Prepared by - Lovey Jain
College - RGNCLC (NLIU,Bhopal)
Course - MSCLIS
Presented at - Cyber Crime Cell, Gurgaon
1Study on Bitcoin

• How did Bitcoins get started?
• What is Bitcoin?
• Basic Terminologies
• The Basic Mechanism
• What is it based on?
• What is the Vision of Bitcoins?
• The Technology Behind Bitcoins?
• Uses of Bitcoin
• Who Sells Bitcoins?
• Bitcoin Issues - Legality
• Who Accepts Bitcoin ?
• Comparison to US Dollar
• Will Bitcoin Succeed?
• Conclusion
2Study on Bitcoin

• In 31 October 2008, a technical paper was posted on the internet by
Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System.
• It described a system of cryptocurrency that was not backed by any
government or any form of existing currency.
• It is software-based online payment system described by Satoshi
Nakamoto in 2008 and released as open-source software in 2009
(Interestingly, this person is pseudonymn - his name is conjectured to be
fake by some, and who has not been heard from since April 2011)
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• Bitcoin is a form of digital currency (physical form is absent), created
and held electronically. It can be used to buy things electronically and
in that sense we can say that it is no different than conventional
dollars.
• Bitcoin is commonly referred to as cryptocurrency and it can be
divided into smaller unit called Satoshi (one hundred milionth ie. 108
of a BTC).
• Protected by strong encryption (that’s why it is also called as
cryptoCurrency). People who transmit the transactions are called
miners.
• The system is peer-to-peer and transactions take place between
users directly, without an intermediary.
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• The block chain is a public ledger (a book or other collection of
financial accounts) that records bitcoin transactions.
• The bitcoin transactions are verified by network nodes and recorded in
a public distributed ledger known as the block chain, which uses
bitcoin as its unit of account.
• The block chain is like a distributed database
• Approximately six times per hour, a new group of accepted
transactions, a block, is created, added to the block chain, and quickly
published to all nodes.
.
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• Bitcoins are created as a reward for payment processing work in which
users offer their computing power to verify and record payments into a
public ledger. This activity is called mining .
• Miners are rewarded with transaction fees and newly created bitcoins.
• Mining is a record-keeping service. Miners keep the block chain
consistent, complete, and unalterable by repeatedly verifying and
collecting newly broadcast transactions into a new group of transactions
called a block.
• Each block contains a cryptographic hash of the previous block, using
the SHA-256 hashing algorithm, which "chains" it to the previous block
thus giving the block chain its name
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• A wallet stores the information necessary to transact bitcoins.
• The best way to describe a wallet is something that "stores the
digital credentials for your bitcoin holdings"] and allows you to
access (and spend) them.
• There is also wallet software for managing accounts and
transactions.
• Since Bitcoins are valuable, wallets should also be encrypted

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• Transactions are published to the Bitcoin P2P network.
• Miners compete to solve a proof-of-work problem on average every
10 minutes.
• The winning miner publishes a summary of recent transactions in a
block.
• Miners are rewarded with new coins for having published a valid
block.
• Blocks are linked to previous blocks, creating a block chain
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• System is runned by The Bitcoin protocol
• It is based on mathematics unlike conventional currencies that had
been based on fixed quantity of metal (gold, silver…) or fiat
currencies.
• Bitcoin has several features that set it apart from fiat currencies:
1. It is decentralized
2. It is easy to set up and it is fast
3. It is anonymous
4. It is completely transparent
5. Transaction fees are miniscule
6. Transactions are irreversible
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• Base for the Bitcoin protocol is a peer-to-peer system which means
that there is no need for a third party.
• Therefore, in theory, bitcoin network is not controled by central
authority (fully decentralized monetary system).
• Bitcoins are being created by a community of people that anyone can
join.
• In theory, there is no authority (financial institution) which can tinker
with monetary policy and in that sense devalue or revalue Bitcoin
currency.
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• Easy to set up: Conventional banks make you jump through hoops
simply to open a bank account. Setting up merchant accounts for
payment is another tough task, beset by bureaucracy. However, you
can set up a bitcoin address in seconds, no questions asked, and with
no fees payable.
• Anonymous: Users can hold multiple bitcoin addresses, and they
aren’t linked to names, addresses, or other personally identifying
information.
• Transaction fees are miniscule: Your bank may charge you a decent
transaction fee for international transfers. Bitcoin doesn’t.
• Fast: You can send money anywhere and it will arrive minutes later, as
soon as the bitcoin network processes the payment.
• Non-repudiable: When your bitcoins are sent, there’s no getting them
back, unless the recipient returns them to you. They’re gone forever.

• Bitcoins are intended to be most successful digital currency.
• Buyers and sellers will use them and it is intended to eliminate
all the middlemen such as credit cards, ATM machines, etc.
• Bitcoins will be safer than carrying a plastic card.
• Bitcoins will be an international currency with no exchange
transaction fees.
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• Hashing (double-SHA256)
• Dual key encryption (Elliptical Curve Digital Signature
Algorithm)
• Peer-To-Peer Networking (Similar to IRC , Internet Relay chat)
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To interact on the Bitcoin network users first need to download the
free and open-source software. Once connected to the network, there
are three ways to obtain Bitcoins:
• A user can exchange conventional money (e.g., dollars, yen, and
euros) for a fee on an online exchange (e.g., Okcoin). The exchange
fee falls with the size of the transaction, ranging from 0.5% for
small transactions down to 0.2% for large transactions.
• A user can obtain Bitcoins in exchange for the sale of goods or
services, as when a merchant accepts Bitcoin from a buyer for the
sale of his product.
• A user can acquire new Bitcoins by serving as miner and applying
his or her computer’s processing power to successfully verify the
validity of new network transactions.

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• Convenient online purchases
• Tips and donations
• Transactions that must be irreversible
• When information is transferred
• When an irreversible action is performed
• Black-market transactions
• A store of value
• Investment
• Gambling
• International transactions and financing
Study on Bitcoin

• Bitcoins are like diamonds or gold – no intrinsic value.
• As more people want to buy Bitcoins, sellers will charge
more.
• No rules, regulations or oversight.
• Speculators who think Bitcoins will be successful, buy as
many as they can and hold them price appreciation.
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• Larger Buyers go to Exchanges, An Exchange is a website with
significant software and funding.
• Exchanges act as a clearing house to match buyers and sellers
similar to Stock Exchanges. They keep a very small transaction
fee for each trade.
• There are at least 21 Bitcoin Exchanges in the U.S. alone. Mt
Gox (Magic The Gathering Online eXchange) was one of the
largest exchanges and was located in Japan
• Zebpay, an app-enabled bitcoin mobile wallet, earlier provided
for just trading of the currency. This June it entered the payment
sphere; its users can now buy vouchers of Amazon, Flipkart,
Freecharge, Bookmyshow and Makemytrip.
17Study on Bitcoin

• Many small Dealers want to make money selling Bitcoin to
individuals who use them for e-commerce.
• The Dealer will withdraw Bitcoins from their account at an
Exchange and sell them to you.
• You can buy any fraction of a coin you wish. There is no “round
amount.”
• Search for local Bitcoin sellers and you will get the current prices
from each.
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• ATM’s that sell Bitcoin are in a very few locations.
• First one was in Texas in a gun store.
• Bitcoin ATM’s only take cash.
• They only sell Bitcoin, you can’t convert Bitcoin to cash.
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• Currently there are 60,000 to 70,000 Bitcoin transactions
each day
• The level hasn’t changed significantly in the last year.
• You can Log in to Blockchain.info to see the transaction
activity.
• 1 Bitcoin equals 751.00 US Dollar (50595.70 Indian
Rupee). It keeps on fluctuating according to the markets
condition.
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PERMISSIVE
CONTROVERSIAL
HOSTILE
UNKNOWN
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• In June 2013, the RBI issued a notice acknowledging that virtual
currencies posed legal, regulatory and operational challenges.
• On 24 December 2013, the Reserve Bank of India issued an
advisory to the Indian public to be cautious in buying or selling of
virtual currencies, including bitcoin. Following the announcement
bitcoin operators in the country began suspending operations.
• The first raid in India was undertaken a couple of days later
in Ahmedabad by the Enforcement Directorate (ED) on the office
of the website, buysellbit.co.in, that provided a platform to trade in
this virtual currency. The preliminary investigations found it to be
in violation of the Foreign Exchange Management Act (FEMA).
• On 28 December 2013, the Deputy Governor of the RBI, K. C.
Chakrabarty, made a statement that RBI had no plans to regulate
bitcoin.

• Russia was first to outlaw Bitcoin transactions
• They have enough corruption without Bitcoin
• China is restricting it use
• Too much speculation
• Korea outlaws it’s use – claims it’s not a legitimate
currency
• Thailand shutdown the Bitcoin exchange in their country.
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• Largest Exchange, Mt Gox (Magic The Gathering Online
eXchange) in Japan just went bankrupt
• Hackers were siphoning off their Bitcoins
• They lost $450 million dollars
• Account holders are the real losers
• Electronic Wallets
• Many websites have created “secure” electronic wallets for
you.
• There are Wallets for Windows, Mac, iPhone, and Android
• Some “Wallets” deduct a small fee for every transaction
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• Thousands of online merchants such as:
• Pirate Bay – Online sharing site for questionable materials.
• OKCupid – Online dating site
• Overstock.com – Sells clearance merchandise
• TigerDirect.com – Major electronics retailer
• 50,000 Retail stores (and counting) accept Bitcoin
• Hotels in Las Vegas
• Gift Cards for GAP, Lowes, Burger King, etc.
• Mostly small merchants who want to increase traffic
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1. Since value of a bitcoin fluctuates, one can generate net income
selling them at the higher price than the original purchase price.
2. If they are received by merchants as payment for goods and
services.
3. Bitcoins obtained through mining activities are a subject of
standard income taxation.
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US Dollar (Cash)
*Backed by United States?
*Controlled by US
*Primarily US-only
*Created by government
*Hard to steal by hackers
*Hard to transmit
*Hard to trace
*Non-refundable
*Used for crime
Bitcoin
*Backed only by other users
*Controlled by users
*International
*Created based on work done
*Easier to steal by hackers
*Easy to transmit
*Hard to trace
*Non-refundable
*Used for crime
Study on Bitcoin

• Digital currency makes a lot of sense.
• It could eliminate a lot of middle man costs (credit cards,
wire fees, etc.)
• It could be extremely easy to use
• It could eliminate billions of dollars in credit card fraud and
identity theft.
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ADVANTAGES
*It is easy to set up and it is
fast
*Low and irreversible
transaction fees
*Without central authority
*Decentralized
*It is anonymous
*It is completely
transparent
DISADVANTAGES
*New and uninvestigated financial product
*Absence of relevant theoretical background
*Highly volatile value and an unknown issuer
*Unclear legal status
*Unregulated commodity and absence of
consumer protection
*Illegal or undefined in most countries of the
world
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• Bitcoin has received more adoption and popularity than any
other digital currency proposed date.
• Currently, Bitcoin holds the largest market share amongst
all existing digital currencies (eg. BlackCoin, DigitalNote,
Mastercoin, Primecoin etc), with a market cap exceeding 3
billion USD.
• Bitcoin has emerged as the most successful cryptographic
currency in history.

3131
• Bitcoin.org – The Bitcoin Foundation
• Bitcoin Wiki
• Bitcoin Forums
• Reddit Bitcoin
• Bitcoinity.org – Pretty real-time charts
• blockchain.info
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Thank you for your attention!
Questions, comments or remarks?
Study on Bitcoin