power of crypto currencies

. Introduction

. Bitcoin is currently experiencing an increase in user acceptance and use, which is driving the other two aspects of the “fire triangle”. Cryptocurrency‟s adoption will be an important subject to watch in the future, as it could be a truly trans formative technology that alters the way money is exchanged worldwide. Bitcoin‟s increased adoption has been integrally tied to global market shifts. The current Internetfueled global market is very much entangled. If one regional market begins to plummet, it can easily drag the others with it. Bitcoin, like the Euro, can freely move across many national borders, creating an environment that promotes global trade, mutual prosperity, and even peace.

For readers less familiar with cryptocurrencies, this section briefly reviews some of their key features, highlighting the main differences from traditional payment systems. For thousand years, physical tokens have been being used as means of payment (e.g. shells, gold coins, bank notes). In such setting, a direct exchange of sellers’ goods and buyers’ tokens allows them to achieve an immediate and final settlement.

Due to the anonymity in the night market, the exchange of goods necessitates a means of payment which we assume is a cryptocurrency. 7 A cryptocurrency is a digital record-keeping device that uses balances to keep track of the obligations from trading and that is publicly known to all traders. A cryptocurrency system is defined by two parameters: money growth rate µ ≥ 0 and transaction fee charge at a rate τ ≥ 0. As discussed, the digital nature of these balances result in the double

Strengths
Bitcoin has strength by design to make it a viable currency that has elevated it in status over the years, more notably the fixed limit of bitcoin that will exist. Bitcoin will be mined with diminishing returns every four years until the maximum number of bitcoins are reached: a total of 21 million (King, 2013). This aspect of Bitcoin is important for its value. Due to the limited amount of bitcoins, it will never become inflated from an overabundance of bitcoins. Also, bitcoin and other cryptocurrencies are generally regarded as being protected from inflation originating from national government changes or restrictions

This means that Bitcoin was the highest valued currency in the entire world at the end of last year. This is no small feat in a global economy with powerhouses like China and the United States running the landscape.

Weaknesses
Bitcoin has quite a few internal weaknesses that are part of its design and cannot easily be modified. The public ledger, or block chain, means that every user can see every transaction. There is semi-anonymity, in that the owners of bitcoin wallets cannot be identified outright, but it is slightly nerve-wracking for some potential adopters.
Cryptocurrencies have also developed a reputation of having questionable security. Mt Gox, short for Magic the Gathering Online Exchange, was the world‟s primary bitcoin exchange until it went bankrupt after it was robbed by hackers in 2011 of approximately 460 million USD (McMillan, 2014). The CEO and main programmer, Mark Karpeles, was not using version control for new code. He also would allow bug and security fixes to languish for weeks (McMillan, 2014). These security flaws and oversights allowed hackers to skim bitcoin from the exchange. This breach severely dropped Bitcoins value when users sold their bitcoin for fear of it getting stolen. Etherium, another form of digital currency, just recently suffered a similar form of theft to the tune of a 50 million USD hack (Price, 2016). These hacks are generally targeted at large holders of cryptocurrency that do not keep their security standards up to date. They are the main reason that the value of these currencies plummet, and do the most damage to the image of cryptocurrency. Until future organizations who exchange cryptocurrency understand how security flaws can lead to these attacks, these events will continue to hinder adoption.

Trading
In the day market, all buyers and sellers have a linear technology to produce a numeraire good which can be used to replenish their balances. In the night market, each buyer meets with a seller with probability σ in trading session 0. The buyer would like to consume a good that the seller can produce at unit cost. If they agree to trade, the seller produces x in trading session 0 and commit to deliver it to the buyer in session N ≤ N¯. The buyer’s preferences are given by
εδN u(x)