Bitcoin is a technology which gradually became a place in the world thanks to the advantages it offers over traditional financial systems.  Bitcoin is global, has no political, social or economic barriers since it is a new technology based on the system “person to person”, allowing, through the internet, exchange value without the need for a central institution.

Bitcoin is hard to falsify, its technology does not copy the bitcoin, these are always backed up and secured in the so-called “chain of blocks”, which is a file shared by all nodes in the network and Bitcoin, being a decentralized system, are nodes who verify transactions, therefore, this ‘string of blocks’ modified if any of the nodes It is excluded from system until it again is in consensus with the rest of the nodes, ensuring the possibility of falsification is minimal.

This project argues about the use of Bitcoin and its advantages and disadvantages from an economic standpoint.  At the academic level would be an information document on this new technology which can be used freely and that can also serve as reference for future studies related to this topic. To me the use of bitcoin is not a wise decision because of various issues discussed in the paper.


The term cryptocurrency is mentioned for the first time in text Bmoney by Dai Wei in the year of 1998 where its concept is given and also feel their bases.  In November of 2008, “Satoshi Nakamoto” publishes a white paper or “White paper” entitled Bitcoin (Cheah & Fry, 2015). A system of effective electronic user-to – user or “Bitcoin: A Peer-to-Peer Electronic Cash System”. In January 2009 it starts the Bitcoin network, is the first issue of the cryptocurrency called the “block Genesis”, also becomes the first transaction.  In February 2010 the Bitcoin market settles down with Dwolla as currency exchange of Bitcoin. In May of the same year the first transaction is carried out in the real world with Bitcoin (purchase of a pizza) (Cheah & Fry, 2015). December, the value of a currency of Bitcoin was still using less than a US dollar.


Economic bubble

It has been argued that Bitcoin is an economic bubble due to the untimely rises in its value and subsequent fall. These fluctuations of Bitcoin correspond mainly to speculation and the huge amount of new users coming (Guerra-Pujol, n.d.).

Pyramid scam

Bitcoin is not a pyramid or Ponzi scheme, such operations pay interest with the money of investors and not the profits of a business, this type of schemes collapse due to the lack of new investors (Guerra-Pujol, n.d.).  Additionally the amount of bitcoins in circulation this predefined according to the rules of the Protocol (Guerra-Pujol, n.d.).  Bitcoin has no representatives offering juicy dividends by using it or for undermining bitcoins, unique advertising tool that has are users satisfied with a decentralized system, without intermediaries, shares or interests.

Deflationary spiral

The premise of the deflationary theory is consumers of a product or service to wait for its value to fall to benefit and to 28 to buy them one lower price. The concern in this regard is thus manufacturers, producers and sellers to lower the price to match this demand and slipping in a “spiral” that would lead to economic depression (Hendrickson, Hogan & Luther, 2015).

One of the main criticisms to Bitcoin is precisely that it will fall into a deflationary spiral; that a small deflation individuals possessing bitcoins to raise them in order to pay lower prices in the future, thus causing a spike in the value of the bitcoin which would boost greater accumulation and so on until nobody can use your bitcoin. The electronics market offers a clear counterexample of this theory: while over the years the prices down not that people keep their money and expect more down to acquire new products.

So far Bitcoin behaves like an inflationary currency at its inception and its stabilization is expected in coming years, the only real way in which stops the circulation of the bitcoin, is that millions of users will lose their virtual wallets and not have backups of them. A catastrophic but unlikely situation (Hendrickson, Hogan & Luther, 2015).

BITCOIN Speculation and volatility

In this sense Bitcoin is very volatile and unpredictable, the reasons for this are various: speculation due to the bad press generated thefts or Bitcoin business bankruptcies, also the fact that not be adopted easily or so quickly and finally the lack of legislation clear in countries where it is used.

Loss of its value

To possess the same characteristics of current money, the value of the bitcoin could be reduced to zero. In the case of the bitcoin failure could come in different forms: loss of confidence in the cryptocurrency, who will invent a new cryptocurrency with more and better reception, ban worldwide, nor should be ruled out a technical fault incorrigible or too large so the system support it.

BITCOIN Security

Bitcoin is a technology with a high use of cryptography and associated processes that protect it in its nucleus and with the possibility of repair in the event that one of the many cryptographic ways be violated in the future (Hendrickson, Hogan & Luther, 2015).  The most common problem is the error of the user, already Bitcoin wallet which contains the keys for the use of this can be lost by hardware, viruses and errors of handling errors.  It is important to know that there are multiple options for mitigating these problems.


Bitcoin as well as other platforms has been security problems that have been fixed with the latest software updates.  Major attacks have not directly the Bitcoin platform but based her business. For example MtGox, a change of bitcoins company, declared bankruptcy this year after the alleged robbery of 850,000 bitcoins by hackers, who had nothing to directly see the Bitcoin platform or the software of the same (Guerra-Pujol, n.d.). Currently discussed whether it was an internal theft or if it was incompetence of the owners of this company.

Changes without consensus

As Bitcoin is a decentralized system and depends on all the users for correct operation, it is very complicated to a group of users to decide

BITCOIN Quantum computing

Hypothetically speaking Bitcoin is vulnerable to quantum computing and not only Bitcoin any software or system based on Cryptography is vulnerable to it just as it is the case of traditional banking.  For now it is not a danger since that has not been and is not known for sure when will be. In any case, it is likely that for that then Bitcoin implement new types of algorithms to deal with this threat (Cheah & Fry, 2015).


Payment facility

With Bitcoin you can send and receive any amount of money immediately regardless of the place in the world where it is made and at any time. Tedious and inconvenient schedules of Bank are not taken since the platform works every day of the year 24 hours.

Lower costs

Today with Bitcoin payments are made with transaction costs very low and even free in some of them (Cheah & Fry, 2015). If a user wishes to the transaction which just made to be processed more quickly, you must include a payment in your transaction.

Low risks for merchants

The security, privacy, and irreversibility are some benefits which they enjoy traders using Bitcoin.  Does not contain personal information of the customers’ transactions, the merchant get fraud protection, thus reducing losses.

Security and control

Security with Bitcoin is an important advantage; users not associated with your personal data transactions that guarantees privacy and defends them against possible theft or impersonation. Also have full control over your transactions so nobody can force an unwanted charge.


The Bitcoin network transactions can be verified easily through the chain block which is available to anyone who wants to use it for this purpose.


Though there are benefits of using bitcoin, but overall because it is not being controlled by a Government and there are issues relating to the security of its use and volatility, the use of Bitcoin should be avoided. As long as, currency is digital its use should be limited and not be used globally.


Cheah, E., & Fry, J. (2015). Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin. Economics Letters, 130, 32-36.

Guerra-Pujol, F. Solving the Bitcoin Puzzle: A Legal, Normative, and Game-Theoretic Analysis of Bitcoin and Other Cyber-Currencies. SSRN Electronic Journal.

Hendrickson, J., Hogan, T., & Luther, W. (2015). THE POLITICAL ECONOMY OF BITCOIN. Econ Inq, n/a-n/a.

Author: Sheran Hamid 


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