Introduction to Bitcoin and its Ethics Issues

CONTENTS

What is Bitcoin

Who created it?

Who prints it?

How does Bitcoin work?

The characteristics of Bitcoin

Ethical analysis of Bitcoin

 WHAT IS
BITCOIN

Bitcoin is a form of digital currency, created and held electronically. No one

controls it. Bitcoins arent printed, like dollars or euros theyre produced by
people, and increasingly businesses, running computers all around the world,
using software that solves mathematical problems.

Its the first example of a growing category of money known as cryptocurrency.

 Who
created it?

A software developer called Satoshi Nakamoto proposed bitcoin, which was

an electronic payment system based on mathematical proof. The idea was to
produce a currency independent of any central authority, transferable
electronically, more or less instantly, with very low transaction fees.
 Who
prints it?

No one. This currency isnt physically printed by a central bank.

Some argue
central banks are unaccountable to the population and can simply produce
more money to cover the national debt, thus devaluing their currency.

Instead, bitcoin is created digitally, by a community of people anyone can join.

Bitcoins are mined, using computing power in a distributed network.
This network also processes transactions made with the virtual currency,
effectively making bitcoin its own payment network.
 The
characteristic
of Bitcoin

EASY Send bitcoin from your computer, tablet, smart phone or other
Person to Person device, to anyone, anywhere in the world, day or night.

Bitcoin verifies transactions with the same state-of-the-art

SECURE
Strong cryptography
encryption used in banking, military and government
applications.

OPEN Bitcoin is open-source. Nobody owns it; the most popular client
Fully decentralized is maintained by a community of open-source developers .

FAIR Using the Bitcoin network is free, except for a voluntary fee you
Minimal Fees
can use to speed up transaction processing.
 The
ethics of
Bitcoin
Bitcoin transactions are not secret. In order to be
verified by the network of miners, they need to be
published to the network. It is possible for the
general public to trace the transfer of Bitcoins
from one Bitwallet to another. However, the
owner of a particular Bitwallet can be anonymous,
providing a degree of anonymity to users. This
near anonymity has made Bitcoin attractive to
users of underground web sites such as Silk Road
to purchase illegal drugs.
 The ethics
of Bitcoin

Although Bitcoin is commonly referred to as a cryptocurrency, a scholar refers to it

as a system for electronic transactions without relying on trust. The genesis of the
invention was a concern that other electronic payments required a trusted
intermediary, such as a bank or electronic mint, in order to verify the transaction.
Otherwise, electronic payments could be counterfeited or double spent. Indeed, the
word trust appears 14 times in his seminal nine page paper, and the word honest
16 times. The word currency only appears once, in the context of a physical
currency. Instead of relying on a single trusted intermediary, such as a bank or credit
card network to transmit and verify the transaction, the Bitcoin system relies upon a
large number of miners to verify transactions. In the Bitcoin system, a transaction is
publicly announced to the network. The miners effectively vote on the legitimacy of
each transaction as part of the mining process by time stamping each transaction and
verifying that no one has double spent that money before.
 The
ethics
of Bitcoin

Bitcoin has attracted quite a bit of media attention, and Bitcoin related
ventures have started to receive venture capital funding. One of the
tantalizing possibilities of the system is that it or a similar open-
architecture payment network may provide a cheaper method for
businesses to receive payments than the Visa and MasterCard systems.
Overstock.com has started accepting Bitcoins and states that its
processing costs for receiving payments in Bitcoin are lower than for
traditional credit cards.
 The
ethics
of Bitcoin
In a New York Times blog post, Nobel Laureate Paul Krugman declared
Bitcoin is evil, citing arguments that Bitcoin is part of a political
agenda to damage central banks and the abilities of governments to
collect taxes. Although he does not precisely define his usage of the
word evil, it appears that he is using it in the common dictionary
meaning of profoundly immoral or malevolent. The implication is that
the proponents of Bitcoin want to use it as a replacement currency to
the fiat money currently issued by central banks. This would eliminate
the role of central banks in the world economy, which some proponents
think would be a good, not evil, outcome. Furthermore, the near
anonymity of Bitcoin transactions can be used to facilitate illegal
activities such as narcotics trafficking, terrorism, and tax evasion.
 The ethics
of Bitcoin

Clearly, the use of any payment mechanism, whether it be cash, check,

wire transfers, or bitcoin, for malevolent purposes is evil. One could
similarly argue that paper currency is evil, given its current status as a
payment mechanism for illicit activities. This raises again the old ethical
question of how to balance a products potential for abuse with its
benefits. As long as a product has significant potential benefits, then
the ethical judgment should be made on the use of the product, not the
product itself. For example, painkillers like oxycodone have a serious
potential for abuse, but also important medical uses as well. Thus,
bitcoin itself is not evil, although bitcoin, like any other payment system,
can be used for evil purposes.