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 created, marking the birth 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, 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 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 close its transfer services to them. Starting from the end of May, Mt. Gox set a daily trading limit of $1,000 for unverified users, which could be raised to $10,000 if identity and address information were submitted.
On June 20, Mt. Gox announced the suspension of USD withdrawals due to an investigation by the U.S. Department of Homeland Security. On June 28, Mt. Gox obtained an MSB (Money Service Business) license from the U.S. FinCEN (31000029348132), finally achieving legal operation.
Although it 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, a large Bitcoin conference themed "The Future of Payment" was held in San Jose, California, organized by the Bitcoin Foundation, gathering over 1,000 Bitcoin enthusiasts, developers, entrepreneurs, and venture capitalists 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 conducted 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, thus not involved in monetary financial business. Additionally, the Bitcoin Foundation's office is located in Seattle, outside California's jurisdiction.
According to a report by the German newspaper 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 collaboration with Germany's largest Bitcoin trading site bitcoin.de, which has 70,000 users, announced a partnership. 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 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). Due to Bitcoin's convenience, security, and transparency, the collaboration between Kipochi and M-Pesa holds significant potential 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 Bitcoin trading within the country. The central bank stated in the ban: "Due to the lack of applicable laws governing Bitcoin trading and capital flow regulation, the central bank has decided to prohibit the following Bitcoin-related activities: the purchase and sale of Bitcoin, the purchase and sale of any goods and services associated with Bitcoin, the transfer of Bitcoin to individuals outside Thailand, and 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 of the Bitcoin Foundation reported the nature of virtual currency to these federal agencies and discussed regulatory issues regarding Bitcoin. U.S. regulatory agencies had been concerned about the legality of Bitcoin, but previously, communication had mostly occurred 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 that they had arrested 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 went live in February 2011, allowing users to conduct anonymous transactions using Bitcoin and employing 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 services, and hacking services. The site charged an "operating fee" of 8% to 15% on every transaction, resulting in substantial profits.
The FBI completely dismantled the site and seized 26,000 bitcoins from Ulbricht, 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 was unknown. On the day the FBI shut down Silk Road, Bitcoin's price dropped by about 15%, but it quickly returned to normal the next day. Many Bitcoin players believed that the FBI was targeting illegal transactions, not Bitcoin itself. The crackdown on "evil" 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 Guokr Electronics also announced the launch of Bitcoin payment functionality, becoming another company supporting Bitcoin for purchasing physical goods. Guokr's GEAK Watch smartwatches and GEAK Eye/Mars smartphones can all be purchased using Bitcoin.
On November 18, 2013, the U.S. Senate held a hearing on Bitcoin, where several attending U.S. government officials conveyed a message—Bitcoin is not illegal currency; it can benefit the financial system, although there are cases of misuse. This was the first hearing held by the U.S. Congress on virtual currency, summarizing the benefits and drawbacks of Bitcoin. Previously, officials 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 towards 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 trading or investing in Bitcoin.
Currency Price Changes#
Due to the issuance and circulation of digital currencies not being linked to fiat currencies or specific physical assets, there is currently a lack of suitable theories for pricing digital currencies. The price of digital currencies reflects people's demand for ownership on one hand and is often driven by manipulation or speculation on the other, leading to significant fluctuations in price. Taking Bitcoin as an example, it has experienced at least three major price surges and crashes in its nearly five-year existence.
(1) The First Surge and Crash
In January 2011, one Bitcoin was worth only 30 cents. However, in the following months, its price soared, first breaking the $1 mark, quickly rising to $8, and then to $20. By June 9, 2011, the value of one Bitcoin reached $29.55, marking an increase of approximately 100 times in just six months. Amidst the positive news, some 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 one cent each. After a panic-stricken 30 minutes, the Bitcoin price returned to $13.
Soon after, Mt. Gox issued a statement. It turned out that an account holding many bitcoins had been hacked. The hacker sold off bitcoins at a low price while simultaneously buying them back with 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.
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 attention. Throughout 2012, Bitcoin trading was not very active, and there was little media discussion, 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 prices. From February 2013, Bitcoin's price increased more than tenfold in two months for several important reasons.
The Four-Year Halving Point
According to the halving schedule every four years, the first halving occurred on November 28, 2012. Before this, every 10 minutes, a new block would reward 50 bitcoins, resulting in a daily production of 7,200 new coins. Afterward, the reward per block was reduced to 25 bitcoins, leading to a daily production of only 3,600 new coins.
The Introduction of Integrated Mining Machines
As Bitcoin "mining" became profitable, and according to its distribution principle, computational power equated to distribution rights. Gradually, capital began to enter the research and development of ASIC miners (high-efficiency integrated circuits specifically 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 meant that the production cost of each Bitcoin increased. The rising costs provided strong support for price increases. Of course, this calculation method is not accepted by many; some believe that GPU mining equipment has been completely phased out, and although mining machines have high computational power, their production costs are not high. The persistently high market prices are attributed to technological monopolies, leading some to predict that Bitcoin will enter a downward trend.
The Block Fork Incident Caused 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 Bitcoin trading platforms 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 did not even notice 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 proposal and implementation of a solution after this incident.
The Cyprus Incident Fueled the Surge
The banking crisis in Cyprus that erupted in March 2013 highlighted the impotence of national credit backing currency, providing a favorable backdrop for Bitcoin's soaring prices.
Cyprus attracted a large amount of overseas deposits due to its offshore financial development model, with significant investments in high-yield, high-risk overseas assets like Greek government bonds. After the outbreak of the European debt crisis, the market value of Greek bonds plummeted, leading to substantial losses for Cyprus's banking sector, which required external financial assistance to avoid a rapid collapse 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, and deposits below €100,000 were 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 ended.
People frantically sought ways to preserve their wealth, and they suddenly realized that Bitcoin might save them. As the download volume of Bitcoin wallets surged in Cyprus, Bitcoin prices soared. From late March to April 10, in just three weeks, the price of Bitcoin against the dollar rose from $65 to an all-time high of $266, an increase of over three times.
- Price Bubble Burst
On the night of April 10, 2013, Bitcoin's price suddenly dropped from $266 to a low of $105, a decline 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, optimistic about its potential, and bought in large quantities, dreaming of getting 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 and inaccessible, and various negative news flooded in, turning the dream of wealth into a nightmare of debt overnight.
- Global Media Bombardment
Starting in January 2013, the surge in Bitcoin prices 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 reporting by technology media targeting specific industries differ from those of mainstream media aimed at the general public. Technology media prefer to analyze the underlying mechanisms, attempting to understand its intrinsic value from a theoretical standpoint; mainstream media, on the other hand, focus on analyzing social effects, adept at predicting growth potential based on social impacts. This multi-faceted media bombardment also contributed to 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; the continuous rise in Bitcoin prices astonished the media, and media coverage attracted more participants, further inflating the bubble. In periods of price stability, media participation can help more people genuinely learn and understand the essence 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 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 fell to around $70. Subsequently, Bitcoin's price began to rise steadily again; the October 2 Silk Road incident did not halt this upward trend. On November 17, Bitcoin's price surpassed $500, and on November 27, it exceeded $1,000. Just two days later, on November 29, the price briefly reached a high of $1,242, and it remained above $1,000 for the most part.
Chinese users played a crucial role in this round of Bitcoin price increases. It is estimated that the domestic market's scale grew rapidly in October, and by November, the amount of Bitcoin held in China had stabilized in second place 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 briefly fell to $576, subsequently fluctuating around $800 to $1,000.
(4) Price Basis
The long-term growth and short-term volatility of Bitcoin prices have surprised many. Those who seized the opportunity celebrated their overnight wealth, while those who bought at high points regretted not timing their investments better. Miners who obtained the first batch of integrated mining machines enjoyed returns of dozens of times, while those who pre-ordered futures mining machines after chip centralization 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 coins, considering the depreciation of mining equipment, electricity costs, and labor consumption, 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, as mining hardware technology improves, the production cost and energy consumption per unit of computational power decrease; 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 gradually decreases. Overall, the mining cost of new bitcoins is rising rapidly.
In fact, all prices of virtual currencies are psychological price points. The cost accounting of Bitcoin provides some 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 small (3,600 new coins produced daily compared to a total of around 11 million and approximately 100,000 transactions daily), the cost of production provides more symbolic price support. In the short to medium term, positive and negative news significantly influences the psychological expectations of Bitcoin holders, thereby impacting prices.
Each surge and crash occurs during hot events, media hype, and an influx of newcomers ready to profit. It is easy to imagine that in the context of global currency depreciation and severe inflation expectations, a currency with a fixed total supply holds immense appeal 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. When prices reach a certain height, significant sell orders are inevitable, leading to bubble bursts, and any negative news can trigger a round of crashes.
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 focus on speculation are likely to suffer losses for various reasons.
(1) Price Fluctuations Without Limits
From the perspective of the diffusion of innovation, digital currencies are still in the early stages and far from maturity. The number of global participants is continuously increasing, while the increase in the number of currencies is limited. 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 by 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 open discussion of various technical issues within the enthusiast community can serve as a sufficient risk warning. The resolution of the Bitcoin fork incident demonstrated the powerful error-correction mechanism of community mobilization and computational power voting, reflecting the self-repair capability of digital currencies. On the other hand, the technical complexity of digital currencies 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 currently faced by digital currencies.
(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 people accidentally delete their wallet files, losing bitcoins worth tens of thousands of dollars; others fail to back up their wallet files correctly, resulting in the loss of all transactions during a certain 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 that stores 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 usually a hidden folder, and you need to modify system settings to make hidden files visible to find it). The wallet.dat file is essentially a private key pool that stores the private keys of all addresses in this wallet. With this file, users can prove that the bitcoins in the wallet address belong to them. Therefore, the risk of Bitcoin wallets 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: prioritize the security of the computer to prevent hacking or malware intrusions; properly store the wallet.dat file and back it up regularly. Users may also consider using paper wallets, brain wallets, or online wallets, but these wallets also come with their own risks and should be used cautiously.
(4) What If the Hash Algorithm is Cracked?
Based on past experiences, most encryption algorithms gradually reveal vulnerabilities and are replaced by other algorithms over a long 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 and will be declared an insecure algorithm at some point in the future. Consequently, the digital currency community will begin 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. To define 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 prevent 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 adopting dynamic checkpoint technology. For Bitcoin, with a total network computational power exceeding 7,000 THash/s, executing a 51% attack is virtually impossible. Dynamic checkpoint technology enhances centralization requirements. However, for other digital currencies with weaker computational power, the risk of a 51% attack is ever-present.
Exchange Platform Risks
Apart from over-the-counter large 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 hacker attacks.
Common hacker attacks often coincide with short-selling operations to gain profits. When digital currency prices are artificially inflated, hackers borrow coins to short-sell and then organize large-scale DDoS attacks to paralyze the exchange, causing panic and leading to large-scale sell-offs, allowing them to buy in at lower prices. This method is easily achievable during periods of high trading frequency and volume. 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, many people are also concerned about the exchanges' own participation in buying and selling digital currencies. If a platform's large number of users cannot sell during a significant price drop or cannot buy during a substantial price increase, while a few individuals manage to execute trades during that time, it can be concluded that such a platform is also trading digital currencies. Besides being unfair to users, if the exchange's "proprietary trading" is not well-controlled, 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 trading center, handling over 80% of global Bitcoin transactions daily and holding the top position in global 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 China's largest Bitcoin exchange. In November 2013, Bitcoin China received Series A funding of $5 million from renowned international investment firms Lightspeed Venture Partners China and Lightspeed Venture Partners in the U.S. In the same month, Bitcoin China surpassed Mt. Gox, becoming the largest Bitcoin exchange by trading volume globally.
(3) Bitstamp
Bitstamp is Mt. Gox's largest competitor in the U.S. dollar 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 purchasing experience while shopping 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 gaining acceptance in the global market, and we know that a face-to-face shopping and consumption application will be the next wave. We are ready."
Google Glass and Android users simply scan the barcodes of items in their physical shopping carts to add them to a virtual "shopping cart." They then use Bitcoin to purchase items, meaning they do not have to wait in line 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 stated 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 essentially prepared for them, as this will only happen after payment."
Paddock mentioned 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 scanned. This is similar to Costco retailers checking the shopping lists of customers who used self-checkout lanes, making it more paperless."
GlassPay was demonstrated at the DEMO 2013 conference in Santa Clara, addressing any fears that 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 after Google launches 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 allows 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 the Bitcoin payment icon when using their BIPS account.
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 mostly unbanked users to pay for small expenses like utilities by sending text messages.
There are also ideas to use micropayments to accelerate or otherwise bypass daily processes.
Meliones, CEO of BitWall, pointed out that some people in the Bitcoin industry believe that small transactions can 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 for a small fee in return.
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 the killer application for Bitcoin, and what that killer application will be is clearly a concern for many Bitcoin startups.
One significant 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 annually. This translates to a global market of approximately $45.5 billion. If this cost 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 when 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 they are only required the first time. Given that most remittances are repetitive processes, these minor inconveniences will not become significant barriers to adopting Bitcoin.
The main issue now is how to convert Bitcoin into fiat currency and transfer it to the recipient's account. The countries with the highest remittance volumes are Mexico, India, and China. Among these, Mexico and India have hardly established their local Bitcoin ecosystems. Bitcoincharts.com shows that there is almost no data for BTC relative to MXN or INR. However, without the demand to convert Bitcoin into pesos or rupees, Bitcoin holders in these countries cannot convert their Bitcoin into local fiat currency. In this case, establishing an effective and scalable remittance business is nearly impossible.
