Societal Impact Analysis of Bitcoin

This is a paper I wrote for my college ethics course in 2016. Please enjoy this very old, very simple explanation of bitcoin. My thoughts about using the technology have changed a lot over they years, and if you want to know my current feelings, check out my newest youtube video at youtube.com/almeezyuh

Societal Impact Analysis–Bitcoin

Abstract

This paper will attempt to predict the societal impact of the bitcoin currency.To follow the current convention of notation in this paper, when referring the software that is used to create the currency, the term Bitcoin will be used. To refer to the actual currency, the term bitcoin will be used.It is estimated that at most 1.2 million people in the world are currently using Bitcoin. While this number is very small in comparison with the population of the world, bitcoin is still a young technology, and there are many improvements that can and will be made in order to make it more accessible. The ethics behind the currency is often questioned due to users taking advantage of the unique feature that makes it nearly impossible to track who make transactions by selling and buying illegal goods. Another ethical impact that will discussed here is the chance that some people may get left behind if bitcoin was to become a major currency. Many developing countries are just getting introduced to simple technology, and moving to bitcoin as a main form of currency has the possibility to set them back even further in the digital age. IntroductionBitcoin is one of the few and the most popular digital currency available today. It allows people all around the world to pay for goods and services without having to convert currency’s. Users can even “mine” for bitcoin! The technology has been declared dead over 20 times in the last 8 years, but it continues to grow stronger and attract more users every day. Created by Satoshi Nakamoto, it’s become much more useful than anyone could have ever imagined.

Description of the Technology

bitcoin are a form of virtual currency, and Bitcoin is the online financial network where you can use this currency. People are able to send money internationally without going through companies like Western Union that charge hefty fees. With Bitcoin, you can make most transactions for little to no cost at all. Bitcoin is not owned or regulated by any government or corporate entity. In order to process transactions, the computers that are in the network use a peer to peer structure and “link” each other together.

In order to keep up with their money, bitcoin users store their money either online in a cloud based system in a “wallet”, or on personal hard drives. These wallets have unique identification numbers associated with them. When a bitcoin user makes a payment online the only information stored is their wallet ID number. This makes it very easy to stay anonymous and protect your personal information, and almost impossible to track who has actually made a transaction.[2]

Users can buy bitcoin using the currency of their country from websites like Mt.Gox, or they can compete (better known as“mine”) for bitcoin by solving complex algorithms. Users are rewarded with 25 bitcoin if they are the first to solve the algorithm. [1]

Bitcoin’s Creation

No one has ever actually seen the creator of Bitcoin, but the inventor(or inventors) go by the name Satoshi Nakamoto. While working with their team on the open source software, the creator did not reveal much about their personal life. In the years since it’s conception, many well-known developers have been accused of hiding behind the name, but all have denied that they are Nakamoto.[3] The only things that are known about Nakamoto are that he or she:

1. Mined a large amount of bitcoin before retiring, upwards of 1 million bitcoin
2. Put a lot of time and thought into creating a thorough and reliable software
3. Has retired and moved on to pursue other things.The current lead developer for Bitcoin is Gavin Andressen, who works with the Bitcoin foundation, a well-known organization in the Bitcoin community. [1]

Purpose of the Technology

Bitcoin is a decentralized currency. When created, it was intended to be a digital currency. It was made in order to decrease the use of a middle man. Often times it costs nothing for a business to make a transaction. Instead of going to the local Western Union or wiring money through a bank, having to pay a number of fees, and give the company all of your personal information, all you have to do is log in to your computer and send the money directly to the recipient’s wallet. Bitcoin was meant to make the transfer of money more simple and increase customer confidentiality.

An example of where using bitcoin proves useful is in the case of actress Julie Huong. She paid to upgrade her IMDb account using a personal credit card. IMDb used the credit card information to find her real name and birthdate, and published that on her IMDb page instead of her Hollywood age. This resulted in outrage and her suing the company. Had she used bitcoin to pay for the subscription, she would not have had to risk her personal information being revealed. [4]

Stakeholders of Bitcoin

The direct stakeholders of Bitcoin include Gavin Andresson, current lead developer of Bitcoin, and his team of developers. They work to improve the software daily, release new versions, and ensure that the platform stays safe and secure. While these stakeholders put a lot of time and effort into the code, it seems that the indirect stakeholders have the most to lose. Those who use bitcoin to make payment and those who have made businesses through wallet and exchange sites seem to have the biggest fiscal investment in the software and currency. The value of bitcoin changes with demand. When the demand for bitcoin increases or decreases, so does its value. This gives way for the bitcoin to become worthless, but this is a risk that comes with any currency. [5]

Benefits and Drawbacks of Bitcoin

A benefit that positively impacts society it bitcoins potential to become an international currency. Due to its anonymous quality, it’s not completely obvious or easy to tell how many individuals use bitcoin, bit as of January 2016 there have been about 200 thousand Bitcoin transactions per day [6], and it is steadily increasing. Another great benefit to bitcoin is that people are totally in control of their own money. No government can regulate how it is used or tax it.Other benefits include the technology not
3being trackable, all charges and transactions are final, and most importantly, bitcoin cannot be stolen.[7]

Some drawbacks include that there is a finite amount of bitcoin that will ever be distributed, as planned by the creator. By 2040, all 21 million bitcoin will be in circulation. Other drawbacks include that the currency is not currently accessible or understandable to everyone, it’s value changes with demand, it is not yet a widely accepted currency, and bitcoin are often used to pay for illegal activity.[8]

Position

From these listed benefits, the two that will have the greatest impact on our society are the low transaction fees and the privacy that comes with using bitcoin. BecauseBitcoin transactions are authorized through all users in the block chain, there is no initial cost per transaction. No one person benefits from having to process the transactions. The only time that fees are added for the transactions is when buyers or seller add the fee in themselves, or people use a service to carry out the process for them. When there is a transaction fee, typically the higher that it is, the quicker the transaction is processed.[9]

Since bitcoin is decentralized, everyone is in control of their own money. Users can control how much personal information accompanies the transaction, when or if the seller is able to increase the cost of an item after purchase, and your bitcoin address changes with every transaction, so it’s nearly impossible for your bitcoin to get stolen. The security of bitcoin is impeccable for a virtual currency. It was set up to be that way, and because of this there have been few incidents of theft. [10]

Of the drawback to Bitcoin listed, understandability and fluctuating value seem to be the most significant. Bitcoin is a fairly new technology. It has only been around for eight years. There are millions of people who have never even heard of the currency. Of those who have heard of it, many do not understand how it works, it’s true purpose, or why it should be considered over other forms of payment. Because Bitcoin is so new, it seems extremely complex to many people. It will take some time for these who are now technologically savvy to become accustomed with it.

The constant changing value of bitcoin is often seen as a disadvantage of the software. The value of the of the bitcoin changes as the demand for bitcoin changes. As demand decreases, the value of bitcoin decreases. This makes many potential users cautious to use bitcoin, in fear that they will lose all their money. This also makes some current users slow to spend their bitcoin, in hopes that one day value will increase dramatically and they can cash out for large amounts of money. Because of these disadvantages and others, bitcoin is still not widely accepted. [8]

Applied Ethical Theory

The ethics of using bitcoin can be examined by applying a Utilitarian approach. Every day, bitcoin are used to pay for illegal goods. However, bitcoin are also used to make sending money to family and friends more simple and safe. If we evaluate the use of bitcoin using the principle of utility, it can be determined that the use of bitcoin causes much more pleasure than pain to the overall population, ultimately making the use of the service ethical. Those who use the service are happy because they know that their money is safe and well spent. Those who get paid through the service are happy because they know that they will receive the money that they need to provide for themselves in a timely manner, without added fees.

To be even more specific, using rule-utilitarianism is the best approach for evaluating the ethics of Bitcoin. In rule utilitarianism, a person should make their decisions with regards to the rules This in itself will create a greater sense of utility. [11]

Drugs and black market items are currently illegal to own, sell, or buy. However, the US dollar is used the most to purchase these items. If bitcoin users operate using rule utilitarianism, they should follow the rules and not use the technology for the sell or purchase of illegal goods. This will increase the utility of the Bitcoin community and prove that the use of the software is ethical.

Future Development

After the application of rule utilitarianism, it can be determined that it is ethical and profitable to continue the development of Bitcoin. The creators of bitcoin have gone to great lengths in order to make a technology that makes people’s lives easier while also keeping the ACM code of professional ethics in mind. Bitcoin not only protects the privacy of its users, it also ensures that any third party entity that accepts bitcoin honors this confidentially. [12] When the Bitcoin software was first created, it was extremely reliable, more reliable than any new technology had ever been. There still is no way to duplicate bitcoin, it’s still nearly impossible to steal them, and as long as users are very careful with their information, none of their personal information is stolen.

Counter Arguments

A group from Stanford University argues that because of the amount of bitcoin that is used to fund illegal activity, the socioeconomic divide that Bitcoin could possibly cause, and the understandability of the software overall is means to stop development. Their grounds have some sound reasoning behind them, but as evaluated through rule utilitarianism, it seems as Bitcoin develops and improves, these issues will be eradicated. [13]

In order to discourage the use of bitcoin for illegal activities, some type of regulation would have to be put in place. The transactions would have to be monitored and there might even come a time when profiles of users would need to be created. This would take away from the anonymous trait of Bitcoin. Everyday well established regulated currencies are used for trade in illegal activities. This gives proof that people who want to participate in illegal activities are going to do so. Some also argue that bitcoin is an enabler in in the black market. This argument does not hold because cash can be used to accomplish the same affect, just not as fast. As for the socioeconomic divide that Bitcoin could possible cause, that gap already exists in and between countries. In the United states, the average number of computers per household is three.[14] In developing countries, they are still working on systems to transport water into villages and purify it. These countries are gaining access to more technology every day, and soon will be caught up with the rest of the world. At this point, Bitcoin will have evolved into an easy to use service that does not require and technical background. At this point, the socioeconomic divide due to Bitcoin will be eliminated.

Lastly, as Bitcoin becomes more popular and widely accepted, the software will become more user friendly more simple methods of teaching people how to use it will emerge. As developers continue to improve bitcoin, it will become more recognized in the economy of the world, and potential users will be more intrigued to learn about and use it.

Conclusion

Overall, Bitcoin is a very new technology that has the potential to change the world. With its low transaction fees and high security, it is sure to become the first choice of many shoppers when it becomes mainstream. The benefits of Bitcoin currently outweigh the drawbacks. Since bitcoin is so new and not so easy to track, it’s hard to tell if it’s gaining a lot of traction with the general public. What we know is that more major retailers are beginning to accept bitcoin as a form of payment every day. Bitcoin’s future is promising. The more time that the technology is given to develop and grow, the greater positive impact that it will have on our society.

References

[1]Lee, Timothy B. "12 Questions about Bitcoin You Were Too Embarrassed to Ask." Washington Post. The Washington Post, 19 Nov. 2013. Web. 02 Aug. 2016. https://www.washingtonpost.com/news/the-switch/wp/2013/11/19/12-questions-you-were-too-embarrassed-to-ask-about-bitcoin/.

[2]CNN. "What Is Bitcoin?" CNNMoney. Cable News Network, n.d. Web. 02 Aug. 2016. http://money.cnn.com/infographic/technology/what-is-bitcoin/.

[3]CoinDesk. "Who Is Satoshi Nakamoto? The Creator of Bitcoin Remains Elusive." CoinDesk RSS. CoinDesk, 19 Feb. 2016. Web. 02 Aug. 2016. http://www.coindesk.com/information/who-is-satoshi-nakamoto/.

[4]Lily Rothman. "This Actress Can't Conceal Her Age. Can Anyone?" Entertainment This Actress Cant Conceal Her Age Can Anyone Comments. TIME, 12 Apr. 2013. Web. 02 Aug. 2016.

[5]Bitcoin. "Frequently Asked Questions." FAQ. Bitcoin, 2008. Web. 02 Aug. 2016. https://bitcoin.org/en/faq#what-determines-bitcoins-price.

[6]Michael Jackson. "Bitcoin's Big Challenge in 2016: Reaching 100 Million Users ." CoinDesk RSS. CoinDesk, 01 Jan. 2016. Web. 02 Aug. 2016. http://www.coindesk.com/2016-bitcoin-challenge-100-million-users/.

[7]Onnies, Azmaan, Girancarlo Danile, and Tummise Olayinka. "Advantages." Bitcoin. Stanford University, n.d. Web. 02 Aug. 2016. http://cs.stanford.edu/people/eroberts/cs201/projects/2010-11/DigitalCurrencies/advantages/index.html.

[8]Onnies, Azmaan, Giancarlo Danile, and Tummise Olayinka. "Disadvantages." Bitcoin. Stanford University, n.d. Web. 02 Aug. 2016. http://cs.stanford.edu/people/eroberts/cs201/projects/2010-11/DigitalCurrencies/disadvantages/index.html.

[9]"What Are the Advantages and Disadvantages of Bitcoin?" CoinReport. CoinReport, 01 Feb. 2014. Web. 02 Aug. 2016. https://coinreport.net/coin-101/advantages-and-disadvantages-of-bitcoin/.

[10]Adamowsky, Eric. "Bitcoin: The Pros and Cons for Consumers and Merchants." Bitcoin: The Pros and Cons for Consumers and Merchants. Yahoo Finance, 2 Mar. 2014. Web. 02 Aug. 2016.http://finance.yahoo.com/news/bitcoin-pros-cons-consumers-merchants-140041526.html[11]Harper, Patricia M., and Richard A. Burgess. "Utilitarianism." Excerpts From Engineering Ethics. By Jimmy H. Smith. N.p.: n.p., n.d. 24. Print.

[12]ACM. "ACM Code of Ethics and Professional Conduct." ACM Code of Ethics and Professional Conduct. ACM, n.d. Web. 02 Aug. 2016. https://www.acm.org/about-acm/acm-code-of-ethics-and-professional-conduct.http://entertainment.time.com/2013/04/12/this-actress-cant-conceal-her-age-can-anyone/.

[13]Ortiz, E. "Is Bitcoin Ethical?" Recent Bitcoin Developments. Stanford University, n.d. Web. 02 Aug. 2016. http://stanford.edu/~eaortiz/cs181report/ethics.html.

[14]"What Is the Average Number of Computers per Household?"Reference. N.p., n.d. Web. 03 Aug. 2016. https://www.reference.com/technology/average-number-computers-per-household-75eb5f140829db98.