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Cryptocurrency Popularity

Cryptocurrency is a collection of transaction records and balance ledgers maintained through cryptography to create the scarcity and value of itself [1]. Regardless of the essence of cryptocurrency, it is widely used as a form of currency in exchange of goods and services. Currently, there are more than 740 cryptocurrencies available for trade in online market, but only 8 of them have recognizable market value and popularity [2]. The most successful cryptocurrency, Bitcoin, is the first fully decentralized cryptocurrency that pre-empted the market and rooted it’s base in the industry. Bitcoin’s model was soon imitated by others following with the emergence of its remarkable competitors, such as Litecoin, Peercoin and Ripple [3]. These alternatives of Bitcoin are usually called Altcoin.


Decentralized Currency System

Cryptocurrency transactions are accomplished without any trusted central authority or intermediaries, such as banks and governments. Instead, transactions, security, creation of new units, and balance of ledgers are supported by cryptography; while the cryptography system is maintained by a community of mutually independent parties, which is referred as miners. Without the intervention of any central intermediaries, power is decentralized and creates a trading environment free from government intervention and monitor [4].

However, decentralized power cannot prevent people, including banks and governments, from collectively controlling the cryptocurrency. Stakeholders such as miners, buyers, and exchange companies who possess or handle a large amount of resources, such as handling a large amount of transactions or owning a large fraction of currency, can still drastically influence the industry. Therefore, problems such as 51% Attack and market manipulation can undermine decentralization, making it vulnerable to the control of powerful stakeholders.

Scarcity Derived from the Mining System

As for all currencies, they must possess scarcity to retain their value. Comparing with traditional currencies that their value is backed and currencies are issued by banks or governments; the scarcity of cryptocurrencies is derived from cryptography to restrict the creation of new units. Instead of having a bank or government to control the currency, users’ balance of ledgers are maintained by miners who operate the cryptography system. To create new units of cryptocurrency, miners have to devote their computing power to solve complex mathematical problems and verify transactions. When transactions are successfully verified, new units of cryptocurrency will be issued to the succeeded miners as reward. Therefore, the creation of currency is restricted by the available computing capacity of miners[5].

Value Inherently Depends on CC Community

When there are more miners supporting the operations of a cryptocurrency, transactions are more secured and can be verified more quickly. Hence, when there are more miners, the services that are provided to users are improved, and thus attract more users. On the other hand, the more users of a cryptocurrency, the higher the price that people are willing to pay in exchange of the cryptocurrency. When miners are rewarded by newly issued cryptocurrencies, the “price” of the rewarded cryptocurrencies is increased when there are more users. As a result, the value of a cryptocurrency is inherently dependent on the number of users and miners who are willing to support the system.


The first decentralized cryptocurrency was Bitcoin (BTC). It was created by a pseudonymous developer named Satoshi Nakamoto in 2009. After Satoshi Nakamoto published one of his most famous works called “Bitcoin: A Peer-to-Peer Electronic Cash System”, Bitcoin as the first cryptocurrency became more well known. Apart from Bitcoin, there are also many other cryptocurrencies which named altcoin altogether. Namecoin (NMC) was the first altcoin that was created in April 2011 for the purpose of forming a decentralized DNS to make internet censorship more difficult. Soon after in October 2011, Litecoin (LTC) was released and became the first successful cryptocurrency to use scrypt as its hash function rather than SHA-256. Thereafter, more and more different kinds of cryptocurrency came into the market such as Peercoin (PPC), Feathercoin (FTC), Novacoin(NVC), Terracoin(TRC) and so on. However, these cryptocurrencies that came after Bitcoin are not as famous and Bitcoin has became the dominating coin in the cryptocurrency market with the highest market cap and volume traded. This is largely due to the advantage that Bitcoin being the first mover in the cryptocurrency concept and successfully capture the attention of innovators and early adopters. There are two significant periods during the development of cryptocurrency. The first period is from May 2, 2013 to September 30, 2013. Since May 2013, Bitcoin’s price started to increase, and in October 2013, Bitcoin’s price experienced its first publicized drop in price after the shutdown of Silkroad is an online black market, where merchants use Bitcoin as the its main currency to trade due to Bitcoin’s untraceable characteristic. After the shutdown of, about 144,000 Bitcoins was confiscated by the US government, this led to a lower demand for the cryptocurrency due to it's major usage in the deep web. The second significant period of cryptocurrency is from October 1, 2013 to February 28, 2014. In December 2013, Bitcoin’s price reached its peak of $1230 dollars. In February 2014, $421 million worth of Bitcoins were stolen from a marketplace called Mt.Gox, where Bitcoins were traded. The stolen of Bitcoins causes the loss of confidence in Bitcoin. [6].

How Cryptocurrency Works


A block can be considered as a file used to store data. In cryptocurrency, a block contains transaction information such as sender’s address, transaction amount and recipient’s address [7]. When a new block is generated, it will contain the data of the most recent transactions that have not yet been recorded in any prior blocks[8].


Hash is essentially a unique answer to a mathematical puzzle. Beside transaction information, each block also contains a hash algorithm, which is linked to the hash of the most recent block that has been verified and submitted to the block chain in the past [9]. In order for a block to be attached to the previously generated block in block chain, miners have to devote their computing power to solve the hash by trying different sets of numbers. Once the hash is resolved, the new block is submitted to the block chain, and new cryptocurrencies will be issued and given to the succeeded miner(s) as reward. Currently, SHA-256 and Scrypt are the most common cryptographic systems used in cryptocurrencies.

Hash Algorithm Systems
  • SHA-256: SHA-256 is a more complex version of hash cryptography that requires intensive investments on dedicated infrastructure, such as ASIC, to mine. In SHA-256, miners have to spend more time in solving hashes, meaning that users have to wait longer to get their transactions confirmed. But in turn, SHA-256 is more accurate with fewer errors [1]. Cryptocurrencies that use SHA-256 include Bitcoin, Mastercoin, and MazaCoin.
  • Scrypt: Scrypt is a less complex version of hash cryptography. Mining activities are more accessible and less costly for miners, and usually can be carried out on general computers. On the other hand, blocks could be generated more frequently and transactions can be confirmed quicker[2]. Cryptocurrencies that use Scrypt include Litecoin, Dogecoin, and BlackCoin.

Block Chain

A block chain is a transaction database that contains every transaction happened in the past. When the hash of a newly created block is solved and transactions of the block are verified, the new block will be attached to the end of the block chain. Once a block is added into the block chain, it is computationally impractical to modify or reverse the transaction, and therefore, deterring people from spending the same set of money more than once [3].

Mining System


The process of mining is essentially the process of competing between miners to be the next to verify transactions, solve the hash, and submit a new block to the block chain. The incentives for miners to back the operations of a cryptocurrency are consisted of the mining reward and the transaction fees of the verified block that are paid by users. [1]. Despite immense amount of computing power and electricity fees have to be paid to support their mining activities, the system of cryptocurrency will sustain as long as the incentives granted to miners offset the costs.


The distribution of new cryptocurrency depends on the timestamping system it uses. The proof-of-work and proof-of-stake are the most prevailing systems adopted by cryptocurrencies. Under the proof-of-work system, in order for miners to create a block, they must devote massive amount of computing power to solve the hash in each block [2]. As a result, the more computing power miners contribute, the more productive the mining process is, and the more cryptocurrency they could earn. On the other hand, under the proof-of-stake system, the productivity of a miner depends on the number of cryptocurrency he or she possesses. The more money one has invested into a cryptocurrency, the faster he or she can mine. The advantages are that because miners have less incentive to sell the cryptocurrency they mined, the price will not be push down as hard as proof-of-work and price fluctuation is mitigated; while less energy is needed to be spent in the mining process [3].


To retain scarcity, the creation speed of new currency depends on the difficulty of the hash function. For most cryptocurrencies, the difficulties of their hash cryptography are designed to gradually increase overtime, which in turn gradually slow down the release of new money. Furthermore, cryptocurrencies usually have a cap of the total amount of currency that could be created. When the cap is reached, no further units of money will be released. Both strategies are used to ensure the scarcity of the currency to retain its value and protect itself from over-inflation.

Making Transactions in Cryptocurrency

Digital Wallet

Paper Wallets, Casascius Coins and USB Devices

In order to make a transaction, users must have their digital wallets to send and receive cryptocurrencies. Digital wallet is a file that contains a collection of private keys, which are used to authorize payments to be transacted to another digital wallet. Digital wallet can generally take 4 different forms [4]:

  • Software Wallets: software can be installed on a desktop or laptop computer for account management and maintenance. Sometimes, software wallet also provides features such as market graphs and mining software. Currently available products include Bitcoin Core and MultiBit HD.
  • Mobile Wallets: apps can also be installed on smartphones and tablets, increasing the portability of digital wallets and allowing users to make face-to-face transactions easier with QR codes. Currently available products include Copay, Bitcoin Wallet, and CoinPursuit.
  • Web Wallets: there are also cloud softwares, which run on cloud computing and are accessible from any computer devices anywhere, but come with greater risks from hacking and theft. Currently available products include HolyTransaction and Coinbase.
  • Cold Wallets: cold wallet refers to keeping cryptocurrencies offline, as a way to prevent online thefts and hacking. The private keys of currency can be printed out on paper and stored in regular wallet like traditional bills. Private keys can also be stored on USB devices or offline hardware devices. Although transactions can be made offline with cold wallets, miners cannot verify and complete the transactions until the wallets are connected to the internet. If transactions are needed to be made without delay, the physical coins of cryptocurrencies can be used, which the cryptocurrency's value is embedded in a coin and it is impossible to extract the private keys of the coin without damaging the hologram of the coin. As a way, the value of the coin is secured. Example of currently available products include: Casascius physical bitcoins, Alitin Mint, and Titan Bitcoin.

Making Transaction

Beside the digital wallet, users need 3 pieces of information to make transactions, which are: inputs, amount, and outputs. Input includes the wallet address of the sender and the associated private keys needed to sign (authorize) the transaction. Amount is the amount of money being transacted, and output means the wallet address of the recipient [5] The general procedures of making transactions with cryptocurrencies will be illustrated under the Bitcoin ATMs section.

Blockchain Bitcoin Wallet

Mining Verification

After a transaction is made, miners will verify if the amount of the transaction does not exceed the sender’s balance and the transaction is signed by the corresponding private key(s). In other words, users have to wait until the transaction is verified, included in a block, and submitted to the block chain. The length of the wait time depends on the number of miners and the complexity of the hash. For example, a cryptocurrency that is operating under SHA-256 is likely to take longer to confirm transactions than another cryptocurrency operating in Scrypt. Nevertheless, transaction time could vary from less than 1 minute to several days.

Transaction Fees

Users have the option to speed up the transaction speed by including a transaction fee to make miners prioritize their transactions [1]. For example, if a person do not want to wait for 10 minutes to confirm that he or she has actually been paid in a transaction, including more transaction to speed up the transaction could be valuable. For some cryptocurrencies, a minimal transaction fee is also necessary for small amount payments, as a way to prevent attackers from overloading the system by repeating the same transaction again and again.

Different Technologies in Cryptocurrency


Bitcoin is a type of cryptocurrency created by Satoshi Nakamoto in 2008 and released as an open-source software in 2009. Being the first fully decentralized cryptocurrency, Bitcoin has pre-empted the industry with its low transaction fees and government-control free essence [2]. The current price of one Bitcoin is around 493 Canadian dollars on December 2 , 2015 [3]. Despite Bitcoin is undoubtedly one of the most notable cryptocurrencies, its’ price still fluctuates dramatically, proving the extremely volatile essence of cryptocurrency.


Bitcoin’s Cryptographic System

Bitcoin is operated under the SHA-256 system, implying that it has a relatively high hash rate and long transaction speed. Currently, a block is generated in every 10 minutes, and each block creates 25 Bitcoins. The hash rate is expected to increase gradually overtime, which reduces the Bitcoins that could be mined by 50% every 4 years. In 2017, the reward granted per block is expected to decrease to 12.5 Bitcoins. At the end, Bitcoin will reach it’s 21 million ceiling in 2140 and no further coins will be issued from then [1].

By 2140, miners will no longer be rewarded by newly created Bitcoin. Instead, they will be motivated to continue verifying blocks as long as users of Bitcoin are willing to pay for the transaction fees. But that requires the community to grow enough so the aggregated transaction fees can offset the expenses paid to support mining activities.

Transaction System

The transaction of Bitcoins is very similar to general cryptocurrency transaction, which a digital wallet, input, amount, and output are necessary. However, the private-public-key system is adopted. Further than the private key to sign (authorize) transactions; a Bitcoin wallet also contains public key(s). In private-public-key cryptography, public and private keys of a Bitcoin wallet are linked. In a transaction, a sender can transfer money to recipient’s public key. Afterwards, the recipient can spend the money using his or her private key to prove that he or she is the owner of the recipient’s public key without disclosing his private keys [2]. The private-public-key cryptographic technology is also widely used in many cryptocurrencies including Litecoin and Dogecoin.

Bitcoin ATM

Bitcoins can be purchased and sold through Bitcoin ATMs. Currently, there are 489 ATMs worldwide, 270 are located in America and Canada, followed by 105 in Europe, 43 in China, and 71 at other locations. Currently available ATMs include Lamassu, Skyhook, Robocoin, BitAccess, Genesis Coin, and General Bytes [3].

Cryptocurrency ATMs

Buying Bitcoins

In buying Bitcoins through ATMs, it usually follows a few general processes [4]:

  • Verify User: depending on the type of the ATM machine and local regulations, a set of verification processes may be necessary to login, including mobile number, palm vein scan, fingerprint, scan of passport, driver license ID, and social insurance number.
  • Scan/ Create Digital Wallet: registering a new digital wallet is only supported by some ATMs. Otherwise, user must either have a Bitcoin wallet before using the ATM; or print the QR code of a new digital wallet to initiate the transaction if supported.
  • Make Purchase: to make purchase, user needs to scan the QR code of their wallet, either from their phone or paper wallet. Then, user needs to select the amount of Bitcoins to purchase and input cash to the ATM.
  • Include Transaction Fees: to speed up transactions, it is recommended to include a minimal transaction fee of 0.0001 BTC for transactions to be verified by miners in 15 minutes. If no transaction fee is included, the processing time can surge up to 1 day to be verified.
  • Take Receipt: receipt of the purchase will usually be printed out or sent to either user’s phone or email.

Selling Bitcoins

To sell Bitcoin through ATMs, the processes are usually more redundant and take longer than to purchase, as transactions have to also be confirmed by ATM's service provider. Only about 40% of all installed ATMs support sell-operations, which include: Robocoin, Genesis Coin, and BitAccess. The general selling processes are as follow [5]:

  • Verify User: similar to the purchasing process, which requires user to verify his or her identity
  • Send Bitcoins: to sell Bitcoins, the machine will display a QR code representing the digital wallet of the service provider. Then, user needs to send the amount of BTC from his or her wallet to the QR code of the ATM.
  • Include Transaction Fees: identical to the purchasing process, which transaction fee is optional to be included.
  • Wait for Confirmation: depending on the amount of the transaction and the ATM service, user usually needs to wait for up to an hour for the service provider to confirm the transaction. After the transaction is confirmed, confirmation(s) will be sent to user’s mobile phone and user will be able to withdraw cash from the ATM.

Robocoin ATM


What is NTX

NXT is an enhanced cryptocurrency built from scratch, to deliver a unique and decentralized financial platform. NXT was the first exclusively Proof-of-Stake (PoS) cryptocurrency. Unlike bitcoin, there is no mining included in the process. NXT implements "Transparent Forging" feature which allows NXT to approach Visa/Mastercard transactions. NXT's "Transparent Forging" feature also eliminates anything up to 90% attack, making it a fast, efficient and vulnerable secured network. [1] NXT has different features such as Asset Exchange, Monetary System, private messaging, arbitrary messages, voting etc. [2]:

Proof of Work VS Proof of Stake


In a Proof-of-Stake model, transactions can be added to the blockchain or ‘forged’ by any member of the network. The node chosen to forge a block is random, but the odds of forging a block are proportional to their stake in the network (the number of coins they hold). [1]

Benefits of PoS and Transparent Forging

  • Highly efficient and less wasteful of resources [2]
  • Less incentive of centralized mining [3]
  • Forging can be carried out by anyone, even with low-powered computers [4]
  • Currency is stable, with no inflation [5]
  • Transaction is fast and reliable [6]


What is Ripple

Ripple was released in 2012, being a real-time gross settlement system (RTGS), currency exchange, and remittance network. The network allows transfer of money or securities to take place from one bank to another on a "real time" and "gross" basis. Ripple requires no central operator, while the network direct bank to bank settlement enables instant transaction verification and settlement certainty. Ripple purports to enable secure, instant and nearly free global financial transactions of any size with no chargebacks. It uses its native cryptocurrency called Ripples in the network to pay transaction fees. [7]:

How Ripple Works - Gateways and Pathways

How Ripple Works

The Ledger and Consensus

The Ripple protocol is a shared public database. Within the database there is a ledger that serves to track accounts and the balances associated with the database. The ledger is continually and automatically updated by the Ripple Transaction Protocol (RTXP) so that an identical ledger exists on thousands of servers around the world. The record of all activity on the Ripple protocol and the ledger are open for review to anyone at any time. When changes are made to the ledger, computers connected to the Ripple protocol will mutually agree to the changes via a process called consensus. Consensus in the Ripple protocol can be reached within seconds when changes are being made to the ledger. The consensus process makes fast, secure, and decentralized transaction settlement possible for the Ripple protocol.[1]:

Distributed exchange

The Ripple protocol runs on computers around the world and it is not owned by anyone. These computers all working together to continually maintain a perfect, shared record of accounts, balances, and transactions. Because the network is “self-clearing”, it does not require a centralized network operator, which reduces the associated layer of fees. Ripple supports any currency and allows users to transact in any currency. A user can hold balances in one currency, and send payments in another. A market maker who holds both currencies facilitates the transaction. Market makers are individuals and financial institutions who provide liquidity by holding funds in multiple currencies and by competing for foreign exchange trades. By holding balances in multiple currencies and connecting to multiple gateways, market makers facilitate payments between users where no direct trust exists, and therefore enable exchanges across gateways. Market makers benefit from using Ripple because they earn the bid/ask spread on trades and benefit as volume grows on the protocol. Ripple’s distributed exchange allows users to trade without the need for a broker or a third party exchange. Anyone can post bids or offers into the aggregated global order books, and the Ripple protocol finds the most efficient path to match trades. There is no network fee, and there is no minimum transaction size. This allows every currency to have the smooth transaction qualities of as a single global currency. You can hold balances in gold or Bitcoin, and easily send payments in US Dollars or Euros. Ripple gives everyone complete freedom over currency choices in transactions.[2]:


Any currency balances traded on the Ripple protocol are redeemable at the specific “gateway” from which the currency was issued. A gateway is the place where fiat money enters and exits the Ripple protocol. In practice, this can look very similar to traditional banks. However, a gateway can be any business that provides access to the Ripple protocol. Gateways can be banks, money service businesses, marketplaces, or any other financial institutions. Businesses that become gateways create advanced financial functionality for their customers and generate new revenue streams.[3]. Furthermore, unlike usual intermediaries, as gateways are built into the Ripple protocol itself, anarchic feature is retained to protect users’ anonymity. However, as a user’s balance is managed by a business who operates its gateway, users are still exposed to the counterparty risk that the intermediary may shut down or change its policies. Currently available gateways include: Bitstamp, Gatehub, Bluzelle, Rupula, and The Rock.

International Currency Transfer

Ripple Network

The Ripple network contains the Ripple Consensus Ledger (RCL), which is a secure distributed ledger that uses the consensus process to settle transactions. Because of its distributed nature, it does not require a central operator, and offers transaction immutability and information redundancy. RCL holds the order book with bid/ask offers from payment initiators and market makers. Its path-finding algorithm enables it to find the lowest foreign exchange rate across all order books and currency pairs.[4]:

International Currency Transfer with Ripple

Ripple Connect

Ripple Connect is a plug-and-play module that processes international payments for banks. It connects to the receiving bank’s Ripple Connect to exchange KYC and risk information, fees, payment details and expected time of funds delivery. It communicates with the Ripple network to get the lowest currency quotes. It packages this information and presents the entire cost structure to the sending bank, providing unprecedented visibility into the total costs of the transaction. Once the sender approves the transaction, it interfaces with RCL to settle the trade and notifies all parties of the transaction confirmation.[5]:

Ripple Stream

Ripple Stream is an interface for market makers to submit bid/ask offers to the Ripple network. It uses FIX and .NET APIs to plug into the market makers’ existing systems, allowing for an easy interface with their trading clients. Ripple Stream can be used by FX trading desks within your bank for an internal market making use case. For corridors that your bank does not have an internal FX trading capability, you can allow external market makers to provide liquidity for your cross-border payment customers.[6]:

Transaction Process

For a user to initiate a transaction, it usually follows a few procedures as below:

  • Create a Wallet: consumer wallets are applications that could be installed on devices to manage their ledgers and make transactions. Businesses that provide the wallet services can, but not necessary, also be the gateway service providers. Currently available products include: GateHub and Bluzelle.
  • Transfer Currency to Ripple Wallet: money can be transferred from any network operators, such as banks and PayPal, to user's Ripple wallet. The amount transferred will then become the wallet operator's promise to pay.
  • Initiate Transaction: to use an example to depict the transaction process, let assume Peter holds US dollars and want to send 100 CAD dollars to Josh. Peter is using GateHub wallet and John is using Bluzelle wallet.
  • Find Market Maker: once the transaction request is initiated, the Ripple protocol will search for a market maker with the best offer from the Ripple Stream. Assume the best bid is offered by FXMaker at a rate of 1USD to 1.3CAD. If Peter accepts the offer and there is no transaction fee, Peter will pay FXMaker 100/1.3= $76.9 USD to make the transaction.
  • Pay Transaction Fees for John: although Ripple alone does not charge anything, the use of the gateway service tends to incur transaction fees in addition to the base exchange rate. In here, assume GateHub form Peter charges a transaction fee of 1%, and Bluzelle from Josh charges a transaction of 0.2%. In order for FXMake to pay $100 CAD to Josh, FXMaker will ask Peter for 100*1.002= $100.2 CAD, which is $77.3 USD from Peter.
  • Pay Transaction Fees for Peter: in order for Peter to send $77.3 USD, he must pay his transaction fee, which is 77.3*0.01= $0.773 USD, to GateHub. Therefore, he must pay in total of 77.3+0.773 = $78.073 USD in total to complete the transaction, comparing to $76.9 without transaction fees.

As such, the transferring speed and fees are no longer affected by the type of currencies being used, locations, and intermediaries, but depend only on the available market makers that are connected to the Ripple Stream and Gateway providers.


Bytecoin is a cryptocurrency that utilizes the proof of work algorithm called CryptoNight. CryptoNight is an egalitarian proof of work system where each miner has equal rights in the voting of the correct ledger for the cryptocurrency. Another unique aspect of Bytecoin is that it is ASIC proof, this forces miners to utilize CPUs and GPUs to mine Bytecoins. Due to it's unique methodology of utilizing a complicated method of private and public keys it allows a higher level of anonymity between users than conventional cryptocurrencies.

Benefits and Problems


No Surprise Fee or Waiting Period

Banks, credit card companies, and online payment services can delay certain transactions or apply surcharges and fees, often without their customers knowing. Sometimes customers may pay fees with transaction to receive priority processing, but this payment is still very low. This often winds up being bothersome and costly to both consumers and businesses. Cryptocurrencies carry smaller and more transparent transaction fees, and purchases and transfers can be approved in minutes.[7]:

International Use

Using credit cards or bank accounts for international transactions can be problematic; since they're linked to the legal tender of a specific government, exchange rates, interest rates, and country-to-country transaction fees, whcih can bog down the process—and make it a lot more expensive, too. Cryptocurrencies aren't bound to the rules or status of any government's currencies, so international transactions tend to go a lot more quickly and smoothly in cryptocurrencies. Merchants can send and receive any amount of money anywhere in the world. With no borders, no limits, and being efficient, merchants can be in full control of their money.[8]:

Customer Anonymity

Credit, debit and ATM cards are all linked to cardholder’s name, home address, and other unique personal information. There are many ways personal info is being used without our knowledge or permission. Merchants can track our purchases and know exactly what we ate, what movies we watched, what we worn, and so forth. One of the benefits cryptocurrency can provide is user anonymity. All cryptocurrency transactions are secure and they don't carry any personal information at all. [9]:


Volatile Price

The price of cryptocurrency depends on the supply and demand of the currency in the market. Currently, the total amount of cryptocurrencies in circulation and the number of businesses using cryptocurrencies are still very small. Therefore, even small events, trades or business activities can significantly affect the price of cryptocurrency. [10]:

Immature Technology

Cryptocurrency are still in infancy, they are currently in an ongoing development with many incomplete features. There are too many things like security and services have to be improved, and the cryptocurrency business is very new. In other words, it is quite risky to do business with cryptocurrency, with the risks like policy risk, legal risk, speculative risk, money laundering and so on [11]. Without comprehensive regulations and supports to back the cryptocurrency industry, user's are imposed to greater risks in using cryptocurrencies, and therefore, making it less compelling to the general public.


International Status

International Status of Bitcoin

The main concern for many governments regarding cryptocurrency is the difficulty of regulating the currency and the anonymity of the transacting parties. This leads to the ideal adoption of cryptocurrency to fund illegal operations that range from black market trades to terrorist activities. Unfortunately, many governments do not fully understand how cryptocurrency works thus resulting is poor and vague legislations for businesses and individuals using cryptocurrency. This in turn allows the exploitation of cryptocurrency for unethical business practices. In countries such as France, there are no laws or regulations for cryptocurrency nor is it recognized as legal currency. Due to the lack of regulations, businesses in France could potentially utilize cryptocurrency transactions to avoid paying income tax as cryptocurrency mining and transactions are not classified as a business operation[12]. In China, there is an explicit ban on the usage of bitcoins by financial institutions, this was the result of countless heists where bitcoins were stolen from various fraudulent financial institutions “disappearing” after users deposited their bitcoins[13].

Criminal Activities

Bitcoin Theft

Mark Karpeles CEO of Mt Gox
Trendon Shavers


This was the earliest scam of cryptocurrency in history, it was a company that was listed on the now defunct GLBSE, a stock exchange for bitcoins where users were able trade assets and bitcoin bonds. Ubitex was an exchange platform that promised their users a centralized platform to find buyers and sellers of bitcoins in their local areas. Investors had invested 1,139 bitcoins in the company, the bitcoins was promptly converted to USD by the mastermind and no further contact was made between the investors and the mastermind. It was later on that investigations uncovered that the mastermind was a minor.[14].

Mt Gox.

In 2014, the largest “theft” of bitcoins occurred with the sudden bankruptcy notice by Mt.Gox as a result of 850,000 bitcoins ($421 million CAD today) reportedly lost by the exchange company. In the months leading up to the declaration of bankruptcy, the company had denied all withdrawals from their clients, citing “lack of clear technical view of currency processes”. In February 2014 Mt.Gox had filed for minhi saisei a form of bankruptcy protection in Japan. This was a catastrophic incident as the company accounted for over 80% of the global transaction for the most popular cryptocurrency, Bitcoins. As a result of this, the value of a bitcoin dropped from $900USD to a low of $360USD. This was one of the largest devaluation of bitcoins next to the shutdown of Silkroad.[15].

CEO Mark Karpeles was cited as one of the perpetrators of the theft as investigations had found that he had embezzled from the company to fund his personal expenses. He was arrested on August 1st, 2015 and was rearrested amid further accusation of embezzlement.

Bitcoins Savings and Trust

Operating between 2011-2012, Bitcoin Savings and Trust was a fraudulent investment company formed by Trendon Shavers and at the time controlled 7% of all the bitcoins in circulation. The company was a front for an elaborate ponzi scheme where investors were promised a 7% return/week on bitcoin investments. It is estimated that over 263,000 bitcoins($130 million CAD today) was stolen from investors. Until the bankruptcy of Mt.Gox, Bitcoins Savings and Trust was the largest theft of bitcoins in history. It was reported that 48% of the investors lost some or all of their investments in the ponzi scheme. Investigations found that the stolen bitcoins were used by Trendon Shavers to pay for a BMW M5, spa treatments, and gambling. [16].

Black Market



Silkroad was an online black market on the dark web where users were able to purchase and sell illegal products such as drugs, firearms, fake identification, stolen credit card information, and many more. The main medium of currency utilized in silk road transactions was Bitcoins due to the anonymity and difficult tracking nature of bitcoins.

The shutdown of Silkroad in October 2013 led to a substantial seizure of bitcoins and subsequent drop in the value of bitcoins. It was reported that over 144,000 bitcoins ($72 million CAD today) was seized during the shutdown of the market with the value of bitcoins dropping from $145 to a low of $109 on the day of the shutdown. Ross “Dread Pirate Roberts” Ulbricht was arrested as the owner of Silkroad. He was convicted of conspiracy to traffic narcotics and various other crimes. In February 2015, he was sentenced to life imprisonment without the possibility of parole. The FBI auctioned off the seized bitcoins in batches with the final batch of 44,341 bitcoins sold for an undisclosed amount on November 5th, 2015. [17]

Since the shutdown of Silkroad, there has been several attempts to fill in the niche black market gap left by Silkroad, with Silkroad 2.0 (Shut down in 2014) and Silkroad 3.0 being created in an attempt to fill the gap. Evolution became the largest online black market website after Silkroad with over 28,000 listings until the sudden shutdown on March 18th[18], 2015 and disappearance of $12 million USD of bitcoins held by the owners of Evolution as part of the escrow service they provided to their users.


Evolution Page

After the fall of Silkroad it left a gap in the black market for an e-commerce platform for consumer to consumer transactions. There were many attempts to fill the gap and eventually Evolution became the major platform for a period of time. Evolution offered illegal substances but was different in that it explicitly banned hitman services and certain illicit products, ironically citing moral reasons. The main method for Evolution was their method of implementing an escrow system for its users. Unfortunately, this allowed the owners of Evolution access to a substantial amount of bitcoins owned by their customers. Evolution shut down on March 18th, 2015 as part of an exit scam orchestrated by the owners. It was reported that $12 million was stolen from their customers.[19]




In 2014, a ransomware targeting windows OS computers was released. Cryptowall was a trojan virus that would encrypt the victim’s files and demand a payment from the victim within a set amount of time, after which it would exponentially increase the ransom. If no payments were made it would automatically delete all the encrypted files after a set amount of time. If the victim paid the ransom, the virus would unencrypt the files and auto self-delete. The only currency accepted by Cryptowall was bitcoins and it was estimated since the introduction of Cryptowall in 2014, over $325 million USD was extorted from it’s victims.

DDOS attacks

Businesses are common targets for DDOS (distributed denial of service) attacks from coercers where entire exchanges, websites, and databases were hit with DDOS attacks until the coercers were paid off in cryptocurrency. The DDOS attacks resulted in the victim businesses losing customer traffic as well as trust in the company by their partners and customers. Akamai Technologies, a cloud services provider based in the United States was hit with one such attack in their report from October 2015. Unfortunately, many companies comply with the extortion to avoid further losses from the attacks.

51% attack

A flaw within most cryptocurrency ledgers is that they operate on the philosophy that the majority of the miners on the network operate honestly when updating the cryptocurrency ledger. Thus the accepted ledger is the one that the majority of the network approves of, however if someone was able to control 51% of the network they could essentially control every aspect of the network. Anywhere from creating false transactions to shutting down the cryptocurrency network.[20] The 51% attack is difficult to pull off on mainstream cryptocurrencies such as Bitcoin and Litecoin, however it can be easily pulled off on smaller, newer cryptocurrencies as the number of miners are significantly less.

Adoption of Cryptocurrency

Adoption of Cryptocurrency

Currently, cryptocurrency is in the innovators stage of the technology adoption life cycle. Based on a US consumers survey conducted in June 2014, three-quarters of US consumers are unfamiliar with Bitcoin. Only 2 % of the 4000 consumers surveyed were already using bitcoins, 3% said were waiting to use, 24% have heard of the term bitcoin and understand what it is, 34% had heard of the term bitcoin but don't know what it is, 39% never heard of bitcoin. So cryptocurrency is generally a really new concept in the society. [21]

Business Applications of Cryptocurrency

Changes in Online Payment System

eBay moves towards cryptocurrency

Right after the split of eBay the Paypal, and rumours have been rife for a long time that the company was looking to involve itself in the cryptocurrency industry. The E-commerce giant eBay has recently files two patent applications, both related to cryptocurrencies. One patent focuses on creating a distributed cryptocurrency unauthorized transfer monitoring system, the other is for a distributed cryptocurrency reputation system. What these ultimately mean regarding the auction giants use of digital currency is not immediately clear, but the use of the technology within their system, used by millions around the world, could be a major change in online payment systems. Though just from the patents, its hard to predict what level of involvement will be forthcoming from eBay, the mere fact is that a huge organization such as eBay is seeing potential in the technology is good news for the industry. [22]

Unipay and Snapcard launch CC

Snapcard and UniPAY launch new cryptocurrency

American company Snapcard and Georgian e-pay service UniPAY announced this week they are offering a new cryptocurrency account to serve Georgian businesses. The UniPAY account enables users to send and receive Bitcoin, Litecoin, Dogecoin, and convert between local currency and digital currency. UniPAY will also be offering Bitcoin as a payment method for retail and online merchants. The transactions will happen at a fraction of the cost of traditional bank fees. It’s very cost-efficient for the end consumer. The service will also be a boon to visitors to Georgia who can’t or don’t want to use their international cards. The Bitcoin option will help break down those frictions and barriers, noting it’s easy to register for a UniPAY account and load it with funds online or at a supporting outlet. [23]

Bitcoin ATMs launch on SFU campus

Bitcoin ATMs on SFU campus

SFU students nowadays have an extra payment method when purchasing books at bookstore. In May 2015, Bitcoin ATMs are launching on SFU's Burnaby, Surrey and Vancouver campus' bookstore. According to the president of SFU Bitcoin club, Mike Yeung, this is the first time he knows of a Canadian university partnering up with an AVM supplier to get the machines installed on campus. The outlets on the ATMs have been equipped with iPad with iPads that can accept the virtual currency. Students are able to purchase Bitcoin from the machines. Yeung is still working with SFU to expand the Bitcoin ecosystem, which include making food and coffee purchases in the near future. [24]

Club attempts to expand use of bitcoins on campus

McGill Cryptocurrency Club (MCC) initiated a “bitcoin airdrop,” handing out paper envelopes with vouchers for bitcoin, a form of digital currency, to be redeemed within three months. Over $1,000 in bitcoin has been given away to McGill students to date, with around a 50 per cent claim rate. “The airdrops are basically meant as a way to seed some bitcoin into the McGill community, so that when we do have some stores accepting bitcoin, people already have something to spend.” Currently, the MCC is pushing for McGill to accept payments in bitcoin for everything from meal plans to student fees. MCC members highlighted the convenience of bitcoin for international students in particular. Parents can send their kid bitcoin, or can send the school bitcoin, and it would totally limit the fees.[25]

Changes in Traditional Financial Services Industry

BNP Paribas testing crypto on its currency funds

France's biggest bank BNP Paribas is looking at ways bitcoin could be incorporated into one its currency funds. The source at BNP Paribas told IBTimes UK the bank has been doing "beta testing" involving cryptocurrency and one of the bank's currency funds in Paris. [26]

Citigroup Is Testing Its Own Bitcoin: 'Citicoin'

Citigroup, the New York City-based global banking giant is developing its own version of Bitcoin. Predictably branded ‘Citicoin,’ which is still in the early testing phase. The ‘citicoin’ is based off of Bitcoin and its core blockchain ledger technology. So far, the focus of Citigroup’s digital currency system has been on cross-border payments, with trade likely up next. This approach will allow for less complicated and less costly cross-border payments and other transactions.[27]


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  4. Technology [Accessed: Nov 10, 2015]
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  17. U.S. Marshals Will Hold the Final Auction of the Silk Road Bitcoin This Week [Accessed: Nov 12, 2015]
  18. Evolution Marketplace [Accessed: Nov 12, 2015]
  19. The Beginning and End of the Evolution Market [Accessed: Nov 12, 2015]
  20. 51% attack[Accessed: Nov 12, 2015]
  21. Yingjie Zhao. Cryptocurrency Brings New Battles into the Currency Market [Accessed: Nov 2, 2015]
  22. ebay moves towards cryptocurrency [Accessed: Nov 2, 2015]
  23. Snapcard and UniPAY launch new cryptocurrency [Accessed: Nov 2, 2015]
  24. SFU bookstores bid for Bitcoin buyers as virtual currency ATMs launch on campus [Accessed: Dec 2, 2015]
  25. Club attempts to expand use of bitcoins on campus [Accessed: Nov 2, 2015]
  26. Ian Allison. The French bitcoin revolution: BNP Paribas testing crypto on its currency funds.[Accessed: Nov 2, 2015]
  27. Kim Lachance Shandrow. Citigroup Is Testing Its Own Bitcoin: 'Citicoin'.[Accessed: Nov 2, 2015]
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