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How Bitcoin Deters Criminals

Bitcoin prevents many criminals from being able to engage in illegal behavior. Because of the way Bitcoin works customers do not need to reveal personal information to merchants. This decreases the amount of data available to illegal actors and acts as significant protection against identity theft, credit card fraud and several other attack vectors. Bitcoin transactions are irreversible which prevents chargebacks or frauds and transaction traceability means it is impossible to counterfeit bitcoins. Additionally, law enforcement authorities have already begun using sophisticated techniques to analyze Bitcoin transactions in their criminal investigations. So it may be that the Bitcoin software is not very attractive for criminal enterprises. Is Bitcoin a bubble? Choices based on individual human action by hundreds of thousands of market participants is the cause for bitcoin's price to fluctuate as the market seeks price discovery. Some reasons for this change in sentiment may be a loss of confidence in the currency, a large difference between value and price not based on the fundamentals of the Bitcoin economy, excessive press coverage stimulating speculative demand, fear of uncertainty and just old-fashioned irrational exuberance and greed. Why did Bitcoin’s price crash in June 2011? Choices based on individual human action by hundreds of thousands of market participants is the cause for bitcoin's price crash in June 2011. Some reasons for this change in sentiment may be a loss of confidence in the currency, the largest exchange, MtGox, having a security incident, a large difference between value and price from the large amount of press coverage which stimulated speculative demand which was not based on fundamentals of the Bitcoin economy and just old fashioned irrational exuberance and greed. How might a surge in bitcoin’s price be explained? The price of bitcoins is determined by supply and demand and the supply is fixed at 21 million because of the rules of the Bitcoin protocol. There are two main types of demand: speculative and transactional. As more people use bitcoins to transact economic activities this increases demand and the price of bitcoins. So likewise as more people speculate on the future of Bitcoin by saving or hoarding bitcoins then this increases demand for bitcoins and the price. The result is an increase of network effects and increased adoption. Is Bitcoin a Ponzi Scheme? A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors instead of from profit earned by the individual or organization running the operation. Bitcoin is an open source software project with no central authority and consequently no one is in a position to make fraudulent representations about investment returns. Like other major currencies like gold, United States dollars, Euros, Yen, etc. there is no guaranteed purchasing power and the exchange rate freely floats which can lead to volatility where owners of bitcoins can make or lose value. Bitcoin is an innovative currency and payment system and not a Ponzi Scheme. However, since Bitcoin transactions are irreversible it can be attractive for a Ponzi scam operator and there have been several notable Ponzi scams which have failed and did use Bitcoin.


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