(Tiểu luận) topic bitcoin the future replacement of dollar

Trang 1 FACULITY OF BUSINESS ADMINISTRATION ---o0o---MIDTERM TEST Module: Macroeconomics TOPIC: BITCOIN: THE FUTURE REPLACEMENT OF DOLLAR?. Methodology: About our methodology, in this st

FACULITY OF BUSINESS ADMINISTRATION

- o0o

-MIDTERM TEST Module: Macroeconomics

TOPIC: BITCOIN: THE FUTURE REPLACEMENT OF DOLLAR?

Instructor : Assoc Prof PhD Hoang Xuan Binh

Credit class : KTEE203(GD2-HK1-2223) K61.3

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TABLE OF CONTENT

INTRODUCTION 3

CHAPTER 1: OVERVIEW OF BITCOIN 5

1.1 Bitcoin 5

1.1.1 Definition 5

1.1.2 History 5

1.1.3 Functions 6

1.2 Bitcoin transactions 7

1.2.1 How does Bitcoin work? 7

1.2.2 Bitcoin mining 8

1.2.3 Alternative ways to buy Bitcoin 8

1.3 Advantages and disadvantages of Bitcoin 9

1.3.1 Advantages 9

1.3.2 Disadvantages 10

CHAPTER 2: BITCOIN ON THE MACRO’S PERSPECTIVE 12

2.1 Impact on the interest rate and inflation 12

2.1.1 Interest rate impact 12

2.1.2 Inflation impact 13

2.2 Impact on employment 14

2.2.1 Job trends in Cryptocurrency 14

2.2.2 Four up-and-coming jobs that will open due to cryptocurrency 15

2.2.3 How’s Cryptocurrency creating labour shortage 15

2.3 Impact on stability 17

2.3.1 Cryptocurrency 'may pose a risk' to the US economy’s stability 17

2.3.2 Cryptocurrency sends US Stocks plunge 18

2.3.3 Experts still believe that the cryptocurrency plunge will not have a big impact on the economy 18

2.4 Adoption of Bitcoin by business executives 19

2.4.1 Should business executives use Bitcoin in their companies? 19

2.4.2 The acceptance of Bitcoin cryptocurrency by the US business 20

2.5 Government’s attitude and policies 21

2.5.1 Difficulty in regulating Bitcoin 21

2.5.2 Is Bitcoin legal in the US? 22

2.5.3 Government’s attitude and policies (2023) 23

CHAPTER 3: THE FUTURE OF BITCOIN 25

CONCLUSION 27

LIST OF REFERENCES 28

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INTRODUCTION

Money was known as one of the most valuable after commodities in the world, especially

in America Most individuals deal with money in practically every aspect of their lives; whether someone purchases groceries or invests in real estate, money is required in the modern economy for these activities So, many forms of money emerged throughout human history, beginning with bartering - people would trade directly if there was no official money Therefore, in order to meet the needs of stability and convenience, fiat money is the main source of money, a legal tender protected by the government to create the much-needed trust in money and its value Over the ages, attached with the development of technology, the American economy also has some steps ahead which expand to online stock exchanges or something like market on the web, new types of money have been invented And one of the most controversial new innovations of money is Cryptocurrency With people adapting to changes or new trends in a fluctuating market, the term ‘cryptocurrency’

is no longer extraordinary It’s a form of internet currency often called digital money or cyber currency You usually exchange cryptocurrency with someone online, with your phone or computer, without using an intermediary bank The most crucial aspect is that it’s not issued by a central bank, nor is it protected by regulations or laws, leaving it impervious

to government interference We know, in some countries, they’re not legal but we cannot deny that digital currencies have been receiving public attention during past years The most well-known and contentious cryptocurrency is Bitcoin, launched in 2009 Hence, our team aims to study Bitcoin: The future replacement of dollar? for the period 2009 to “ ” now in America and analyze the effects on the US economics as well as predictions about future of it

• Subject: Bitcoin: The future replacement of dollar? “ ”

• Scope: 2009 to now in the United State

Reasons to choose the topic:

In fact, the popularity of bitcoin has expanded to many countries in the world such as Canada, UE, Japan, However, Bitcoin has already boomed in the US Around our lives,

we can see that seniors, even in our university, are approaching and mining bitcoin with their knowledge And the topic ‘Future of bitcoin’ in America makes us feel really interested We choose it as the theme to discuss and show you the basics about this topic

Methodology:

About our methodology, in this study, we will analyze and research available information about cryptocurrency and bitcoin at some points: their impact on inflation, interest rate, the respondents from the government and deduce the conclusion as well as predict the future value of them Besides, we discuss these questions: How does Bitcoin work, its impact on macroeconomics, its prospect for the future, and whether it has the potential to become a

well-established mainstream currency, or can we say it will fully replace fiat money?

The Bitcoin protocol is built on a “blockchain”, a mechanism to achieve global consensus

on the state of a periodically updated public transaction ledger Bitcoin’s pseudonymous developer, Satoshi Nakamoto, described it as “a new electronic cash system that is totally peer - to peer, with no trusted third party” in a research paper introducing the digital - currency

Bitcoin is one of the first digital currencies to use peer- -peer (P2P) technology to facilitate toinstant payments Peer-to-peer (P2P) refers to the exchange of information, data, or assets between parties without any involvement of a central authority

Bitcoin can refer to the Bitcoin software protocol as well as to the monetary unit, which goes by the ticker symbol BTC

The listed author of the paper is Satoshi Nakamoto, a presumed pseudonym for a person or group whose true identity remains a mystery

On January 9th, 2009, Bitcoin was first used after it was released as open-source software, when Nakamoto mined the starting block of the blockchain The first test transaction took place about one week later when Satoshi Nakomoto sent 10 BTC to Hal Finney, with a transaction cost of 0 BTC At this point, Bitcoin had no monetary value

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b Growth

On May 22nd, 2010, the first transaction was made when Laszlo Hanyecz agreed to pay

10000 BTC for two pizzas by Papa John’s which worthed $25 At the time, the monetary values were negotiated by individuals on the Bitcoin forum

In 2011, miners and coders started to build other networks such as Ethereum and Litecoin and began to improve the code for Bitcoin’s blockchain, adapting it for different uses The wider applications attracted more users, which contributed partly to the rise in Bitcoin’s perceived value

In November 2013, Bitcoin broke $1000 for the first time In addition, two companies, Robocoin and Bitcoiniacs launched the world’s first Bitcoin ATM in Vancouver, Canada, allowing clients to convert cash into crypto But then, one of the largest bitcoin exchanges,

Mt Gox, announced bankruptcy, causing Bitcoin's price slumped through 2014 and touched $315.21 at the start of 2015

From 2017, the number of businesses accepting Bitcoin continued to increase, such as NHK and Bitpay Bitcoin gained more legitimacy among lawmakers and legacy financial institutions In December 2017, the price of Bitcoin reached an all-time peak of $19,783.06 (2) Governments and economists took notice and began developing cryptocurrencies to compete with Bitcoin However, in 2018, Bitcoin’s price started to decline steadily throughout the year to a low of $6,635.84 by mid-December in 2019

When the economy shut down due to the COVID - 19 in 2020, Bitcoin’s price bursts into activity once again In October 2020, Paypal announced that it would allow its users to buy and sell Bitcoin on its platform, although not to deposit or withdraw Bitcoins At the close

on Nov 23, Bitcoin was trading for $19,157.16 Bitcoin's price reached just under $29,000

in December 2020, increasing 416% from the start of that year

The price of Bitcoin again reached a new all-time high in 2021, with value exceeding over 65,000 USD in February, April and November 2021 as a result of Coinbase events

In 2022, Global economic factors that stemmed from Russia's War in Ukraine negatively affected the price of Bitcoin On April 22, 2022, its price fell back down below $40,000 It further dropped to as low as $26,970 in May after the collapse of Terra-Luna and its sister stablecoin, UST, in addition to a shedding of tech stocks

1.1.3 Functions

At its most basic level, Bitcoin is useful for transacting value outside of the traditional financial system People use Bitcoin to, for example, make international payments that are settled faster, more securely, and at lower transactional fees than through legacy settlement methods such as the SWIFT or ACH networks

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In the early years, when network adoption was sparse, Bitcoin could be used to settle even small-value transactions, and do so competitively with payment networks like Visa and Mastercard However, as Bitcoin became more widely used, scaling issues made it less competitive as a medium of exchange for small-value items In short, it became prohibitively expensive to settle small-value transactions due to limited throughput on the ledger and the lack of availability of second-layer solutions This supported the narrative that Bitcoin's primary value is less as a payment network and more as an alternative to gold,

or 'digital gold.' Here, the argument is that Bitcoin derives value from a combination of the technological breakthroughs it integrates, its capped supply with 'built-into-the-code' monetary policy, and its powerful network effects In this regard, the investment thesis is that Bitcoin could replace gold and potentially become a form of 'pristine collateral' for the global economy

Another popular narrative is that Bitcoin supports economic freedom It is said to do this

by providing, on an opt-in basis, an alternative form of money that integrates strong protection against monetary confiscation, censorship, and devaluation through uncapped inflation Note that this narrative is not mutually exclusive from the 'digital gold' narrative

1.2 Bitcoin transactions

1.2.1 How does Bitcoin work?

The Bitcoin system consists of a network of computers (also known as “nodes”) that run Bitcoin’s code and record its blockchain The system can not be tricked because all computers running the blockchain have the same list of blocks and transactions and can observe these new blocks as they are filled with new Bitcoin transactions in real tim e

A Bitcoin transaction is a value transfer that is recorded in the blockchain between two Bitcoin wallets Bitcoin wallets store a private key, also known as a “seed”, which is used

to sign transactions and provide mathematical proof that they came from the wallet’s owner The signature also stops anyone from altering the transaction once it has been issued All transactions are broadcast to the network and, through a process known as mining, are usually validated within 10-20 minutes

( Source: “Bitcoin: A Peer-to Peer Electronic Cash System”)

It is used to confirm pending transactions by including them in the blockchain It enforces

a chronological order in the blockchain, protects the neutrality of the network, and allows different computers to agree on the state of the system To be confirmed, transactions must

be packed in a block that fits very strict cryptographic rules that will be verified by the network These restrictions make it impossible to change prior blocks because doing so would invalidate all subsequent blocks Mining also provides a competitive lottery, preventing anyone from readily adding new blocks to the blockchain in a sequential order

In this way, no individuals can control what is included in the blockchain or replace parts

of the blockchain to roll back their own spends

1.2.3 Alternative ways to buy Bitcoin

Apart from mining, there are different ways to get Bitcoin People can buy Bitcoin directly from a crypto trading service or venue, which are companies that enable individuals to buy and sell through setting up an account Three of the most popular Exchange softwares are Coinbase, Kraken, and Gemini Each of these exchanges offers access to trading with the major cryptocurrencies, as well as different alternative coins, but they also have different features and trading fees

Another way is to use Bitcoin ATMs Bitcoin ATMs act like in-person Bitcoin exchanges Individuals can put money into a machine to buy Bitcoin, which is subsequently sent to consumers’ online wallets Bitcoin ATMs have grown in popularity in recent years, with even Walmart Inc becoming involved Purchasing cryptocurrencies using ATMs is a costly option A purchase fee and a conversion fee from fiat money to Bitcoin are both charged when buying Bitcoin through an ATM Most Bitcoin ATMs charge a fee between 9% and 12% to buy Bitcoin (10)

While Bitcoin transactions from crypto trading services or from Bitcoin ATMs are decentralized exchanges with anonymity, peer to peer (P2P) exchanges provide a more direct connection between users LocalBitcoins is an example of such an exchange After creating an account, users can post requests to buy or sell Bitcoin, including information about payment methods and price They allow users the opportunity to search for the best

deal Many of these exchanges also feature rating systems, which allow users to assess potential trading partners before making a transaction

1.3 Advantages and disadvantages of Bitcoin

1.3.1 Advantages

• Anonymous and Private

Bitcoin transactions are completely anonymous and private Unlike in payments through the bank, where the transactions can be tracked and identified, bitcoin transactions cannot be identified A person can only know the addresses of the bitcoin wallet on which the payment has been sent and received But to whom these addresses belong, cannot be identified It’s like payment to a particular bank account can be tracked but

to whom these accounts belong cannot be known ( but if a person uses the same bitcoin address for every transaction for a long period of time, there is a possibility that the person can be tracked)

• Fewer risks for merchants

Bitcoin transactions are secure, irreversible, and do not contain any customer’s sensitive

or personal information This protects merchants from losses caused by fraud or fraudulent chargebacks

• It’s fast

Bitcoin transactions are very fast if compared to banking channels A bitcoin transaction

is as fast as an e-mail and can be processed within 10 minutes Also, it can be instantly processed if they are “zero-confirmation” transactions, meaning that the merchant takes

on the risk of accepting a transaction that hasn’t yet been confirmed by the bitcoin blockchain

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• You can create your own money

As the central government can print its own money, similarly any person can also produce bitcoins by himself This can be done by mining bitcoins through computers It

is not any kind of physical mining Bitcoin mining is simply a case of leaving the computer switched on, and keep the bitcoin mining software running

1.3.2 Disadvantages

• Degree of acceptance

Many people are still unaware of Bitcoin Every day, more business organizations are accepting bitcoins but the list remains small and still needs to grow in order to benefit from network effects

• Volatility

Bitcoin prices are very volatile and increases/decrease at a very high pace Speculators wish to take advantage of it but genuine investors think of it as too risky and therefore all the investors do not invest in Bitcoins

• Ongoing development

Bitcoin software is with many incomplete features in active development New tools, features, and services are being developed to make Bitcoin more secure, convenient, and accessible to the masses Some of these are still not ready for everyone Most Bitcoin businesses are new and still offer no insurance

• Possible Government Interference

The government may not take your Bitcoins away but can ban them in the country, which forces bitcoin wallets and companies to shut down The bitcoins in these wallets are frozen and access to them becomes difficult

• Deflationary

We discussed that how Bitcoin being non-inflationary can be an advantage to the economy But one possible negative factor attached to Bitcoin because of being deflationary is that if it gets in the hands of a speculator a huge recession will come in Bitcoins Bitcoins are limited in number and if the major chunk is held by speculators and investors, they will hold it for a longer period of time and won’t release it in the market When the supply of bitcoin will be short and demand continues to increase, it will increase the price of Bitcoins, and then the speculating investors may get benefited

• Lack of recourse

If you lose your bitcoin wallet, you have lost all of your bitcoins in that wallet You cannot regain it and they are simply lost forever until and unless you have backed up the wallet with a backup phrase code This backup phrase code can be used to recover the lost bitcoin wallet balance In case a credit card/debit card stolen, we can call the merchant to cancel the card and request a new one but in the case of Bitcoins, as it is decentralized and no one has control over it, we don’t have any person/organization to call

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CHAPTER 2: BITCOIN ON THE MACRO’ S PERSPECTIVE

2.1 Impact on the interest rate and inflatio n

2.1.1 Interest rate impact

One of the tools to manage the money supply of the monetary authority - which is the central bank in most countries - is “monetary policy” Monetary policy affect the desired interest rate through the contraction or expansion of the money supply

The relationship between Monetary Policy and Interest Rate (cre: SlidePlayer.com)

So what is the interest rate? And how can it affect the U.S economy? The discount rate is the interest charged by the central bank to commercial banks for credit they receive, for example, to maintain their reserve requirement and other reasons for raising their liquidity This discount rate then affects the interest rates the banks charge their customers, and more generally, the interest rates that prevail throughout the economy This interest rate is aimed

at stabilizing and growing the economy (such as controlling inflation, achieving full employment, )

The discount rate may not directly affect the activities of the cryptocurrencies in general or bitcoin in particular This is because Bitcoin does not circulate through the system of the central bank and commercial banks as fiat money does The behavior of these currencies during monetary policy decisions made by the two major central banks: the US Federal Reserve and the European Central Bank is intriguing to observe because they are not issued

by any state and do not function as the local currency for any country The connection between Bitcoin and the key rate’s level (in the United States) has intensified over the last five years, as American capital has become almost overwhelming in the crypto market American investors – both retail and institutional have used cryptocurrency investments –

to maximize their return on investments Investors expect an increase in the interest rate,

followed by a rise in the yield of low-risk bonds This provokes an outflow of capital from high-risk assets like cryptocurrencies, whose yield in the future will be lower than the yield

of new bonds issued with an increased key rate Part of the withdrawn capital will then be invested into new bonds with a higher yield after the key rate increase For example, the

US Federal Reserve announced the acceleration of the program's reduction and the major rate increases anticipated for 2022 at the turn of the 2021 2022 decade The Fed released –its first report of this type in November 2021 At that time, Bitcoin was trading above

$60,000 After reports of an imminent increase in rates, the cryptocurrency exchange rate began to decline and by January, the price fell below $ 40,000

This points out the conclusion: an interest rate hike is an "obstacle" and a "headwind" for the Bitcoin exchange rate and Bitcoin has already proved its value in the United States stock market

2.1.2 Inflation impact

People invest in cryptocurrency for various reasons and most of them would agree that private currency, such as bitcoin, would be a great hedge against inflation But will this idea remain true in the United States? To answer this we need to dive deeper into the long history

of money

The idea of private money has been a long-time debate purely theoretical and researchers urging a private system were still determining how to pursue such a system A governmental monopoly of money is deeply rooted in a country, history, and political structure In today's world, the rise of cryptocurrency has raised numerous questions about its nature and what perks it will bring to the table to compete with the official currency According to JPMorgan's analysts, the recent rally of Bitcoin was driven mainly by the perception that it was a better inflation hedge than gold Investors around the world are worried about increasing rates of price rises and this has revived their interest in inflation hedges, including Bitcoin

(Source: coindesk.com and the Federal Reverse Bank Of St.Louis.Data)

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Bitcoin performance in the US over the past half-decade is separated into five stages, as determined by 1) bitcoin’s returns, 2) the level of inflation, and 3) the direction of U.S short-term interest rates Bitcoin was trading at around 54,548 dollars in the US on November 28 It has risen about 185 percent so far this year On the other hand, gold has fallen 8 percent year- -date This also proves that people are seeing Bitcoin as a better toinvestment option than the yellow metal

Over the past year, bitcoin hasn’t really acted as an inflation hedge, according to a report

by Bank of America In recent months, bitcoin returns have become more correlated with those of broad stock market indexes This means that when markets tumble, the price of bitcoin tends to fall too For example, after the Fed indicated that it would raise interest rates in early May, bitcoin plummeted in value alongside stocks Bitcoin has been compared

to gold, which is generally seen as an inflation hedge However, the correlation between bitcoin and gold has been close to zero since June, meaning bitcoin’s price hasn’t moved together with the gold price

Bitcoin and other cryptocurrencies have been touted as a hedge or safeguard against inflation But in recent years, bitcoin has started to move in tandem with other major asset classes such as stocks When central banks and governments take action to combat inflation, most assets are adversely affected and can lose their value, and of late many cryptocurrencies have been no exception That said, some cryptocurrencies, like bitcoin, have attributes that should make them more immune to inflation over the long term, including scarcity, ease of transfer and immunity from direct influence by governments Cryptocurrencies can provide diversification to your investment portfolio, but it is important to avoid owning too much of any particular asset class

2.2 Impact on employment

2.2.1 Job trends in Cryptocurrency

According to research from job search site Indeed, job postings mentioning “blockchain”,

“bitcoin” or “cryptocurrency” have increased by 621% since November 2015 And supply

is growing along with demand: they also report a 1,065% growth in searches for jobs mentioning those three terms

Some of the companies searching for these skills may surprise you Uber, eBay, Capital One, Match.com, and GEICO number among the ranks of companies that have searched for and/or contacted candidates who have listed "bitcoin" or "blockchain" in their skillset Whether this indicates that more widespread adoption of cryptocurrency is on its way or not remains to be seen but the interest is certainly there

2.2.2 Four up-and-coming jobs that will open due to cryptocurrency

• Crytography research

Cryptocurrencies and blockchain products like NFTs are decentralized networks, allowing a consensus algorithm to exchange information at fair value Although all information is public, that doesn’t mean anyone can just interpret how these values and figures will affect your investments This is why cryptography researchers are becoming

in demand now more than ever

• Community manager

Besides individual investors, blockchain companies also need to have enough resources

to maintain their operations Since crypto is a community-driven economy, it only makes sense to hire community managers to oversee all the online buzz These blockchain communities are present on Discord, Telegram, Twitter, and Reddit, making

it accessible for public and private groups to receive essential information on market trends This removes the barrier of entry to cryptocurrency while encouraging more people to find safe places to compare notes and speculations on potential dips and market recoveries

• Token Economists

Not everyone can just enter the cryptocurrency economy with a profitable token Together with community managers, token economists make it easier for a budding company to launch a token Since it’s not easy to introduce a new form of cryptocurrency in the market, it’s a token economist’s responsibility to understand the corresponding value of their product Their understanding of finance, general economics, and game theory will be the key to making a good token for trading

• Cryptocurrency Traders

Although market trends and community perspectives are easily accessible online, not everyone has the heart to make their commitments to these digital assets Similar to stockbrokers, cryptocurrency traders pride themselves on recognizing these changes to benefit their patrons This means you can dabble in cryptocurrency without worrying about its volatility They can trade your assets for you, whether you’re switching from Bitcoin, Ethereum, or Cryptonite

2.2.3. How’s Cryptocurrency creating labour shorta ge

The gains from cryptocurrency trading may be fueling the persistent labor shortage in the

US as Americans across the income spectrum gave up full-time jobs to take their chances

on risky digital assets, a new study shows