leaf

In November 2008, Satoshi Nakamoto published a research report titled "Bitcoin: A Peer-to-Peer Electronic Cash System." On January 3, 2009, the Bitcoin system began operation, and the "genesis block" was born, marking the introduction of the first 50 bitcoins.

In May 2010, Laszlo Hanyecz, a programmer from Florida, became the first person to use Bitcoin in the real world. He exchanged 10,000 bitcoins for a pizza coupon from Papa John's (worth $25 at the time).

In July 2010, the Bitcoin exchange Mt. Gox was established in Japan, later becoming the largest exchange by trading volume for a long time.

In December 2010, Bitcoin's inventor Satoshi Nakamoto began to withdraw from the Bitcoin community. On December 5, 2010, after Bitcoin users started requesting WikiLeaks to accept Bitcoin donations, he posted on the forum saying, "This project needs to grow gradually so that the software can improve along the way. I urge WikiLeaks not to accept Bitcoin; it is still a small test community in its infancy. If not handled properly at this stage, it will only ruin Bitcoin."

On December 12, 2010, Satoshi Nakamoto made his last post on the forum. After that, he maintained contact with only a few individuals, one of whom was Gavin Andresen, who later became the leader of the Bitcoin core development team. On April 26, 2011, Andresen informed other members of the Bitcoin development team, "Satoshi suggested this morning that we should try to avoid the topic of the 'mysterious founder' when discussing Bitcoin publicly." Subsequently, Satoshi stopped responding even to Andresen's emails, and the mysterious figure of Satoshi Nakamoto completely vanished.

In May 2011, Rickard Falkvinge, the founder of Sweden's Pirate Party, wrote a blog post titled "Why I Converted My Savings to Bitcoin," which caused a stir. In the blog, he wrote, "In the past few days, I have thought a lot about Bitcoin and finally decided to invest all my savings and all the money I could borrow into Bitcoin."

In June 2011, the Bitcoin exchange BTC China was established in China, which became the largest Bitcoin trading platform globally by November 2013.

In the summer of 2011, the Industrial and Commercial Bank of China closed the bank account of Mt. Gox, then the world's largest Bitcoin trading platform (headquartered in Japan), citing that Mt. Gox was not a bank and could not operate electronic currencies like Bitcoin. Mt. Gox appealed, and since the court could not determine the nature of Bitcoin, Mt. Gox was allowed to continue operating in France.

In May 2013, the U.S. Department of Homeland Security froze two bank accounts of Mt. Gox for failing to register as required and ordered Dwolla to cease its transfer services to the exchange. Starting from the end of May, Mt. Gox set a daily trading limit of $1,000 for unverified users, which could be increased to $10,000 if identity and address information were submitted.

On June 20, Mt. Gox announced a suspension of USD withdrawals due to an investigation by the U.S. Department of Homeland Security. On June 28, Mt. Gox obtained a Money Service Business (MSB) license from the U.S. FinCEN (31000029348132), finally achieving legal operation.

Although it had achieved legal operation, Mt. Gox struggled to find a suitable banking partner, making it difficult to withdraw USD from the platform, while Bitcoin could circulate freely. As a result, some users chose to convert their USD on Mt. Gox into Bitcoin to withdraw from the platform. This situation led to Bitcoin's price on Mt. Gox being about 10% higher than on other platforms.

On May 17, 2013, the Bitcoin Foundation organized a large conference in San Jose, California, themed "The Future of Payment Methods," where over 1,000 Bitcoin enthusiasts, developers, entrepreneurs, and venture capitalists gathered to discuss the future of this virtual currency.

On June 24, 2013, the California Department of Financial Institutions sent a termination letter to the Bitcoin Foundation, stating that the foundation had engaged in illegal financial activities without government authorization. According to California law, if the foundation chose not to comply with the termination letter, it would face fines of $1,000 to $2,500 per day or per transaction, and its founders and managers could face imprisonment if prosecuted. J. Dax Hansen, the foundation's lawyer, immediately responded, stating that the Bitcoin Foundation is a non-profit organization that does not sell Bitcoin to users or engage in currency exchange, and thus is not involved in monetary financial activities. Additionally, the Bitcoin Foundation's office is located in Seattle, outside California's jurisdiction.

According to a report by the German newspaper Die Welt on June 27, 2013, the German Ministry of Finance decided to treat digital currencies differently from traditional financial products (stocks, bonds, etc.), stating that holdings for over a year would not be taxed.

On July 11, 2013, Fidor Bank AG in Germany partnered with bitcoin.de, the largest Bitcoin trading platform in Germany with 70,000 users. Fidor Bank AG provided liability umbrella insurance for Bitcoin transactions on bitcoin.de, allowing customers to use Fidor bank accounts. This marked the first direct collaboration between the European Bitcoin industry and a bank, set to launch after registration with the Federal Financial Supervisory Authority of Germany.

On August 19, 2013, the German Ministry of Finance issued a statement recognizing Bitcoin as a "unit of account," neither electronic currency nor foreign currency, but more akin to "private currency," which can be used for "multilateral settlement circles."

On July 8, 2013, renowned Bitcoin developer Jeff Garzik tweeted, "Africa will be a huge market that can benefit from Bitcoin, and the benefits of Bitcoin for Africa may even be greater than for wealthy Western countries."

A group of veterans in Kenya developed a solution called Kipochi, allowing people to send and receive Bitcoin, which can be freely converted with M-Pesa (a mobile payment system that has achieved great success in the market, with over a third of Kenyans and 5 million Tanzanians registered). The convenience, security, and transparency of Bitcoin make the collaboration between Kipochi and M-Pesa highly promising in Africa.

On July 30, 2013, a Thai startup engaged in Bitcoin trading services revealed that the Bank of Thailand had recently announced a ban on domestic Bitcoin trading, stating, "Due to the lack of applicable legal constraints and capital flow regulation in Bitcoin trading, the central bank has decided to prohibit the following activities related to Bitcoin purchases: prohibiting the purchase and sale of Bitcoin, prohibiting the purchase and sale of any goods and services associated with Bitcoin, prohibiting the transfer of Bitcoin to individuals outside Thailand, and prohibiting the acceptance of Bitcoin transferred from individuals outside Thailand."

On August 14, 2013, the Reserve Bank of India stated that it was also "monitoring" the progress of Bitcoin but would not impose regulations for the time being.

On August 27, 2013, members of the Bitcoin Foundation held a closed-door meeting with the FBI, IRS, Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation at the U.S. Treasury Building in Washington, D.C. During the meeting, representatives from the Bitcoin Foundation reported on the nature of virtual currency and discussed regulatory issues related to Bitcoin. U.S. regulatory agencies had been concerned about the legality of Bitcoin, but prior communications had mostly been at the state government level; this was the first meeting between a Bitcoin organization and the federal government.

On October 2, 2013, the FBI announced the arrest of a young man named Ross William Ulbricht in San Francisco. Ulbricht is believed to be the operator of the Silk Road website, using the online ID "Dread Pirate Roberts."

The Silk Road website, launched in February 2011, allowed users to conduct anonymous transactions using Bitcoin and employed Tor technology to make tracking more difficult. This "super security" quickly made Silk Road popular among underground crowds, leading to rampant illegal transactions involving drugs, firearms, credit card information, pornography, and hacking services. The site charged an "operating fee" of 8% to 15% on each transaction, yielding substantial profits.

The FBI completely dismantled the site and seized Ulbricht's 26,000 bitcoins, valued at approximately $3.6 million at the time. Later reports indicated that Ulbricht still possessed over 600,000 bitcoins, of which 144,000 had been handed over to the FBI, while the final ownership of the remaining 489,000 bitcoins remained unknown. On the day the FBI shut down Silk Road, Bitcoin's price dropped by about 15%, but it quickly rebounded the next day. Many Bitcoin enthusiasts believed that the FBI's crackdown targeted illegal transactions, not Bitcoin itself. The seizure of "criminal" sites like Silk Road actually purified the trading environment for Bitcoin.

On October 14, 2013, Baidu's security acceleration platform, Baidu Accelerator, announced support for users to make payments using Bitcoin. On October 29, Baidu Accelerator officially announced that it had received donations totaling 0.98 bitcoins from Bitcoin enthusiasts worldwide. On October 30, the domestic company Guokel Electronics also announced the launch of Bitcoin payment functionality, becoming another company supporting Bitcoin for purchasing physical goods. Guokel's GEAK Watch smartwatches and GEAK Eye/Mars smartphones can be purchased using Bitcoin.

On November 18, 2013, the U.S. Senate held a hearing on Bitcoin, where several attending government officials conveyed a message—Bitcoin is not illegal currency; it can benefit the financial system, despite existing cases of misuse. This marked the first congressional hearing on virtual currency in the U.S., summarizing the benefits and drawbacks of Bitcoin. Previously, officials had emphasized Bitcoin's role in money laundering and other illegal activities, but this time they stated that Bitcoin is a "legitimate" financial service. The New York Times reported that this was the first public acknowledgment of Bitcoin's legality by the U.S. government, marking a significant step toward mainstream acceptance for this virtual currency.

On November 21, 2013, a spokesperson for the Hong Kong Monetary Authority stated that Bitcoin is not currency but a "commodity" created in the virtual world, which can be used for private or online platform transactions or for barter. Bitcoin is not regulated by the Monetary Authority, and existing laws in Hong Kong can penalize illegal activities involving Bitcoin, such as theft, fraud, or money laundering. Bitcoin is considered a highly speculative commodity, and the Monetary Authority urged citizens to exercise caution when considering transactions or investments involving Bitcoin.

Currency Price Changes#

Due to the issuance and circulation of digital currencies not being linked to fiat currencies or specific physical commodities, there is currently a lack of suitable theories for pricing digital currencies. The price of digital currencies reflects both the demand for ownership and is often influenced by manipulation or speculation, leading to significant fluctuations in price. For example, Bitcoin has experienced at least three major price surges and crashes in its nearly five years of existence.

1. The First Surge and Crash

In January 2011, one Bitcoin was worth only 30 cents. However, in the following months, its price rose sharply, first breaking the $1 mark, then quickly climbing to $8, and subsequently reaching $20. By June 9, 2011, the value of one Bitcoin had soared to $29.55, marking a roughly 100-fold increase in just six months. Amidst the positive news, unsettling events began to trouble Bitcoin holders.

In mid-June 2011, a user named Allinvain reported that 25,000 bitcoins worth over $500,000 had been stolen from his computer. On June 19, this vibrant online financial experiment suffered a sudden blow, with shocking sell prices appearing on Mt. Gox; within a minute, the trading price of Bitcoin plummeted from $17 to $10, and a few minutes later, it crashed to $0.0134, ultimately resulting in 261,000 bitcoins being sold for just one cent each. After a panic-stricken 30 minutes, the price of Bitcoin rebounded to $13.

Soon after, Mt. Gox issued a statement explaining that a hacker had compromised an account holding many bitcoins. The hacker sold the bitcoins at a low price while simultaneously buying them back using another account. Fortunately, Mt. Gox had a daily withdrawal limit of $1,000, which prevented the hacker from transferring more than $1,000 worth of bitcoins.

2. The Second Surge and Crash

After the crash in 2011, Bitcoin's total market value shrank to millions of dollars, transforming from a popular investment to a niche interest among geeks, gradually disappearing from media coverage. Throughout 2012, Bitcoin trading was not very active, and large-scale media discussions were rare, but the price slowly rose from $2 at the beginning of the year to $10 by the end.

Several significant events starting in late 2012 triggered another surge in Bitcoin's price. From February 2013 onwards, Bitcoin's price increased more than tenfold for several important reasons.

Four-Year Halving Event

According to the halving schedule every four years, the first halving occurred on November 28, 2012. Before this, a new block was rewarded with 50 bitcoins every 10 minutes, resulting in a total of 7,200 new bitcoins produced daily. After the halving, the reward per block was reduced to 25 bitcoins, resulting in only 3,600 new bitcoins produced daily.

Introduction of Integrated Mining Machines

Due to the profitability of Bitcoin "mining" and the principle of distribution based on computational power, capital gradually entered the research and development of ASIC mining machines (high-efficiency integrated circuits specifically designed for mining). With the successful development and production of mining machines like "Pumpkin Zhang" and "Cat Miner," the difficulty of Bitcoin mining surged dramatically.

The increase in difficulty meant that the earnings for GPU miners would decrease. If using GPU mining as a standard, it also implied that the production cost of each Bitcoin had risen. The increase in costs provided strong support for rising prices. Of course, this calculation method is not accepted by many; some believe that in current Bitcoin mining equipment, GPUs have been completely replaced, and although mining machines have high computational power, their production costs are not high. The high market prices are due to technological monopolies, leading some to predict that Bitcoin may enter a downward trend.

Forking Events Causing Temporary Panic

On March 12, 2013, Bitcoin miners using version 0.8.0 created a large block that was incompatible with blocks created by the previous version 0.7.0. Miners, merchants, and users using the new version accepted this block, while those using the old version rejected it and generated their own independent blockchain, causing a fork in the blockchain. Following this issue, Bitcoin's price immediately dropped by 30%.

Fortunately, the problem was resolved quickly. After discussions, the Bitcoin Foundation notified the closure of the Bitcoin trading platform and instructed mining pools to revert to version 0.7.0 to create a blockchain compatible with all Bitcoin versions. Subsequently, the production speed of the old version blockchain caught up with that of the new version, resolving the issue, and the price quickly rebounded to its original level. That day, the entire network rejoiced, and many who understood Bitcoin's principles were moved to tears.

Since the problem was resolved within a day, it did not cause significant price fluctuations, and most people were unaware of the danger. However, many IT engineers who truly understood Bitcoin's principles viewed this incident as a significant threat to Bitcoin's security, considering it a rehearsal for a "51% attack" (to be detailed in Chapter 3).

The Bitcoin Foundation received much praise for its quick response and implementation of solutions following this incident.

Cyprus Incident Fueling the Surge

The banking crisis in Cyprus that erupted in March 2013 highlighted the impotence of national credit backing currencies, providing a favorable backdrop for Bitcoin's soaring price.

Cyprus, due to its offshore financial development model, attracted a large amount of overseas deposit funds, with significant investments in high-yield, high-risk overseas assets like Greek bonds. Following the outbreak of the European debt crisis, the market value of Greek bonds plummeted, and some defaults led to massive losses for Cyprus's banking sector, necessitating external financial assistance to avoid a rapid collapse of its financial industry and potential exit from the Eurozone.

Ultimately, Cyprus reached an agreement with the "troika" of the EU, European Central Bank, and International Monetary Fund: Cyprus's second-largest bank, Laiki Bank, was closed, with deposits below €100,000 transferred to the largest bank, Bank of Cyprus. For deposits above €100,000, 37.5% was converted into equity in Bank of Cyprus, 22.5% was frozen, and the remaining 40% was temporarily frozen until assistance concluded.

People frantically sought ways to preserve their wealth and suddenly realized that Bitcoin might save them. As the download volume of Bitcoin wallets surged in Cyprus, Bitcoin's price also skyrocketed. From late March to April 10, in just three weeks, the price of Bitcoin against the dollar soared from $65 to an all-time high of $266, an increase of over three times.

1. Price Bubble Burst

On the night of April 10, 2013, Bitcoin's price suddenly plummeted from $266 to a low of $105, a drop of over 61% in one day, and it fell to as low as $50 within the following week.

That night was a nightmare for many who had just learned about Bitcoin through mainstream media, were optimistic about it, and had bought in large quantities, fantasizing about becoming rich overnight. Since Bitcoin trades 24/7, many only realized the price had dropped by 40% when they woke up the next morning. Exchanges were attacked, making them inaccessible, and various negative news flooded in, turning the dream of wealth into a nightmare of debt overnight.

2. Global Media Bombardment

Starting in January 2013, Bitcoin's price surge began, increasing more than tenfold in just three months, creating a massive wealth effect that attracted media attention both domestically and internationally.

The depth and perspective of reports from technology media targeting niche industries differ from those of mainstream media aimed at the general public. Technology media prefer to analyze the underlying mechanisms, attempting to understand the intrinsic value from a theoretical standpoint; mainstream media focus on social effects, adept at predicting growth potential based on social impact. This multi-faceted media bombardment has also contributed to the reasons behind the significant price fluctuations.

It was during this Bitcoin frenzy that the price of Bitcoin exploded, prompting rapid media coverage in China.

During the period of soaring prices, media bombardment and price bubbles were mutually causal processes; Bitcoin's rising price astonished the media, and media coverage attracted more participants, further inflating the bubble. In periods of price stability, media involvement can help more people genuinely learn and understand the essence and intricacies of Bitcoin.

3. The Third Surge

After the crash in April, Bitcoin gradually regained its vitality after a month of adjustment. By late May, its price had climbed to around $130. In early June, influenced by the U.S. Department of Homeland Security freezing Mt. Gox's U.S. bank accounts and Mt. Gox seeking "legalization," the price dropped to around $70. Subsequently, Bitcoin's price began to rise again, and the October 2 Silk Road incident did not halt its upward trend. On November 17, Bitcoin's price exceeded $500, and on November 27, it surpassed $1,000. Just two days later, on November 29, the price even reached a high of $1,242, remaining above $1,000 for the most part thereafter.

Chinese users played a significant role in this round of Bitcoin's price increase. Estimates indicate that the domestic market's scale grew rapidly in October, and by November, the amount of Bitcoin held had firmly secured the second position globally, with trading volume ranking first worldwide. Following the release of the "Notice on Preventing Bitcoin Risks" by the central bank and five ministries on December 5, Bitcoin's price dropped from a high of $1,226 to a low of $870, with a maximum decline of nearly 30%. The next day, it even fell to $576 before stabilizing around $800 to $1,000.

4. Price Basis

Bitcoin's long-term price growth and short-term volatility have surprised many. Those who seized the opportunity celebrated their overnight wealth, while those who bought at high points regretted missing the timing. Miners who obtained the first batch of integrated mining machines enjoyed returns of dozens of times, while those who reserved futures mining machines after the chip concentration might struggle to recoup their costs.

Whether miners, Bitcoin speculators, or investors, everyone contemplates where the reasonable price of Bitcoin lies. What is the supporting system for its price? Ultimately, can a stable price be formed? If a stable price cannot be established, how can it become a generally equivalent currency?

If we measure the reasonableness of Bitcoin's price based on the mining cost of new bitcoins, considering the depreciation of mining machine investments and the consumption of mining electricity and labor, combined with the expected development of overall network computational power (mining difficulty challenges), we can roughly estimate the production cost of each new coin. Of course, this cost is variable; on one hand, with advancements in mining machine hardware technology, the production cost and energy consumption per unit of computational power are decreasing; on the other hand, as more equipment is 投入 to mining, the amount of Bitcoin that can be mined per unit of computational power is gradually decreasing. Overall, the mining cost of new bitcoins is rapidly increasing.

In fact, all prices of virtual currencies are psychological price points. The cost accounting of Bitcoin provides a certain reference, but actual price fluctuations are formed by the combination of costs and market information. Since the proportion of new coins to the total supply is relatively small (3,600 new coins produced daily compared to a total of about 11 million and daily trading volume of around 100,000 is negligible), the price support provided by production costs is more symbolic. In the short to medium term, positive and negative news significantly impacts the psychological expectations of Bitcoin holders, thereby affecting prices.

Each surge and crash typically occurs during hot events, media hype, and when a large influx of newcomers is preparing to profit. One can imagine that against the backdrop of global currency depreciation and severe inflation expectations, a currency with a fixed total supply holds immense allure for ordinary people silently bearing the consequences of currency devaluation. Thus, supported by various positive factors, the collective unconscious and irrational impulses drive the price bubble to expand, and when prices reach a certain height, large sell orders are inevitable, leading to a bubble burst, where any negative news could trigger a round of price drops.

Currency Risks#

For various reasons, digital currencies carry high risks, especially as they are increasingly treated as investment products. Those who do not understand the principles of digital currencies and overly emphasize speculation are likely to suffer losses for various reasons.

1. Unpredictable Price Fluctuations

From the perspective of innovation diffusion, digital currencies are still in the early stages and far from maturity. The number of global participants is continuously increasing, while the number of currencies is limited, and the small market capacity makes prices susceptible to manipulation by large players, making the phenomenon of surges and crashes difficult to disappear in the short term. Bitcoin's price can increase tenfold in two months and drop 80% in a week, posing the greatest risk for many short-term Bitcoin investors.

2. Technical Risks of Digital Currencies

On one hand, digital currencies are open-source, and all original data can be obtained from the internet. The public discussions within enthusiast communities regarding various technical issues can serve as sufficient risk warning mechanisms. The resolution of the Bitcoin forking incident demonstrated the powerful error-correction mechanism of community consensus and computational power voting, reflecting the self-repair capability of digital currencies. On the other hand, the complexity of digital currency technology makes it relatively difficult for ordinary participants to understand, creating information asymmetry that also constitutes a risk.

The technical risks of digital currencies are not higher than those of the former. As a system that continues to evolve, the computational power voting mechanism provides appropriate norms and constraints, making this risk generally controllable; technical issues are not the primary problems facing digital currencies at present.

3. Wallet Security Issues

Wallets play a crucial role in the use of digital currencies. Most ordinary users' risks are concentrated in their wallets. For example, some users mistakenly delete wallet files, losing bitcoins worth tens of thousands of dollars; others fail to back up wallet files correctly, resulting in the loss of all traded currencies for a period; some have their computers infected with malware, leading to the theft of wallet files and the complete loss of all bitcoins.

Taking the official Bitcoin wallet client Bitcoin-Qt as an example, the file storing Bitcoin private keys is wallet.dat, typically located at C:\Users\(your computer's username)\AppData\Roaming\Bitcoin on Windows 8 systems (note that AppData is generally a hidden folder, and you need to modify system settings to make hidden files visible to find it). The wallet.dat file essentially serves as a private key pool, storing the private keys for all addresses in that wallet. With this file, users can prove that the bitcoins in the wallet address belong to them. Therefore, the risk of a Bitcoin wallet is essentially the risk associated with the wallet.dat file, such as theft of the wallet.dat file, loss of the wallet.dat file, or errors in backing up the wallet.dat file.

The corresponding solutions are: focus on the security of the computer itself to prevent hacking or malware intrusions; properly store the wallet.dat file and back it up regularly. Users can also consider using paper wallets, brain wallets, or online wallets, but these wallets also have their own risks and should be used cautiously.

4. What if the Hash Algorithm is Cracked?

From past experiences, most encryption algorithms gradually reveal vulnerabilities and are replaced by other algorithms over a longer period. Therefore, the most likely scenario is that the hash algorithm used by digital currencies will begin to show methods for producing strong specific collisions at some point in the future and will be declared an insecure algorithm, prompting the digital currency community to unify and transition to clients using new algorithms smoothly.

51% Attack Issues

The 51% attack is a phenomenon that has been a concern since the inception of digital currencies and has occurred in reality. Defining a 51% attack: if an attacker controls more than 50% of the network's computational power, they can modify their own transaction records, enable double spending, prevent blocks from confirming certain or all transactions, and block certain or all miners from mining any valid blocks.

Preventing a 51% attack involves rapidly increasing the overall network computational power, making it difficult for individual attackers to possess more than 51% of the power, or employing dynamic checkpoint technology. For Bitcoin, with the overall network computational power exceeding 7,000 THash/s, executing a 51% attack has become nearly impossible. Dynamic checkpoint technology enhances centralization requirements. However, for other digital currencies with weaker computational power, the risk of a 51% attack remains ever-present.

Exchange Platform Risks

In addition to large off-exchange transactions, exchanges are where most digital currency enthusiasts buy and sell digital currencies. Due to their proximity to money and the large account balances, exchanges are the most vulnerable links in the entire digital currency system to hacking attacks.

Common hacking attacks often coincide with short-selling operations to gain profits. When digital currency prices are artificially inflated, hackers borrow coins to short-sell, then organize large-scale DDoS attacks to paralyze the exchange, causing panic and triggering large-scale sell-offs, subsequently buying in at lower prices. This method is easily implemented during periods of frequent trading and high volumes. However, over time, the panic effect diminishes.

Additionally, direct intrusions aimed at stealing digital currency account funds are also very dangerous. A domestic exchange platform has previously suffered such an attack, resulting in a significant loss of bitcoins. Subsequently, the exchange did not handle the ensuing disputes well, leading to a poor reputation.

Beyond these external attacks, the exchanges' own participation in buying and selling digital currencies is also a concern for many. If a large number of users on a platform cannot sell during a significant price drop or cannot buy during a significant price increase, while a few individuals manage to execute trades during that period, it can be concluded that such a platform is also trading digital currencies itself. Besides being unfair to users, if the exchange's "proprietary trading" is not well managed, leading to significant losses, the risks may likely be passed on to users. Exchanges that suffer severe losses may abscond with funds, leaving users with nothing, while those with lighter losses may still prevent users from withdrawing funds.

Thus, when engaging in digital currency trading, choosing a trustworthy, reliable, and stable exchange is crucial.

Exchanges#

1. Mt. Gox

Headquartered in Tokyo, Japan, Mt. Gox is the world's largest Bitcoin exchange, handling over 80% of global Bitcoin transactions daily and maintaining its position as the top exchange by trading volume for a long time. Mt. Gox was initially established by Jed McCaleb in July 2010 and was later sold to Japan's Tibanne Co. in March 2011, now managed by Mark Karpeles. Mt. Gox has played a significant role in several major events. Regardless of the future outcome, Mt. Gox is a legend in the history of digital currency development.

2. Bitcoin China

The Bitcoin China website was established in June 2011 and is one of the earliest Bitcoin trading platforms in China. Bitcoin China survived in the early high-risk and niche ecosystem and gradually developed into the largest Bitcoin exchange in China. In November 2013, Bitcoin China received Series A investment from the internationally renowned venture capital firms Lightspeed Venture Partners China and Lightspeed Venture Partners in the U.S., raising a total of $5 million. In the same month, Bitcoin China surpassed Mt. Gox to become the largest Bitcoin exchange by trading volume globally.

3. Bitstamp

Bitstamp is the largest competitor to Mt. Gox in the USD-Bitcoin trading market, and its development and efforts have significantly improved the overall Bitcoin trading environment.

4. GlassPay

An application allowing people to use Bitcoin for in-store payments through the Google Glass project has debuted in the U.S. This application, called GlassPay, was developed by RedBottle Design in California. It enables consumers to enjoy a convenient online shopping experience while in physical stores.

Guy Paddock, CEO of RedBottle Design, stated, "With GlassPay, we are practicing a fundamental cultural experience of purchasing items and bringing it into the future. Bitcoin is increasingly accepted in global markets, and we know that an application based on face-to-face shopping and consumption will be the next wave. We are ready."

Google Glass and Android users simply scan the barcodes of items in their physical shopping baskets to add them to a virtual "shopping cart." They then use Bitcoin to purchase items, meaning they do not need to queue to pay for their goods or carry a wallet.

Another benefit for consumers is that GlassPay's shopping cart operates in real-time, meaning the total price updates after scanning each product, making budgeting more effective for customers.

Retailers and merchants are also willing to accept payments through GlassPay because they do not have to pay credit card processing fees. Paddock mentioned that GlassPay plans to collaborate with retailers to create customized solutions that will help them avoid purchasing issues. He explained, "The solution will depend on how merchants sell. If they are like IKEA or Best Buy customers, who spend a lot of time in the sales showroom before purchasing, retailers can receive customer orders that are actually prepared for them, as this will only happen after payment."

Paddock noted that in a supermarket environment, the payment system could be integrated at the entrance's welcome kiosk or checkout counter. "Customers can provide their order numbers, and cashiers can check which items the customer has scanned. This is similar to Costco retailers checking the shopping lists of customers who have used self-checkout lanes, making it more paperless."

GlassPay was demonstrated at the DEMO 2013 conference in Santa Clara, addressing any fears consumers and merchants might have. The application is expected to appear in the Google Play market and Glass Boutique in the second quarter of 2014, following Google's launch of Glass.

5. BIPS

The payment platform BIPS announced support for the e-commerce shopping cart platform Bigcommerce, which is used by over 40,000 merchants worldwide. This new development means that businesses can easily avoid credit card transaction fees by providing convenient, anonymous, and low-cost payment solutions through Bitcoin.

Kris Henriksen, CEO of BIPS, believes that passionate Bitcoin enthusiasts will further expand the Bitcoin economy through the integration of Bigcommerce. He pointed out that the company's mission is to provide a comprehensive carrier-grade technology platform that enables merchants to receive online payments for their products and services through cryptocurrency.

Merchants can accept Bitcoin payments by entering an API key into their Bigcommerce configuration. Businesses can customize certain elements, such as displaying Bitcoin payment icons through their BIPS accounts.

Future Development of the Digital Virtual Economy#

Micropayments are a future trend, but they ultimately need to collaborate with payment processors for development.

In some places, such as Africa, small transactions have been used for various purposes. Kenya's M-Pesa is a mobile-based digital currency that allows users, most of whom do not have bank accounts, to pay for small expenses like utilities via text messages.

Additionally, there are ideas to use micropayments to expedite or otherwise bypass daily processes.

Meliones, CEO of BitWall, noted that some in the Bitcoin industry believe that small transactions could allow drivers to pay tips to others to navigate through congested roads. Other incentive-based ideas include gamification concepts that offer small rewards for solving problems or performing small tasks in exchange for a small fee.

International Remittances

Currently, the number of applications using Bitcoin and merchants and consumers able to accept Bitcoin is increasing, but it is clear that there is still a considerable distance to the critical point of explosive growth. Whether merchants have the motivation to accept Bitcoin depends on whether there are enough consumers using it; conversely, whether consumers have the motivation to use Bitcoin depends on whether there are enough merchants accepting it. This is a classic case of network effects. As for how to break the deadlock, we may need to find a killer application for Bitcoin, and what that killer application will be is clearly a concern for many Bitcoin startups.

One major advantage of the Bitcoin payment mechanism is that it is free. This is why many early users believe Bitcoin has immense potential for international remittances. According to research by the World Bank, the average cost of remittances globally is about 8.85% of the $514 billion sent each year. This means it represents a global market of about $45.5 billion. If it can be reduced to zero or close to zero, it would save significant costs for immigrants sending money home, and many Bitcoin startups have identified this as a great opportunity for success.

The various cross-border fund transfer processes supported by Bitcoin are fast and free. Since most remittances are sent from the U.S., Europe, or other developed countries, it is easy to establish a Bitcoin remittance system. Although there may be some minor inconveniences in initially setting up an account on an exchange, it is now relatively easy to buy Bitcoin using USD, EUR, or JPY. These minor inconveniences often refer to KYC and other anti-money laundering processes, but these are only required the first time. Given that most remittances are a repetitive process, these minor inconveniences will not become a major barrier to adopting Bitcoin.

The main issue currently is how to convert Bitcoin into fiat currency and transfer it to the recipient's account. The countries receiving the largest amounts of remittances are Mexico, India, and China. Among these, Mexico and India have hardly established their local Bitcoin ecosystems. Bitcoincharts.com lists almost no data for BTC against MXN or INR. However, without demand for converting Bitcoin into pesos or rupees, Bitcoin holders in these countries have no way to convert Bitcoin into local fiat currency. In this situation, establishing an effective and scalable remittance business is nearly impossible.