Bitcoin
Introduction
Bitcoin is a cryptocurrency and worldwide payment system.It is the first decentralized[a] digital currency. Its conception is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. Research produced by the University of Cambridge estimates that in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
Literature Review
The Concept of Bitcoin
Bitcoin is a digital currency designed for the recent market scenario. The currency was created in the year 2009. The idea set out behind the creation of the coin is to use the white paper by one of the mysterious individual Satoshi Nakamoto, whose identity has not yet been recognized (Nakamloto 2013). The idea of the named of Bitcoin is that a paper is termed as bit and the currency as the coin. The concept behind the creation of Bitcoin is the easy transfer of the money without paying a large amount of transaction fees. In the view point of Ron and Shamir (2013), the traditional online payment charges some amount of transaction amount that is to be paid to the bank or other financial organization related to the transaction. As pointed out by Jarecki et al. (2016), it must be a clear concept that there is no physical evidence of the Bitcoin. It is shown only as balance in the account of the user of the Bitcoin profile. The balance is maintained keeping all the accounting in mind such as the ledger or the balance sheet. At the time of transaction, a kind of verification is done as to undertake that the transaction of the money has been done without any kind of trouble or mishandling. The coin was available in various denominations as swell such as millibitcoin and microbitcoin. There have been more that 21 millions of bitcoins issued till 2016 (McCallum 2014).
Role of bitcoin
The Bitcoin operates in the manner as the ATM that includes a string of numbers or letters attached in a particular fashion. A pin is often offered to the user of the Bitcoin account for carrying out any kind of monetary transaction with any person throughout the world (Androulaki et al. 2013). However, in the year 2014, IRS declared that all digital currencies are to be charged with certain amount of transaction charges. Any gain or loss suffered in the Bitcoin will b considered as the gain or loss of the country as a whole. Thus, the transaction is to be included in the GDP of the country. This created an alarm among the users of the digital money system. The miners were the main users of this currency. These miners thought of getting a decentralized authority of the money without any intervention of the government (barber et al. 2012). For the same reason, a new Bitcoin system has been approach. The amount was fixed to the miners but periodically it has been seen that the value of this digital money was declining day by day. There was provision of blocking the payment to the person by the means of options available in the app itself.
The currency was recognised as the future currency because the transaction was very easy. One has to install an app in their smart phone and the account was automatically created following a limit steps of instructions. Thus, lending and borrowing or in fact making payment has become very easy for the users. As from the view point of Decketr and Wattenhofer (2013), this electronic transfer of money would increase the transparency of the economic condition and the transfer of money taking place. This would reduce the rate of corruption and the ill practices that became very relevant in the society. However, the same concept was not very true and in fact arguments were made by Miller et al. (2014), that the concept of Bitcoin is increasing the chances of creation of more black money in the global market. One of the main advantages that were considered that the whole transaction could be easily recognized by the means of digital transaction became one major reason to worry about the monetary balance of the GDP of the country.
The miners using the currency find it very useful because it does not require any kind of specialized form to make it a currency. This could even save energy that are required for the production of the currency used in the market in the recent scenario. The minders were using efficient processors to keep a check of the things related to the transaction of the money through bitcoin. The easy handling of money and the online transaction could be considered as the strengths of the currency (Velde 2013). However, the fear of creation of the corrupt world and the malpractices arising due to the same the major weaknesses of this new digitalized currency. Like any other money, bitcoin also shows ups and downs in its value of share. It was based on the perception of the buyers and the sellers that the rate of the currency was fixed. No centralized banks would make any approaches towards the acceptance of the money (Yermack 2013). In fact there have been situations when the rise and fall of the value of the currency has been evident. All these situations created a situation of dilemma among the users of the currency.
Overview of the study and Data Description
The study includes the analysis of bitcoin market prices and variations of prices on day to day basis and yearly basis.Our goal is to analsize the price variations and understand the reasons for the changes in the prices.The First Bitcoin transaction was made on may22 2010 for buying 2 pizzas. The price of the first bitcoin was 0.008$ which is equal to 4.8 (Inr). Now the value of bitcoin is equal to 11253.49 dollars which is equal to 708970.40 (INR).The Study helps in analyzing the rise in the value of bitcoin from the year 2013 to 2018.They are also many other crypto currencies in the market which are on the verge of rising up.This Study may help us in analyzing and investing in crypto currenicies .
Hypothesis : The value of bitcoin has increased linearly from the year 2013-2018
Data Description
The Data of daily value of the bitcoin is gathered from www.kagle.com . The data consists of 1746 rows and 8 variables.The important variables are the opening ,closing , high and low values of the bitcoin of a particular day. There is data of 4 years and 8 months. There is a variable called the market value which displays the overall sale of the bitcoin on a particular day. All this data and generation of plots will help in identifying the increased range of value of bitcoin price from the year 2013 to 2018.
In order to test the Hypothessis market = opening + close + high * volume+ e
Read The Data
bit1.df <- read.csv(paste0("bitcoin.csv")) oc <- lm(formula = bit1.df$market ~ bit1.df$close+ bit1.df$open + bit1.df$high )
summary(oc)##
## Call:
## lm(formula = bit1.df$market ~ bit1.df$close + bit1.df$open +
## bit1.df$high)
##
## Residuals:
## Min 1Q Median 3Q Max
## -4.377e+09 -1.169e+08 3.912e+08 4.839e+08 1.656e+09
##
## Coefficients:
## Estimate Std. Error t value Pr(>|t|)
## (Intercept) -1.107e+09 2.259e+07 -49.018 <2e-16 ***
## bit1.df$close 3.837e+04 1.741e+05 0.220 0.826
## bit1.df$open 1.697e+07 1.468e+05 115.586 <2e-16 ***
## bit1.df$high -1.716e+05 2.547e+05 -0.674 0.501
## ---
## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
##
## Residual standard error: 832700000 on 1741 degrees of freedom
## Multiple R-squared: 0.9997, Adjusted R-squared: 0.9997
## F-statistic: 1.963e+06 on 3 and 1741 DF, p-value: < 2.2e-16We established the market value of the bitcoin. Helping us to regress the probable value of the market price of the bitcoin of the further days.
Result
We have observed that value of bitcoin has increased linearly from the year 2013-2018.
Refrences
Androulaki, E., Karame, G.O., Roeschlin, M., Scherer, T. and Capkun, S., 2013. Evaluating user privacy in bitcoin. In Financial Cryptography and Data Security (pp. 34-51). Springer Berlin Heidelberg.
Barber, S., Boyen, X., Shi, E. and Uzun, E., 2012. Bitter to better-how to make bitcoin a better currency. In Financial cryptography and data security (pp. 399-414). Springer Berlin Heidelberg.
Beck, U., 2015. What is globalization. John Wiley & Sons.
Decker, C. and Wattenhofer, R., 2013, September. Information propagation in the bitcoin network. In Peer-to-Peer Computing (P2P), 2013 IEEE Thirteenth International Conference on (pp. 1-10). IEEE.
Fujita, M. and Thisse, J.F., 2013. Economics of agglomeration: cities, industrial location, and globalization. Cambridge university press.
Garman, C., Green, M., Miers, I. and Rubin, A., 2013. Zerocoin: anonymous distributed e-Cash from Bitcoin. In IEEE Symposium on Security and Privacy (Oakland).
Grinberg, R., 2012. Bitcoin: an innovative alternative digital currency.Hastings Sci. & Tech. LJ, 4, p.159.
Hirst, P., Thompson, G. and Bromley, S., 2015. Globalization in question. John Wiley & Sons.
Jarecki, S., Kiayias, A., Krawczyk, H. and Xu, J., 2016, March. Highly-Efficient and Composable Password-Protected Secret Sharing (Or: How to Protect Your Bitcoin Wallet Online). In 2016 IEEE European Symposium on Security and Privacy (EuroS&P) (pp. 276-291). IEEE.
Kristoufek, L., 2013. BitCoin meets Google Trends and Wikipedia: Quantifying the relationship between phenomena of the Internet era.Scientific reports, 3.
McCallum, B.T., 2014. Bitcoin Issues.
Miers, I., Garman, C., Green, M. and Rubin, A.D., 2013, May. Zerocoin: Anonymous distributed e-cash from bitcoin. In Security and Privacy (SP), 2013 IEEE Symposium on (pp. 397-411). IEEE.
Miller, A., Juels, A., Shi, E., Parno, B. and Katz, J., 2014. Permacoin: Repurposing bitcoin work for data preservation," online full version:
Nakamoto, S., 2013. Bitcoin: A peer-to peer electronic payment system.
Reid, F. and Harrigan, M., 2013. An analysis of anonymity in the bitcoin system (pp. 197-223). Springer New York.
Ron, D. and Shamir, A., 2013. Quantitative analysis of the full bitcoin transaction graph. In Financial Cryptography and Data Security (pp. 6-24). Springer Berlin Heidelberg.
Velde, F., 2013. Bitcoin: A primer.
Yermack, D., 2013. Is Bitcoin a real currency? An economic appraisal(No. w19747). National Bureau of Economic Research.
Descriptive Statistics
#The length and breadth of my data set
length(bit1.df)## [1] 14nrow(bit1.df)## [1] 1745library(psych)
describe(bit1.df)## vars n mean sd median trimmed
## slug* 1 1745 1.000000e+00 0.000000e+00 1.00000e+00 1.000000e+00
## symbol* 2 1745 1.000000e+00 0.000000e+00 1.00000e+00 1.000000e+00
## name* 3 1745 1.000000e+00 0.000000e+00 1.00000e+00 1.000000e+00
## date* 4 1745 8.730000e+02 5.038800e+02 8.73000e+02 8.730000e+02
## year 5 1745 2.015200e+03 1.400000e+00 2.01500e+03 2.015220e+03
## ranknow 6 1745 1.000000e+00 0.000000e+00 1.00000e+00 1.000000e+00
## open 7 1745 1.414090e+03 2.874570e+03 4.77760e+02 6.689700e+02
## high 8 1745 1.467030e+03 3.010140e+03 4.89830e+02 6.873700e+02
## low 9 1745 1.354990e+03 2.704370e+03 4.65130e+02 6.517600e+02
## close 10 1745 1.417810e+03 2.877000e+03 4.77760e+02 6.713000e+02
## volume 11 1745 7.939406e+08 2.715462e+09 4.24848e+07 1.443682e+08
## market 12 1745 2.269625e+10 4.839016e+10 6.81308e+09 1.008689e+10
## close_ratio 13 1744 5.500000e-01 3.000000e-01 5.70000e-01 5.500000e-01
## spread 14 1745 1.120400e+02 3.560700e+02 1.43500e+01 3.189000e+01
## mad min max range skew
## slug* 0.000000e+00 1.00000e+00 1.00000e+00 0.000000e+00 NaN
## symbol* 0.000000e+00 1.00000e+00 1.00000e+00 0.000000e+00 NaN
## name* 0.000000e+00 1.00000e+00 1.00000e+00 0.000000e+00 NaN
## date* 6.464100e+02 1.00000e+00 1.74500e+03 1.744000e+03 0.00
## year 1.480000e+00 2.01300e+03 2.01800e+03 5.000000e+00 -0.03
## ranknow 0.000000e+00 1.00000e+00 1.00000e+00 0.000000e+00 NaN
## open 3.479500e+02 6.85000e+01 1.94758e+04 1.940730e+04 3.77
## high 3.615600e+02 7.45600e+01 2.00890e+04 2.001444e+04 3.78
## low 3.357200e+02 6.55300e+01 1.89741e+04 1.890857e+04 3.72
## close 3.478800e+02 6.84300e+01 1.94974e+04 1.942897e+04 3.76
## volume 4.835831e+07 0.00000e+00 2.38409e+10 2.384090e+10 4.99
## market 5.054510e+09 7.79255e+08 3.26000e+11 3.252207e+11 3.77
## close_ratio 3.800000e-01 0.00000e+00 1.00000e+00 1.000000e+00 -0.15
## spread 1.494000e+01 0.00000e+00 4.11040e+03 4.110400e+03 6.07
## kurtosis se
## slug* NaN 0.000000e+00
## symbol* NaN 0.000000e+00
## name* NaN 0.000000e+00
## date* -1.20 1.206000e+01
## year -1.12 3.000000e-02
## ranknow NaN 0.000000e+00
## open 14.87 6.881000e+01
## high 14.90 7.206000e+01
## low 14.52 6.474000e+01
## close 14.79 6.887000e+01
## volume 26.85 6.500490e+07
## market 14.86 1.158402e+09
## close_ratio -1.22 1.000000e-02
## spread 45.29 8.520000e+00# The Maximum and Minimum price of bitcoin in the market
min(bit1.df$open) #min## [1] 68.5max(bit1.df$open) #max## [1] 19475.8#The Average price of the bitcoin on a yearly basis
by(bit1.df$open,bit1.df$year,mean)## bit1.df$year: 2013
## [1] 255.1479
## --------------------------------------------------------
## bit1.df$year: 2014
## [1] 528.4047
## --------------------------------------------------------
## bit1.df$year: 2015
## [1] 272.1491
## --------------------------------------------------------
## bit1.df$year: 2016
## [1] 567.1412
## --------------------------------------------------------
## bit1.df$year: 2017
## [1] 3970.645
## --------------------------------------------------------
## bit1.df$year: 2018
## [1] 12645.9#The Average market sale of bitcoin on yearly basis
aggregate(bit1.df$market,by = list(year = bit1.df$year),mean)## year x
## 1 2013 3031221012
## 2 2014 6795850521
## 3 2015 3916406000
## 4 2016 8906762541
## 5 2017 65847572329
## 6 2018 212472222222# The Visulaisation of bitcoin market opening price to the investors
boxplot(bit1.df$open ~ bit1.df$year,main ="year",col = c("yellow"),horizontal = TRUE)
#The plot of the complete market value of the Bitcoin
plot(bit1.df$year ~ bit1.df$market,horizontal= TRUE,xlab = "market value",ylab = "year",col= c("red","blue","green","yellow"))## Warning in plot.window(...): "horizontal" is not a graphical parameter## Warning in plot.xy(xy, type, ...): "horizontal" is not a graphical
## parameter## Warning in axis(side = side, at = at, labels = labels, ...): "horizontal"
## is not a graphical parameter
## Warning in axis(side = side, at = at, labels = labels, ...): "horizontal"
## is not a graphical parameter## Warning in box(...): "horizontal" is not a graphical parameter## Warning in title(...): "horizontal" is not a graphical parameter
library(psych)
library(car)##
## Attaching package: 'car'## The following object is masked from 'package:psych':
##
## logit# The linear progression of opening bit coin value to closing value
scatterplot(open ~ close ,data = bit1.df)
#The Relation of opening closing and maximum value of bitcoin prices
pairs(formula = ~ open + high + close,cex =0.6,data = bit1.df)
#The Market value of bitcoin progression
scatterplot(year ~ market ,data = bit1.df)
#The Scatterplot of opening bitcoin price on yearly basis
scatterplot(year ~ open ,data = bit1.df)
library(corrplot)## corrplot 0.84 loadedlibrary(corrgram)
#The strong Correlation of the bitcoin price variables
corrplot(corr = cor(bit1.df[,c(7,10,7:10)],method = "kendal"))
#correlation of the bitcoin variables
cor(bit1.df[c(7:12)], method = "pearson")## open high low close volume market
## open 1.0000000 0.9986987 0.9975328 0.9969502 0.9436774 0.9998521
## high 0.9986987 1.0000000 0.9979553 0.9990764 0.9457226 0.9985310
## low 0.9975328 0.9979553 1.0000000 0.9986194 0.9315751 0.9973774
## close 0.9969502 0.9990764 0.9986194 1.0000000 0.9395962 0.9967801
## volume 0.9436774 0.9457226 0.9315751 0.9395962 1.0000000 0.9443613
## market 0.9998521 0.9985310 0.9973774 0.9967801 0.9443613 1.0000000