InstituteforHumaneStudies By: Bitcoin

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Bitcoin

By:

Institute for Humane Studies

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Bitcoin

By:

Institute for Humane Studies

Online:

< http://cnx.org/content/col24321/1.1/ >

OpenStax-CNX

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This selection and arrangement of content as a collection is copyrighted by Institute for Humane Studies. It is licensed under the Creative Commons Attribution License 4.0 (http://creativecommons.org/licenses/by/4.0/).

Collection structure revised: February 27, 2018 PDF generated: February 27, 2018

For copyright and attribution information for the modules contained in this collection, see p. 43.

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Chapter 1

Introduction to Bitcoin

¹

Figure 1.1: "Bitcoin Introduction" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College introduces this course on bitcoin.

1This content is available online at <http://cnx.org/content/m66115/1.1/>.

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2 CHAPTER 1. INTRODUCTION TO BITCOIN

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Chapter 2

What Is a Cryptocurrency?

¹

Figure 2.1: "What is a Cryptocurrency?" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College denes cryptocurrency.

Exercise 2.1 (Solution on p. 4.)

The `Crypto' in cryptocurrency means that

a. the currency is guaranteed to be valuable after a predetermined amount of time.

b. the currency exists in the digital world, and relies on encryption to make transactions secure.

c. the currency is intended for use as a commonly accepted medium of exchange.

d. the currency's value is determined by a central bank that makes judgements based on the type of encryption used.

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4 CHAPTER 2. WHAT IS A CRYPTOCURRENCY?

Solutions to Exercises in Chapter 2

Solution to Exercise 2.1 (p. 3)

b. the currency exists in the digital world, and relies on encryption to make transactions secure.

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Chapter 3

What Is Bitcoin?

¹

Figure 3.1: "What is Bitcoin?" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College explains what bitcoin is and how it works.

The core of the bitcoin system is

a. the group known as Satoshi Nakamoto.

b. the private key.

c. the public key.

d. the block chain.

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6 CHAPTER 3. WHAT IS BITCOIN?

Solutions to Exercises in Chapter 3

Solution to Exercise 3.1 (p. 5) d. the block chain.

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Chapter 4

How Do You Get Bitcoin?

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Figure 4.1: "How Do You Get Bitcoin?" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College describes the three dierent ways to get bitcoin.

The following are ways to obtain bitcoin EXCEPT for a. exchanging local currency.

b. accepting bitcoin for goods or services.

c. joining the Bitcoin server.

d. mining bitcoin.

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8 CHAPTER 4. HOW DO YOU GET BITCOIN?

Solutions to Exercises in Chapter 4

Solution to Exercise 4.1 (p. 7) c. joining the Bitcoin server.

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Chapter 5

Making Payments with Bitcoin

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Figure 5.1: "Making Payments with Bitcoin" by the Institute for Humane Studies

Description

If bitcoin is a digital currency, how does one make payments? Dr. William Luther of Kenyon College explains.

Although it is a digital currency, bitcoin can be exchanged face-to-face by using a. smartwatches, which can transfer bitcoin without even using the block chain.

b. special handheld devices that deal only in bitcoin.

c. a specic kind of credit card.

d. smartphones, which can transfer bitcoin through scanning QR codes.

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10 CHAPTER 5. MAKING PAYMENTS WITH BITCOIN

Solutions to Exercises in Chapter 5

d. smartphones, which can transfer bitcoin through scanning QR codes.

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Chapter 6

Processing Payments with Cash, Bitcoin, and Electronic Payments

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Figure 6.1: "Processing Payments with Cash, Bitcoin, and Electronic Payments" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College explains how how payments with bitcoin are processed to avoid double spending.

To prevent double spending, bitcoin does not rely on a centralized clearing house, but instead relies on

a. members of the bitcoin system competing to be the rst to conrm a block of transactions.

b. members of the bitcoin system competing to counter or destroy a block of transactions.

c. several distinct clearing houses, which are independent from one another.

d. a group of servers on the bitcoin system, which will record their transactions quickly.

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12 CHAPTER 6. PROCESSING PAYMENTS WITH CASH, BITCOIN, AND ELECTRONIC PAYMENTS

Solutions to Exercises in Chapter 6

a. members of the bitcoin system competing to be the rst to conrm a block of transactions.

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Chapter 7

Is Bitcoin Money?

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Figure 7.1: "Is Bitcoin Money?" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College discusses whether bitcoin falls under the denition of money.

Bitcoin is a medium of exchange, but whether or not it's called money depends on a. bitcoin being adopted by the US Federal Reserve.

b. bitcoin being commonly accepted.

c. the value of bitcoin compared to other media of exchange.

d. the value of bitcoin compared to the US dollar.

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14 CHAPTER 7. IS BITCOIN MONEY?

Solutions to Exercises in Chapter 7

Solution to Exercise 7.1 (p. 13) b. bitcoin being commonly accepted.

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Chapter 8

Why Should I Care About Bitcoin?

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Figure 8.1: "Why Should I Care About Bitcoin?" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College explains why bitcoin is such an important economics and technological innovation.

Which of the following is NOT a benet of bitcoin?

a. It allows for transactions to be easily traced.

b. It provides economists with a better understanding of the emergence of dierent kinds of money.

c. It decreases transaction costs.

d. It provides economists a contemporary example of monetary competition.

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16 CHAPTER 8. WHY SHOULD I CARE ABOUT BITCOIN?

Solutions to Exercises in Chapter 8

a. It allows for transactions to be easily traced.

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Chapter 9

Commodity Money or Fiat Money?

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Figure 9.1: "Bitcoin - Commodity Money or Fiat Money?" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College discusses what kind of money bitcoin is.

The lack of an obvious nonmonetary use makes bitcoin appear to be a a. commodity money.

b. paper money.

c. at money.

d. non-monetary commodity.

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18 CHAPTER 9. COMMODITY MONEY OR FIAT MONEY?

Solutions to Exercises in Chapter 9

Solution to Exercise 9.1 (p. 17) c. at money.

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Chapter 10

Why Is Bitcoin Valuable?

¹

Figure 10.1: "Why Is Bitcoin Valuable?" by the Institute for Humane Studies

Description

How did bitcoin become valuable? Dr. William Luther of Kenyon College explains how bitcoin became so popular.

One possible reason bitcoin initially became valuable is that a. governments supported bitcoin.

b. a small group of people initially agreed to accept bitcoin.

c. bitcoin can be easily changed into other commodities.

d. a very large group of people initially agreed to support bitcoin.

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20 CHAPTER 10. WHY IS BITCOIN VALUABLE?

Solutions to Exercises in Chapter 10

b. a small group of people initially agreed to accept bitcoin.

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Chapter 11

The Supply of Bitcoin

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Figure 11.1: "The Supply of Bitcoin" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College discusses how the supply of bitcoin is stabilized.

Bitcoin resembles a commodity money in that

a. the supply is not governed by an automatic mechanism.

b. the demand is governed by an automatic mechanism.

c. a central bank can help change the supply of bitcoin.

d. the supply is governed by an automatic mechanism.

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22 CHAPTER 11. THE SUPPLY OF BITCOIN

Solutions to Exercises in Chapter 11

d. the supply is governed by an automatic mechanism.

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Chapter 12

Why Does the Value Fluctuate?

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Figure 12.1: "Why Does the Value Fluctuate?" by the Institute for Humane Studies

Description

Why is the value of bitcoin constantly changing? Dr. William Luther of Kenyon College explains how the demand for bitcoin aects the purchasing power of bitcoin.

Demand for bitcoin is aected by a. changes to the bitcoin protocol.

b. changes to the perception of the future of bitcoin.

c. the Federal Reserve.

d. nothing; the demand for bitcoin is always steady.

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24 CHAPTER 12. WHY DOES THE VALUE FLUCTUATE?

Solutions to Exercises in Chapter 12

b. changes to the perception of the future of bitcoin.

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Chapter 13

Central Banking Explained

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Figure 13.1: "Central Banking Explained" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College discusses how the lack of a central bank aects bitcoin.

Why are some economists afraid that bitcoin will suer from frequent monetary demand shocks?

a. All new currencies suer these shocks.

b. The supply of bitcoin cannot be be changed to meet increases in demand.

c. Fiat money frequently suers monetary demand shocks.

d. The supply of bitcoin is regulated at the discretion of central bankers.

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26 CHAPTER 13. CENTRAL BANKING EXPLAINED

Solutions to Exercises in Chapter 13

b. The supply of bitcoin cannot be be changed to meet increases in demand.

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Chapter 14

Is Bitcoin the Future of Money?

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Figure 14.1: "Is Bitcoin the Future of Money?" by the Institute for Humane Studies

Description

What is it that makes people want to use bitcoin? Dr. William Luther of Kenyon College introduces the next section on the advantages of bitcoin.

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28 CHAPTER 14. IS BITCOIN THE FUTURE OF MONEY?

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Chapter 15

Is Bitcoin Better than Other Money?

¹

Figure 15.1: "Is Bitcoin Better Than Other Money?" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College discusses the advantages of bitcoin over other kinds of money.

Which of the following is NOT a feature of bitcoin.

a. It is completely anonymous.

b. It allows for very small transactions.

c. It prevents charge backs.

d. It is not regulated by a central bank.

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30 CHAPTER 15. IS BITCOIN BETTER THAN OTHER MONEY?

Solutions to Exercises in Chapter 15

Solution to Exercise 15.1 (p. 29) a. It is completely anonymous.

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Chapter 16

Switching Costs and Bitcoin

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Figure 16.1: "Switching Costs and Bitcoin" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College discusses the costs associated with adopting bitcoin.

What is a "switching cost"?

a. The cost of exchanging dollars to bitcoins.

b. The mental cost of determining exchange rates.

c. The cost of joining the bitcoin network.

d. The costs associated with switching to a new currency.

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32 CHAPTER 16. SWITCHING COSTS AND BITCOIN

Solutions to Exercises in Chapter 16

d. The costs associated with switching to a new currency.

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Chapter 17

Network Eects and Bitcoin

¹

Figure 17.1: "Network Eects and Bitcoin" by the Institute for Humane Studies

Description

According to Dr. William Luther of Kenyon College, entrepreneurs are nding innovative ways to solve bitcoin's network eect problem.

The network of bitcoin users

a. is too large for bitcoin to function in the immediate future.

b. is constantly shrinking due to the bitcoin protocol.

c. is small, but growing steadily.

d. is large, but slowly shrinking.

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34 CHAPTER 17. NETWORK EFFECTS AND BITCOIN

Solutions to Exercises in Chapter 17

Solution to Exercise 17.1 (p. 33) c. is small, but growing steadily.

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Chapter 18

Regulations, Bans, and Bitcoin

¹

Figure 18.1: "Regulations, Bans, and Bitcoin" by the Institute for Humane Studies

Description

According to Dr. William Luther of Kenyon College, bitcoin has been subject to extensive government regulations and even outright bans in some countries.

The amount of regulations that are directed toward bitcoin a. encourages the use of bitcoin, as they provide stability.

b. do not ultimately aect the use of bitcoin.

c. are nominal, and should not usually be a part of the overall discussion of bitcoin.

d. discourage the use of bitcoin as more regulations are added.

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36 CHAPTER 18. REGULATIONS, BANS, AND BITCOIN

Solutions to Exercises in Chapter 18

d. discourage the use of bitcoin as more regulations are added.

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Chapter 19

Bitcoins vs. Altcoins

¹

Figure 19.1: "Bitcoin vs. Altcoins" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College explains the dierences between bitcoin and alternative cryptocur- rencies.

Altcoins have the second mover advantage over bitcoin because they a. are backed by a central authority.

b. are a stronger version of at money.

c. can make changes to their code or layout after observing problems with bitcoin.

d. do not face the same regulations that bitcoin faces.

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38 CHAPTER 19. BITCOINS VS. ALTCOINS

Solutions to Exercises in Chapter 19

c. can make changes to their code or layout after observing problems with bitcoin.

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Chapter 20

The Future of Bitcoin and the Blockchain

¹

Figure 20.1: "The Future of Bitcoin and the Blockchain" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College discusses whether he thinks bitcoin or blockchain technology will nd widespread use in the future.

20.1 Discussion Question

Dr. Luther is skeptical bitcoin will be widely adopted, but he does believe that blockchain technology will gain widespread use. What do you think? Do you think that bitcoin is superior to other currencies? Why or why not?

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40 CHAPTER 20. THE FUTURE OF BITCOIN AND THE BLOCKCHAIN

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Chapter 21

Conclusion

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Figure 21.1: "Conclusion" by the Institute for Humane Studies

Description

Dr. William Luther of Kenyon College wraps up this course on bitcoin.

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42 INDEX

Index of Keywords and Terms

Keywords are listed by the section with that keyword (page numbers are in parentheses). Keywords do not necessarily appear in the text of the page. They are merely associated with that section. Ex.

apples, 1.1 (1) Terms are referenced by the page they appear on. Ex. apples, 1

A

altcoin, 19(37)

B

banking secrecy act, 18(35)

bitcoin, 1(1), 2(3), 3(5), 4(7), 5(9),

6(11), 7(13), 8(15), 9(17), 10(19),

11(21), 12(23), 14(27), 15(29), 16(31),

17(33), 18(35), 19(37), 20(39), 21(41) block chain, 8(15), 20(39)

C

central bank, 11(21), 13(25) commodity money, 9(17) crypto currency, 2(3)

cryptocurrency, 3(5), 19(37)

E

economics, 1(1), 2(3), 3(5), 4(7),

6(11), 7(13), 8(15), 9(17), 10(19),

11(21), 12(23), 13(25), 16(31), 17(33),

18(35), 19(37), 20(39), 21(41)

F

federal reserve, 13(25) at money, 9(17)

nancial crimes enforcement network, 18(35)

I

internal revenue service, 18(35) irs, 18(35)

L

lecture, 1(1), 2(3), 3(5), 4(7), 5(9),

6(11), 7(13), 8(15), 9(17), 10(19),

11(21), 12(23), 13(25), 14(27), 15(29),

16(31), 17(33), 18(35), 19(37), 20(39),

21(41)

M

medium of exchange, 7(13)

monetary demand, 11(21), 17(33) monetary stability, 11(21)

money, 1(1), 2(3), 4(7), 5(9), 6(11),

7(13), 8(15), 9(17), 10(19), 11(21),

12(23), 13(25), 14(27), 15(29), 16(31),

17(33), 18(35), 19(37), 20(39), 21(41) money supply, 11(21), 13(25)

N

network eect, 17(33)

P

purchasing power, 12(23)

Q

quantitative easing, 13(25)

R

regulation, 18(35)

S

sec, 18(35)

securities exchange commission, 18(35) switching costs, 16(31)

V

video, 1(1), 2(3), 3(5), 4(7), 5(9),

6(11), 7(13), 8(15), 9(17), 10(19),

11(21), 12(23), 13(25), 14(27), 15(29),

16(31), 17(33), 18(35), 19(37), 20(39),

21(41)

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ATTRIBUTIONS 43

Attributions

Collection: Bitcoin

Edited by: Institute for Humane Studies URL: http://cnx.org/content/col24321/1.1/

License: http://creativecommons.org/licenses/by/4.0/

Module: "Bitcoin: Introduction to Bitcoin"

Used here as: "Introduction to Bitcoin"

By: Institute for Humane Studies

URL: http://cnx.org/content/m66115/1.1/

Page: 1

Copyright: Institute for Humane Studies

Module: "Bitcoin: What Is a Cryptocurrency?"

Used here as: "What Is a Cryptocurrency?"

Pages: 3-4

Module: "Bitcoin: What Is Bitcoin?"

Used here as: "What Is Bitcoin?"

Pages: 5-6

Module: "Bitcoin: How Do You Get Bitcoin?"

Used here as: "How Do You Get Bitcoin?"

Pages: 7-8

Module: "Bitcoin: Making Payments with Bitcoin"

Used here as: "Making Payments with Bitcoin"

Pages: 9-10

Module: "Bitcoin: Processing Payments with Cash, Bitcoin, and Electronic Payments"

Used here as: "Processing Payments with Cash, Bitcoin, and Electronic Payments"

Pages: 11-12

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44 ATTRIBUTIONS Module: "Bitcoin: Is Bitcoin Money?"

Used here as: "Is Bitcoin Money?"

Pages: 13-14

Module: "Bitcoin: Why Should I Care About Bitcoin?"

Used here as: "Why Should I Care About Bitcoin?"

Pages: 15-16

Module: "Bitcoin: Commodity Money or Fiat Money?"

Used here as: "Commodity Money or Fiat Money?"

Pages: 17-18

Module: "Bitcoin: Why Is Bitcoin Valuable?"

Used here as: "Why Is Bitcoin Valuable?"

Pages: 19-20

Module: "Bitcoin: The Supply of Bitcoin"

Used here as: "The Supply of Bitcoin"

Pages: 21-22

Module: "Bitcoin: Why Does the Value Fluctuate?"

Used here as: "Why Does the Value Fluctuate?"

Pages: 23-24

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ATTRIBUTIONS 45 Module: "Bitcoin: Central Banking Explained"

Used here as: "Central Banking Explained"

Pages: 25-26

Module: "Bitcoin: Is Bitcoin the Future of Money?"

Used here as: "Is Bitcoin the Future of Money?"

Page: 27

Module: "Bitcoin: Is Bitcoin Better than Other Money?"

Used here as: "Is Bitcoin Better than Other Money?"

Pages: 29-30

Module: "Bitcoin: Switching Costs and Bitcoin"

Used here as: "Switching Costs and Bitcoin"

Pages: 31-32

Module: "Bitcoin: Network Eects and Bitcoin"

Used here as: "Network Eects and Bitcoin"

Pages: 33-34

Module: "Bitcoin: Regulations, Bans, and Bitcoin"

Used here as: "Regulations, Bans, and Bitcoin"

Pages: 35-36

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46 ATTRIBUTIONS Module: "Bitcoin: Bitcoins vs. Altcoins"

Used here as: "Bitcoins vs. Altcoins"

Pages: 37-38

Module: "Bitcoin: The Future of Bitcoin and the Blockchain"

Used here as: "The Future of Bitcoin and the Blockchain"

Page: 39

Module: "Bitcoin: Conclusion"

Used here as: "Conclusion"

Page: 41

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Bitcoin

What exactly is Bitcoin? And why is it important? In this short online course featuring Dr. William Luther of Kenyon College, you will learn the basics of Bitcoin and some of the more advanced questions surrounding this mysterious currency. Will Bitcoin be the death to national currencies as we know them? What gives Bitcoin its value? And why is the creator of Bitcoin hiding his (her? their?) identity? We might not be able to unmask the founder of Bitcoin, but you will denitely own the conversation at your next social gathering.

About OpenStax-CNX

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InstituteforHumaneStudies By: Bitcoin

Bitcoin

By:

Institute for Humane Studies

Bitcoin

By:

Institute for Humane Studies

Online:

< http://cnx.org/content/col24321/1.1/ >

OpenStax-CNX

Table of Contents

Chapter 1

Introduction to Bitcoin

Chapter 2

What Is a Cryptocurrency?

Solutions to Exercises in Chapter 2

Chapter 3

What Is Bitcoin?

Solutions to Exercises in Chapter 3

Chapter 4

How Do You Get Bitcoin?

Solutions to Exercises in Chapter 4

Chapter 5

Making Payments with Bitcoin

Solutions to Exercises in Chapter 5

Chapter 6

Processing Payments with Cash, Bitcoin, and Electronic Payments

Solutions to Exercises in Chapter 6

Chapter 7

Is Bitcoin Money?

Solutions to Exercises in Chapter 7

Chapter 8

Why Should I Care About Bitcoin?

Solutions to Exercises in Chapter 8

Chapter 9

Commodity Money or Fiat Money?

Solutions to Exercises in Chapter 9

Chapter 10

Why Is Bitcoin Valuable?

Solutions to Exercises in Chapter 10

Chapter 11

The Supply of Bitcoin

Solutions to Exercises in Chapter 11

Chapter 12

Why Does the Value Fluctuate?

Solutions to Exercises in Chapter 12

Chapter 13

Central Banking Explained

Solutions to Exercises in Chapter 13

Chapter 14

Is Bitcoin the Future of Money?

Chapter 15

Is Bitcoin Better than Other Money?

Solutions to Exercises in Chapter 15

Chapter 16

Switching Costs and Bitcoin

Solutions to Exercises in Chapter 16

Chapter 17

Network Eects and Bitcoin

Solutions to Exercises in Chapter 17

Chapter 18

Regulations, Bans, and Bitcoin

Solutions to Exercises in Chapter 18

Chapter 19

Bitcoins vs. Altcoins

Solutions to Exercises in Chapter 19

Chapter 20

The Future of Bitcoin and the Blockchain

20.1 Discussion Question

Chapter 21

Conclusion

Index of Keywords and Terms

A

B

C

E

F

I

L

M