualise the Bitcoin ecosystem through the layered model of internet architecture. Second, we apply the layers principle of internet governance to identify control points and guidelines for regulation that respect the integrity of the layers. Third, we conclude with the need for governments to adopt an adaptive and novel regulatory approach to ensure that society can benefit from Bitcoin’s revolutionary potential. This work forms a baseline for further understanding of the governance of Bitcoin and the various actors within the ecosystem based on the layers principle of internet architecture. This schema frees coins from any speculative value, thus favoring money velocity and increasing the number of transactions. Seigniorage shares are effectively to be considered as a participation in a distributed central bank: as such the owners are entitled to seigniorage revenues in exchange for being subjected to the losses associated to coin price stability defense, obliged to validation task duties, and in charge of price index observation. Cryptography is about communication in the presence of an adversary. Cryptofinance is the efficient exchange of ownership, the verification of ownership, as well as the ability to algorithmically design conditional contracts, all with security, privacy, and minimal trust without using centralized institutions. Our current financial system is ripe for disruption. At a swipe of a debit or credit card, we are at risk (think of Target’s breach of 40 million cards). The cost of transacting using traditional methods is enormous and will increase in the future. Cryptofinance offers some solutions. This paper explores the mechanics of cryptofinance and a number of applications including bitcoin. Also attached is a slide deck that I use in my graduate course. This Article investigates an increasingly important yet under-developed body of law: regulation of virtual currency. At its peak in March of 2014, the daily volume of Bitcoin transactions in United States dollars exceeded $575,000,000. The growing mainstream acceptance of Bitcoin, however, is best illustrated by the growing number of leading merchants that have decided to accept Bitcoin payments. While Bitcoin’s rise as an alternative payment method is well-chronicled, Bitcoin’s impact extends further due to its use as an investment vehicle and its ability to spur the growth of an industry of Bitcoin-based businesses. Despite increasingly widespread use, Bitcoin (and other virtual currencies) have largely operated without the burden of regulation. Why? Like the potentially transformative innovations that preceded Bitcoin, virtual currency raises unique challenges for which existing legal models may be unprepared. As policymakers struggle to catch-up, the effort to develop an appropriate regulatory regime for virtual currency is at a critical juncture. We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies. Specifically, we look at two aspects: (1) competition among different currencies, and (2) competition among exchanges where those currencies are traded. Our data suggest that the winner-take-all effect is dominant early in the market. During this period, when Bitcoin becomes more valuable against the U.S. dollar, it also becomes more valuable against other cryptocurrencies. This trend is reversed in the later period. The data in the later period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with "winner-take-all" dynamics. The response in the United States has thus far involved regulatory bodies acting independently to clarify the treatment of virtual currency under a variety of different laws designed to regulate traditional payment systems, financial services, and investments. This Article argues, contrary to this approach, that a narrow focus on the technical application and extension of existing law creates a deficient regulatory regime. Instead, we suggest that policymakers should: (1) engage the various agency stakeholders to promote cross-communication; (2) think more globally about the wide spectrum of issues arising from virtual currency; and (3) embrace the unique and distinct characteristics of virtual currency. In support of this proposition, we show that refocusing on the collection of policy goals advanced by existing law offers policymakers an additional tool to aid in the development of a comprehensive, cohesive, and appropriately-scaled virtual currency regulatory model. Although digital currencies could, in theory, serve as money for anybody with an internet-enabled device, at present they act as money only to a limited extent and only for relatively few people. The economics of the schemes as currently designed, both in terms of individuals’ incentives and at a macroeconomic level, pose significant challenges to their widespread adoption. Digital currencies do not currently pose a material risk to monetary or financial stability in the United Kingdom. The Bank continues to monitor developments in this area. This paper analyzes the price formation and market microstructure of the Bitcoin. Bitcoin returns, volatility, turnover, liquidity, price efficiency, and price cointegration are researched in detail. In addition, the Bitcoin ownership structure and its implications on these characteristics is determined. We find that in the last years the Bitcoin price experienced extreme returns at high volatility. The price is not informationally efficient. Market fragmentation and liquidity increased in the last years, and the largest Bitcoin exchanges are cointegrated in terms of prices. Of all Bitcoin transactions, only about 13 percent are exchange traded. Ownership, transaction frequency, and size are broadly dispersed across the more than 15 million Bitcoin users. While the network is large, it is dominated by a few big players that own and trade a high fraction of the market. In the history of money bitcoin represents an outstanding medium of exchange, independent from central authorities. Therefore, it has experienced impressive demand which, combined with inelastic supply, has led to huge price appreciation. Nonetheless, transaction volume has not been increasing accordingly. At the core of this conundrum is the very poor performance of bitcoin as unit of account: dramatic deflationary price instability makes bitcoin just impractical for commerce, but completely unserviceable for salaries, mortgages, and deferred payments in general. Ametrano (2014a) has championed as Hayek Money the proposal to engineer cryptocurrencies with fully automatic algorithmic non-discretionary elastic supply: the monetary rule of pegging to a price index would dynamically rebase the outstanding amount of money and achieve price stability. It is proposed here to implement Hayek Money as multiple coexisting units of account wrapped around the unmodified bitcoin (or any other cryptocurrency). Prices would be stable in terms of these rebased-bitcoin units of account: different coexisting cryptocurrencies all backed by the same bitcoins, each one with its own floating bitcoin-equivalent rebasing index. These cryptocurrencies would define a new monetary standard, with striking resemblance to the gold standard as improved by the compensated dollar proposed by Fisher (1913). In this Fisher Money scenario bitcoin would be digital crypto-gold and exchange rates would be floating, not fixed, being just the relative prices of the respective cryptocurrency price indexes. "Property is the law of lists and ledgers. County land records, stock certificate entries, mortgage registries, UCC filings on personal property, United States Copyright and Patent registries of interests in intellectual property, bank accounts, domain name systems, and consumers’ Kindle eBook collections in the cloud — all are merely entries in a list, determining who owns what. Each such list has suffered under a traditional limitation. To prevent falsification or duplication, a single entity must maintain the list, and users must trust (and pay) that entity. As a result, transactions must proceed at significant expense and delay. Yet zero or near-zero expense is the fuel of internet scalability. Until technologies get cheap and fast enough, they cannot benefit from the full power of the internet. Property transactions have not yet truly seen an internet revolution because they are constrained by the cost of creating centralized trusted authorities. This article retheorizes the contours of digital property if that central constraint were removed. There is every reason to believe it can be. A spate of interest in cryptocurrencies has driven the development of a series of technologies for creating public, cryptographically secure ledgers of property interests that do not rely on trust in a specific entity to curate the list. Previously, the digital objects that users could buy and sell online were not rivalrous in the same way as offline physical objects, unless some centralized entity such as a social network, digital currency issuer, or game company served the function of trusted list curator. Trustless public ledgers change this dynamic. Counterparties can hand one another digital, rivalrous objects in the same way that they used to hand each other gold bars or dollar bills. No intermediary or curator is needed. Trustless public ledgers can help to reshape property law online. They offer the kind of near-zero transaction costs that have provoked radical disruptive innovation across the internet. With near-zero transaction costs, online property transactions can finally benefit from the huge scaling effects of internet technologies. In addition, the advent of this disruptive technology provides an opportunity to more deeply theorize property interests in information environments. Property online is anemic. Consumers control few online resources and own even less. This is in no small part due to antiquated notions of property as the law of physical, tangible resources. With the advent of new technology that can create digital, scarce, and rival intangible assets, these basic assumptions should be reexamined, discarded, and replaced with a theory of property as an information communication and storage system. That is the project of this piece." Bitcoins are scarce digital commodities that enable parties to transmit messages over a network that serves as a universal public ledger. Bitcoins fall within the definition of “commodity” under the Commodity Exchange Act (CEA) such that derivatives contracts that reference bitcoins are subject to regulation by the Commodity Futures Trading Commission. Like other derivatives, Bitcoin derivatives would likely not be subject to the full scope of regulation under the CEA to the extent such derivatives involve physical delivery (as opposed to cash settlement) or are nonfungible and not independently traded. In addition, Bitcoin swaps are currently too illiquid to be subject to mandatory clearing. A growing number of firms are offering Bitcoin derivatives, most of which are for retail traders. In addition to traditional derivatives that reference bitcoins, the Bitcoin (block chain) protocol can potentially enable automated derivatives contracts that securely trade, clear, and settle without the use of trusted intermediaries. The CFTC should consider an exemption for block chain derivatives that meet its policy objectives as a result of the rules that the underlying code applies to the transactions. Bitcoin, a digital currency created based on modern P2P and cryptograph technologies, has ignited much discussion among professionals. However, there is a lack of empirical understanding about the Bitcoin exchange rate. In this paper, we propose a theoretical framework from an economic-technological perspective for understanding determination of the Bitcoin exchange rate and to empirically examine dynamics of the Bitcoin exchange rate against the USD in an error correction model. Our findings suggest that it is critical to extend traditional economic exchange rate models and treat Bitcoin as both a medium for economic transactions and a technology innovation. Specifically, we find that the Bitcoin exchange rate responds to short-term changes in the US inflation rate and money supply as well as the market size of the Bitcoin economy as measured by the total number of transactions and total Bitcoin value of the transactions. Meanwhile, public recognition, reflected by Google search index and number of Twitter mentions, as well as mining difficulty have positive impacts on the Bitcoin exchange rate. Additional analysis suggests that the impact of mining difficulty diminishes as mining technology evolves. X This paper discusses the potential and limitations of Bitcoin as a digital currency. Bitcoin as a digital asset has been extensively discussed from the viewpoints of engineering and security design. But there are few economic analyses of Bitcoin as a currency. Bitcoin was designed as a payments vehicle and as a store of value (or speculation). It has no use bar as money or currency. Despite recent enthusiasm for Bitcoin, it seems very unlikely that currencies provided by central banks are at risk of being replaced, primarily because of the market price instability of Bitcoin (i.e. the exchange rate against the major currencies). We diagnose the instability of market price of Bitcoin as being a symptom of the lack of flexibility in the Bitcoin supply schedule - a predetermined algorithm in which the proof of work is the major driving force. This paper explores the problem of instability from the viewpoint of economics and suggests a new monetary policy rule (i.e. monetary policy without a central bank) for stabilizing the values of Bitcoin and other cryptocurrencies. The Bitcoin protocol supports optional direct payments from transaction partners to miners. These “fees” are supposed to substitute miners’ minting rewards in the long run. Acknowledging their role for the stability of the system, the right level of transaction fees is a hot topic of normative debates. This paper contributes empirical evidence from a historical analysis of agents’ revealed behavior concerning their payment of transaction fees. We identify several regime shifts, which can be largely explained by changes in the default client software or actions of big intermediaries in the ecosystem. Overall, it seems that rules dominate ratio, a state that is sustainable only if fees remain negligible. Though Bitcoin currently enjoys a healthy niche, the aspirations of many in the project are grander: to supplant the existing regime of fiat currencies with cryptocurrencies, and to do so outside of normal political channels. Its primary practical obstacle is its purchasing power volatility, arising from a rigid money stock in the face of wide swings in demand. Nevertheless, the historical example of gold, another (much more successful) money commodity with a more or less rigid supply, illuminates the institutional prerequisites for purchasing power stability, economic efficiency, and sustained growth – namely a market of financial intermediaries whose liabilities denominated in the base money themselves circulate as media of exchange. This paper discusses potential benefits and hurdles to establishing financial intermediation in cryptocurrency, as well as the possibility of managing the money supply to create a stable purchasing power cryptocurrency without the need for intermediation at all. Such schemes ultimately require an existing market of intermediaries in order to provide any benefits, the emergence of which governments are for the moment well-positioned to prevent. Over recent years, interest has been growing in Bitcoin, an innovation which has the potential to play an important role in e-commerce and beyond. The aim of our paper is to provide a comprehensive empirical study of the payment and investment features of Bitcoin and their implications for the conduct of e-commerce. Since network externality theory suggests that the value of a network and its take-up are interlinked, we investigate both adoption and price formation. We discover that Bitcoin returns are driven primarily by its popularity, the sentiment expressed in newspaper reports on the cryptocurrency, and total number of transactions. The paper also reports on the first global survey of merchants who have adopted this technology and model the share of sales paid for with this alternative currency, using both ordinary and Tobit regressions. Our analysis examines how country, customer and company-specific characteristics interact with the proportion of sales attributed to Bitcoin. We find that company features, use of other payment methods, customers’ knowledge about Bitcoin, as well as the size of both the official and unofficial economy are significant determinants. The results presented allow a better understanding of the practical and theoretical ramifications of this innovation. The anonymity of Bitcoin prevents analysis of its users. We collect Google Trends data to examine determinants of interest in Bitcoin. Based on anecdotal evidence regarding Bitcoin users, we construct proxies for four possible clientele: computer programming enthusiasts, speculative investors, Libertarians and criminals. Computer programming and illegal activity search terms are positively correlated with Bitcoin interest, while Libertarian and investment terms are not. X The considerable diffusion of bitcoins over the Internet that took place in the last two years has highlighted some important issue about the use of anonym tools of payment in e-commerce. Even though bitcoins are largely considered to be a digital currency, the legal and economic analysis draws the attention to a concomitant structure of financial commodity with risky features related to derivative instruments making the possibility of a bubble a case to consider. The significant growth in value and the intense volatility characterizing bitcoins are more likely to be the consequence of remarkable investments made by hedge funds and the effect of specific Institutional measures, than the outcome this efficient instrument has achieved on the Internet. The following article is analyzing bitcoins in their twofold nature: the structural considerations we will express are referred to virtual coins in general, whereas the financial evaluation is related to the specific volatility of our analysis target. Bitcoins are digital gold. They are a purely electronic commodity traded for speculative purposes as well as in exchange for goods and services. Just like physical gold, the relative price of bitcoins denominated in different currencies implies a nominal exchange rate. This is a departure from previous literature which treats bitcoin prices themselves as nominal exchange rates. I argue that treating prices as exchange rates is inappropriate as one would not consider the price of physical gold to be an exchange rate. Therefore, this paper characterizes the behavior of nominal exchange rates implied by relative bitcoin prices. I show that the implied nominal exchange rate is highly cointegrated with the nominal exchange rate determined in conventional foreign currency exchange markets. I also show that the direction of causality flows from the conventional markets to the bitcoin market and not vice-versa which can explain much of the volatility in bitcoin prices. The recent proliferation of bitcoin has been a boon for users but might pose problems for governments. Indeed, some governments have already taken steps to ban or discourage the use of bitcoin. In a model with endogenous matching and random consumption preferences, we find multiple monetary equilibria including one in which bitcoin coexists with regular currency. We then identify the conditions under which government transactions policy might deter the use of bitcoin. We show that such a policy becomes more difficult if some users strictly prefer bitcoin because they can avoid other users holding currency in the matching process. Blockchain technology provides an electronic public transaction record of integrity without central authority. The transaction record is a ledger of all transactions that have taken place within a set protocol, recorded in a sophisticated, distributed data structure. The data structure is decentralised and shared by all nodes, i.e. computers, within the participating system or network. Cryptographic and problem- solving block validation prevents duplicate transactions, double-spending, and ensures ledger integrity. The blockchain does not require a central authority or trusted third party to coordinate interactions, validate transactions, or oversee behaviour. The blockchain can contain sets of documents and record assets. In short, a blockchain is a secure peer-to-peer ledger with storage, analogous to peer- to-peer music sharing systems such as Napster... Although it is sometimes considered one of a kind, or a first-mover monopolist in the market for cryptocurrencies, Bitcoin is surrounded by effective competitors. Between March 2013 and December 2014, while the market capitalization of Bitcoin grew four-fold, the market cap of other cryptocurrencies (“altcoins”) in the aggregate grew twelve-fold, eroding Bitcoin’s market share to 84% from 95%. Where Bitcoin is a non-profit project, the growth of altcoins has been driven by for-profit enterprises. Altcoins have introduced improvements in speed, robustness, and privacy. Contrary to the predictions of economists who tried to imagine what private irredeemable currencies would look like, cryptocurrencies have attained positive valuations by implementing a nominal quantity commitment with an observable public ledger, rather than by the traditional method of redeemability or a purchasing-power commitment. Cryptocurrencies are not all bubbles, although a number of bubble-like crashes (to below 98% of peak value) can be observed in the record. There is no reason to suppose that the market is plagued either by insufficient competition or by too much competition. X We present a thorough empirical analysis of market impact on the Bitcoin/USD exchange market using a complete dataset that allows us to reconstruct more than one million metaorders. We empirically confirm the "square-root law" for market impact, which holds on four decades in spite of the quasi-absence of statistical arbitrage and market marking strategies. We show that the square-root impact holds during the whole trajectory of a metaorder and not only for the final execution price. We also attempt to decompose the order flow into an "informed" and "uninformed" component, the latter leading to an almost complete long-term decay of impact. This study sheds light on the hypotheses and predictions of several market impact models recently proposed in the literature. Our empirical results strongly supports the statistical latent order book model as the most relevant candidate to explain price impact on the Bitcoin market - and therefore probably on other markets as well. We study decentralized cryptocurrency protocols in which the participants do not deplete physical scarce resources. Such protocols commonly rely on Proof of Stake, i.e., on mechanisms that extend voting power to the stakeholders of the system. We offer analysis of existing protocols that have a substantial amount of popularity. We then present our novel pure Proof of Stake protocols, and argue that they help in mitigating problems that the existing protocols exhibit. "We study a model of incentivizing correct computations in a variety of cryptographic tasks. For each of these tasks we propose a formal model and design protocols satisfying our model's constraints in a hybrid model where parties have access to special ideal functionalities that enable monetary transactions. We summarize our results: Verifiable computation. We consider a setting where a delegator outsources computation to a worker who expects to get paid in return for delivering correct outputs. We design protocols that compile both public and private verification schemes to support incentivizations described above. Secure computation with restricted leakage. Building on the recent work of Huang et al. (Security and Privacy 2012), we show an efficient secure computation protocol that monetarily penalizes an adversary that attempts to learn one bit of information but gets detected in the process. Fair secure computation. Inspired by recent work, we consider a model of secure computation where a party that aborts after learning the output is monetarily penalized. We then propose an ideal transaction functionality FML and show a constant-round realization on the Bitcoin network. Then, in the FML-hybrid world we design a constant round protocol for secure computation in this model. Noninteractive bounties. We provide formal definitions and candidate realizations of noninteractive bounty mechanisms on the Bitcoin network which (1) allow a bounty maker to place a bounty for the solution of a hard problem by sending a single message, and (2) allow a bounty collector (unknown at the time of bounty creation) with the solution to claim the bounty, while (3) ensuring that the bounty maker can learn the solution whenever its bounty is collected, and (4) preventing malicious eavesdropping parties from both claiming the bounty as well as learning the solution. All our protocol realizations (except those realizing fair secure computation) rely on a special ideal functionality that is not currently supported in Bitcoin due to limitations imposed on Bitcoin scripts. Motivated by this, we propose validation complexity of a protocol, a formal complexity measure that captures the amount of computational effort required to validate Bitcoin transactions required to implement it in Bitcoin. Our protocols are also designed to take advantage of optimistic scenarios where participating parties behave honestly." We propose a new protocol for a cryptocurrency, that builds upon the Bitcoin protocol by combining its Proof of Work component with a Proof of Stake type of system. Our Proof of Activity protocol offers good security against possibly practical attacks on Bitcoin, and has a relatively low penalty in terms of network communication and storage space. "Six assertions concerning the status of Bitcoin are formulated and defended: (i) Bit- coin is not and will not become a currency-like informational commodity, (ii) currency- like informational commodities that aren't currencies must be frauds, (ii) specic BTC amounts may become monetized and thus may be turned into nancial assets, (iii) cur- rently no BTC amounts are monetized in any currency area and therefore none are nancial assets, (iv) by means of burocratic steps only some BTC volumes can be turned in to an informational currency within a given currency area, modied client software is not required for that step, (v) if a specic amount of BTC qualies as currency, it also qualies as money, (vi) moneyness of Bitcoin, or rather of a specic occurrence of an amount of BTC, should be questioned only after one has agreed positively on its status as a nancial asset, and negatively on its status as an amount of currency. Factions in the Bitcoin promoting movement are viewed from a perspective of orga- nizational multi-threading. Dierent factions of the Bitcoin movement may wish to see status issues about Bitcoin settled in dierent ways. Overall consistency in these matters should not be expected from the union of factions in the Bitcoin movement." In Kim Stanley Robinson{\textquoteright}s epic 1993 sci-fi novel Red Mars, a pioneering group of scientists establish a colony on Mars. Some imagine it as a chance for a new life, run on entirely different principles from the chaotic Earth. Over time, though, the illusion is shattered as multinational corporations operating under the banner of governments move in, viewing Mars as nothing but an extension to business-as-usual. It is a story that undoubtedly resonates with some members of the Bitcoin community. The vision of a free-floating digital cryptocurrency economy, divorced from the politics of colossal banks and aggressive governments, is under threat. Take, for example, the purists at Dark Wallet, accusing the Bitcoin Foundation of selling out to the regulators and the likes of the Winklevoss Twins... X X Bitcoin has become increasingly important in recent years. The exchange rate raised from $14 in January 2013 up to $240 in April 2013 and even $900 in early 2014. In this paper, we present novel insights about Bitcoin's peer-to-peer (P2P) network with a special focus on its distribution among distinct autonomous systems. We traversed Bitcoin's P2P network in a protocol-compliant manner and collected information about the network size, the number of clients, and the network distribution among autonomous systems. Our findings lead to conclusions about the resilience of the Bitcoin ecosystem, the unambiguousness of the blockchain in use, and the propagation and verification of transaction blocks. hristensen’s theory of Disruptive Innovation is hugely popular and has been studied in relation to a variety of different subject areas. One area that has never been investigated relative to the theory is the cryptocurrency Bitcoin. This dissertation seeks to investigate Disruptive Innovation theory using Bitcoin as a case study example, thus relating the two previously distinct areas. It will provide a comprehensive review of the existing academic literature about the theory of Disruptive Innovation. It will was provide a literature review about Bitcoin using academic literature and reliable online resources. The secondary data obtained from the two literature reviews will then be used to produce a primary data collection tool of a consumer survey. The survey will evaluate consumers' awareness of and attitude towards Bitcoin, its adoption and future success. By investigating consumer's attitude towards a series of potential barriers to the widespread adoption of Bitcoin, as well as a number of benefits and risks of using Bitcoin, this study will provide an indication of Bitcoin of Bitcoin's potential to disrupt an existing market. – that of payment processors such as Visa and PayPal. Through an analysis of the secondary data obtained from the literature reviews and primary data from the survey responses, it was found that Bitcoin displays the characteristics of both low End and New Market Disruptive Innovations. Furthermore, Bitcoin does indeed have the possibility to disrupt the payment processor market and the organizations operating within the industry. A number of areas of potential further research are also presented. X X This paper presents an improvement to the well-known protocol by David Chaum for anonymous currency exchange. We show its vulnerability to serious frauds by both the client and the seller, after an electronic coin is spent at least twice. In this case, the system cannot successfully determine how many times the client spent the coin and how many times the seller faked the transaction. Therefore, the bank is not able to charge the real abuser. This limitation leads to the conclusion that the original system cannot be securely used for irreversible off-line transactions. In this paper, we show the gist of the problem and propose an improved system based on its original off-line version that allows this vulnerability to be overcome. The invitation to review anthropological studies of money offers an opportunity not only to revisit the history of anthropologists’ investigations into money’s objects, meanings, and uses but also to reflect on the intersections of such work with recent psychological research. In this review essay, we survey the primary findings of the anthropology of money and the central challenges anthropological work has posed to assumptions about money’s power to abstract, commensurate, dissolve social ties, and erase difference. We summarize anthropologists’ historical concern with cultural difference and recent work on money’s materialities, meanings, and complex uses. We emphasize the pragmatics of money—from earmarking practices and the use of multiple moneys to the politics of liquidity and fungibility. In the final section of the paper, we find inspiration in recent psychological studies of money to indicate new trajectories for inquiry. Specifically, we point to three potentially fruitful areas for research: money use as a tool and infrastructure; the politics of revealing and concealing money; and money’s origins and futures as a memory device. We end with a brief reflection on ongoing monetary experiments and innovations. There is no doubt that the momentum for digital currency has grown the last few years. Numerous businesses have started accepting this alternative form of currency as payment method and digital currency platforms are emerging to seize the opportunity to explore new markets. The potential of digital currency payment protocols to act as replacements of existing monetary systems is faced with challenges related to financial, regulatory, societal, and technological factors. In this paper, we are addressing the issue of deflation that could occur in cryptocurrency systems supporting a finite cap on the total amount of currency that will ever be in circulation. Our approach leaves intact the core functionality of these systems. We present, Fawkescoin, a simple cryptocurrency using no public-key cryptography. Our proposal utilizes the distributed consensus mechanism of Bitcoin but for transactions replaces Bitcoin{\textquoteright}s ECDSA sig- natures with hash-based Guy Fawkes signatures. While this introduces a number of complexities, it demonstrates that a distributed cryptocur- rency is in fact possible with only symmetric cryptographic operations with no dramatic loss of efficiency overall and several efficiency gains. This research applies theories of trust from e-commerce to digital currencies. In particular trust in business to consumer transactions carried out using digital currencies such as Bitcoin is explored. A model of online trust is considered to be valid in this different transaction context but the significance of each construct changes and some extensions are necessary. In particular the role of institutional trust in transactions has differences that are explored and new constructs are suggested. These are incorporated into a new digital currency enabled transactions trust model. Bitcoin is a peer-to-peer electronic cash system that uses a decentralized architecture. It has enjoyed superiority compared to other cyptocurrencies but it has also attracted attackers to take advantage of the possible operational insecurity. All the Bitcoin miners independently try to find the winning block by finding a hash lower than a particular target. On 14 th June 2014, a particular mining pool was able to take control of 51% of Bitcoins processing power, thus extracting the maximum amount of profit for their work. In this paper, we introduce a new defense against this 51% attack. We modify the present block header by introducing some extra bytes and utilize the Timestamp more effectively in the hash generation and suggest an alternative to the existing Proof-of-Work scheme. The proposed approach does not rely on finding a hash value lower than the target, rather it awards the miner involved in generating the minimum hash value across the entire distributed network. Fraudulent activities easily get caught due to effective use of the Timestamp. The new scheme thus introduces fair competition among the miners. Moreover, it facilitates the generation of Bitcoins at a fixed rate. Finally, we calculate and show how the new scheme can lead to an energy-efficient Bitcoin. Bitcoin is a peer-to-peer (p2p) electronic cash system that uses a distributed timestamp service to record transactions in a public ledger (called the Blockchain). A critical component of Bitcoin’s success is the decentralized nature of its architecture, which does not require or even support the establishment of trusted authorities. Yet the absence of certification creates obstacles to its wider acceptance in e-commerce and official uses. We propose a certification system for Bitcoin that offers: a) an opt-in guarantee to send and receive bitcoins only to/ from certified users; b) control of creation of bitcoins addresses (certified users) by trusted authorities. Our proposal may encourage the adoption of Bitcoin in different scenarios that require an officially recognized currency, such as tax payments—often an integral part of e-commerce transactions. "We study a model of fairness in secure computation in which an adversarial party that aborts on receiving output is forced to pay a mutually predefined monetary penalty. We then show how the Bitcoin network can be used to achieve the above notion of fairness in the two-party as well as the multiparty setting (with a dishonest majority). In particular, we propose new ideal functionalities and protocols for fair secure computation and fair lottery in this model. One of our main contributions is the definition of an ideal primitive, which we call F⋆CR (CR stands for “claim-or-refund”), that formalizes and abstracts the exact properties we require from the Bitcoin network to achieve our goals. Naturally, this abstraction allows us to design fair protocols in a hybrid model in which parties have access to the F⋆CR functionality, and is otherwise independent of the Bitcoin ecosystem. We also show an efficient realization of F⋆CR that requires only two Bitcoin transactions to be made on the network. Our constructions also enjoy high efficiency. In a multiparty setting, our protocols only require a constant number of calls to F⋆CR per party on top of a standard multiparty secure computation protocol. Our fair multiparty lottery protocol improves over previous solutions which required a quadratic number of Bitcoin transactions" We propose Mixcoin, a protocol to facilitate anonymous payments in Bitcoin and similar cryptocurrencies. We build on the emergent phenomenon of currency mixes, adding an accountability mechanism to expose theft. We demonstrate that incentives of mixes and clients can be aligned to ensure that rational mixes will not steal. Our scheme is efficient and fully compatible with Bitcoin. Against a passive attacker, our scheme provides an anonymity set of all other users mixing coins contemporaneously. This is an interesting new property with no clear analog in better-studied communication mixes. Against active attackers our scheme offers similar anonymity to traditional communication mixes. The purpose of this paper is twofold. First, we seek to discuss and highlight the disruptive innovation that is currently under way in the evolving field of digital currencies and Bitcoin. Second, drawing on theories and frameworks in the Information Systems (IS) discipline, we highlight possible paths for research that will shed light to some of the challenges opened up by the digital currency phenomenon. An agenda for systematic IS research in this area is envisioned to assist the transition from the first era of applications in this domain (i.e. Bitcoin as currency) to more disruptive uses of the Bitcoin protocol as an enabler of decentralized trusted peer-to-peer transaction ledger systems and applications. In Bitcoin, transaction malleability describes the fact that the signatures that prove the ownership of bitcoins being transferred in a transaction do not provide any integrity guarantee for the signatures themselves. This allows an attacker to mount a malleability attack in which it intercepts, modifies, and rebroadcasts a transaction, causing the transaction issuer to believe that the original transaction was not confirmed. In February 2014 MtGox, once the largest Bitcoin exchange, closed and filed for bankruptcy claiming that attackers used malleability attacks to drain its accounts. In this work we use traces of the Bitcoin network for over a year preceding the filing to show that, while the problem is real, there was no widespread use of malleability attacks before the closure of MtGox. Bitcoin, the famous peer-to-peer, decentralized electronic currency system, allows users to benefit from pseudonymity, by generating an arbitrary number of aliases (or addresses) to move funds. However, the complete history of all transactions ever performed, called “blockchain”, is public and replicated on each node. The data it contains is difficult to analyze manually, but can yield a high number of relevant information. In this paper we present a modular framework, BitIodine, which parses the blockchain, clusters addresses that are likely to belong to a same user or group of users, classifies such users and labels them, and finally visualizes complex information extracted from the Bitcoin network. BitIodine labels users semi-automatically with information on their identity and actions which is automatically scraped from openly available information sources. BitIodine also supports manual investigation by finding paths and reverse paths between addresses or users. We tested BitIodine on several real-world use cases, identified an address likely to belong to the encrypted Silk Road cold wallet, or investigated the CryptoLocker ransomware and accurately quantified the number of ransoms paid, as well as information about the victims. We release a prototype of BitIodine as a library for building Bitcoin forensic analysis tools. "Bitcoin is gaining increasing adoption and popularity nowadays. In spite of its reliance on pseudonyms, Bitcoin raises a number of privacy concerns due to the fact that all of the transactions that take place in the system are publicly announced. The literature contains a number of proposals that aim at evaluating and enhancing user privacy in Bitcoin. To the best of our knowledge, ZeroCoin (ZC) is the first proposal which prevents the public tracing of coin expenditure in Bitcoin by leveraging zero-knowledge proofs of knowledge and one-way accumulators. While ZeroCoin hardens the traceability of coins, it does not hide the amount per transaction, nor does it prevent the leakage of the balances of Bitcoin addresses. In this paper, we propose, EZC, an extension of ZeroCoin which (i) enables the construction of multi-valued ZCs whose values are only known to the sender and recipient of the transaction and (ii) supports the expenditure of ZCs among users in the Bitcoin system, without the need to convert them back to Bitcoins. By doing so, EZC hides transaction values and address balances in Bitcoin, for those users who opt-out from exchanging their coins to BTCs. We performed a preliminary assessment of the performance of EZC; our findings suggest that EZC improves the communication overhead incurred in ZeroCoin" Bitcoin, a peer-to-peer payment system and digital currency, has seen much growth and controversy in the four years since its introduction. Yet, despite Bitcoin’s growing importance, little is known about its users. Our research explores what type of people use this domain and what concepts they tend to emphasize in their language. We analyzed over 50,000 messages from over 6,000 users of the social networking community, Twitter. Our analyses show a consistent pattern that people interested in Bitcoin are far less likely to emphasize social relations than typical users of the site. Specifically, Bitcoin followers (1) are less likely to mention family, friends, religion, sex, and emotion related words in their tweets and (2) have significantly less social connection to other users on the site. These findings offer the first empirical look at what exactly makes Bitcoin users distinct from others and can have implications for the future of the currency. With the increasing popularity of Bitcoin, a digital decentralized currency and payment system, the number of malicious third parties attempting to steal bitcoins has grown substantially. Attackers have stolen bitcoins worth millions of dollars from victims by using malware to gain access to the private keys stored on the victims’ computers or smart phones. In order to protect the Bitcoin private keys, we propose the use of a hardware token for the authorization of transactions. We created a proof-of-concept Bitcoin hardware token: BlueWallet. The device communicates using Bluetooth Low Energy and is able to securely sign Bitcoin transactions. The device can also be used as an electronic wallet in combination with a point of sale and serves as an alternative to cash and credit cards. In this paper we propose to remedy this problem by using the methods originally developed for the computer-aided analysis for hardware and software systems, in particular those based on the timed automata. More concretely, we propose a framework for modeling the Bitcoin contracts using the timed automata in the Uppaal model checker. Our method is general and can be used to model several contracts. As a proof-of-concept we use this framework to model some of the Bitcoin contracts from our recent previous work. We then automatically verify their security in Uppaal, finding (and correcting) some subtle errors that were difficult to spot by the manual analysis. We hope that our work can draw the attention of the researchers working on formal modeling to the problem of the Bitcoin contract verification, and spark off more research on this topic. Bitcoin is a “crypto currency”, a decentralized electronic payment scheme based on cryptography. It implements a particular type of peer-to-peer payment system. Bitcoin depends on well-known cryptographic standards such as SHA-256. In this paper we revisit the cryptographic process which allows one to make money by producing new bitcoins. We reformulate this problem as a specific sort of Constrained Input Small Output (CISO) hashing problem and reduce the problem to a pure block cipher problem, cf. Fig. 1. We estimate the speed of this process and we show that the amortized cost of this process is less than it seems and it depends on a certain cryptographic constant which is estimated to be at most 1.89. These optimizations enable bitcoin miners to save countless millions of dollars per year in electricity bills. " The Bitcoin cryptocurrency records its transactions in a public log called the blockchain. Its security rests critically on the distributed protocol that maintains the blockchain, run by participants called miners. Conventional wisdom asserts that the mining protocol is incentive-compatible and secure against colluding minority groups, that is, it incentivizes miners to follow the protocol as prescribed. We show that the Bitcoin mining protocol is not incentive-compatible. We present an attack with which colluding miners obtain a revenue larger than their fair share. This attack can have significant consequences for Bitcoin: Rational miners will prefer to join the selfish miners, and the colluding group will increase in size until it becomes a majority. At this point, the Bitcoin system ceases to be a decentralized currency. Unless certain assumptions are made, selfish mining may be feasible for any group size of colluding miners. We propose a practical modification to the Bitcoin protocol that protects Bitcoin in the general case. It prohibits selfish mining by pools that command less than 1/4 of the resources. This threshold is lower than the wrongly assumed 1/2 bound, but better than the current reality where a group of any size can compromise the system. " Over the last 4 years, Bitcoin, a decentralized P2P crypto-currency, has gained widespread attention. The ability to create pseudo-anonymous financial transactions using bitcoins has made the currency attractive to users who value their privacy. Although previous work has analyzed the degree of anonymity Bitcoin offers using clustering and flow analysis, none have demonstrated the ability to map Bitcoin addresses directly to IP data. We propose a novel approach to creating and evaluating such mappings solely using real-time transaction traffic collected over 5 months. We developed heuristics for identifying ownership relationships between Bitcoin addresses and IP addresses. We discuss the circumstances under which these relationships become apparent and demonstrate how nearly 1,000 Bitcoin addresses can be mapped to their likely owner IPs by leveraging anomalous relaying behavior. This paper introduces a noncausal autoregressive process with Cauchy errors in application to the exchange rates of the Bitcoin electronic currency against the US Dollar. The dynamics of the daily Bitcoin/USD exchange rate series displays episodes of local trends, which can be modelled and interpreted as speculative bubbles. The bubbles may result from the speculative component in the on-line trading. The Bitcoin/USD exchange rates are modelled and predicted. Due to the strength of bitcoin including the convenient payment and transfer, exchange into legal tender, low transfer fee, and others, its usage is increasing dramatically. Bitcoin is an e-money and virtual currency currently used as a means of payment in about 20,000 online companies and 1,000 offline stores as of Feb. 2014. Different from previous e-money, there is no issuing institution and it has trait of no regulation by countries or companies. However, as there is an increase in value of bitcoin followed by Cyprus financial crisis in past March, issues regarding the security breach on the rise. Since the exchange between legal tender and virtual currency is free in case of bitcoin, direct damage caused by security breach is very large. Also, as there is no governing institution, the user is responsible for all loss in case of damage occurrence. Therefore, the purpose of this study is to look into transaction method and security breach trend of bitcoin and its countermeasures. In this study, we substantiate with financial data collection and analysis the hypothesis regarding the volatility of Bitcoin exchange rate against common currencies. Financial data were collected from July 2010 until April 2014. The raw annualised volatility of Bitcoin is compared to conventional and major exchange rates. The first set of results indicate a high value of annualised volatility for the Bitcoin exchange rate. When the volume of Bitcoin transactions is considered, the volatility of the Bitcoin exchange rate stabilizes significantly. "The decentralized currency network Bitcoin is emerging as a potential new way of performing financial transactions across the globe. Its use of pseudonyms towards protecting users’ privacy has been an attractive feature to many of its adopters. Nevertheless, due to the inherent public nature of the Bitcoin transaction ledger, users’ privacy is severely restricted to linkable anonymity, and a few transaction deanonymization attacks have been reported thus far. In this paper we propose CoinShuffle, a completely decentralized Bitcoin mixing protocol that allows users to utilize Bitcoin in a truly anonymous manner. CoinShuffle is inspired by the accountable anonymous group communication protocol Dissent and enjoys several advantages over its predecessor Bitcoin mixing protocols. It does not require any (trusted, accountable or untrusted) third party and it is perfectly compatible with the current Bitcoin system. CoinShuffle introduces only a small communication overhead for its users, while completely avoiding additional anonymization fees and minimalizing the computation and communication overhead for the rest of the Bitcoin system." According to Prof. Joshua Fairfield paper «Mixed reality: How the laws of virtual worlds govern everyday life», «Most scholarship to date has assumed that modern society is increasingly virtualized. It is more accurate to note that virtual data is increasingly realized as it becomes tied to realspace features and geography. Yet while virtual experiences are entering real life at an ever-increasing pace, the legal literature on virtualization technologies lags badly. The bulk of virtual worlds research focuses on the impact that real world regulatory regimes have on online spaces and communities […] As Mixed Reality technologies merge real and cyberspace, the critical question is whether online or offline law will determine consumers’ rights over property and data». The Bitcoin scheme is the most popular and talked about alternative payment scheme. One of the most active parts of the Bitcoin ecosystem was the Silk Road marketplace, in which highly illegal substances and services were traded. It was run by a person who called himself Dread Pirate Roberts (DPR), whose bitcoin holdings are estimated to be worth hundreds of millions of dollars at today’s exchange rate. On October 1-st 2013, the FBI arrested a 29 year old person named Ross William Ulbricht, claiming that he is DPR, and seizing a small fraction of his bitcoin wealth. In this paper we use the publicly available record to trace the evolution of his holdings in order to find how he acquired and how he tried to hide them from the authorities. In particular, we trace the amounts he seemingly received and the amounts he seemingly transferred out of his accounts, and show that all his Silk Road commissions from the months of May, June and September 2013, along with numerous other amounts, were not seized by the FBI. This analysis demonstrates the power of data mining techniques in analyzing large payment systems, and especially publicly available transaction graphs of the type provided by the Bitcoin scheme. The rise of Bitcoin has led to renewed interest in alternative currencies. While alternative currencies have regularly featured on the economic landscape over the last half-millennia we have a limited understanding of several salient questions, such as which factors explain their rise and decline. An alternative currency is considered here to be any medium of exchange other than legal tender. A new taxonomy is introduced below to more precisely define the many different types of alternative currencies and to address the disparate lexicon found in the literature. Alternative currencies can be broadly classified as either tangible (Table 1) or digital (Table 2). In “Majority is not Enough: Bitcoin Mining is Vulnerable”, Eyal and Sirer study a Bitcoin mining strategy called selfish mining [1]. Under selfish mining, miners strategically withhold blocks to cheat Bitcoin’s mining incentive system. This represents a ‘tragedy of the commons’ in which selfish behavior is incentivized over honest behavior, eventually causing most miners to adopt the selfish strategy, despite it being harmful to Bitcoin [2] as a whole. Bitcoin is a decentralized digital currency which relies neither on banks nor on any other central authority for issuing of coins or transaction verification. Currently, Bitcoin experiences enormous success driven by large interest from users, politics, but also by speculation. Particularly, despite being conjured to be a giant bubble, the value of a bitcoin1 increased from USD $5 in May 2012 to temporarily over USD $1,200 in December, and fluctuating between USD 500$ and USD 800$ since then... Zerocoin proposed adding decentralized cryptographically anonymous e-cash to Bitcoin. Given the increasing popularity of Bitcoin and its reliance on a distributed pseudononymous public ledger, this anonymity is important if only to provide the same minimal privacy protections from nosy neighbors offered by conventional banking. Unfortunately, at 25 KB, the non-interactive zero-knowledge proofs for spending a zerocoin are nearly prohibitively large. In this paper, we consider several improvements. First, we strengthen Zerocoin’s anonymity guarantees, making them independent of the size of these proofs. Given this freedom, we explore several techniques for drastically reducing proof size while ensuring that forging a single zerocoin is more difficult than the block mining process used to maintain Bitcoin’s distributed ledger. Provided a zerocoin is worth less than the reward for a Bitcoin block, forging a coin is not an economically rational action. Hence we preserve Zerocoin’s absolute anonymity guarantees while achieving drastic reductions in proof size by limiting ourselves to security against rational attackers. Bitcoin prevents double-spending using the blockchain, a public ledger kept with every client. Every single transaction till date is present in this ledger. Due to this, true anonymity is not present in bitcoin. We present a method to enhance anonymity in bitcoin-type cryptocurrencies. In the blockchain, each block holds a list of transactions linking the sending and receiving addresses. In our modified protocol the transactions (and blocks) do not contain any such links. Using this, we obtain a far higher degree of anonymity. Our method uses a new primitive known as composite signatures. Our security is based on the hardness of the Computation Diffie-Hellman assumption in bilinear maps. "We show how the Bitcoin currency system (with a small modification) can be used to obtain fairness in any two-party secure computation protocol in the following sense: if one party aborts the protocol after learning the output then the other party gets a financial compensation (in bitcoins). One possible application of such protocols is the fair contract signing: each party is forced to complete the protocol, or to pay to the other one a fine. We also show how to link the output of this protocol to the Bitcoin currency. More precisely: we show a method to design secure two-party protocols for functionalities that result in a “forced” financial transfer from one party to the other. Our protocols build upon the ideas of our recent paper “Secure Multiparty Computations on Bitcoin” (Cryptology ePrint Archive, Report 2013/784). Compared to that paper, our results are more general, since our protocols allow to compute any function, while in the previous paper we concentrated only on some specific tasks (commitment schemes and lotteries). On the other hand, as opposed to “Secure Multiparty Computations on Bitcoin”, to obtain security we need to modify the Bitcoin specification so that the transactions are “non-malleable” (we discuss this concept in more detail in the paper). " The Bitcoin virtual currency is built on the top of a decentralized peer-to-peer (P2P) network used to propagate system information such as transactions or blockchain updates. In this paper, we have performed a data collection process identifying more than 872000 different Bitcoin nodes. This data allows us to present information on the size of the Bitcoin P2P network, the node geographic distribution, the network stability in terms of interrupted availability of nodes, as well as some data regarding the propagation time of the transmitted information. Furthermore, although not every Bitcoin user can be identified as a P2P network node, measurements of the P2P network can be considered as a lower bound for Bitcoin usage, and they provide interesting results on the adoption of such virtual currency. One of the unique features of the digital currency Bitcoin is that new cash is introduced by so-called miners carrying out resource-intensive proof-of-work operations. To increase their chances of obtaining freshly minted bitcoins, miners typically join pools to collaborate on the computations. However, intense competition among mining pools has recently manifested in two ways. Miners may invest in additional computing resources to increase the likelihood of winning the next mining race. But, at times, a more sinister tactic is also employed: a mining pool may trigger a costly distributed denial-of-service (DDoS) attack to lower the expected success outlook of a competing mining pool. We explore the trade-off between these strategies with a series of game-theoretical models of competition between two pools of varying sizes. We consider differences in costs of investment and attack, as well as uncertainty over whether a DDoS attack will succeed. By characterizing the game’s equilibria, we can draw a number of conclusions. In particular, we find that pools have a greater incentive to attack large pools than small ones. We also observe that larger mining pools have a greater incentive to attack than smaller ones. We present an empirical investigation into the prevalence and impact of distributed denial-of-service (DDoS) attacks on operators in the Bitcoin economy. To that end, we gather and analyze posts mentioning “DDoS” on the popular Bitcoin forum bitcointalk.​org. Starting from around 3 000 different posts made between May 2011 and October 2013, we document 142 unique DDoS attacks on 40 Bitcoin services. We find that 7 % of all known operators have been attacked, but that currency exchanges, mining pools, gambling operators, eWallets, and financial services are much more likely to be attacked than other services. Not coincidentally, we find currency exchanges and mining pools are much more likely to have DDoS protection such as CloudFlare, Incapsula, or Amazon Cloud. We show that those services that have been attacked are more than three times as likely to buy anti-DDoS services than operators who have not been attacked. We find that big mining pools (those with historical hashrate shares of at least 5 %) are much more likely to be DDoSed than small pools. We investigate Mt. Gox as a case study for DDoS attacks on currency exchanges and find a disproportionate amount of DDoS reports made during the large spike in trading volume and exchange rates in spring 2013. We conclude by outlining future opportunities for researching DDoS attacks on Bitcoin. The use of Bitcoins is increasing rapidly. Bitcoins are utilized in e-commerce to purchase both legal and illegal goods, they are transferred and traded and companies have invested their capital in the new digital currency. While the technical aspects of the system are well established, the legal framework remains unclear. Legislators all over the world are just starting to discover this new virtual phenomenon. This article illustrates selected legal challenges arising in different fields of law (public, criminal and civil law). Particular attention is paid to the German situation while the US-American context is also considered. It has been shown that seller ratings given by previous buyers give new customers useful information when making purchasing decisions. Bitcoin, however, is designed to obfuscate the link between buyer and seller with a layer of limited anonymity, thus preventing buyers from finding or validating this information. While this level of anonymity is valued by the Bitcoin community, as Bitcoin moves toward greater adoption there will be pressure from buyers who wish to know more about who they are doing business with, and sellers who consider their reputation a strong selling point, to allow greater transparency. We consider three different models by which a reputation/rating system could be implemented in conjunction with Bitcoin transactions and consider pros and cons of each. We find that each presents challenges on both the technological and social fronts. If Bitcoin becomes the prevalent payment system on the Internet, crime fighters will join forces with regulators and enforce blacklisting of transaction prefixes at the parties who offer real products and services in exchange for bitcoin. Blacklisted bitcoins will be hard to spend and therefore less liquid and less valuable. This requires every recipient of Bitcoin payments not only to check all incoming transactions for possible blacklistings, but also to assess the risk of a transaction being blacklisted in the future. We elaborate this scenario, specify a risk model, devise a prediction approach using public knowledge, and present preliminary results using data from selected known thefts. We discuss the implications on markets where bitcoins are traded and critically revisit Bitcoin’s ability to serve as a unit of account. This paper presents a system-of-systems architecture model for a Decentralized Carbon Emissions Trading Infrastructure (D-CETI) with focus on privacy and system security goals. The structure and behavior are implemented as a solution to the problem of trading carbon emissions anonymously among the trading agents. Privacy and security of the trading agents and their carbon credits are the main requirements be- hind the architecture of D-CETI. The decentralized structure of multiple systems and distributed behavior are the two main features of D-CETI that distinguish it from the traditional carbon trading schemes and protocols. D-CETI is based on Bitcoin, a peer-to-peer digital currency with no central authority, and Open Transactions, a system that simplifies the use of cryptography in financial transactions. The architecture of D-CETI is evaluated and compared with the architecture of five other carbon emissions trading platforms. This paper provides the necessary technical background to understand basic Bitcoin operations and documents a set of empirical regularities related to Bitcoin usage. We present the micro-structure of the Bitcoin transaction process and highlight the use of cryptography for the purposes of transaction security and distributed maintenance of a ledger. Using publicly available transaction-level data, we examine patterns of general usage together with usage by Satoshi Dice, the largest online gambling service using Bitcoin as the method of payment. Our analysis suggests that less than 50 percent of all bitcoins in circulation are used in transactions. About half of these transactions involve less than U.S.$100 equivalent, and for the period for which we have data for Satoshi Dice, most of these small-value transactions were related to the online gambling service. Relatively less frequent large value transactions drive the average transaction value to levels above U.S.$40,00 0 equivalent value, and are not likely to involve payments for goods and services. Bitcoin exchange rates exhibit somewhat complicated dynamics. In the past 24 months, the USD-BTC exchange rate increased more than 50-fold. The daily variance of the USD-BTC exchange rate remained remarkably stable for this same period, once the variance calculations account for the changing exchange rate level. We also document that the exchange rates between bitcoin and other major currencies are not well aligned. We interpret this as lack of depth of the exchange markets and as costly exchange rather than as unexploited arbitrage opportunities. Finally, we examine the economic incentives for the participants in the distributed implementation of the Bitcoin scheme. The virtual currency and payment project Bitcoin intends to challenge the current monetary and payment system that finds itself in a legitimacy crisis in the aftermath of the financial market turmoil of 2008. In examining the governance of the Bitcoin system, I try to assess its potential to create input and output legitimacy as a payment system and as a monetary system in comparison with current practice. The still raging financial crisis of 2007{\textendash}2008 has enabled the emergence of several alternative practices concerning the production, circulation, and use of money. This essay explores the political economy of the Bitcoin ecosystem. Specifically, we examine the context in which this digital currency is emerging as well as its nature, dynamics, advantages, and disadvantages. We conclude that Bitcoin, a truly interesting experiment, exemplifies {\textquotedblleft}distributed capitalism{\textquotedblright} and should be mostly seen as a technological innovation. Rather than providing pragmatic answers and solutions to the current views on the financial crisis, Bitcoin provides some useful and timely questions about the prin- ciples and bases of the dominant political economy. "Besides being programmable digital money for the Internet age, emerging cryptocurrencies such as Bitcoin represent a new evolving, complex set of ideas, technologies, and implementations all coming together in new unprecedented ways. Bitcoin may be seen also as a technology, a protocol, a payment system, a store of value, a platform for new applications for the future, and an entirely new asset class with revolutionary implications for a wide variety of stakeholders. Given the complexity of Bitcoin, there is a need for suitable theoretic lenses to understand this emerging revolutionary phenomenon in a holistic way. In this paper, we use a systems theoretic approach to view the Bitcoin system as a complex econo-sociotechnical (CEST)system. The implications of this perspective are described in terms of micro and macro views, interactions, emergent behavior, evaluative complexity, sustainability, and other systemic criteria" X This article explores the state of virtual currencies and their regulation in and by the United States and the States. It offers thoughts on which models of regulation might suit virtual currencies best. It also surveys recent enforcement actions brought by the Departments of Treasury, Justice and Homeland Security against providers of virtual currencies or comparable electronic stored value. It concludes that issuers and users of virtual currencies are not being realistic if they think that the United States will not regulate virtual currencies for some purposes. Digital currencies are gaining more and more attention against the backdrop of recent events triggered by the ongoing economic crisis. While digital currencies face increasing popularity, the currencies' prices are free floating and subject to high volatility as a result of lacking fundamental valuation methods. On the basis of an overview over the most prominent currency -- Bitcoin -- and an economic literature review we propose an econometric model that incorporates the basic components of the current price discovery process of a digital currency's exchange rate. On the basis of our empirical validation we further show that, in the case of Bitcoin, price volatility is significantly influenced by the media coverage and positive sentiment. "Small islands are disadvantaged by conventional dev elopment strategies and have sought unusual means of achieving economic development and raising their global profiles. The small Channel Island of Alderney, with a largely non-existent physical resource base, and steady population decline, has sought to develop several service sector activities, increasingly involving the internet and virtual activities Internet gambling has proved successful. Bitcoin minting offers unique possibili ties. Alderney has achieved economic development without significant local assets other than creativity and ingenuity, and a somewhat distinctive political status." The possibility to analyze everyday monetary transactions is limited by the scarcity of available data, as this kind of information is usually considered highly sensitive. Present econophysics models are usually employed on presumed random networks of interacting agents, and only some macroscopic properties (e.g. the resulting wealth distribution) are compared to real-world data. In this paper, we analyze Bitcoin, which is a novel digital currency system, where the complete list of transactions is publicly available. Using this dataset, we reconstruct the network of transactions and extract the time and amount of each payment. We analyze the structure of the transaction network by measuring network characteristics over time, such as the degree distribution, degree correlations and clustering. We find that linear preferential attachment drives the growth of the network. We also study the dynamics taking place on the transaction network, i.e. the flow of money. We measure temporal patterns and the wealth accumulation. Investigating the microscopic statistics of money movement, we find that sublinear preferential attachment governs the evolution of the wealth distribution. We report a scaling law between the degree and wealth associated to individual nodes. What is the role of social interactions in the creation of price bubbles? Answering this question requires obtaining collective behavioural traces generated by the activity of a large number of actors. Digital currencies offer a unique possibility to measure socio-economic signals from such digital traces. Here, we focus on Bitcoin, the most popular cryptocurrency. Bitcoin has experienced periods of rapid increase in exchange rates (price) followed by sharp decline; we hypothesize that these fluctuations are largely driven by the interplay between different social phenomena. We thus quantify four socio-economic signals about Bitcoin from large datasets: price on online exchanges, volume of word-of-mouth communication in online social media, volume of information search and user base growth. By using vector autoregression, we identify two positive feedback loops that lead to price bubbles in the absence of exogenous stimuli: one driven by word of mouth, and the other by new Bitcoin adopters. We also observe that spikes in information search, presumably linked to external events, precede drastic price declines. Understanding the interplay between the socio-economic signals we measured can lead to applications beyond cryptocurrencies to other phenomena that leave digital footprints, such as online social network usage. This article provides an overview of national policies and current discussions on the regulation of bitcoin in Europe and beyond. After presenting the potential threat that cryptocurrencies pose to governmental and financial institutions worldwide, it discusses the regulatory challenges and the difficulty for national regulators to come up with a sound regulatory framework, which the author believes explains the current (lack of) regulatory responses in this field. The article concludes that regulation is needed, but that in order not to excessively stifle innovation in this nascent ecosystem, some of these challenges might better be addressed through self-regulation. A main focus in economics research is understanding the time series of prices of goods and assets. While statistical models using only the properties of the time series itself have been successful in many aspects, we expect to gain a better understanding of the phenomena involved if we can model the underlying system of interacting agents. In this article, we consider the history of Bitcoin, a novel digital currency system, for which the complete list of transactions is available for analysis. Using this dataset, we reconstruct the transaction network between users and analyze changes in the structure of the subgraph induced by the most active users. Our approach is based on the unsupervised identification of important features of the time variation of the network. Applying the widely used method of Principal Component Analysis to the matrix constructed from snapshots of the network at different times, we are able to show how structural changes in the network accompany significant changes in the exchange price of bitcoins. Bitcoin is a virtual currency created by programmers, which is produced at a predetermined and knowable rate to simulate a limited resource. Its value is derived from the trust of its users and is protected by its limited nature and the cryptography by which the currency is secured and authenticated. Bitcoin has been, and continues to be, used by some for the purchase of illegal substances and in furtherance of crimes. Because Bitcoin is not issued by a central bank or government, its use entails risks, both legal and otherwise, that have not previously been explored. Nonetheless, Bitcoin possesses significant economic upside over traditional currencies and methods of transaction online. As a result, governments should further study Bitcoin and regulate businesses that exchange in Bitcoin, but without attempting to stop or slow the growth of the currency itself and without attacking otherwise law-abiding citizens who transact in Bitcoins. Bitcoin has portrayed itself as an alternative monetary system. For some it is meant to serve a parallel online p2p economy. For others it even poses a challenge to the established monetary system. We concentrate on the claim for Bitcoin as a possible replacement of established money and derive implications about the possible coexistence of both later. The decentralized electronic currency system Bitcoin gives the possibility to execute transactions via direct communication between users, without the need to resort to third parties entrusted with legitimizing the concerned monetary value. In its current state of development - a recent, fast-changing, volatile and highly mediatized technology - the discourses that unfold within spaces of information and discussion related to Bitcoin can be analysed in light of their ability to produce at once the representations of value, the practices according to which it is transformed and evolves, and the devices allowing for its implementation. The literature on the system is a testament to how the Bitcoin debates do not merely spread, communicate and diffuse representation of this currency, but are closely intertwined with the practice of the money itself. By focusing its attention on a specific corpus, that of expert discourse, the article shows how, introducing and discussing a specific device, dynamic or operation as being in some way related to trust, this expert knowledge contributes to the very definition and shaping of this trust within the Bitcoin system - ultimately contributing to perform the shared definition of its value as a currency. It was April 10th, 2013 and the price of a single Bitcoin surged past 250 USD on the Mt. Gox exchange.i A few months prior I had purchased seven Bitcoins for just under $200, and now they were nearing $2000 in value (Figure 1).ii But, just as fast as the market went up, it came down. Ever the amateur gambler, I panicked and sold too early. But, I was lulled by my humming money machine, permuting cryptographic codes by the millions every second. I was not the only one interested in playing the Bitcoin market, and the increasing price of Bitcoin was due to a number of factors, including a sustained distributed denial-of-service attack on Mt. Gox, and other people like me gambling in the latest crypto-anarchist adventure. "The purpose of the article is to look closely at the phenomenon of the cryptocurrencies such as and bitcoin to identify their potential vulnerabilities to money laundering and financing of terrorism. It also explores their specific characteristics relevant to ML/FT risks. Using digicash and bitcoin protocols as primary cases for centralized and decentralized cryptocurrencies we analyse their characteristics against cash and cashless payments. We also draw on “bundle of attributes” that may define their attractiveness for common public or criminals. Our research shows that characteristics of the cryptocurrencies are unlikely to make them popular among the consumers, as demand for anonymity seems to be overrated. Cryptocurrencies can also be classified as payment instrument rather than private currencies; therefore their embededdness in the financial system minimizes the ML/FT risks. Some decentralized cryptocurrencies operate within informal communities. Therefore, relations within these communities are constantly evolving and need to be monitored further. The paper provides an insight into the mechanics and classification of cryptocurrencies as payment instruments. Place of cryptocurrencies within the broader payment ecosystem defines their potential vulnerabilities to being abused by the criminals. The paper fills the gap in research on cryptocurrencies as payment instruments rather than private currencies and also provides an overview of their relevance for the Anti-money laundering and combating financing of terrorism (AML/CFT) regime." The conventional dichotomy of “commodity” and “fiat” base monies overlooks a third possibility that shares some features of each. This third type, which I call “synthetic commodity money,” resembles fiat money in having no nonmonetary value; but it resembles commodity money in being not just contingently but absolutely scarce. I discuss some actual examples of synthetic commodity monies, and then argue that special characteristics of synthetic commodity money are such as might allow such a money, if properly designed, to supply the foundation for a monetary regime that does not require oversight by any monetary authority, yet is able to provide for a high degree of macroeconomic stability. Recent innovations have made it feasible to transfer private digital currency without the intervention of an organization such as a bank. Any currency must prevent users from spending their balances more than once, which is easier said than done with purely digital currencies. Current digital currencies such as Bitcoin use peer-to-peer networks and open source software to stop double spending and create finality of transactions. This paper explains how the use of these technologies and limitation of the quantity produced can create an equilibrium in which a digital currency has a positive value. This paper also summarizes the rise of 24/7 trading on computerized markets in Bitcoin in which there are no brokers or other agents. The average monthly volatility of returns on Bitcoin is higher than for gold or a set of foreign currencies in dollars, but the lowest monthly volatilities for Bitcoin are less than the highest monthly volatilities for gold and the foreign currencies. Individuals and businesses make numerous payments every day. They sometimes have choices about what forms of payment to make or accept, and at other times are effectively forced to use a particular form. Often there is an asymmetric power relationship between payer and payee that raises the issue of whether one side unfairly exploits the other. Is it unethical exploitation for an employer to pay employees with a fee-laden payroll card over other more convenient forms of payment? Does the fee structure of payment networks such as Visa and MasterCard unfairly exploit merchants? The bitcoin payment system is an ethical as well as technological evolution as it was designed to be an electronic payment system that does not rely upon trust. Can an entire payment system like bitcoin be “evil,” as charged by Krugman (2013)? Payment tools as such are ethically neutral, but can be used in an ethical or unethical manner. Increasingly, companies and customers are beginning to hear, “We accept all major credit cards and Bitcoins.” Virtual or digital currency is a new financial “black box” product that has seeped into the retail market and is slowly becoming the currency of choice for nation states like Iceland. As the cash or treasury manager of your organization, are you ready to take on Bitcoin currency—or any virtual currency, for that matter? Mobile payments are on the rise, as are virtual currencies emitted by private market players or by automated decentralized systems. The Payment Services Directive and E-money Directive form the legal framework for protecting consumers in transactions with payment services and e-money providers. However, the unclear scope of applicability of that legal framework could lead to legal uncertainty. Moreover, evolutions in the market, such as Bitcoin, are excluded from its scope. The European Commission has proposed a new framework, which will be analysed to establish whether it can bring more legal certainty to the scope of application of this legal framework. Electronic money is a compound of currency and technology which takes its rise around 1970 while benefiting at the same time from the miniaturization in electronics and the democratization of informatics. Electronic money covers the payment cards with magnetic tape, chip cards, the contact-less payments by card, mobile phone, or tablet PC, and the logical moneys (often called ‘virtual moneys’ such as the Bitcoin, the Litecoin, the PPCoin, the Ven, the Linden dollar, the ‘gold’ as in the digital game World of Warcraft). These forms of electronic moneys have three common properties: the cryptography, the network, and the privileges. Cryptography conditions the ways to access the money. The network represents the kind of regulation of electronic moneys. The privileges differentiate the use of electronic moneys. Each form of electronic money does not match these three conditions identically because all are not equipped with the same technologies and the same related services. Nevertheless, the presence of these three properties within all forms of electronic money leads to a better understanding of how such functionalized money deeply changes our view on modern society. Indeed, whereas the economic standard model considers money as a veil hiding economic reality, the case of electronic money lets us think, on the contrary, since the swell period of the early 1970s, of the real economy as veiling socio-economic reality, which has to be considered as a kind of a Ponzi scheme. While this scheme becomes the core of societal reality, the economic laws and their sociological as well as political equivalents, functional differentiation, and democracy are no longer the pillars of modernity. They hide this reality as fetishes enabling its order. The new, decentralized, anonymous digital currency Bitcoin has in less than three years gone from a proof-of-concept to being traded for about €78 million on a daily basis. Its ascendancy offers up a puzzle for financial regulators and other law-enforcers worldwide, while also promising to fulfill the political visions of a group of market-anarchist cryptographers. While it is still a very small economy in absolute terms, Bitcoin also poses some interesting challenges to traditional economic institutions, and is thus an interesting case for economic sociology. Using the notion of material embeddedness, this paper examines the possible implications of a further propagation of Bitcoin. If the currency proves a success, this will have ramifications for a large number of economic institutions, such as the possibility of taxation of untraceable money, the credit economy and interest rates, and international currency control. Bitcoin is an online communication protocol that facilitates virtual currency including electronic payments. Since its inception in 2009 by an anonymous group of developers, Bitcoin has served tens of millions of transactions with total dollar value in the billions. Users have been drawn to Bitcoin for its decentralization, intentionally relying on no single server or set of servers to store transactions and also avoiding any single party that can ban certain participants or certain types of transactions. Bitcoin is of interest to economists in part for its potential to disrupt existing payment systems and perhaps monetary systems, and also for the wealth of data it provides about agents’ behavior and about the Bitcoin system itself. This article presents the platform’s design principles and properties for a non-technical audience, reviews its past, present and future uses, and points out risks and regulatory issues as Bitcoin interacts with the conventional financial system and the real economy. "It is argued that a Bitcoin-style money-like informational commodity may constitute an eective instrument for the further development of Islamic Finance. The argument involves the following elements: (i) an application of circulation theory to Bitcoin with the objective to establish the implausibility of interest payment in connection with Bitcoin, (ii) viewing a Bitcoin-like system as a money-like exclusively informational commodity with the implication that such a system need not support debt, (iii) the idea that Islamic Finance imposes dierent requirements compared to conventional nancial policies on a money concerning its use as a tool for achieving social and economic objectives, and (iv) identication of two aspects of mining, gambling and lack of trust, that may both be considered problematic from the perspective of compliance with the rules of Islamic Finance and a corresponding proposal to modify the architecture of mining in order to improve compliance with these rules." ECDSA has become a popular choice as lightweight alternative to RSA and classic DL based signature algorithms in recent years. As standardized, the signature produced by ECDSA for a pair of a message and a key is not deterministic. This work shows how this non-deterministic choice can be exploited by an attacker to leak private information through the signature without any side channels, an attack first discovered by Young and Yung for classic DL-based cryptosystems in 1997, and how this attack affects the application of ECDSA in the Bitcoin protocol. We use Bitcoin and S&P 500 Index daily return data to examine relative volatility using detrended ratios. We then model Bitcoin market returns with selected economic variables to study the drivers of Bitcoin market returns. We report strong evidence to suggest that Bitcoin volatility is internally (buyer and seller) driven leading to the conclusion that the Bitcoin market is highly speculative at present. Despite the frequent mention of Bitcoin in recent years in the press and business publications, many people are still uncertain what this cryptocurrency is or how it works. And although bitcoins (BTCs) are now an accepted medium of exchange for some businesses and not-for-profit organizations, no specific accounting guidance has been issued for these transactions. This article provides some basic information about BTCs and addresses six specific financial accounting issues: asset classification, mining activity, investment holdings, exchanges, merger and acquisition (M&A) transactions, and disclosure.