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In this thesis Bitcoin and the ecosystem surrounding it, has been analyzed. Bitcoin is a new
technology, which has existed for 5 years, and has been in nearly any financial media around the
globe. Bitcoin is interesting because of its properties: near no fees for transactions, anyone without
limitations can get an account and be a part of the global economics and it is an interesting
technological piece of work with many features built in which potentially revolutionize the financial
system according to some of the interviews. At the same time, Bitcoin has been called many ugly
things, and is definitely not a favorite between many economists.
The thesis has looked at Bitcoin from a holistic perspective. The ecosystem has been analyzed using
an exploratory field research study. Bitcoin and its ecosystem has been analyzed using data sources
such as interviews, a discourse analysis, a semantic analysis, open data and using notes from a
Danish Bitcoin conference in November. The interviews and discourse analysis was used to find the
different applications, critiques and use cases of Bitcoin. In total, 17 different topics (applications
and critiques combined) was found, which is being discussed in the report. The semantic analysis
showed the price of Bitcoins is extremely volatile when the media starts writing about Bitcoin,
which leads to what many calls an investment bubble. This also showed there is a hardcore
following of Bitcoins, whom are extremely biased and believers in Bitcoin. The rest of the data
sources simply told the size and story of Bitcoin, and gave several perspectives on the technology.
In the report the difference categories of companies inside the ecosystem has been analyzed. It was
shown that the following categories inside the ecosystem play a significant role: exchanges, mining
guilds, hardware sellers, resellers, ATM machines, ETF/finance, stores, payment processors,
foundations, news sites and wallets. There are two key findings in the report: One finding is how the
Bitcoin ecosystem differs from a normal financial ecosystem. The key difference is a normal
financial ecosystem is built on people and thereby social trust. In Bitcoin the ecosystem relies on
mathematics because of its central algorithm, which is based upon cryptographic. The other key
finding is the ecosystem relies on four variables; regulation, security, acceptance and accessibility.
Regulation is the most important variable, as argued in the report. That means much of the future
of Bitcoin, will be up to the regulators of Bitcoin.

Table of contents
Introduction 1
Background description 1
Problem description 1
Research question and problem formulation 2
Contribution 2
Disposition 3
Ecosystems 4
Definition of an ecosystem 4
The ecosystem on different levels 5
The ecosystem on micro-level 5
Ecosystem and money: what is money 6
Ecosystem for currencies 8
Summary 9
Methodology 11
Research approach 11
Gathering data 12
Project boundary 17
What is Bitcoin 18
Technical structure of Bitcoin 18
Social and economic structure 24
Altcoins 25
Technical weaknesses of Bitcoin 27
How anonymous is Bitcoin? 28
Current regulation of Bitcoin 28
Summary 31
Analysis of Bitcoin 32
Discourse analysis 32
Sentiment analysis 41
Analysis of Bitcoin through open data 43
Challenges and gaps in the Bitcoin ecosystem 48
Earlier ecosystem actors and heists 49
Summary 50
The Bitcoin ecosystem 51

Network analysis: two-sided network 51
Network effects 51
Current status of Bitcoins and overview of the full ecosystem 54
Vertical integrations 68
Ecosystem analysis 68
Summary 75
Discussion and summary 76
Comparison to expectation 79
Summary 79
Future works 81
References 81
Appendix 85
Appendix A - Discourse analysis data 85
Appendix B - Negative tween analysis 90
Appendix C - interview table 91
Appendix D - interview questions 92
Appendix E - conference speakers 93
Appendix F - sentiment analysis 94
Appendix G - average amount of transactions 95

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In this chapter the background of the thesis will be explained, and then followed up by a problem
description. The research question will be covered and discussed, including a perspective about
how this is a contribution. Furthermore, the overall expectations will be covered.
Background description
The 2. November 2008 someone with the pseudonym Satoshi Nakamoto sent the following e-mail
to a cryptography newsletter [Mail-Archive, 2008]:
>> I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third
>> The paper is available at:
>> http://www.bitcoin.org/bitcoin.pdf
Two months later, the third of January, a beta implementation of the Bitcoin concept was released
on the website www.bitcoin.org, and since then Bitcoin network has been running. It has evolved
from an interesting theoretical concept, to what has been called one of the most important and
influential innovations since the Internet. At the same time it has also been called anything from
the biggest modern pyramid scheme, tulip mania 2.0 and a scheme just waiting to close again.
Since the arrival of Bitcoins in 2009, Bitcoin has been through a long process. Bitcoin has gone
from a paper, to an implementation which had a market cap above 13 billion USD in start
December 2013. Since, a growing ecosystem has emerged, with actors in many different layers.
Bitcoin as a technology opens up for innovation. The current financial system has its caveats which
are easy to see on a global level. In some African countries less than 20% of the population has
access to a bank [Gallup, 2010], billions are paid in fees for making financial transactions and the
fastest way to transfer money across borders is not sending them using banks, but travelling there
by yourself with the money in a suitcase! Bitcoin and cryptocurrencies in general, offers an
Problem description
Bitcoin might open for innovation, but as a new technology a lot of problems and challenges arise. A
question worth asking is the following: Is Bitcoin a serious contender for changing anything in the
financial system?
The introduction of Bitcoin was also an introduction to cryptocurrencies, which in general brings
new properties to the concept of currencies and digital cash. Wikipedia defines cryptocurrencies as
A cryptocurrency is a peer-to-peer, decentralized, digital currency whose implementation relies on
the principles of cryptography to validate the transactions and generation of the currency itself
Bitcoin bring something new to the table. It is the first decentralized payment system which solves
the double spending problem. It gives a new paradigm of near free transactions without significant
delays, a safe storage of value and programmable money. However, the whole world is based on an
existing financial system, with roots thousands of years back. The question is how a new system
such as Bitcoin will fit into the equation. PayPal proved a century back that new technologies in the

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financial sector can work, but a main difference is that PayPal is centralized, while Bitcoin is
Bitcoin also creates a question of regulation. As the transactions can be sent anonymously, it is
theoretically possible to fund any person or group around the world, without anyone knowing who
sent the money. That is clearly a problem when considering the international money laundering
laws. Will that cause Bitcoin to bloom or wither?
No matter what, Bitcoin relies on many elements. It does not only rely on regulation or some few
companies working with Bitcoin, it relies on a whole ecosystem which has factors both internally
and externally.
Research question and problem formulation
Bitcoin in itself is indeed very interesting, but I want analyze Bitcoin from a more holistic
perspective. I find the ecosystem surrounding it very exciting, because it tells the real story of
Bitcoin, as the ecosystem defines what Bitcoin can be used for now. Without the ecosystem, there
is no new financial system which Bitcoin might offer.
Therefore, Ive decided the overall research question to be the following:
What is the Bitcoin phenomenon, and how has the ecosystem surrounding Bitcoin evolved?
This is an explorative research question, which will cover both Bitcoin and the ecosystem. Bitcoin
will be analyzed in depth, by analyzing the current state of Bitcoin and its potential. The ecosystem
will be analyzed by looking at all internal and external factors, both historically, currently and by
making a fair assumption about the future.
So far there has been written papers about the mathematical foundation behind Bitcoin, technical
weaknesses, the properties and the stability of Bitcoin. To my knowledge, this is the first thesis
analyzing the Bitcoin ecosystem in depth.
An analysis of the Bitcoin ecosystem tells a story about the current state of Bitcoin. Furthermore, it
tells a story about the journey Bitcoin has to participate in during the next couple of years and even
decades. Bitcoin is a new technology, potentially disruptive in a lot of industries, and therefore is
this thesis an important contribution. My assumption is that in order to understand Bitcoin, one
have to understand the ecosystem, which is why the ecosystem is a key part of the thesis.
The analysis leads to a model of the ecosystem, describing how it has evolved. This is a
contribution, as it explains how the Bitcoin ecosystem is structured and should be treated. It also
gives a useful model for people who want to understand Bitcoin.

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In chapter two the theoretical foundation of ecosystems will be covered. This will cover the frame of
ecosystems in general, and the frame of digital industries. It will also cover the current financial
system and money in general.
In chapter three the methodology of the report will be covered. The exact data sources will be
discussed and summarized. The chapter will also answer how the research question will be
answered, by describing the selected data sources and method.
In chapter four an explanation of Bitcoin will be given. This will cover anything from the basic
question of what is Bitcoin, to the properties of Bitcoin. After the introduction, a short analysis of
the anonymity and weaknesses will also be covered as well. The current regulation will be covered
In chapter five an analysis of Bitcoin will be made. A discourse analysis will be made in order to
categorize what Bitcoins can be used for and find critiques of Bitcoin, a sentiment analysis has
been made in order to make some assumptions about the current state of the ecosystem and at last
an analysis of how big Bitcoin really is at the moment.
In chapter six the ecosystem is covered and analyzed. This is done from covering most of the
interesting players in the Bitcoin space, and then analyzing it from a system theory perspective
using data sources described in the methodology.
In chapter seven a discussion which binds everything together will be made.

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In this chapter theory about ecosystems
will be covered. We will look into
ecosystem theory, and see if there is a
knowledge gap for currencies, and more
specifically digital currencies. In addition,
a model for financial ecosystems will be
made, which will be populated during the
thesis to describe the overall ecosystem.
Definition of an ecosystem
The term ecosystem originally comes from
biology [Tansley, 1935]. The term
ecosystem is relevant, as its seldom
enough to observe the single unit, to gain
knowledge of a phenomenon. Therefore, by
using the term ecosystem in a scientific
domain, we look at a system more broadly.
Moore (1996 p. 26) initially defined the business ecosystem as:
An economic community supported by a foundation of interacting organizations and individuals
the organisms of the business world. The economic community produces goods and services of
value to customers, who are themselves members of the ecosystem. The member organisms also
include suppliers, lead producers, competitors, and other stakeholders. Over time, they coevolve
their capabilities and roles, and tend to align themselves with the directions set by one or more
central companies.
Ecosystems are important, especially when discussing Bitcoin. It is expected to be a coopetitive
environment with companies forming symbiotic relationships, to create value for all parties. It is
likely that if someone in the ecosystem creates value, its mutually beneficially for everyone in the
According to [Shapiro, 1999], the following is true:
The performance of one company is marginally dependent on the individual actor, and mainly on
the performance of the ecosystem.
The global health of the ecosystem reflects any individual success of the company. Looking at the
evolutionary stage of the Business ecosystem, its definitely in its birth face. As described by
Shapiro, the cooperative challenges are Work with customers and suppliers to define the new value
proposition around a seed innovation, which is the exact situation in the Bitcoin ecosystem. As we
will cover in this chapter, the ecosystem is very small and unstable, which shows the current state is
an early birth.
The dynamics of digital industries are characterized by tension between competition and
collaboration among actors [Ghazawneh and Henfridsson 2012; Selander et al. 2010]. That means
that even though the actors are competitors inside the ecosystem, they depend on the ecosystem in

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general. That promotes collaboration with each other and social entities across both the industry
and outside the industry. It is therefore proposed that the organization of digital industries is more
appropriately conceived as digital ecosystems [Basole and Karla 2011].
In digital industries, the use of application programming interfaces (APIs) has become a standard
strategy to increase customer value of an offering by complementarities [Hawkins and Ballon 2007;
Tanriverdi and Lee 2008].
The ecosystem on different levels
An ecosystem can a whole can be seen on three levels: Micro-level, meso-level and macro-level
[Hedman and Henningsson, 2013].
On the micro-level, the business units are seen as individual units that compete. This is the view
used in the daily operations, where competitive companies are seen as competitors.
On the meso-level, the business units are seen as social entities with alliances and strategic
networks. This is the strategic view, which sees partnerships and opportunities in collaborating in
the ecosystem.
On the macro-level, all business units are seen as a whole, and the ecosystem compete with other
When relating this to Bitcoin, it seems clear all three levels have to be used in an analysis. In the
daily operations, the companies compete and try to compete for a bigger market share. As Bitcoin
has a new ecosystem, it is also expected new players enter regularly to become a part of it, which
means the daily operation also have to deal with new players and business models. On the strategic
level, the companies work with partnerships. In order to get a stronger position or get a bigger
market share outside the current ecosystem, partnerships have to be formed. On the macro-level,
there is an ongoing battle with technologies such as PayPal, iZettle, Square and credit cards in
The ecosystem on micro-level
A company's competitive advantage relies on creating more value than its competitors [Porter,
1985; Brandenburger and Stuart, 1996]. However, creating more value requires innovation, and
therefore the value creation of the individual companies depends on its ability to innovate
successfully. However, innovations often require its environment to fit. Ron Adner and Rahul Kapoor
describe an excellent example with the Airbus A380 ecosystem, where both materials for the
airplanes, the airports and education of the crew and many other areas had to innovate as well
[Adner and Kapoor, 2009]. External changes are therefore a requirement as well. External changes,
which require innovation from other actors in the ecosystem, embed the focal firm within an
ecosystem of interdependent innovations [Adner, 2006].
As Bitcoin is a digital industry, and a recent innovation, most innovations in the system could be
expected to require the ecosystem as a whole grows and innovate before it fulfills the whole
potential. As the analysis will show, there are no or few very big international companies in the
Bitcoin ecosystem at the moment. That means that even though vertical integration of key
components in the ecosystem would make sense, both in a contractual and technological sense, it
would seem unrealistic because of the size of the actors. In the long run, that could impact the

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ecosystem with many contractual challenges. As a technology matures, its challenges tend to
decrease. However, its contractual challenges do not disappear over time [Adner and Kapoor,
Ecosystem and money: what is money
It is important to cover the concept of money
and the current financial ecosystem, to be able
to understand Bitcoin. In todays society, it is
very difficult to imagine how the world would
work without money. We rely on the supermarket
to accept our credit card or cash, and our wealth
stays approximately the same year after year.
Despite communists and anarchists, such as
Karl Marx and Friedrich Engels, has argued the
society dont need money, its the de facto
standard. Niall Ferguson writes in his book The
Ascent of money [Ferguson, 2008, p. 18]:
[...] Yet no Communist state - not even North
Korea - has found it practical to dispense with money"
Therefore, all modern societies rely on money in some sort. However, money as a concept relies on a
basic concept which Niall Ferguson describes in the following way:
Money is worth only what someone else is willing to give you for it. An increase in supply will not
make a society richer, though it may enrich the government that monopolizes the production of
Paper notes and digital money isnt backed by any real value like gold previously did. Money is trust
in the next person to accept it.
Money historically
Historically money has developed from a barter system, to the system we know today. In a barter
system, there is no medium of exchange. In a barter system, there has to be a double coincidence
of wants, which is extremely inefficient. By using a medium of exchange, it becomes easier to
store wealth, standardize the value of objects and trade makes trade much easier. Because of that,
a medium of exchange has been introduced in any modern society today.
There has been many mediums of exchange historically, starting from goods like cattle, slowly
progressing into metal. The first coins date back to 600 BC, found in the Temple of Artemis at
Ephesus [Ferguson, 2008, p. 24]. In 221 BC the first standardized bronze coin was introduced by
Qin Shihuangdi in China. The Roman Empire used coins as well, where prices were quoted in terms
of silver denarii.
As the medium of exchange grow more and more common, the mediums grew more advanced.
However, several more concepts arose in the ascent of money: credit, bonds, stocks and hedging.

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Credit and banking
Neil Ferguson writes the following [Ferguson 2008, p. 31]:
Without the foundation of borrowing and lending, the economic history of our world would scarcely
have got off the ground. And without the ever-growing network of relationships between creditors
and debtors, todays global economy would grind to a halt.
Providing someone with a loan with interest is an old concept and date back many thousands years.
Some of the best maintained proofs are the clay tablets from Mesopotamian dating soon five
thousand years [Ferguson, 2008, p. 29-33]. Until the 14
century lenders was often associated
with the term loan sharks, which could involve violence and very high interest rates if a lender failed
to pay. Banks, however, developed from being semi-criminal loan sharks, to more respectable
branches of banks. This happened gradually, and in the end of the 14
century banking became a
legitimate [Ferguson, 2008, p. 40-43].
Bonds, stocks and hedging
Bonds started in the 13th century in north Italy [Ferguson, 2008, p. 66]. Bonds had a huge
influence on the economy, as it made it possible for states to rent money from its own citizens
providing an interest, which could make it a fine investment. Since then the concept has evolved
much, and is a cornerstone of modern finance with more than $18 trillion internationally traded
bonds and $50 trillion domestically traded bonds [Ferguson, 2008, p. 67].
The concept of several investors owning a part of a company or corporation seems to have old trails,
but the first stocks as we know it today started with the United Dutch Chartered East India
Company around the start of the 17th century [Ferguson, 2008, p 128-134]. Since stocks has been
a popular way to fund companies, creating several finance bubbles along its way.
Hedging is a concept used to inject trust. With concepts such as futures, CFDs and others, they
can be used to inject trust for one party, and provide an investment vehicle for others. Some of the
first forms of hedging was future contracts for farmers very early in history [Ferguson, 2008, p.
Financial institutions
The society needs financial services. For instance, in order to maintain a medium of exchange, an
institution has to maintain it. Therefore, several types of financial institutions have arisen in modern
Financial institutions can be categorized into the following three areas [Wright, Robert E.; Quadrini,
Vincenzo, 2009]:
Depositary institutions
Contractual institutions
Investment institutions

The depositary institutions are those who manage peoples economies. These include banks, credit
unions, trust companies and so forth. As it lies in the word depositary, they take a deposit, and
store the value and keep it safe. Another function is providing loans.

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Contractual institutions cover insurance companies, pension funds and similar companies managing
risk. These institutions come down to reducing the overall risk, both unexpected and expected risk.
With insurance companies, users pay a fee for being covered, and if the unlikely event of something
bad happens, the payee is covered. In pension companies, it is the expectation of growing old,
which is being covered by the contractual institution.
Investment institutions exist in order to assist both companies and individuals with investments.
These institutions help both giving advice, performing the investments and supervising the
investments. However, these institutions also cover more macro sized operations, such as the
investments of a bank, pension funds and the government itself.
Financial institutions are very important for a society. As Ferguson writes [Ferguson, 2008, p. 13]:
The first is that poverty is not the result of rapacious financiers exploiting the poor. It has much
more to do with the lack of financial institutions, with the absence of banks, not their presence.
In a society without banks, loan sharks can dominate. That makes it very difficult to take loans,
which has proved to be a necessity for a successful society. The same goes it people doesn't have
access to a bank account, any insurance or other basic financial services: it exploits the poor.
Ecosystem for currencies
There are different categories of currencies. One is the typical modern currency we know from the
dollar or euro, but there is also a category of digital currencies, also called cryptocurrencies such as
Bitcoin. To my knowledge there is a gap of knowledge in the ecosystems of digital currencies.
Michael Koetter and Tigran Poghosyan made a paper about the technology regimes in banking,
which described how banking has become an industry with innovation [Koetter and Poghosyan,
2009]. This paper described how technology in the banking sectors is moving forward. However, for
analyzing the digital financial ecosystems, there is a lack of knowledge. Therefore, the theory
described about ecosystems, will be used to analyze the Bitcoin ecosystem, which can be seen as a
digital currency. This fills a knowledge gap, where there currently is a lack of literature. However, in
order to analyze the Bitcoin ecosystem, the theory covered so far will be used. If we assume a
normal ecosystem, there are external and internal factors impacting the system. At the same time
there are companies and users inside the ecosystem: companies creating services, and users using
these services.
External factors in an ecosystem are all the elements that have an influence on the ecosystem.
There is no subjectivity on these factors, as these factors both can be beneficial and harmful.
External factors can be anything from competitors, regulation, trends or any other factor playing a
role. Internal factors are a bit different, as they are not controlled by the ecosystem themselves.
They are a result of the ecosystem processes, and can both be caused by and result in feedback
loops. Internal factors can be caused by some company performing really well, which could lead to
a positive feedback loop, where that provider for instance could buy from a potential subcontractor
inside the same ecosystem. There can also be negative feedback loops, if for instance an important
company goes bankrupt.
This basic model has been covered in figure 1. The model will be used in the rest of the report,
where the model will be populated with elements discovered when analyzing the ecosystem.

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Figure 1: A classic ecosystem
A financial ecosystem then has to fill the role described in the previous chapter about financial
institutions. In order for Bitcoin to be a financial ecosystem, it needs to have depositary, contractual
and investment institutions. Therefore, the situation is as shown in figure 2:

Figure 2: Financial ecosystems and types of institutions
Therefore, Bitcoin will be compared and see if it fulfills these institutions in the last chapter.
In a new financial ecosystem, the performance of one company is marginally dependent on the
individual actor, and mainly on the performance of the ecosystem. That promotes collaboration
between the entities inside a digital ecosystem. There are three levels in an ecosystem: micro-level,
meso-level and macro-level. These levels will be used in the thesis, as the micro-level can be used

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to understand the individual actors, the meso-level to understand the collaboration between them
and the macro-level to see how the external factors influence.
A financial ecosystem has three important institutions: depositary, contractual and investment
institutions. These are important to understand Bitcoin as a financial ecosystem, as Bitcoin need
these institutions as well.

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The purpose of this chapter is to address the choice of method for data collection and analysis, and
the perspective on the gathering of knowledge. It is a link between the research question and the
findings. There is also an explanation of how the research question will be answered.
Research approach
The research approach is an exploratory field research study. This means the field will be explored
using different data sources. The overall research question is to analyze the Bitcoin ecosystem, and
to do that, it will be analyzed from a systems approach. The approach described in [Marshall, 2003]
will be used. That approach defines eight stages of an analyzing ecosystem which will be used.
The eight stages are:
Define the problem
Done by finding the key issues expressed in the ecosystem, found in the data sources
Identity the Key variables
Done by finding the variables to the problems found in the first step
Describe how the key variables behave over time
Look at historical data about how the variables has behaved previously
Identity casual links between variables
Done by analyzing if there is any correlations between the variables historically and now
Identity the gaps in the systems
Done by analyzing what is holding the variables back from growing
Identifying the leverage points
Done by analyzing what pressure points there are for changing the variables
Determining actions steps
Done by making an educated guess about how the variables are going to change in the future
Test systems model through simulation, prototypes or other methods
Skipped in this analysis

The paper uses the model on a very specific issue. However, in this thesis, it is used on a whole
ecosystem. The only change in the use is that step 8 wont be performed because we are not
focusing on a single issue. The system approach comes in as the ecosystem is analyzed from a
holistic perspective. The whole ecosystem will be seen as a working system, where the individual
players impact each other.
This research approach is very useful for answering the research question because of several
reasons: first it forces me to obtain several data sources in order to define the problem, secondly it
provides a framework for both understand how the Bitcoin ecosystem work, and how it will continue

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to work in the future. Furthermore, it enables me to make some predictions about where the
ecosystem is heading by determining the action steps.
To answer the research question, What is the Bitcoin phenomenon, and how is the ecosystem
around it? using ecosystem theory, the following approach will be used:
Describe what is Bitcoin. This is essential to understand how Bitcoin works, and the properties
around it.
Analyze the current situation of Bitcoin. This is essential to understanding how much Bitcoin has
Find the most significant players in the ecosystem
Analyze of the ecosystem, and populate the ecosystem model described in the ecosystem chapter
Suggest the next action steps for the players in the Bitcoin ecosystem

This will solve the research question, as the Bitcoin phenomenon will be covered in depth both by
describing and analyzing the system, and then by applying theory on the ecosystem. During the
thesis, the ecosystem model described in chapter 2 will be populated in order to understand the
ecosystem and its relationships.
Gathering data
In order to get an understanding of Bitcoin and the ecosystem, several data sources has been used
such as literature review, data analysis and interviews. An overview of the data sources can be seen
in table 1.
Type of data Purpose of data source
Sentiment analysis Understand the Bitcoin community. Full overview in
appendix F.
Discourse analysis Analyze internal and external factors in the ecosystem.
Full source in appendix A and B.
Danish Bitcoin conference Provide inside of the internal and external factors,
combined with understanding possible applications of
Bitcoin. Full overview in appendix E.
Interviews Understand individual actors in the ecosystem. Full
overview in Appendix C.
Open data about Bitcoin Understand the current size of Bitcoin. Example
source in appendix G.
Table 1: Data sources used

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Sentiment analysis
In order to understand the size of the current Bitcoin phenomenon and how the overall sentiment is,
a sentiment analysis has been performed. The sentiment analysis gives an indication of how big the
core following is, because the change in sentiment when the amount of publicity rises is shown. The
sentiment is based on tweets from Twitter with the hashtag Bitcoin. The data goes back to January
2010 to mid-November 2013.
Four separate sources of data for the sentiment analysis have been used:
Sentiment score on tweets: Topsy.com is social monitoring tool, which collects and stores all tweets
from Twitter ever made. When searching for tweets with the hashtag Bitcoin, approximately 2
million tweets have been made since 2010. Topsy categorizes them by date, and adds a sentiment
score. The sentiment score determines whether a tweet was positive, neutral or negative.
Bitcoin USD price: Blockchain.info provides the average Bitcoin price on a daily basis from the
exchange MtGox. The price data dates back to 2009.
Google trend score: Google provides a trend score, which is a score showing how popular a given
search is. The trend score is an exponential value between 0 and 100.
Total amount of tweets. The total amount of tweets ever made about Bitcoin is taken into account.
This number is found by looking at tweets with the hashtag Bitcoin.
The input can be seen as public data combined with calculations made on Topsys algorithms. The
output is an overview of how the sentiment evolves over time, which gives a way to make
estimations about how the core Bitcoin community work and evolve over time.
Discourse analysis
To get an overall idea about what Bitcoin is, a discourse analysis has been used. In the discourse
analysis a wide range of Bitcoin articles has been read and categorized. This is important to get the
broad perspective on the properties of Bitcoin. Instead of making up these assumptions, it is based
on data.
The expected outcome of the discourse analysis was:
An overview of the different applications of Bitcoins
The general expectation and sentiment about Bitcoin
All the critical points about Bitcoin

However, the term Bitcoin alone results in 35 million search results in Google, with approximately
20 million results when specifying Blogs. Because of the huge amount of articles, some tools and
tactics has to be used to find the most important articles, blog posts and opinions.
To get a broad overview of the different articles written about Bitcoin, an analysis of the two
websites BitcoinTalk.org
and Reddit.com/r/Bitcoin
, has been used. BitcoinTalk.org is mostly for

The biggest Bitcoin forum in the world

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hardcore Bitcoin followers. The Bitcoin section on Reddit has a more diverse crowd, as it is a part of
a big social website Reddit. When retrieving all of these data, Ive manually categorized them. If an
article referred to a specific feature or application, they were placed in the same category. By doing
that categorization process, it was possible to get a range of categories as an output of the discourse
On BitcoinTalk there is a Press section. In the press section, links from articles, videos and posts
about Bitcoin are shared. The press section can be filtered by most viewed and most commented.
To find the most relevant articles an assumption was made:
If some news was big or had a lot of influence, it would attract a lot of views
If some news was negative, it would have a lot of discussion, and get a lot of comments
To get a substantial amount of relevant articles, the 400 most viewed articles was put into an Excel
sheet, and the 400 most commented articles as well. Then the duplicates were filtered out, and any
irrelevant topic was removed as well
On Reddit, articles, press releases and discussions are posted. If people like a post, it is up-voted
and it gets more readers. On Reddit there is a Top scoring links during all history which provides
the most influential postings about Bitcoin. Here it was possible to find the top 300 most popular
submissions. These were added in the previously mentioned Excel sheet and then categorized and
The compiled list can be seen at appendix A.
Negative tweets
To get a broader view of especially the negative Bitcoin opinions, a semantic analysis of all negative
tweets from Twitter was made. This was done by using the Topsy. The total negative sentiment can
be seen in figure 3.

Reddit is one of the biggest social news websites in the world, and is one of the biggest Bitcoin
discussion forums in the world
Most articles was filtered out. These articles was such as promotional items or what is Bitcoin

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Figure 3: Negative sentiment about Bitcoin from Topsy
On all the tops (June 2011, July 2011, may 2012, September 2012, January 2013, April 2013,
July 2013, August 2013 and October 2013), a list of all the most shared negative tweets was
retrieved. The top 5 most negative shared links was added to the same Excel document and then
filtered. The data on negative sentiment found using Topsy is attached in appendix B.
Interviews and speakers
Despite being a discourse analysis, some additional non-text-based sources have introduced in the
analysis as well, in order to cover applications about Bitcoin not written about. Therefore a
combination of interviews and speakers from the Bitcoin conference is a part of the analysis as well,
despite not being a discourse.
The input of this is big amount of articles found on the Internet combined with interviews, and the
output is a way to understand the Bitcoin ecosystem. It provides an in depth view of how the actors
inside the ecosystem interfere with each other, and how the external factors interfere with the
Open data about the Bitcoin network
In order to make an analysis about how big Bitcoin is, several open data sources about Bitcoin has
been used:
Transaction volume: Open data from Blockchain.info
Monetary value: Open data from Blockchain.info
Miners hashing power: Open data from Blockchain.info
Amount of downloads of the official Bitcoin-qt client: Open data from SourceForge
The input of these data is simply open data, and the output is a way to show how Bitcoin has
evolved over time.

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Interviews with people playing a significant part of the ecosystem have been conducted. This data
source is used for getting a human perspective about how the companies and organizations in the
ecosystem operate. A full interview table can be seen as appendix C.
All the interviews have been collected in a big table, describing all the interviews. The table
contains the variables actor name, person, position, date, where and keywords. The interviews have
been conducted on a mix of physical interviews, Skype interviews and email interviews which can
be seen in detail in appendix C.
As a general structure for the interviews, the same questions have been used. For some interviews,
the focus has been more specifically on the company side of it, but the general structure is the one
shown in appendix D. The input of these data is simply interviews conducted, and the output is a
way to understand the whole ecosystem.
Bitcoin conference in Copenhagen
As a source to get an understanding of both Bitcoin, and especially the ecosystem around it, the
speakers from the Copenhagen Bitcoin conference has been used as a data source. The 28th of
November 2013 CFIR hosted a Danish Bitcoin conference [CFIR, 2013]. A wide range of speakers
came, which was categorized in the following categories:
What is Bitcoins series with speakers providing an understanding of Bitcoin and its protocol
Financial sector series with speakers from the current financial sector (bank, Danish tax
authorities SKAT)
Bitcoin, people and companies series with a macro level perspective about Bitcoin
An overview of all speakers can be found as appendix E. The output of this conference is a way to
understand the whole ecosystem, both the internal factors and external factors.

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Project boundary
Bitcoin has a lot of properties, which could be both interesting and relevant to cover in depth. This
includes the anonymity, new black market, political changes, smart properties, anonymous
gambling and many others. However, this wont be covered in the thesis. Several sub stories of
Bitcoin will shortly be explored but, the purpose is to understand the different actors in the
ecosystem, and not explaining several different areas in depth.
In the regulatory space, there has been a lot of interesting cases and guidelines. These wont be
covered in depth, as that is a thesis in itself. The only cryptocurrency which will be analyzed is
Bitcoin. None other altcoins will be analyzed in depth.
Notice on actuality
Bitcoin is an area with a lot of development. What is right one day has with a very high probability
changed after one month. This thesis covers data, regulations and companies up till November the
Since writing, price has experienced a big bubble, many countries including China, South Korea
and Denmark has made clearer regulation and new and interesting companies has been founded.
CoinBase received a $25 mio. investment in December, which also was expected from the results in
the report. However, these new changes wont be discussed in the thesis, and it should therefore be
seen as a work from the start of Bitcoin to November 2013.

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What is Bitcoin
In this chapter, the basic concept of money will be covered. After understanding money, the classic
financial ecosystem can be covered shortly. Then Bitcoins will be covered from a technical and
social perspective, and then we will look into many of the different properties and use scenarios of
Bitcoins. A short overview of some of the most popular altcoins will be given as well. At last, the
current regulation will be covered from a holistic perspective, with some of the most important and
clear decisions.
Technical structure of Bitcoin
The whole ecosystem perspective, and analysis of the system, relies on understanding both Bitcoin
from a technical and a social perspective. This helps discussing what companies there is, what
potential they have and how they might evolve during the next years. Furthermore, in order to
provide an educated idea about where Bitcoin is headed in general (with regulation and technology),
we need to understand the whole space of possibilities. The algorithms of how Bitcoin work, is
central to Bitcoin and its ecosystem. Without the algorithms described in this chapter, there is no
Bitcoin or cryptocurrencies in general. If there is a flaw in them, Bitcoin will fail. Therefore, no
matter how the ecosystem is perceived, the algorithms must be a central part of this. Therefore,
algorithms are populated in the center of the model of Bitcoin, as it can be seen in figure 4.

Figure 4: The basic Bitcoin ecosystem model
What is Bitcoins?
Bitcoin is an electronic payment system, which is decentralized and distributed throughout a big
network [Nakamoto, 2008]. Bitcoin is a peer-to-peer network, where anyone with a Bitcoin client
can access the network. When a user is connected to the Bitcoin network, the user is connected to
a set of other users called nodes. This works similar to BitTorrent. When a user is connected to the
network, the user downloads the blockchain, which is an open ledger of all transactions ever made

Anyone with a computer and an Internet connection can download a Bitcoin client

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in the network. The blockchain contains information about every transaction ever made with a
When a user creates a transaction, the transaction is broadcasted to all its peers, which then
broadcast it to all their peers. Not far after the transaction has been broadcasted, the whole network
knows of the transaction. Every ten minute, on average, all transactions are stored into a permanent
block which is appended to the blockchain.
Private and public keys
Bitcoin addresses are based on the cryptographic concept of public and private keys. Public keys
can be shared without any problems. One could see the public key as an alias, with an underlying
user. However, the private key, which always should be kept secret, can then be used to make a
valid digital signature for the public key. A Bitcoin address is a public key, which easily can be
shared to anyone. However, to allow Bitcoin to be spent, transactions have to be signed by a private
key. As any user have their own private key, it is impossible for anyone else to spend the Bitcoin on
a specific address. The private key is created so the public key always can be calculated from it, but
not in reverse. The irreversibility comes from the discrete logarithm problem
. A private key can
therefore be seen as a ticket to allow spending Bitcoins.
The blockchain
The blockchain is a central part of the Bitcoin system. As the blockchain is the public ledger, it is
also the ledger all peers in the network rely on. When a user owns Bitcoins, it is determined by
looking at blockchain. By iterating all transactions made, it is possible to see which addresses that
have access to spend Bitcoins and not. The blockchain contains of blocks. A block contains several
transactions, which is Bitcoins sent from one address to another. A block in itself only has a
reference to the previous and the next block. Therefore, if one start by the first block ever created
on the blockchain
, and traverse the next blocks, they will visit every block in the Bitcoin network.
This is visualized in figure 5:

Figure 5: Visualization of blocks in the blockchain
The blockchain is essentially a decentralized timestamp server. As every transaction is broadcasted
to all nodes, and then added to a block, a timestamp of every transaction is stored.

The public key is generated from the private key multiplied a variable G. The variable G is
calculated by adding hours to an ellipsis formed watch which has to give a specific result
This block is called the genesis block. The hash of this block is hardcoded into the system, in
order to have a starting block. The first reward cannot be spent.

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Distribution of Bitcoins and blocks
The network is designed to have a maximum of 21.000.000 Bitcoins. However, all 21.000.000
Bitcoins wasnt released from the birth of the system, but in a predictable manner. The blocks are
created by computers solving a difficult mathematical question
. Thousands of computers, run by
miners, are competing to solve the mathematical question. The question is increasing and
decreasing in difficulty depending on total hashing power in the system trying to solve it
, so it is
solved approximately every tenth minute. When the question is solved, a new block is created. When
the block is created, a reward is awarded to the miner. The reward was 50 Bitcoins the first four
years Bitcoin was running. However, the reward halves every 4 years, so the distribution of new
Bitcoins follows negative geometric series, with all Bitcoins released in the year 2140. At the
moment of writing, 25 Bitcoins is released when a new block is added to the blockchain.
Bitcoins are divisible down to eight decimals. That means that the smallest unit is 0.00000001,
which is called a Satoshi. As a single Bitcoin in the moment of writing is above 1000$, it is
possible the default unit wont be Bitcoins, but something else such as Satoshis or milli Bitcoins.
Bitcoin transactions
A Bitcoin transaction is basically the following:
A list of Bitcoin addresses, sending a number of Bitcoins, to a list of Bitcoin addresses
What really happens in a transaction is that a user sends or
receives a script. By making the script valid, it is possible to
withdraw Bitcoins. Bitcoin transactions are not necessarily a
single transaction between two addresses. There is
technically no limit to the amount of senders and receivers.
This is interesting, because it provides interesting properties.
For instance, a threshold value can be required, for a
transaction to be sent. As described in [Dourado, 2013]:
"[...] Baked into the Bitcoin protocol, there is support for
what are known as m-of-n or multisignature transactions,
transactions that require some number m out of some higher
number n parties to sign off.
That makes it possible for a third party to supervise a
transaction, which can carry a role of the credit card company which avoids fraud. The only
difference is these services can be offered on a marketplace without counterparty risk. A transaction
is not encrypted in any way, but is pseudonymous. As the senders and receivers are public keys, the
senders and receivers dont make any sense for outside spectators. When submitting transactions to
the network, an optional fee can be added to transactions. This speeds up transactions, which will
be covered in the next section.

This is done by guessing a hashing function by the software, where the difficult of the question
easily can be adjusted by the network
The difficulty adjusts every 2016 block, which gives an adjustment about every second week

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When submitting a transaction it is almost instantly submitted to the whole network. It takes
seconds for a transaction to be recognized by the nodes, but takes longer before the transaction are
confirmed. If a hacker has control of several nodes, a double spending attack can be performed
against a single party. Therefore, if a bigger transaction is made, it is necessary to wait for several
confirmations. The first confirmation means that the transaction is inside a block, and additional
confirmations mean that blocks has been added in prolonging of the block. After 6 confirmations
its said that a transaction is so secure anyone can trust it.
Bitcoin mining and fees
Without miners the Bitcoin network wouldnt work, because transactions wouldnt be cleared.
Therefore, it is very important the miners have an incentive to keep running their mining equipment,
despite the distribution of new Bitcoins fall. When creating a transaction, a user can decide to add
a fee or not. When a miner solves the block question and a new block is created, the miner gets
both the reward and the fees from all the transactions in the block. Henceforth, the overall rewards
to miners will grow proportionally with the monetary value of Bitcoin and amount of transactions. As
fees can be added to a transaction, it makes it interesting for the miners to include the transaction
in a block. The bigger the fee, the faster it happens. If no fee is added, a transaction isnt
guaranteed to become a part of the blockchain.
As a single miner gets all the rewards when mining, mining pools are created. Mining pools is a
collection of several miners getting together mining on the blocks. This improves the chance of
clearing a block, and therefore getting its reward and the fees. Then the payouts are shared with its
participants. Mining pools charge a smaller percentage fee for their service.
Bitcoin clients
As described, in order to run the Bitcoin network, the user has to have downloaded the whole
blockchain and be connected to nodes. This is done using Bitcoin clients. Bitcoin clients have an
implementation of the Bitcoin protocol. The official Bitcoin client is Bitcoin-qt
. Bitcoin-qt
downloads the whole blockchain from its peers, and connects to several other nodes automatically.
However, alternatives to hosting a node have been made. Alternatives such as web wallets create an
intermediary between the Bitcoin network and its clients. When an intermediary is made, the users
dont necessarily represent a node. That lowers the potential amount of nodes, and makes Bitcoin
less decentralized.
BIP 70 - ecommerce add-on
In the Bitcoin system, there is limited support for commerce. However in an upcoming update
called BIP 70, several new features to the Bitcoin protocol are being implemented. This is
interesting because of two reasons:
A) The features are interesting and useful for merchants
B) It shows the Bitcoin protocol can get updates, if the user base finds it reasonable and positive
Overview of the most important new features [BitcoinWiki A, 2013]:
It is possible to provide human readable payment destinations, similar to a web address

Bitcoin-qt can be downloaded at Bitcoin.org

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The payee is provided with a proof of payment
Extra security against in man in the middle attacks
Payment received messages is provided for merchants, so shops can integrate easier with the
Bitcoin server
The merchant receives a return address, in case a refund is needed
Forks - master branch of Bitcoin
In the moment of writing, the Bitcoin network is running smoothly. All significant players in the
network run the same client without problems. However, in the future, forks can happen. A fork is
basically another version of Bitcoin, which runs at the same time. Forks can happen both by
breaking off Bitcoin, which has happened in the past, but altcoins can also be seen as a type of
Back in march a bug in the software
resulted in new blocks not being
accepted by the old clients. This
results in a temporary fork, where
miners mined on two different versions
of Bitcoin. However, this was fixed by
all miners agreed to return to the old
client versions
Hard forks
Usually forks get solved. However a
hard fork is a situation where the fork
doesnt get solved. In this case,
different users use different versions of
the Bitcoin client. This could lead to a break out with Bitcoin 1 and Bitcoin 2, with different
ideologies and features. This could be solved politically by agreeing on a specific version of Bitcoin,
and if that didnt happen, two versions would coexist.
Properties of Bitcoin
As a technology, Bitcoin has several unique properties. Not only can it be used as a payment
system, it can also be used as storage of value. At the same time, introduces Bitcoin new
properties, such as programmable money and a proof of ownership system. As covered in the
section about money, money is a way to distribute wealth. Instead of trusting a centralized medium
of value, such as gold in the old days or todays dollar or euro, Bitcoin can be used as storage of
value. Bitcoin has a monetary value, because of the social structure. People have agreed that a
single Bitcoin have value, and therefore is accepted as a medium of storage.When Bitcoins is sent
to an address, they will stay there. There is no social trust needed, only trust to the algorithms. If
one believe and trust in the Bitcoin system, the finite amount of Bitcoins will make sure the value
stays the same or with a deflationary growth.


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The payment system of Bitcoin is a flexible one with unique properties. It is possible to transfer
money globally, which is accepted permanently into the blockchain after ten minutes with a very
low transaction fee. It is a decentralized payment system, which means there is no central point of
failure, unlike todays systems.
Bitcoin has a programmable interface built into it. When using the current financial institutions,
users have to interact through a third-party to make automatic transactions. This is usually done by
uploading files to the bank, which can consolidates the transactions, and then perform them.
With Bitcoins, the institution holding the Bitcoins owns them and has full control. That opens for a
new paradigm of programmable money. That means Bitcoin payments easily can be integrated into
software-systems, without any third-party integrations and agreements.

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Social and economic structure
Money is a social constellation, and therefore Bitcoin also has to be viewed from a social
perspective. The current financial system is based by trust. People trust the backing by countries,
and more specifically, central banks
. This is a social trust. Bitcoins as a technology changes that
focus. Instead of trusting people, Bitcoin ask to trust the nature laws of mathematics. However, it
still has to be seen from the social perspective because of our nature.
Currencies are inheritable locally based, as their foundation arises from origin countries. The Danish
krone has its history from Denmark, the Swedish krona has its history from Sweden and the US
dollar has its origin from USA. The dollar was approved by the congress in 1786, and has been the
currency of USA since then. Bitcoin is global. A Bitcoin transaction doesnt care whether it is send
to someone right next to you, or to someone on the other side of the planet. From a social structure,
that is radically different than the currencies and payment systems seen today. Even modern and
international centralized system like PayPal, has a unique structures and rules depending on
Another property in Bitcoin is its assumed anonymity. Depending on how Bitcoin develop, that
could be challenge the political situation. Today, in the current financial system, it is possible to
track most financial transactions. Using money laundering laws and know your customer policies,
there is a control over transactions. Inside EU, it is illegal to travel with more than 10.000 [EU,
With Bitcoins this could be difficult. As Bitcoins is pseudo anonymous and impossible to track in
the same way as normal transactions, the political system can be challenged. If the government
isnt in full control over its money and currency - what happens? Another political aspect is after the
NSA revealing in 2013 and whistleblowers such as Edward Snowden coming forth, there has been a
worldwide debate about privacy. As Bitcoin is pseudo anonymous, it provides a layer of privacy that
credit cards and bank transfers dont provide. Seen from a social construct, Bitcoin is an answer to
that, which gives a layer of privacy.
From an economic perspective, Bitcoin can be seen as a tool for minimizing transaction costs. The
term transaction costs would cover anything from:
The actual fee for making the transaction
The trouble spent for creating and receiving the transaction
Getting access to a bank account or payment system

Therefore, from an economic view, one could argue that the only thing Bitcoin does is lowering
transaction costs. The impact of Bitcoin from a classic economic perspective can be discussed from
figure 6. On the Y-axis there is the price of a product (P), and on the X-axis there is the quantity

In some countries this isnt the case. However, in these countries the economic climate usually
suffers. Some countries in the southern american region battle with this problem, such as Argentina

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(Q). The lower the price of a product, the higher the quantity would be sold. When there are no tax
or transaction costs, there is an optimal customer and supplier surplus. If dotted square seen in
figure 6 didnt exist, this would be the optimal case, and would lead to the maximum economical
However, in the real world, there are transaction costs. Those transaction costs lower both the
customer and the supplier surplus. This results in revenue to a third party, such as credit card
companies and banks. However, this also adds a deadweight loss, which is lost trade. The lower the
transaction fee, the lower the deadweight loss. Therefore, Bitcoin might do two things from an
economic perspective: Move bigger revenue from previous transaction fees to customers and
merchants, but also create more trade in general. This is done by lowering transaction costs, and
thereby lowering the deadweight loss.

Figure 6: Supply and demand curve
Bitcoin is one cryptocurrency, but other implementations can be made. These are essential to cover
because it shows Bitcoin isnt necessarily the cryptocurrency to win. Bitcoin bring along a new
realm of concepts which can be used in a broader sense, and if Bitcoin died, alternatives could rise.
Furthermore, it is a parameter companies inside the ecosystem have to exploit; as it might or might
not be beneficial to be altcoin ready. However, no matter how these altcoins are viewed, altcoins
are competitive technologies competing with Bitcoin at the same time. Successes of similar
ecosystems will most likely be shared with Bitcoin, but its still a competitor. Therefore, competitive
technologies are populated on the ecosystem graphics shown in figure 7 as an external factor.

Figure 7: Competitive technologies are populated on the ecosystem model

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Other implementations are called altcoins, which is short for alternative cryptocurrencies. As anyone
can download a copy of the Bitcoin source code, make a change, and then have a new
cryptocurrency, many new currencies has been created.
According to [BitcoinWiki, B], the three biggest altcoins are:

Namecoin is a decentralized DNS system. Instead of relying on central DNS systems such as today,
the idea is to use namecoin instead. The TLD of namecoin is .bit, and approximately 100.000
domains have been registered. [Namecoin, 2013].
Litecoin is basically Bitcoin, with changed parameters. There are 84 million Litecoins, and the
blocks close faster. A single Litecoin is at the moment of writing approximately 30 USD. Litecoin is
mentioned because it has a high market cap, and is the second biggest crypto currency [Litecoin,
PPCoin is just like Litecoin, a variation of Bitcoin, with other properties.

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Technical weaknesses of Bitcoin
Bitcoin have several technical weaknesses. The official Wiki of Bitcoin has listed them here
. Most
of the weaknesses revolves issues around user safety issues. However, an assumption is these will
improve, and instead the potential problems with the Bitcoin network will be discussed. At the
moment of writing, there are no serious threats to the Bitcoin network itself. However there are
several possible attacks which can make the network useless for either a single node or the whole
50% Attack
When connected to the Bitcoin network, the users run a client. However, if someone creates their
own client and gain more than 50% of the total computing power, they can exclude and modify
the ordering of transactions.. This basically means the network can become useless, as long as the
attacking client has more than 50% of the total computing power. This is a vulnerability to the
network if a huge part of the computing power becomes centralized. Therefore, it is a weakness
which requires several actors to participate in running the system. It is also important several
mining guilds exist at the same time, and make sure they dont get a dominating percentage of the
Cancer node concept
As a user running a node is connected to a set of nodes, it is important these nodes keep
transmitting data back and forth to verify nodes. However, an attacker can create several clients.
Imagine an attacker creating tens of thousands of clients, there is a chance a user might be
connected only with the attackers clients. Then the attacker can basically disconnect a user from
the network by rejecting the nodes transaction.
Bitcoin mining might be vulnerable
In October 2013, a new paper came out about
Bitcoin mining might be vulnerable [Eyal, 2013].
For Bitcoin to work, its required the majority of
the miners is following the protocol. This is
essentially the 50% attack; if a group of miners
gain more than 50% of the hashing power they
can modify the rules. This paper shows that if a
group of miners gain 33% of the hashing power,
they can hide their work, and make the other
miners spend their hashing power on blocks which
isnt going to be part of the blockchain. Then, by
having 33% of the hashing power, they can cheat
the network. Gavin Andresen, lead developer of
Bitcoin, responded indirectly this is true, but it
currently isnt a problem because of how the
Bitcoin mining market works [Boase, 2013].


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How anonymous is Bitcoin?
As described, addresses make Bitcoin pseudo anonymous. Transactions are a chain of signatures,
which publically can be tracked. By looking at these signatures separately, it is impossible to guess
what persons are behind them. However, this might not be the case when looking at it holistically.
As all transactions are publicly available, it is possible to investigate the flow of transactions and
make sense from it [Androulaki, 2011]. Depending on the merchants implementation on accepting
, it is possible to identify a physical identity to the Bitcoin address. The paper makes an
analysis of the anonymity in the Bitcoin network. It is shown that if the merchants do not generate a
new Bitcoin address for every transaction, it is possible to link transactions to a physical identity.
Combined with the big data analogy, where big computers constantly analyze the network for
patterns, it seems unlikely Bitcoin is fully anonymous. However, two things have to be taken into

The Tor network is a peer-to-peer system, where users share their Internet connection with others
through virtual tunnels [Tor Project, 2013]. If a user uses Tor, it becomes impractical, if not
impossible, to track where the user comes from.
Bitcoin mixers are services, where a user sends Bitcoins to a specific address. Then the Bitcoins
will be sent around inside a huge network of addresses around the world. The purpose is to make it
impossible to track the Bitcoins. The user gets back their Bitcoins, after it has touched a lot of
foreign addresses around the world.
However, if a user starts to use both the Tor network and Bitcoin mixers, it becomes really difficult
to track the user. Another argument, however, would be it is possible to track the user when a
purchase is made on a webshop, as the physical identity is connected to the purchase. In this
thesis, I would argue it is pseudo anonymous. Everyday people using the system will not be
anonymous, depending on the future implementations of the Bitcoin protocol. Depending on future
regulation, it might or might not be anonymous.
Current regulation of Bitcoin
The success of the ecosystem requires the regulation of Bitcoin is clear and makes sense. As of
right now, there isnt any very clear regulation towards Bitcoin anywhere in the world
. There have
been some legal decisions, such as in Germany, but a global and clear regulation is missing.
Regulation is another factor in the ecosystem, which is an external factor influencing Bitcoin. An
updated populated ecosystem can be seen in figure 8.

Whether they will generate a new Bitcoin address on every sale or not has a big influence on the
ability to track
It is arguable there is some exceptions to this, such as in Germany

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Figure 8: Regulation populated on the ecosystem model
Below some example countries are included. Not all countries are included, and is picked from the
cases with the most clear results.
United States
Trendon Shavers of Bitcoin Savings & Trust (BTCST) was accused of scamming customers of
approximately $4.5 million worth of Bitcoins, through an online hedge fund. In the court, the
representatives tried to argue that Bitcoin wasnt money, and therefore wasnt something they could
be punished for scamming for. However, in this case, the court argued the following [District Court,
It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as
Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is
limited to those places that accept it as currency. However, it can also be exchanged for
conventional currencies, such as the US dollar, Euro, Yen and Yuan. Therefore, Bitcoin is a
currency or form of money, and investors wishing to invest in BTCST provided an investment of
Therefore, this declared Bitcoin as money, and therefore should be regulated as money.
The Financial Crimes Enforcement Network (FinCEN), the American institution looking at financial
transactions in order to combat money laundering and such, provided a guideline to virtual
currencies [FinCEN, 2013].
The guidelines states:
Virtual currency is a medium of exchange that operates like a currency in some environments,
but does not have all the attributes of real currency. In particular, virtual currency does not have
legal tender status in any jurisdiction.
It further concludes:

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A person must exchange the currency of two or more countries to be considered a dealer in foreign
exchange. Virtual currency does not meet the criteria to be considered currency under the BSA,
because it is not legal tender.
Therefore, in the eyes of FinCEN, Bitcoin is not considered a real currency. However, it still
recognizes that it has the properties of a currency. However, it still goes in and regulates Bitcoin
users. It differs between three different types of actors: users, administrators and exchangers.
The users are not regulated, as quoted here:
[..] user of the convertible virtual currency and not subject to regulation as a money transmitter
However, there is a discussion whether administrators and exchangers are regulated. First the
guidelines write:
An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2)
buys or sells convertible virtual currency for any reason is a money transmitter under FinCENs
regulations, unless a limitation to or exemption from the definition applies to the person
But in the summary, they conclude:
A person must exchange the currency of two or more countries to be considered a dealer in foreign
exchange. [...] Therefore, a person who accepts real currency in exchange for virtual currency, or
vice versa, is not a dealer in foreign exchange under FinCENs regulations.
This means that users and people, who use exchanges, are not regulated by FinCEN. However,
exchanges and administrator are regulated by the FinCEN guidelines.
In Germany, the finance ministry declared Bitcoin as private money and a unit of account
[Spiegel, 2013]. Therefore Bitcoin will be regulated, treated and taxed like private money.
Currently there is no official regulation on Bitcoin in China. The closest thing is some
documentaries on public television, and a reporter calling the Chinese banking regulatory
commission who responded: "Weve no plans to introduce regulatory policies for Bitcoin."

In Sweden, the Skatterttsnmnden authority, gave an answer to a forhndsbesked (a binding
response to a question) about Bitcoin. The question was about if VAT should be added on sales of
Bitcoin. The full response can be seen at [Skatterttsnmnden, 2013]. However, the conclusion is
that it is exempt from VAT:
Slutsatsen r frenlig med syftet bakom undantagen i artikel 135.1.b g, nmligen att undvika de
svrigheter som finns med att belgga finansiella tjnster med mervrdesskatt (se t.ex. a.a., s. 88

Later this turned out to be wrong, and Bitcoin has been regulated aggressively in China

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Omsttning av den tjnst som anskan avser r drmed undantagen frn skatteplikt enligt 3 kap. 9
ML tolkad mot EU-rtten.
This is not useful in regard whether to see Bitcoin as a currency or not. However, the response
refers the European Central Bank report back in 2012 (Virtual Currency Schemeas) that it isnt a
currency because its not legal tender.
In Norway, a similar question to the Swedish one was asked. Here the answer was the exact
opposite according to an interview to the Norwegian newspaper E24 [Lorentzen, 2013]:
Skattedirektoratet mener bitcoins er et formuesobjekt, og skatteloven bestemmer at gevinst ved salg
av formuesobjekter er skattepliktig inntekt, sier Heidi Lindsbjrn, seksjonssjef i Skattedirektoratet, i
en uttalelse til E24.
This means that tax has to be paid on profits. The article continues:
Skattedirektoratets vurdering er at bitcoins ikke kan anses som gyldige betalingsmidler og derfor
heller ikke kan anses som en unntatt finansiell tjeneste. bitcoins klassifiseres som tjeneste,
nrmere bestemt elektronisk tjeneste, sier seksjonssjefen.
This means that Bitcoin isnt treated as private money or a currency in Norway, but simply a
product, which means both tax and VAT, has to be paid.
Bitcoin is a decentralized system, which works as both a payment system, as a storage of value and
programmable money. It is built from blocks which is added to a blockchain, which is a public
ledger of all transactions every made in the Bitcoin network. Bitcoin is pseudo anonymous, which
means it as anonymous as the public keys users use. However, it is also showed that Bitcoin might
not be anonymous, unless the users try to make it so. At last, it is shown that the current regulation
towards Bitcoin is quite positive, and it is primarily treated as a type currency and private money,
but lacks being a legal tender.
It was also showed that the Bitcoin algorithm is the center of the Bitcoin ecosystem, as it is the one
core the whole system is built upon. The same goes for regulation and competitive technologies
being external factors influencing Bitcoin.

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Analysis of Bitcoin
This chapter describes the current status of Bitcoin. As described in the methodology, analyzing
Bitcoin is important to understand the size and state of the ecosystem. The following analyses have
been used: a discourse analysis which leads to possible features of Bitcoin combined with the
critics of Bitcoin, a sentiment analysis and an analysis of the usage.
Discourse analysis
Most of the articles found on the social media sites, BitcoinTalk and Reddit, were very positive
about Bitcoin. These articles wasnt very diversified, and mainly resulted in a wide range of
categories where Bitcoin is useful. However, the most debated articles on Bitcointalk gave some
neutral and negative views, and especially the negative tweets gave a more diversified view. Below
the different applications of Bitcoin will be covered. The categories were compiled manually into a
list of useful categories. Here there were 13 different applications, and 4 negative types of critiques
against Bitcoin.
A full list of applications:
Gambling and illegal activities
Global asset register
Third world
Safe havens
Disrupting states / countries
Micro payments
Proof of payments
Corporate finance

However, looking at the negative ones, four categories arrived:
Bitcoin as a concept wont work
Regulation will kill Bitcoin
There is no need for Bitcoin
Technical problems will kill Bitcoin

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Possible applications and ideologies of Bitcoin
In order to understand the applications found, they will be covered one by one. As these
applications make up the use cases of Bitcoin, they are essential to understand the ecosystem of
Bitcoin. In this part the internal factors are analyzed from a Bitcoin usage and application potential.
This is shown in figure 9, which shows the ecosystem which is being populated.

Figure 9: The ecosystem as it has been populated till now
Only by looking at the investment of Bitcoin in 2013, it would seem like an extremely good idea to
invest money in Bitcoin. Back in January 2013, the price of a single Bitcoin was 13.2 USD and at
the 29th of November the price was 1132 USD
. Because of Bitcoins finite amount, the price of a
single Bitcoin will rise if the Bitcoin system becomes more popular. In one of the articles, Michael
Novogratz from Fortress (FIG) Investment Group LLCs wrote Put a little money in Bitcoin. Come
back in a few years and its going to be worth a lot.. Zerohedge, a finance news site, made a report
about Bitcoin as an investment where there conclusion was Now thats what I call a tail-risk
option. Its either worth zero or its worth a truly outstanding amount of money.
Therefore, investment is definitely one application of Bitcoin. This will influence the ecosystem,
which exposes both a risk and an opportunity. The risk is some people only have an interest in
Bitcoin because of the investment, which can make the price shaky if the investment turns out to
be slow, and some investors might start selling out, which can shake the overall economy. It is an
opportunity, especially if Bitcoin grows, because founders in the ecosystem are expected to own a
significant amount of Bitcoins. As Bitcoin grow in value, the founders become wealthy, and can
support their companies financially without taking unnecessary seed funding.

Open data about BitStamps exchange price can be found at www.bitstamp.net

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Jon Matonis from the Bitcoin Foundation said at the Danish Bitcoin conference
, that Bitcoin is a
reaction to the current status in the world. He argued that the current situation of society
Dominant legacy infrastructure
Centralized monetary authority
Diminishing financial privacy

Bitcoin is the opposite of those things. As a transaction is from a public key to another public key,
which can be generated by anyone, Bitcoin allow anonymous transactions if the user wants to
This is a use case in itself, as it opens up for the same transactions as cash do. According to Jon
Matonis, some of the properties of cash are:
Unlinked from source
Irrevocable (bearer nature)

Bitcoin has the same properties, which opens up for some of the usages cash have, just with more
Bitcoin as a currency
In the articles, Bitcoin has been called the future of money, and the cause of death of banks. The
argumentation is Bitcoin can replace many of the features banks provide because Bitcoins basically
makes anyone who carries a wallet their own bank. In Wired, Dan Kaminsky wrote Bitcoins a dollar
bill, with a teleporter built in
, which sums up some of the argumentation: Bitcoin has better
properties than original system, and therefore could do well as a currency.
Wikipedia defines a currency as:
[...] money in any form when in actual use or circulation, as a medium of exchange, especially
circulating paper money
As Bitcoin can be used as a medium of exchange, that is basically true. However, as covered in the
chapter about regulation, Bitcoin isnt legal tender anywhere. As long as thats the case, its not an
official currency anywhere.

As referred in the methodology chapter
As discussed is BItcoin pseudo anonymous, however, if the user is skilled and want to, Bitcoin
can be anonymous
This article was found in the discourse analysis, and sources for the articles can be seen in
appendix A

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Illegal activities and gambling
Because of the anonymity built into Bitcoin, pseudo anonymous or fully anonymous, illegal activities
are possible. This is possible because of three reasons:
The TOR network makes it possible to host hidden websites, which doesnt reveal its IP and network
position. That makes it very difficult to shut the websites down
Shops doesnt have to apply to anyone for accepting Bitcoins, as anyone can do it
Sending Bitcoins is only signing a transfer using a private key, which means its pseudo anonymous
Those reasons open for illegal services. Back in October 2013 there was a lot of attention on the
now closed website Silk Road, which was a marketplace with illegal drugs.
Gambling can be argued to be a gray area, and Bitcoin helps growing that market. It is possible to
gamble without revealing ones identity through a payment method, which opens for new gambling
services. An example mentioned is the betting website SatoshiDice, which was sold for 11.5 million
USD back in July 2013 to a big gambling company [Spaven, 2013].
As more and more people from the third world travel outside their own country, the remittance
economy has been on the rise [Pryke, 2013]. Worldwide the remittance economy is approximately
514 billion USD according to the World Bank [Anjaiah, 2013].
When doing money transfers, there is the following categories [Wikipedia, A]: Wire transfer,
Electronic funds transfer, Giro, Money order and PayPal like businesses. All of these methods have
fees, and most require both parties have a bank account. PayPal is one option, with a fee on 3.9%
on international orders
. Western Union is approximately 10%
but doesnt require any of the
transferring parties to have a bank account. With Bitcoin, transactions can be sent worldwide,
without any mentionable fees
and delay. Because of those properties, it is argued that Bitcoin will
have a huge influence on this market, as it is significantly more effective than the current system.
Global asset register
In an interview with the IBM Executive Architect for Banking and Financial Markets Industry
Innovation, Richard Brown discussed Bitcoin as a global asset register [Brown, 2013]. As any entry
in the blockchain can be seen by anyone, it is possible to use it to register assets. It could for
instance be used for stocks: the owner of a specific Satoshi would own the stock and automatically
get paid dividends. According to Richard Brown, this is still merely an idea. However, the whole
idea of distributing assets on the blockchain rather than the current method of signatures on paper
is one application which can be developed much further.

Found on the international fee table at PayPals website
Calculated on Westerns Union website, with a transfer of 2.000 DKK to the Philippines from
As of right now. Depending on how Bitcoin develop and scale, this might change

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Andreas Antonopoulos from O'reilly describes Bitcoin in the following way:
Bitcoin is much more than just a digital currency. It is a protocol, a network, a currency and a
transaction language. Most of all, though, it is an application programming interface (API) for
money. Nowadays, bathroom scales and fridges have APIs, so why not money?
As described in the chapter about Bitcoins, the nodes use a Bitcoin client. At the moment, Bitcoin-
qt is the leading one, with no real successors
. Bitcoin-qt implements the overall Bitcoin protocol,
and it is open for anyone to create a new and better client which implements the protocol. Bitcoin
can be seen more broad than a single implementation. It is a protocol, just as HTTP is a protocol,
and then there are different implementations on top of it.
Third world
Seeing Bitcoin with the third world in mind could tell two interesting stories:
Anyone can get bank account as long as they can visit an Internet caf and create a Bitcoin wallet
Micropayments which makes utility revenue model easy to use
In Africa it is more common not having a bank account, than having one. In South Africa (country
with the highest percentage), 49% of the population have a bank account. In Kenya it is 29%,
Cameroon 8% and in Niger 1% [Gallup, 2010]. Assuming people want a bank account, Bitcoin
wallets could technically work as a bank account for these users.
In the poorest segment of the world, Prahalad proposes that the utility business model [Prahalad,
2006]. With Bitcoins micropayments can easily be made, which could open for new business
models in the third world. Leon Kaye from Triplepundit wrote the following, which also provides a
view on this application:
But not everyone trusts his or her countrys local currency, and most mobile banking services
either do not allow cross-border wire transfers or do so at a prohibitive cost. In steps Kipochi, the
Bitcoin wallet that in part solves this problem and does so with very low transaction fees. Users can
send remittances more cost effectively, and easily: Kipochi users simply use their mobile phone
numbers in lieu of a bank account number.
Safe havens
As Bitcoin is borderless and pseudo anonymous, it is a tool which potentially could be used for safe
havens. Peter Nrregaard from SKAT, the Danish tax authorities, mentioned that:
The cloud and virtual payments is one of the areas which SKAT look into currently.
He continued that they would look at the endpoints when stopping Bitcoin as a safe haven, such as
banks. However, this shows that safe havens are an aspect which has potential. If a user keeps
their assets in Bitcoin, it can be impossible to track. Therefore the safe haven aspect of Bitcoin is
worth exploring as well.

There is several different Bitcoin clients, but they are at the moment all based on Bitcoin-d

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Disrupting states / countries
The idea of a worldwide pseudo anonymous currency opens for interesting questions. An article from
Evan Soltas on Bloomberg points out three areas Bitcoin could disrupt the current concept of states
and countries:
Taxation. In the article its written: How do governments collect taxes on transactions in Bitcoin?
The answer is they don't, and they can't. [...] The problem is that Bitcoin makes tax evasion easier.
. This is a valid point, as anonymous transactions combined with the Tor network, potentially makes
it impossible to collect taxes.
Police: Police: It would be almost impossible for states to detect certain crimes.
Macroeconomic policy: A Bitcoin economy would undermine the power of real-world central banks
to make monetary policy.
Jon Matonis argued that Bitcoin will force the politicians to change their politics. On a slide of his
presentation, there were the following points.
Government gradually shift from taxing income to taxing consumption
Registration of exchanges and merchants facilitate higher consumption taxes
Government spending becomes constrained by actual raised which means that unpopular
expenditures will be difficult to fund
According to the article, and multiple speakers at the Danish Bitcoin conference, Bitcoin might
have the potential to change the current understanding of the concept of states of countries. In this
thesis, no thoughts about the possibility of this will be shared.
With Bitcoin, potentially very cheap transactions become possible, which opens for true
micropayments. It is important to include the word potentially, because it depends on the
development of Bitcoin. Currently it is possible to include transactions with very low fees, but as the
bandwidth grow, it cannot be guaranteed with the current technology. Jan Mller, who is the
founder of the mobile wallet Mycelium, argued that there is a chance Bitcoin wont scale to these
types of payments, while other interviewees such as Michael Grnager argued it would scale.
However, Grnager pointed out systems built upon Bitcoin could be used for micropayments.
However, with micropayments very small transactions could be made. For instance:
Paying some cents for viewing a website or video
Trading smaller documents
Open for the utility business model in a much broader sense
Proof of payment
As the blockchain is an open ledger, it is possible to prove a payment has occurred. This can
happen on a wide scale, where systems can be built around this property. This is not possible today,
as transactions are private for the customer and the bank. Another interesting property is that a
Bitcoin transaction can contain some bytes of data, so extra information can be send with an

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Corporate finance
The articles never mentioned corporate finance, however both at the Copenhagen Bitcoin
conference and the interview with economist Martin Carlsson, explained the benefits. To quote
Martin; With Bitcoin transaction fees are neglect able, which has never happened before in history.
This will save billions world-wide on fees. When corporations move money both internally and
externally, huge fees apply as sending millions of dollars isnt free. However, with Bitcoins, it
suddenly becomes neglect able.
Martin continued, The economic textbooks never explain real life, because there are transaction
fees. However, with Bitcoins, we will have a world as the textbooks has described for years.
However, while corporate finance would have a huge benefit from Bitcoin, it is still lacking Bitcoin
to become less volatile.
A note on its applications regarding to financial ecosystems
Bitcoin as a financial ecosystem take on some of the roles in the existing ecosystem as well. As
argued in the ecosystem chapter, there are depositary-, contractual- and investment institutions.
Bitcoin gives anyone the opportunity for storing value and keep it safe, which is in the heart of a
depositary institution. Loans are not directly built into Bitcoin, but the concept of Bitcoin contracts
can be used to make guarantee which can be seen as a technical possibility for providing credit.
As described, Bitcoin could potentially be used for a global asset register. This would be useful for
making both contractual institutions and investment institutions. The mere difference from the
existing financial ecosystem where the trust relies on humanly controlled organizations is the
contracts would exist in code. That would change how both depository, contractual and investment
institutions would work.
Stocks are one example. Today a buyer can get a (physical or digital) paper that he or she owns a
specific stock. By proving that the buyer is the person who has that paper, a sale can be made.
Bitcoin offer a different paradigm of investment institutions, where everyone could be handled in
the blockchain automatically.
Critique against Bitcoins
As described in the chapter about the applications of Bitcoin, is there a list of common critiques
against Bitcoin as well. These has been collected and categorized from the articles above.
Bitcoin wont work
Of the negative articles, this was the most common critique, with 9 different articles arguing the
same. Of the articles, the one with the most depth was an article from TechCrunch [Shah, 2013],
with an interview with five different economists. This covers an adjunct from Harvard, a Stanford
economist, an editor for The Economist, a professor at Columbias Graduate School of Business and
a professor at Virginias Darden School of Business.
These five economists had several points:
Bitcoin is backed by nothing, which inherently a problem, as the bubbles itself drive the value
Something with a finite amount will never work as a currency
Bitcoin will see a lot of competition, which potentially is better

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A government-backed coin would most likely destroy Bitcoin
This critique boils down to the concept of Bitcoin doesnt work. If it has to succeed as a currency, it
has to be backed by something more. Also, there are questions whether a deflationary currency has
any chance of success.
Robert McMillan sums up the arguments:
Unfortunately, as those familiar with Paul Krugman's writings on liquidity traps know, Bitcoin's
known and finite supply dooms it as a workable replacement currency. Furthermore, as it has no
apparent use-value (unlike, say, Platinum), this kills it entirely.
Regulation will kill Bitcoin
A number of articles discuss the fact that regulation will come to Bitcoin. In the Winklevoss
brothers ETF proposal, they even wrote that regulation is one of the biggest risks [Llanos, 2013]:
It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoins in one or more
countries, and ownership of, holding or trading in Shares may also be considered illegal and subject
to sanction.
There is definitely a legal risk, and as the current regulation is minimal, no one knows how the
regulatory landscape will end. However, as covered in the chapter about regulation, it seems
unrealistic all regulation suddenly changes direction and make Bitcoin directly illegal.
However, in an interview with Jacob Hansen from Crowdcurity, he mentioned that believed it
wouldnt be unlikely USA and China would deem Bitcoin as illegal, because it is a threat to one of
the biggest regulative tools a state has, economics. This is backed up by economist Martin Carlsson
who mentioned in an interview that Countries isnt likely to accept their currency being replaced by
something they have no control over. Therefore, there might be a challenge if Bitcoin becomes big
enough to actually threaten the current system.
No need for Bitcoins
Some economists argued that there is no need for Bitcoin. There is currently a well working
economy, with well working payment systems and ways to store value. Therefore, as Bitcoin does
nothing better (currently), there is no need for Bitcoin, according to the economists in this category.
Paul Krugman wrote in the New York Times the following:
So do we need a new form of money? I guess you could make that case if the money we actually
have were misbehaving. But it isnt. We have huge economic problems, but green pieces of paper
are doing fine and we should let them alone.
Bitcoin wont scale
In an interview with Jan Mller who is an expert on building Bitcoin systems, he expressed a
concern that Bitcoin wouldnt be able to scale to everyday transactions. He expressed in the
following way:
When I look at the system I see two situations. One situation where the blockchain wont scale and
wont be able to contain transactions for everyday use, and Bitcoin will be used for storage. Or a
second situation where it will be able to scale. However, I think it will be the first, and it will be a
short respite that people use it in shops

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At the moment, there is a maximum of 7 transactions pr. second in the Bitcoin network
[BitcoinWiki C, 2013], and compared to the VISA network which has 2.000 transactions pr. second
on average, there is a problem which has to be fixed. These limits are, however, only artificial and
doesnt imply a real limitation to the Bitcoin system. But if the bandwidth grew, there would come

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Sentiment analysis
The sentiment score gives a number of positive and negative tweets. By dividing the number of
positive tweets with the number of negative tweets, a ratio was calculated. This ratio can be used as
a signal of how positive the public is about Bitcoin in general.
The total amount of tweets can be seen in figure 10. This shows the historical development of
Bitcoins popularity. It shows Bitcoin historically had two peaks of attention: Summer 2011 and
April 2013.

Figure 10: Total amount of tweets about Bitcoin using Topsy
When taking the sentiment ratio into account, and combine it with the total amount of tweets
(adjusted), the Google trend (adjusted) and the monetary value, the data gets interesting. In figure
11 shows it all combined:

Figure 11: Sentiment analysis. The background data for this graph is appended in appendix F.

The graph has several interesting points. These include:
A) June 2011: Bitcoin price went up, then crashed shortly after

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B) April 2013: Bitcoin price up - a lot - for a month, then crashed shortly after
C) November 2013: Bitcoin price rises

Looking at the graph, the following pattern seems to emerge:
The Bitcoin price starts to grow slowly and then media attention follow. That gives more speed to
the Bitcoin price, which then leads to more press attention, till it crashes. However, the sentiment
shows something interesting:
When there is little media attention, the sentiment is very positive. This can be seen before point
A., and between points A. and B. When media attention rises, the sentiment positivity goes down
instantly, only to return when the price crashes once again. When the price crash, so does the news
attention and amount of tweets (with a little delay).
Thoughts about the sentiment result
There is a trend, which has proven to be true three times: when Bitcoin gain media awareness, the
price will rise and then crash. Looking closely at the sentiment ratio just before the rise in both
price and trend rate, shows how it falls. A guess on this matter could suggest Bitcoin has a hardcore
following. When Bitcoin is outside of media presence, which became very clear in 2012, the
sentiment becomes very positive. However, when the media cover Bitcoin, the sentiment becomes
significantly more negative. This is most likely because the mainstream media and bloggers, who
dont know about Bitcoin, start writing about Bitcoin. They will have a more neutral or negative
opinion. It also suggest the hardcore Bitcoin following is quite stable. After the crash in 2011, the
sentiment becomes extremely positive. Compared it also shows that Bitcoin is very immature.
However, why is this interesting compared to the research question? It shows that Bitcoin is
extremely immature. When media attention can move the sentiment as much as it can, it seems
clear that the Bitcoin following is a small group of people. It shows that no one can expect the
ecosystems has evolved far, when the sentiment when be changed so fast.

This turned out to be a the start of a huge rise in prices, with prices above 1.000 USD

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Analysis of Bitcoin through open data
Monetary value and transaction volume
It is interesting to analyze both the monetary value and the transaction volume of Bitcoins, as it
gives an idea about the size and adoption globally. It also gives an idea about the trust in Bitcoin,
which will have an influence on what types of companies which exist in the ecosystem. The
monetary value is defined by the amount of Bitcoins mined multiplied with the current exchange
price. In the figure 12, the historical exchange rate can be seen:

Figure 12: The current price of a single Bitcoin on the exchange MtGox
In the moment of writing, a single Bitcoin is approximately 1100 USD. As there is approximately 12
million Bitcoins mined, the monetary volume of BItcoins is around 13 billion USD. However, as it
can be seen in the figure, this is highly volatile. However, compared to countries narrow money
stock, it still outranks countries such as Uruguay and Cameroon [Coinometrics, 2013].
Michael Grnager made an interesting illustration at the Danish Bitcoin Conference. If all gold in
the whole world was stored in the same place, the volume would be 20x20x20 meters which is
8000 m
. The total valuation of gold is 6.6 trillion USD. Compared, Bitcoin would have a volume of
15 m
at the current estimation. This shows that even though Bitcoin is big compared to some
countries narrow stock, it is still extremely small and volatile. This also has an effect on the
ecosystem, as the companies cannot be bigger than the currency alone. The value therefore also set
an upper limit for the size of the ecosystem.
In figure 13 the daily returns on a percentage basis is shown:

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Figure 13: Daily returns on a Bitcoin investment from 2010 to September 2013
As shown, the daily returns have been extremely volatile with a high percentage of daily change. The
standard deviation of the Bitcoin price from November 2012 to November 2013 has been 162
USD, which also shows a high volatility. Both from looking at the daily returns, and at the standard
deviation, it is easy to conclude Bitcoin is highly volatile. That gives several problems, as it is
difficult as a company in the ecosystem to trust the value.
Transaction volume
In figure 14 the daily transaction volume in USD is shown. On the 15th of November, the daily
volume was 250 million USD. Compared, Western Union has a daily average volume of 216 million
USD, and PayPal 397 million USD [Wile, 2013].

Figure 14: Total transaction volume in USD
However, these numbers are biased. If someone makes a big private transaction inside the Bitcoin
network from a private address to another private address owned by the same person, it will count in
the volume. This wouldnt happen in PayPal or Western Union because no one would move bigger
amounts because of the transaction fees. The big volume also covers endless gambling on websites
such as SatoshiDice, which wouldnt happen on other payment networks. This, however, still shows

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there is an interesting property as a payment system with low fees. It also shows that Bitcoin is
being used for more than just an investment vehicle. This would have a positive influence on the
ecosystem, as there actually is a use for Bitcoin, even though the numbers on the graph is biased.
During 2013, the amount of miners participating in the network, exploded. As it can be seen in
figure 15, the network went from below 1 million GH/s
back in September 2013, to 7 million
GH/s pr. second in December 2013.

Figure 15: Total hashing power of the Bitcoin network
When comparing the Bitcoin network to the 500 biggest supercomputers in the world, it is more
than 256 times stronger [Cohen, 2013]. Bitcoin is also the largest distributed network system in
the world according to the Wikipedia list of distributed computing projects [Wikipedia E, 2013].
This is a signal of several things: First it is a signal that the economic incentive for mining is big.
Assume the price of a Bitcoin is 1.000 USD and 25 Bitcoins are given as a reward at every block, it
is 25.000 USD pr. tenth minute which is released in rewards only. Secondly, it is a signal that ASIC
miners has come out and sent the hashing rate to the skies. Thirdly, it is a signal that the Bitcoin
network is becoming really strong.
In figure 16, the daily transaction fees given to miners are shown. This shows there is between 20
and 50 Bitcoins in fees to miners during a normal day.

Gigahash pr. second

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Figure 16: Total transaction fees given to the miners every day
Bitcoin usage
Bitcoin-qt is the official Bitcoin client. It is a heavy client, which takes up more than 20 GB of hard
disk space, because it hosts the whole blockchain on the computer. Therefore, many people prefer
other types of wallets, which require less space and time to synchronize. When Bitcoin came out in
2009, it was fast to sync with the network and there were no alternatives to Bitcoin-qt. Therefore,
nearly all users used Bitcoin-qt. As time has passed, Bitcoin-qt has become less convenient, and
several alternatives have been launched. Especially web wallets such as Blockchain.info and
Coinbase, has made it easy for users to obtain a Bitcoin wallet. The Bitcoin-qt download data can
be seen in figure 17. However, it is important to remember this doesnt show the whole picture of
users. While it is a fair assumption that the Bitcoin user base has grown steadily since 2009, it is
also a fair assumption that a higher percentage of users use different types of wallets.

Figure 17: Amount of downloads of the official Bitcoin-qt client. Source
These data can also be sorted on country level, which can be seen in table 2:


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Country Total downloads
United States 1164785
China 421519
Germany 261289
United Kingdom 228763
Russia 209445
Canada 164052
Australia 103168
Netherlands 98240
Poland 96452
Anonymous Proxy 82793
France 74445
Italy 66384
Ukraine 65167
Brazil 64151
Spain 63837

Table 2: Downloads of Bitcoin-qt pr. country
This showed that the five biggest Bitcoin countries are United States, China, Germany, United
Kingdom and Russia.
Bitcoin transactions
As it can be seen in appendix G, there has been a daily average of 59142 transactions from October
the 1
to the 30
of November. That gives an transaction approximately every 1,46 second in
October and November. Compared to VISA, which have 150 million transactions a day [VISA,
2013], comes down to approximately 1750 transactions pr. second. Therefore, comparing VISA
with Bitcoin, VISA has 2500 more transactions pr. second.

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Challenges and gaps in the Bitcoin ecosystem
During the interviews, I asked the same two questions to anyone:
1) What do you see as the biggest threats to Bitcoin in general, and to the companies/organizations
working with Bitcoin?
2) What should companies/organizations working with Bitcoin focus on during the next years, in
order to help Bitcoin become mainstream?
This was done in order to understand some of the challenges and gaps in the current ecosystem.
Two emerging threats which came up at nearly every interview was:
Lack of security for users and companies
Because of the bearer nature of Bitcoin, where the owner of the private key owns the Bitcoin,
Bitcoin will always have an extra required element of security. If someone steals a persons Bitcoin,
they are gone forever. The interviews also showed storing Bitcoin is a challenge. Currently a user
can pick between a web wallet (where the private key is hosted and outside of the users control), or
wallets where the user is responsible for its own security. This is a challenge for Bitcoin, as storing
Bitcoin is very vulnerable. If a user gets specific malware on their computer
, the Bitcoins can be
stolen without the user can do anything about it. The challenge of regulation is also problematic. As
described in the chapter of regulation, the Danish and Norwegian authorities have deemed Bitcoin
as a good, which is an example of regulation which could be very problematic for Bitcoin as a
technology because VAT has to be applied on transactions.
Therefore, it seems that:
Security is a gap in the current system, which has to be solved by companies as the technology
Regulation will be decided on a political level, which is about giving the right people the correct

Keyloggers who monitor anything written on a keyboard, has been a problem for mmorpg games,
where accounts has been hacked. The same will become a problem for Bitcoin, as there now is real
money at stake

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Earlier ecosystem actors and heists
In order to understand the development of the Bitcoin ecosystem, its also important to understand
how it has turned out as it has. Previously a lot of hacks and instability has caused a lot of trouble
and mistrust to Bitcoin companies in general, which is why it is being covered. This introduces a
new external factor to the ecosystem, which are hackers. This has been populated in the ecosystem
graph in figure 18:

Figure 18: Hackers introduced to the Bitcoin ecosystem
There has been engineered a big list of all major heists
, and some of the more severe will be
MtGox, 2011
During the first steady rise of Bitcoin in summer 2011, MtGox was hacked at the top of the curve.
Approximately 2000 Bitcoins was lost [Mick, 2011]. This lead to people losing their Bitcoins, and it
is suggested the 2011 crack of Bitcoin was caused by the hack.
Bitcoinica, 2012
The international CFD
website Bitcoinica was hacked twice, first in May and then in July, and lost
a total of 58.000 Bitcoins [Geuss, 2012].
BitFloor, 2012
BitFloor was an American Bitcoin exchange, which was hacked and lost approximately 24.000
Bitcoins [Goddard, 2012]. Since the service was shut down.
BIPS, 2013

Contract for difference - speculation in Bitcoin to USD exchange rate

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The 19
of November the Danish wallet and merchant system was hacked, for more than a million
dollars worth of Bitcoins [Southurst, 2013]. The cause was a sophisticated hacker attack, which
managed to steal Bitcoins from the users wallets.
These heists show that even though some services look professional and secure, they can in fact, be
very insecure. A fair assumption is these thefts have left people skeptical for new services, as the
security previously has been a huge problem. Especially wallets and exchanges have showed to have
a problem. On these services, a lot of Bitcoins is hosted, which makes them vulnerable and
interesting for outside hackers. In a paper by Tyler Moore and Nicolas Christin [Moore and Christin,
2013], it is showed that out of 40 established Bitcoin exchanges, 18 has closed with customer
account balances often wiped out. The paper showed smaller exchanges are more likely to be shut
down than bigger ones. This has an influence on the ecosystem, as trust is one of the primary
concerns, because of the history of Bitcoin. This is worth noting, and gives a hint where Bitcoin has
to go during the next years.
In this chapter Bitcoin has been analyzed using different methods. A discourse analysis has been
used to see Bitcoin from different perspectives, and the business models made possible. The
following models was seen: Investment, anonymity, currency, gambling and illegal activities,
remittance, global asset register, protocol, third world, safe havens, disrupting states / countries,
micropayments, proof of payments and corporate finance. At the same time, the discourse analysis
showed the critique against Bitcoin, which primary was towards that Bitcoin wouldnt work.
A sentiment analysis was used to show there is a strong following to Bitcoin, and overall the
sentiment changes easily, because of the small volume of strong followers. In the end, it was shown
that Bitcoin has a market cap around 10 billion USD.

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The Bitcoin ecosystem
In this chapter the Bitcoin ecosystem will be analyzed. First the ecosystem will be analyzed using
network theory and theory about two-sided networks. Then the significant actors in the ecosystem
will be analyzed and discussed. Afterwards the whole ecosystem as a whole will be discussed, and
some assumptions about the future of the network will be made.
Network analysis: two-sided network
Bitcoin seem to fit into the theory of two sided networks. However, frequently, digital ecosystems
are mediated by single actors. Bitcoin is different as
its not mediated by anyone, but is a decentralized
technology. However, Bitcoin still form a multi-
sided platform, which opens for network effects and
the challenges of two-sided networks. In itself,
Bitcoin is subject to two-sided network effects. This
is clear when analyzing both the payment system
properties and the storage of value properties.
Metcalfe's law state the total value of a network is
n*(n-1) [Gilder, 1993]. That is true with a
technology such as Facebook, where the value of
the network becomes bigger and bigger with the
more people using it. The same holds true for
Bitcoin. However, Bitcoin has an additional
economic incentive as well. Because of the maximum limit of Bitcoins, it will always be an
economic wise decision to convince people and companies to use Bitcoin, for a holder of Bitcoin.
However, when discussing Metcalfes law, it is important to remember the mathematical conditions.
An exponential growth would only continue for a while, and ends in a S-curse, with an exponential
decay. This is starting to happen with the biggest social network platforms, and would happen to
Bitcoin as well in case of continued growth.
The payment system of Bitcoin is a two-sided network as well. On one side of the network is
consumers, and the other side of the network is merchants. Therefore, the payment system will
experience the same challenges previous payment systems have: getting more users and getting
more merchants to accept it. The built in problem is to get more merchants to accept it, more users
are needed. In an interview with Lasse Birk Olesen from BitcoinNordic, he expressed that problem:
The biggest challenge in Bitcoin is the classic Chicken or the egg problem. However, e-mail
experienced the same problem back in the nineties.
Network effects
Bitcoin in itself also is also subject to (single) network effects. As [Shapiro, 1999] describes: in a
market with network effects, the winner takes it all. This is an argument why altcoins might get into
trouble, as Bitcoin most likely will become the winner only by looking at the network theory. Shapiro
provides a simple model to determine how big an influence network effects will have on a
technology, which can be seen in figure 19. There are two factors: demand for variety and level of
economies of scale:

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Figure 19: Model to determine whether a market has network effects
I would argue that Bitcoin has a very low demand for variety. This depends on what property of
Bitcoin is analyzed, but looking at some of the most common properties:
Payment system. Currently there exist several payment systems, such as PayPal, Western Union,
iZettle and the standard credit card solutions. However, all of these services provide different types
of value, and have unique cost structures. In contradictory, it doesnt seem unrealistic a system
providing all the different types of value would remove the need variety.
Storage of value. The average person doesnt need to store value several places. They would
normally place their assets in form of a bank account or physical assets such as a house or a car.
Bitcoin represent a new method of storing value. Because of the few places people store value, I
would argue the storage parameter isnt demanding variety
Because these properties dont require a high demand for variety, but a low variety, I would argue
Bitcoin in general has a low demand for variety. The economies of scale would normally be used to
analyze the additional cost of a single unit. However, when analyzing Bitcoin, it is a different case.
Every time something more convenient is made in the ecosystem, the whole ecosystem benefits.
This is a type of economies of scale, where altcoins cannot follow. Even if an altcoin experience
growth, the economies of scale of developing software, will halt the speed of new services for those
altcoins. Therefore, there is medium to high economies of scale. Therefore, Bitcoin is very likely to
be subject of network effects. However, while Bitcoin might be subjective to positive network
effects, Bitcoin will also be subject to negative network effects. It is all about the virtuous cycle, vs.
the vicious cycle. That result in the following: if a competing altcoins becomes big, and it comes
into a virtuous cycle while Bitcoin enter a vicious cycle, Bitcoin can definitely lose. However, it is
important to remember, that the most common reasons why Bitcoin would enter a vicious cycle,
would be regulation of a core technology flaw, which would influence altcoins as well.
If one looks at the monetary value of Bitcoins on a logarithmic scale, and compares it with user
base growth of a company such as Facebook, Twitter or Instagram, it shows the same figure. The
growth is clearly exponential, and follows the same pattern which is caused by network effects. In
figure 20, the value of a single Bitcoin is shown with a logarithmic scale:

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Figure 20: The price of a single Bitcoin on a logarithmic scale
The trendline shows the price follows an exponential development. The line has an proximity of
=0,901=90,1%, which shows a close correlation. It is important to remember the conditions of
Metcalfe's law, so no one expects this to continue for centuries. The growth is expected to follow
this path for some years, and then decline into a standard S-curve. As written, this can easily be
compared with a similar growth from other network based companies such as Facebook back in
2006-2008. If Bitcoins seize to exist and grow, a similar development will be expected to continue,
because of its inherent network effects built in. Therefore, it is also expected the ecosystem
surrounding Bitcoin will explode and become much bigger and better in very short time, if Bitcoin
seize to exist.

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Current status of Bitcoins and overview of the full ecosystem
Overview of the ecosystem
In order to understand how Bitcoin fit into the current ecosystem, it is placed in a triangle with
three actors:
The Bitcoin ecosystem
The current financial system
This is relevant as Bitcoin brings a new technology, which challenges the existing financial system.
However, regulation also plays a part in the triangle. Henceforth, the model is made as it can be
seen in figure 21:

Figure 21: Bitcoin vs. the current financial system
The Bitcoin ecosystem. This system contains anything from Bitcoin companies, foundations, miners
and people using Bitcoin.
Current financial system. This covers anything in the existing system, such as banks, payment
providers, exchanges and new services such as PayPal.
Regulation. This covers any form for regulation, taxation and laws made by institutions.
The three parties are connected in the following way: regulation is enforced on the current financial
system, with initiatives such as money laundering laws and know your customer act. However,
regulation is also forced on virtual currencies in general and therefore also Bitcoin. This might not
be clear right now, but as described in the regulation chapter, there is a trend of regulation is

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coming. Michael Grnager from Kraken, who has worked with the regulatory questions regarding
Bitcoin, told he expected a lot more clear regulation in 2014.
Bitcoin, however, also has an influence on regulation. Because of the unique nature, it forces some
updates on the existing laws
. However, regulation forces some rules on Bitcoin and their
businesses. Bitcoin is also influencing the existing financial system, by slowly becoming a part of it,
just as previous technologies such as PayPal became. However, the Bitcoin ecosystem learns from
the existing system, and implements some of the ideas and experiences from them. This will
especially be clear regarding to security, where experiences from the current bank systems would
become a big help for Bitcoin businesses.
We have now argued that the existing financial ecosystem also is an external factor to Bitcoin. The
existing ecosystem is obviously having an effect on the Bitcoin ecosystem, but it also gives
something the other way. Therefore, the existing ecosystem has been populated as a factor on the
ecosystem model, which can be seen in figure 22:

Figure 22: Current financial system populated to model

The Bitcoin ecosystem actors. In the Bitcoin ecosystem, one could argue there are the following
three elements: Bitcoin protocol, people and companies. This is a simplified view of it, as there are
much more elements such as miners, clients, investors and many others. But as a start, it is worth
looking solely at the three elements. This can be seen in figure 23:

This will most likely be in the form of new laws, that makes the existing laws more precise on
virtual currencies

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Figure 23: The Bitcoin system seen from above
People use both the Bitcoin protocol (and pay the miners fees) and use Bitcoin companies.
Companies provide a service to users, and they use the Bitcoin protocol and gives fees to miners.
However, an interesting aspect of this is hackers. As anyone can create a Bitcoin address with
Bitcoins, and is responsible for the security themselves, the users are subject to hackers. Because
of the monetary value in Bitcoin, the core programs running the protocol in itself is also subject to
being hacked. The last part of the triangle, the companies, is definitely also subject to being
hacked, as shown in the previous chapter.
Today people usually have money in a bank, which is secured and warranted by the state. With
Bitcoin the user is responsible for his own Bitcoins, which means hackers also have a huge
advantage in hacking the users
. The hackers, however, also provides something to the Bitcoin
ecosystem: they force a higher security requirement on all levels: all updates to the protocol has to
be secure and tested, companies have to consider security in their business models and users has
to use secure software.
The core Bitcoin ecosystem. As described, The Bitcoin ecosystem in itself has multiple actors. To
discuss the internal relations, these have been placed as follows in figure 24:

There has been talk in the community about blacklisting stolen Bitcoins. So far is it only ideas,
but it could potentially be implemented some day, where stolen Bitcoins would be worthless

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Figure 24: The Bitcoin ecosystem
It is important to note that the actors are shown as roles. That mean a single person or company
easily can have multiple roles. In the core system there are the following roles:
Companies. These companies work with Bitcoin and create services, which has a value for their
users. The users can be anyone in or outside the ecosystem. This is covered from page 57.
Investors and Bitcoin investors. Investors are the same as outside the Bitcoin ecosystem: people or
organizations investing in companies. Bitcoin investors are people who invest in Bitcoins and do it
for investment reasons. This can be compared to people investing in stocks or bonds outside the
Bitcoin ecosystem. Covered as a whole during the company chapter (page 57 and after).
Foundations. Foundations are local associations, trying to promote Bitcoin in any way. Covered from
page 62.
Users. The users are the daily users of the Bitcoin system. Nearly any person in the ecosystem is
also a user at the same time. Covered on page 56.
Exchanges. These are the actors who make sure money get in and out of the Bitcoin ecosystem,
either by offering exchange services, reseller services, ATM machines or other solutions. Covered on
page 59
Miners. Miners use their hashing power, to run the Bitcoin network and do payment clearing by
solving new blocks. Miners offer security to the system, by increasing the overall hashing rate and
thereby the difficult of mining. They can also reject or accept new updates to Bitcoin, as they
control the majority of the hashing rate. Covered on page 63.

However, in addition to the human element just covered, there is a technological aspect as well.
This is important to the Bitcoin ecosystem, as its not only a social concept:

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Hardware. Hardware can be seen as any physical element being created to support Bitcoins. This
can be anything from hardware wallets, ASICS or similar technology not even thought of yet
Computers. Computers are important for Bitcoin as well, as both companies and users use
computers to access Bitcoin. Therefore, they are a part of the ecosystem as well
Technology. The technology can be seen as many things. First of all there is an element of how the
general computer technology develops, such as processor power and how computers are perceived.
Another element is the technology being built and used on top of Bitcoin, and the technologies
companies build.
Users. When looking at the people using Bitcoin, there are different categories. According to the
interviews and rise in price, most of them are probably what I categorize as Bitcoin investors as
well. However, by looking at the users side of it primarily, these have different main purposes as
well. These are shown in figure 25:

Figure 25: The users of Bitcoin
According to the discourse analysis, there seem to be three categories of core users:
Everyday users. These are the core users of Bitcoin, who uses it for transactions, remittance, storage
and in general just use the properties of Bitcoin. They might be idealistic and love the technology as
Libertarians. These use Bitcoin as a mean to enforce their political ideology, and promote
anonymous features and hopefully a disruption of the concept of states
Gray users. These are the users who use shady services such as Silkroad to buy illegal products
such as drugs.
As shown in the sentiment analysis, the Bitcoin community is still very small and unstable. As one
of the first real use cases of Bitcoin was gray use, such as Silkroad or a libertarian ideology, I would
argue there is a bigger percentage of these users in the system than there will be later on. Therefore
I predict we will see a switch from a lot of gray users and libertarians, to much more regular and
normal users.
The libertarians and gray users are also the ones enjoying the anonymity of Bitcoin. As described in
the chapter about Bitcoin, it can be pseudo anonymous if used correctly. However, as a lesser
percentage of the overall users are going to be libertarians and gray users in the future, it is
expected the importance of the anonymity of the system will decline.

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Companies in the ecosystem
In this part the companies in the ecosystem will be used. That means were basically populating the
ecosystem model for companies, to understand what types of companies there are. To analyze the
current status of the ecosystem, we will look at the most prominent companies. The companies have
been selected by the following parameters:
Size in user base
Economic backing
Ease of interviewing (in order to obtain useful data)
In order to get a diversified portfolio of companies analyzed, companies in different industries have
been picked.
Cloud based Bitcoin wallets
Bitcoin wallets are a way to store Bitcoins. Companies have been created around these wallets to
make it easier for users to store their Bitcoins in a safe way. As people owning Bitcoin wallets
usually also wants more Bitcoin, and maybe want to spend their Bitcoins, a lot of services is
attached to wallets. This is done in order to make money and create a deeper lock-in effect.
Currently, these are the two very big Bitcoin wallets, which are both free. However, it is important to
notice that many wallets, including Coinbase, earns money by selling Bitcoins while their other
services remain free.
Coinbase. Is one of the biggest online wallets, and has 6 million USD in outside investments
[Coinbase, 2013]. Coinbase is based in the US, and uses a centralized wallet system. Coinbase is
known for a simple user interface, and makes it easy to both understand and use Bitcoins. As Zlatko
Bijelic from BitcoinStore said, Coinbase is one of the most important companies in the ecosystem,
because they make Bitcoin so simple to use. Coinbase has added a lot of services such as
authorized bank access, so American users can buy Bitcoins within minutes. In addition, they have
made it possible to send Bitcoins to a phone number and an easy way for merchants to accept
Blockchain.info. A huge Bitcoin wallet which is based in the US. Blockchain is known for its user
friendly website, where any visitor can look up information about Bitcoin addresses, transactions
and other data about the network. On the front page, every transaction made in Bitcoin is shown.
Jan Mller fra MyCelium said that Blockchain.info is the most important Bitcoin service, as it
makes Bitcoin simple for a lot of people. Because they also use a decentralized wallet system, it
makes it more secure than many of the centralized wallet solutions.
George Mandrik from Blockchain.info, told the biggest challenges for Blockchain was to hire
trustworthy people, as that is a requirement for working in the Bitcoin space. This shows that there
definitely is a growth in the wallet market. When asked about what the focus for any Bitcoin
company should be during the next years, he argued that security is a main theme, which shows
that they also try to avoid being the next misfortunate company being hacked.

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Mobile based Bitcoin wallets
To make Bitcoins simple to use for portable devices, several Bitcoin wallet apps has been created.
These wallets do not download the whole blockchain, and works either by downloading the block
headers or using an external cloud wallet system. Currently Apple rejects all Bitcoin wallets, and
Android is the prefered operating system for developing Bitcoin applications.
MyCelium. MyCelium is an app for Android, which can be used to store Bitcoins. Its developed by
Jan Mller, who is a Danish Bitcoin developer. It has been downloaded between 10.000 and
50.000 times
. MyCelium makes it easy to send and receive Bitcoins, using QR codes.
Bitcoin wallet. Bitcoin Wallet is the biggest Bitcoin wallet for Android, with more than 100.000
downloads. It is ranked #1 when searching for the term Bitcoin in the official Android store, which
gives it a lot downloads.
Payment processing
To make it easy for companies to accept Bitcoin payments, payment processors are important. They
cover two important roles: 1) Convert incoming Bitcoins to a fiat currency, and 2) Make it easy to
implement in standard software. This is a competitive market, where different companies compete
to make services.
BitPay. BitPay is the biggest payment processor in the Bitcoin ecosystem. BitPay is based in the
US, and had 2.7 million USD from outside investments [BitPay, 2013]. BitPay has third party
integrations to systems such as Wordpress, Magento, WooCommerce and Shopify.
Most interviewees said that BitPay is the most important company in the ecosystem
, as they make
it easy for companies to accept Bitcoin. Especially in April 2013 when Wordpress started to accept
Bitcoins, BitPay got a lot of publicity.
BIPS. BIPS is the biggest European payment processor according to Kris Henriksen, with above
1.000 active customers. BIPS is a Danish company. They have integrations to systems such as
Shopify, BigCommerce, WooCommerce and Prestashop. BIPS was hacked back in November 2013,
where all its users lost all of their Bitcoins.
Bitcoin exchanges are companies offering an exchange service where Bitcoins can be bought and
sold. The price of a BItcoin is controlled by supply and demand. In figure 27, the most Bitcoin
exchanges and their percentual distribution of the total market can be seen below. These data are
publicly available, as all exchanges show their daily volume.
There is a market for several different exchanges because their focus on a local area. As
departments need bank access locally or close to the senders country, no exchange has managed to
take the global market

Can be seen here: https://play.google.com/store/apps/details?id=com.mycelium.wallet&hl=en
Without doubt, this was the one company that was first in mind every single time
Obviously some exchanges attempt to cover internationally, but so far it has proven to be difficult
to cover internationally

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Figure 27: Distribution of Bitcoin exchanges. [Source: BitcoinCharts, November 2013,
Some of the most important exchanges are covered shortly:
MtGox. According to the stats which were shown in figure 19, MtGox was the biggest western
exchange in November. In 2011, MtGox handled more than 80% of all sales according to their
website, but has since gone down to a lesser percentage because of competition from other
BitStamp. BitStamp is the second biggest western exchange, with a growing volume. In Europe, it is
easy to get money in and out of Bitstamp using SEPA-transfers, which make them very interesting
for the European market.
BtcChina. From having a very small market share a year back, BtcChina has grown into the biggest
Bitcoin exchange in the world. BtcChina primary focus on the Chinese market, which has shown a
strong and growing interest for Bitcoin in 2013.
Btc-E. Btc-E is big in the eastern part of Europe, especially Russia.
In several interviews, these four has been called the big four. They all provide the same service,
just with different origin countries and markets. They are also expected to have some of the biggest
lists of members in the ecosystem, as all their users have to sign up and validate themselves.
The exchanges are currently quite simple, with very few features used in existing finance markets.
Some companies are trying to change that by creating serious finance systems with advanced
trading features.
Kraken. In September 2013, Kraken launched their finance platform [Gilson, 2013]. In the
moment of launch, it was primarily marketed as yet another exchange. However on the about page
of Payward Inc (the company behind Kraken), they write: [..] full-featured, professional trading
platform, which also was the vision when I interviewed Michael Grnager, who is an employee and
co-founder of the company. Kraken wants to be the most professional trading platform, with all the
finance features known from the normal trading world. In combination with the finance features,
Michael Grnager announced at the Danish Bitcoin conference they were the first company to sell
Bitcoin derivatives as well.

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Bitcoin resellers
Bitcoin resellers are intermediaries, who make it easier and simpler to buy Bitcoins. Usually people
can transfer an amount of money to a bank account, and Bitcoins are sent without question. This is
a much easier process than the exchanges, and therefore Bitcoin resellers are an important part of
the ecosystem.
BitcoinNordic. BitcoinNordic is the leading Bitcoin reseller in Denmark. BitcoinNordic charges a
4.9% fee when buyers buy Bitcoin. The owner, Lasse Birk Olesen, said the biggest opportunity for
BitcoinNordic is internationalization, and expanding into Europe.
ATM Machines
In 2013 the first Bitcoin ATM machine was launched for the public in Canada [Chang, 2013]. The
first machine was operated by Robocoin and Bitcoiniacs. Since then several new machines have
been announced to arrive in Q1 2014.Bitcoin ATM machines make it very easy to buy and sell
Bitcoins. As any person can go up to the machine and buy Bitcoins, it doesnt require the user to
register in any databases and send money across borders, unlike Bitcoin exchanges. Basically,
Bitcoin ATM machines lower the entry costs for the public to obtain Bitcoin.
Robocoin. The first Bitcoin ATM to become active live was the Robocoin machine in Canada
[Chang, 2013]. According to the articles in the discourse analysis, it has been quite successful.
Lamassu. An active Lamassu ATM machine was shown at the Danish Bitcoin conference the 28
november 2013, and planned to be placed in a shop short after. The first 15 machines was sold
around the same time, and will be around the world as well according to Lasse Birk Olesen.
Hardware equipment
There is a need for new hardware when working with Bitcoin. An example is Bitcoin miners, called
, which computer equipment is built with the single purpose of mining Bitcoins efficiently.
ASICs are much more effective than the average computer, which made it impossible to earn
money being a Bitcoin miner without using ASICs.
Since the first shipments of miners back in the start of the summer in 2013, the hash rate of the
Bitcoin network has skyrocketed, as it was shown in figure 9.
Butterfly Labs. Butterfly Labs was the first company to launch mining equipment. They had
problems delivering on time, and delayed for a longer period. Since theyve started delivering
products, and the hash rate has skyrocketed at the same time.
Avalon. Avalon describes themselves the following way on their website:
Avalon ASIC is an industry leader in designing and manufacturing Bitcoin auditing hardware. A
late entry to the ASIC development race, Avalon was initially crowd-funded by bitcoiners around the
world and was the first company to successfully complete and deliver auditing hardware.
Gambling and illegal activities

ASIC stands for Application Specific Integrated Circuit. Its a computer specifically made with a
single purpose, and is often much more productive towards that single task. This is also the case
with Bitcoin mining.

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The gray users of Bitcoin are a part of the
ecosystem, and therefore does the companies
dealing with gambling and illegal activities also
have an influence on the overall ecosystem. Another
reason why this is important, is that much of the
initial use of Bitcoin was the gray market such as
SilkRoad. SilkRoad was a website hidden on the
TOR network, where people illegally could sell and
buy drugs. It was shut down in October 2013 by the
FBI. SilkRoad is mentioned as it was an example of
an illegal use of Bitcoins. The website operated for
more than two years, with thousands of transactions
every day.
Shops and marketplaces
For Bitcoin to work as a payment system there has
to be practical uses for it as well. One use is shops
and marketplaces, where people can buy everyday
things with Bitcoins.
However, this type of market is splitted. One part is
companies selling their products and then accepting Bitcoin, and the other part is companies fully
adopting Bitcoin. So far companies such as Wordpress, OKCupid, and Gyft have started to accept
Bitcoins. In the list below, however, only the pure Bitcoin stores will be covered.
BitcoinStore. BitcoinStore is an American webshop, offering more than 500.000 products, only sold
for Bitcoins. In an interview with operations manager Zlatko Bijelic, he told they recently had a lot
of success, and was planning to expand world-wide instead of only mostly focusing on the US
market. Zlatko told that BitcoinStore was able to sell products cheaper because of Bitcoin. First of
all, the transaction fees are very low. Secondly, because fraud is nonexistent, as transactions are
News sites
Several websites with news related to Bitcoin opened in 2013. These play a role in the ecosystem,
as they write in depth articles about Bitcoin. This makes it easy for newcomers to understand
Bitcoin better, and provides a way users within the ecosystem can stay updated about Bitcoin.
CoinDesk. CoinDesk is one of the most popular news sites about Bitcoin. CoinDesk was founded by
Shakil Khan back in Q1 2013. Since then theyre above one thousand registered URLs on

This is true for normal Bitcoin transactions. It is likely a third party will become a part of the
transactions later using multi signature, with could maybe transactions reversible

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, and presumably a big amount of readers. Besides news, Coindesk has built a huge A
beginners guide to bitcoin and built a price index, which takes several exchanges into account.
Social media and communities
In regards to Bitcoin, there are some few places where the most important discussions happen.
Here the hardcore followers of Bitcoin can discuss subjects.
BitcoinTalk. BitcoinTalk was the first Bitcoin forum, started by Satoshi Nakamoto himself. The
forum has around 4 million posts, and is the most active Bitcoin community.
Reddit/r/Bitcoin. The Bitcoin subreddit is a highly active forum, with more than 70.000 readers. On
Reddit, news and discussions are shared and then voted according to popularity.
Internationally there are several Bitcoin foundations. These play a role to standardization of Bitcoin,
regulation and advising.
Global foundations
The biggest Bitcoin foundation is the Bitcoin foundation at BitcoinFoundation.org. According to
their website, their goal is standardizing Bitcoin, protecting Bitcoin and promoting Bitcoin. The
Bitcoin foundation has an affiliate program, and they want partnerships in the local communities.
On the board there are Gavin Andreasen (core developer of Bitcoin-qt), Mark Kapeles (CEO of
MtGox), Micky Malka (general partner of Ribbit Capital, venture capital firm), Jon Matonis (money
researcher), Elizabeth T. Ploshay (manager of communications of Bitcoin Magazine), Charlie Shrem
(CEO of BitInstant) and Peter Vessenes (founder of CoinLab).
The foundation has several people with economic interests, such as the CEO of the exchange MtGox
and the CEO of BitInstant. The Bitcoin foundation has a big influence, as they also fund the core
development of Bitcoin according to their website. Gavin Andresen, who is the lead developer of the
Bitcoin-qt project, gets a salary from the Bitcoin foundation.
Local foundations
In Europe several local Bitcoin foundations has been registered, for instance in Denmark, Belgium,
Sweden and Netherlands. Worldwide, foundations have been registered in many countries, such as
and Australia
Bitcoin miners
As described, miners are essential to the network. As there is only one reward pr. ~10
minute, the
miners collect in pools. These pools collect their mining power, and by doing that, increase their
chances of mining a block and get the rewards thereafter.
In figure 27, the distribution of miners is shown:


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Figure 27: Distribution of Bitcoin mining pools in November. Source: https://blockchain.info/pools
There are two very big players: BTC Guild and GHash.IO. However, there are several smaller miners
and a big pool of unknown miners. As described in the introductory chapter, someone with 50% or
more of the hashing power control the Bitcoin network. At the same time, it was showed that even if
a group of miners have less than 50% of the hashing power, it can potentially cause problems to
the network. It is important to remember that the pools doesnt consist of one person, so even
though for instance BTC Guild have 29% of the hashing power, the users behind BTC Guild can
change pool if they want to. Therefore, the 29% hashing power isnt necessarily good for the health
of Bitcoin, but its neither a huge problem, as users not are expected to follow a potential negative
change or attempt to damage the network done by the guilds.
BTC Guild. BTC Guild has a website, where anyone can join simply by creating a new user and
logging in. Then the user connects to the pool, and start mining. This simplicity makes a lot of users
use the guild, and therefore had 29% of the total hashing power in the network mid-November.
GHash.IO. GHash.IO is a private mining pool according to their website. They had 27% of the
total hashing power mid-November.
Hedge funds and financial institutions
As the common investor is used to buy stocks or bonds, it can be difficult to understand Bitcoin. In
an interview with an anonymous stock investor, he directly said I cannot invest in something where
I have to print out a physical paper, or use a website which might be gone tomorrow to keep my
investment safe!. Therefore, there have been discussions about creating stocks or ETFs
Bitcoin, in order to make it safer for the casual investor.
Winklevoss ETF. The Winklevoss brothers have tried to create an ETF, which would be a wrapper of
Bitcoin. This would make it easy for investors to invest in Bitcoin, without having the storage

Exchange-traded fund. An investment fund, traded on the classical stock exchanges

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Companies inside the ecosystem
In order to understand how the companies inside the ecosystem interact, the following graphic has
been created, which can be seen in figure 28.

Figure 28: Companies inside the Bitcoin ecosystem
The interesting thing in this graphic is the categories themselves. The actual companies inside is
not very interesting, as this thesis never tried to find the most important companies inside the
categories, but just a subset to analyze. Another reason why they are not interesting is because they
are constantly changing, and will look very different a few years from now.
The mining guilds are where it starts. They mine Bitcoins, and they use mining equipment. That
results in mining guilds (or its users) buying hardware from hardware companies. When mining
guilds have mined Bitcoins, they will either keep the Bitcoins or sell them on a Bitcoin exchange to
earn cash. That results in an inflow of new Bitcoins on the exchanges.
The exchanges are the connection between the current financial system and the Bitcoin ecosystem.
That is also why there are so many connections between exchanges and other categories:

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Bitcoin resellers buy Bitcoins from exchanges, and sell them for cash
ATM machines piggyback on exchanges, and essentially work the same way resellers do
ETF/finance institutions would use special deals with the exchanges, in order to buy/sell Bitcoins.
The only difference is they would buy huge amounts of Bitcoins
Payment processors are selling their incoming Bitcoins on exchanges, in order to have liquidity to
pay out to companies
Stores, both pure Bitcoin stores and companies just accepting Bitcoins, rely on payment processors
in order to process payments. This means they basically rely on the Bitcoin exchanges, as the
liquidity from payment processors come from there.
In addition, there are some more categories which arent directly linked to other parts. News sites
and foundations are both a part of the company ecosystem, but arent directly linked to anyone else.
In the center of the graphic, there are Bitcoin wallets. They are a central part of any category inside
the ecosystem. The ability to hold Bitcoins is essential to run any business. However, there are no
links between the different categories and the wallets, as they are a supporting part and not a
business relation between.

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Vertical integrations
It seems clear most companies in the ecosystem focus on a core competence, such as reselling
Bitcoin, hosting a wallet or something else. Very few companies try to cover many features. At the
same time, it seemed that most companies in the ecosystem either are small, or just recently
received funding. That makes it important to focus, as the amount of resources is limited. Therefore
it seems understandable there has been very little vertical integration so far. However, it is
interesting to observe a company such as Coinbase, which is starting to do a lot of vertical
integration, by adding a palette of new services. This seems to be a trend in the wallet industry,
where several services are created by the companies themselves instead of partnering up with
An observation worth mentioning is that as most companies have started from scratch at the same
time (Bitcoin gained publicity in 2011-2012 and many companies entered at the same time).
Henceforth, many companies started at the same level. As serious investors first seem to have
entered the ecosystem late 2013, many companies have started with an equal chance of becoming
. That also explains why there has been no huge companies dominating the space in several
areas yet. I would expect this to change soon. As bigger companies enter the ecosystem, investors
invest bigger sums (such as 9 mio USD to Circle) and companies want to dominate the industry. In
order to avoid contractual challenges, many of the companies would use a strategy of building
vertical integrations.
Ecosystem analysis
As described in the methodology chapter, the model from [Marshall, 2003] will be used to analysis
the system.
Define the problem
As an ecosystem, there are several issues and problems with Bitcoin. In the chapter Challenges
and gaps in the Bitcoin ecosystem two threats and gaps was described: Regulation and security.
However, besides these two threats, there are more problems which have to be considered. These do
not necessarily pose a threat, but is more of a challenge for Bitcoin:
The chicken and the egg problem (for merchants to accept Bitcoin)
It is very difficult to buy Bitcoins right now
The analysis showed some additional challenges which might be worth looking into: As a currency,
the market price is very volatile. Is this a problem? Well, some would argue it is, others wont.
Merchants would usually use a payment processor such as BitPay or BIPS to get fiat out anyway,
but as a stable currency it could become a problem.
However, if the view is broader, more problems arise. As covered, there is a huge list of potential
Will Bitcoin scale?

Compared to the normal company ecosystem, where some companies usually have much bigger
funding than others

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How to make Bitcoin secure?
Will Bitcoin become illegal? Will regulation kill the concept?
Will better cryptocurrencies make Bitcoin obsolete?
These are potential problems, and wont be covered in depth in this thesis.
Identify the key variables
The key variables are the most important variables that the Bitcoin ecosystem is built upon. The key
variables are the ones which has a huge influence on the current status and future situation for the
Every interviewee was asked the following question, which helped determine the variables:
- What should companies/organizations working with Bitcoin focus on during the next years, in order
to help Bitcoin become mainstream?
This provided a long list of focus areas, which then was easy to pin down to separate variables. In
combination with the analyses described, I would argue it boils down to four main challenges for
Bitcoin as a whole system: Regulation, security, acceptance and accessibility.
The variables are argued for here:
Regulation. This is a key variable as regulation can decide much of Bitcoins success. The simple
question of how it is treated (good, currency, commodity or something else), has an influence on
both the taxation and VAT. It also determines if companies need a money transmitter license.
If there is bad regulation, it can force Bitcoin into the underground. If it becomes either illegal or
highly inconvenient to use, it will probably cause Bitcoin not to grow much further
. Therefore, this
is an extremely important variable. It also goes the opposite way: if a country decides Bitcoin
becomes legal currency and promotes it as legal tender, it is Bitcoin will grow a lot in popularity and
use right after.
Security. As discussed, a lot of hacks against Bitcoin companies have been successful. When 18 of
40 exchanges had hacks in less than two years, many with all account balances lost, there is a
problem with security. Therefore, creating secure solutions for all actors in the ecosystem (both
users, companies and the core protocol), is a key variable which has to be a focus during the next
years. An important note to make about security is that it is a parameter expected within any
financial system. The security measures made in the modern world's banking systems are extremely
costly and difficult as well. This counts both the everyday users net banking, but also investment
platforms and banking software in general. Bitcoin is no difference, and when a group of people
with little to no experience with financial security work with financial systems, it could be expected
to be hacked.
Acceptance. The more Bitcoin is accepted by anyone in the current financial system, the more
Bitcoin will grow, as it will provide a new flux of users. Therefore acceptance is a key variable, as it
will have an influence whether Bitcoin will stay at what it is or grow.

This is debateable in the long run. A part of the Bitcoin following means this would be good for
Bitcoin, so it can continue to grow like bittorrent

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Accessibility. It is clear that when it becomes easy to obtain Bitcoins, more people will be likely to
do it. Its simple human nature: The easier something is, the more likely a user is to perform the
action. As described, getting into Bitcoins (both understanding and obtaining them) is a big hurdle,
and therefore is accessibility an important variable. This is also the main reason why Bitcoin
resellers and ATM machines are popular, as they lower the amount of knowledge and time required
to get into Bitcoin.
There are some variables which could be argued as key variables, which isnt listed. One of these
variables is scalability and development of the Bitcoin protocol. While these are extremely important
for Bitcoin in the long run, I dont see it as a key variable for the ecosystem during the next couple
of years. It is important the artificial technical limitations are removed, but right now I dont see it
as a key variable for the development of the ecosystem because the protocol works and needs other
things in order to grow. Another variable is the usage of new features in the Bitcoin protocol, such
as contracts and multisignatures. These are, however, also something which is several years out in
the future and not a direct influencer to the current ecosystem.
Describe how the key variables behave over time
As it is impossible to know how the variables will behave over time in the future, a look into the past
will be made here.
Regulation. As shown in the chapter of regulation, much of the regulation of Bitcoin has been made
in 2013. In 2012 there was the guideline from the European Central Bank about virtual currencies,
but not much else. Therefore, it seems that the more Bitcoin grow, the more clear regulation there
will be. Therefore, it seems reasonable to expect more final regulation will come with time passed.
As with policy in general, it would also be reasonable to expect an EU directive which determines
how virtual currencies are treated. In Q3 and Q4 of 2013, a lot of a regulation has come forth.
When regulation is clear, it also opens for companies as their know how to operate their businesses.
Security. The list of hacks and thefts showed that most of the hacks were back in 2011 or 2012.
The BIPS hack was in 2013, but in general, it seems there are less hacks. As discussed in the
analysis chapter, 18 of the 40 exchanges have closed. The closed exchanges primarily closed back
in 2011 and 2012, which can be seen in figure 29 [Moore, 2013]:

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Figure 29: List of Bitcoin exchanges historically. Source: [Moore, 2013]
Therefore, at the same time as Bitcoin has exploded in attention and user base, it seems the
amount of hacks has diminished. This shows that this variable which seems to improve over time,
as more professionalism comes into the picture.
Acceptance. As described, BitPay is the biggest payment processor in the Bitcoin ecosystem. In
figure 30, the amount of transactions pr. month is shown [Wong, 2013]:

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Figure 30: Monthly amount of transactions at BitPay. Source: http://www.coindesk.com/bitpay-
This shows a clear trend: The more Bitcoin grow the more widespread acceptance.
Accessibility. As with the other variables, it seem that accessibility is on the rise as well. As shown,
several companies dealing with accessibility started in 2013, which is making Bitcoin more
accessible. In last Q4 2013 the first ATM machines arrived, and in 2014 Bitcoins can be bought in
physical locations [Safahi, 2013].
Identity casual links between variables
In 2013, Bitcoin grew massively. There seem to be a link between the development of the variables
in general and the growth of Bitcoin. This makes a lot of sense as when Bitcoins becomes bigger
and gets more publicity, there is a lot of attention to all the variables. Attention to Bitcoin leads to
rise in price and when the price rises, the economic incentives to improve the variables rise as well.
Regulation. As Bitcoin grows, more companies and people become interested in Bitcoin. They
demand clear regulation, especially as a company, as they rely on some clear answers. This forces
the regulation variable. At the same time, as more publicity hits an area, it becomes clear some
regulation has to be made on the area. Therefore, there is a link between growth and more clear
It is important to notice that the regulation isnt necessarily positive, but there is a clear trend that
when Bitcoins become bigger, answers are demanded from the authorities, positive answers or not.
Security, acceptance and accessibility. These three variables seem to have a link between them. As
Bitcoin grow, there is a wider acceptance. This also leads to a better accessibility in general. The
security is also a product of the growing accessibility, which means they all grow with the publicity
and growth Bitcoin have.
A reason why the development of the variables seems to follow the same pattern is that with an
increase of monetary value of Bitcoin, new investors enter Bitcoin. This enforces more clear
regulation (however, slowly), but also increases security, acceptance and accessibility. It is
important to notice that the links between these variables might not be very interesting. As long as

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Bitcoin grows, there is plenty of incentives to grow all of these variables. Therefore, this variable is
expected to be linked and grow at least during the next years.
I would argue that it seems regulation is the biggest variable in the equation. While security,
acceptance and accessibility seem to grow, they all grow on the assumption Bitcoin as a whole will
grow bigger. In the extreme case Bitcoin became illegal, I think it is fair to assume the general
persons attitude Bitcoin would be it would not grow much further. In that case, I find it reasonable
to assume security, acceptance and accessibility to fall at the same time. Another reason why
regulation is the key variable is because companies and investors need Bitcoin to be legal in order
to invest in it. With clear regulation, it seems reasonable there is less doubt dealing with the
technology, which will promote it. Sure, some in the community, especially those believing in a
disruption of the state and a general trend of centralized systems to decentralized systems, believe
the accessibility part is more important. The arguments I heard in some of the interviews was that
there is a chance countries will make Bitcoin illegal, but the technology would prevail, just as
BitTorrent and similar decentralized technologies have done.
All variables work under the assumption the Bitcoin protocol work. There is a very unlikely
possibility there is a weakness in the protocol, which could overthrow Bitcoin. None of the four
variables would matter if the network was hacked for real. However, this thesis works under the
assumption it works, and this wont be covered as a possibility.
Identity the gaps in the systems
In some of the interviews, the following story about the challenges of Bitcoin came ahead:
It is difficult to buy Bitcoins. First the user has to understand how to create a Bitcoin address.
Then the user has to authenticate with the exchange, and upload documentation. Then the user has
to transfer money to a foreign bank account. Then, the user has to go to the exchange and buy
Bitcoins. Then the user has to keep them safe
The absolutely biggest usage gap in the Bitcoin ecosystem is a general sense of accessibility and
convenience. Some examples of the current gaps is:
When a user makes a transaction, they need to copy/paste a 34 character long address into their
wallet, in order to send. My personal experience from the Danish Bitcoinfoundation is most people
dont get that right off the start
When a merchant makes a sale and the order is canceled, the merchant cannot return the
There is no proof of payment built in (besides the transaction is stored in the blockchain, but that
is pseudo anonymous data)
As Bitcoins transactions are irreversible, the user always has to trust the merchant, which is bad
security for the user.
All of these points have obvious technical solutions, and especially the BIP 70 implementation
described earlier will solve these accessibility gaps. The problem about irreversible transactions can
be solved by using multi-signatures, which could work as a built in type of escrow service. If the
security variable is analyzed, it is definitely a gap from the users perspective. On the merchant's
side, none of the bigger trusted services has been hacked yet. Because of that, we dont know how

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big a gap the security variable really is. But as shown in figure 16, the companies (and therefore
merchants), is only one part of the triangle, which means the security has to improve a lot for the
private user.
There are two arguments in the interviews and articles about the acceptance of Bitcoin. The first
argument is that Bitcoin really cannot be used for any purchases at the moment, which is a big gap.
The second argument is that Bitcoin has grown a lot in acceptance. Both arguments are different
sides of the same coin: A big gap in Bitcoin is that it isnt widely used and accepted.
Identifying the leverage points
I would argue that Bitcoin has built in a leverage point, which is the biggest leverage point of them
all: an inherent economic incentive to Bitcoin early adopters. When people normally work at a
company, the incentives are usually in the form of wages and exciting work. However, in the Bitcoin
ecosystem, anyone owning Bitcoins has an extra incentive in form of the rise of value pr. Bitcoin.
Therefore, I would argue Bitcoin has two big leverage points. The first leverage point is the usual
leverage points of starting a business, and the second is the pure speculation vehicle of Bitcoin.
Therefore, solving the currently described gaps and variables all have the economic incentive built
in. These leverage points exist primarily on the user and business side of the triangle, and not so
much on the protocol level.
On the macro-scale, Bitcoin also have leverage points. As a concept, it is arguable that Bitcoin is a
potential threat to existing economies. If Bitcoin only was made for a single country, one could
imagine the perception had been negative and a ban couldve been enforced. However, as Bitcoin is
a global concept, it is less feasible to make very negative regulation. As long as one stable country
has positive regulation, the technology can be developed from there. Currently countries such as
Korea and Germany have been positive towards Bitcoin. If the regulation in Korea and Germany is
not changed, it will be difficult for other countries to make decisions much different, as the Bitcoin
industry could just move to these countries.
Determining the next action steps
During the next couple of years, the Bitcoin ecosystem will evolve. In order to make an assumption
about these action steps, the four variables will be covered separately.
Regulation. Companies and people working with Bitcoin, has to keep pressuring their local
governments to make clear regulation. The regulation has to be done by authorities or politicians,
who will be influenced by the people. The next action steps for regulation will therefore be a natural
pressure to create clear regulation in the local societies.
For security, the general security has to improve doing the next years. It seems obvious a lot of the
experiences from the existing financial ecosystem can be used with Bitcoin. There are already the
first signs of this happening when looking at companies such as Coinbase or Kraken. The next
action steps for security, is learning from the current financial ecosystem and just improving the
security in general.
Accessibility will have to improve; both by making services easier, but more importantly get Bitcoin
out in the real world. The first signs of this are already happening with ATM machines and ZipZap
whom puts Bitcoin in stores. However, till Bitcoin is available in many physical stores and the
common money transmitters such as PayPal and Western Union support it, its not widely

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accessible. The next steps will therefore be to get many new payment methods working, and
evolving out to the real world. I would also expect many new partnerships, which make it easier to
buy and learn about Bitcoin.
Acceptance will also improve, by payment processors becoming better. BitPay, Coinbase and BIPS
all work hard to improve the acceptance in shops, both online and offline. The next action steps will
be additional sales from these actors and new ones, but also partnerships with existing businesses.
The first examples of this have already started, with BitPay making it easy to accept Bitcoins in
Shopify solutions.
Bitcoin is a multi-sided platform, with network effects working on many different levels. That results
in an exponential growth, because of the network effects.
The Bitcoin ecosystem fits together with the current financial system, and the exchange rate of a
single Bitcoin describes the value between the two. The ecosystem interconnects with both
regulation and the current system, and both receive and provide experiences with those
connections. The whole ecosystem can be describes as having a social construct containing entities
such as companies, associations, miners and users. On the technical side, there is hardware,
technology and computers. In the center of the ecosystem there is an algorithm keeping it all
See the Bitcoin ecosystem from the companys perspective; I have categorized the large groups of
exchanges, resellers, ATM machines, ETF/finance, news, payment processors, stores, foundations,
hardware and mining guilds. The flow is that mining guilds use hardware to get Bitcoins, which they
sell to the exchanges. Then they are sold throughout most of the ecosystem, and a lot of services
rely on real time exchange to dollar on the exchanges, which brings exchanges to being a
cornerstone player of the ecosystem. In addition, Bitcoin wallets are a supporting requirement for
nearly all businesses.
There are four key variables when analyzing the ecosystem. These four variables are security,
regulation, acceptance and accessibility. Its argued that regulation is the most important variable,
with most influence on the other variables. During the next years all the variables will have to grow,
which will happen both with natural development, but also with new partnerships.

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Discussion and summary
In the daily operations, it seems there are a couple of companies for any product category. For
instance, looking at the wallet market, there are two to three major players. The same is true for the
exchange market, where there are four big exchanges which battle for the market share. However,
businesses also have a local advantage. The exchange market shows that the exchanges has market
share in a local community, and then have a tail of trade outside the local community. The same is
true for the payment processing, where BitPay has the international market, but BIPS still is the
strongest within Europe.
On the finance side of Bitcoin, which requires startup capital and a lot of work and experience from
that sector, there isnt a huge battle at the moment. Kraken is the only big financial system. This
suggests that while a lot of Bitcoin companies start, they pick product categories which are easier to
start without outside capital and deep industry knowledge. A general trend which seemed to be
consistent all over the actors in the ecosystem is a big growth. All interviews with Bitcoin
companies, with no exceptions, told they experienced a recent explosive growth, and some told that
growth was their biggest challenge.
The ecosystem
In the previous chapter the ecosystem was concluded, which can be seen again in figure 31:

Figure 31: The final Bitcoin ecosystem
That summarizes the ecosystem. There are internal and external elements:
In the center of the ecosystem there is the Bitcoin algorithm. Anything in the ecosystem relies on
the algorithm to work and keep improving. Besides that, there are two overall elements: the human
factor and the technical factor. The human factor has six overall elements: users, companies,
exchanges, associations, miners and investors. In addition, there is a technology factor as well. The
human factor relies on hardware, computers and technology in general. Externally there are four
influencers: competitive technologies, regulation, hackers and the currency financial system.

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If this is compared to the original ecosystem model (figure 33), there are some similarities and

Figure 33: The original ecosystem model
The biggest similarity is the structure in general. There are both users and companies, having
internal and external factors. However, the thing which makes Bitcoin very different from the
traditional ecosystem is the algorithm. In a traditional financial ecosystem, the whole trust relies on
a human factors as any financial institution is based on a social relationship between the user and
the companies, whether it is backed by a government or not. However with the algorithm it changes
that relationship from trust in the human factor, to trust in technology and the laws of mathematics.
That is what makes Bitcoin different - it changes the trust in people, to trust in mathematics.
How does Bitcoin open for depositary, contractual and investment institutions?
Its quite interesting that Bitcoin in itself actually is a depositary institution, as Bitcoins is stored on
an address. That means there is no need for third parties to store wealth. Loans and similar can still
be provided in Bitcoins, despite there are no formal institutions making loans in Bitcoin. However,
there is no reason why that wouldnt come to Bitcoin if it grows bigger.
Contractual institutions havent come to Bitcoin yet, but just as loans, is there no reason why that
shouldnt be possible for Bitcoin. Some would say that Bitcoin actually has this built into its core by
contracts, which would make it possible to automate a payout if something specific happened,
which would make it very central to Bitcoin.
Investment institutions could still exist as well, and there is no reason why that wouldnt come to
Bitcoin if it grew significantly in size. It is important to notice that depositary and contractual
institutions definitely would come much before, but if Bitcoin became a global concept, that would
be possible as well. As described, a global asset register system could easily be built into the core
of Bitcoin, which actually makes the purpose of investment institutions directly built in Bitcoin.
The important takeaway is that Bitcoin can solve what a financial ecosystem must solve. It is not
ready yet, which also means that Bitcoin isnt ready for being a financial ecosystem on its own. It
has the potential built in, and the code can support it, but the infrastructure is not built yet.

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Development in the ecosystem the next couple of years
In some interviews, I asked the question: Where do you see Bitcoin in five years?
Nearly all answers, except Jacob Hansen from Crowdcurity, were extremely positive. Some said
Bitcoin would be mainstream; others said most people probably wouldve used it. Even Jacob
Hansen was quite positive; with the only exception he believed it might become illegal for a period.
As shown, the four main variables seem to be regulation, security, accessibility and acceptance,
with the assumption the Bitcoin protocol has no fatal technical flaws. We also showed the
development of the variables comes a lot down to regulation, so the development of Bitcoin relies a
lot on regulation. However, when discussing the future regulation of Bitcoin, it is important to
remember the different properties of Bitcoin. I interpret the current regulation that it hints that
Bitcoin wont become illegal in the short term, and it wont be recognized as a currency because it
isnt legal tender. However, that still opens for Bitcoin as a payment system and as storage of value
being legal (but difficult if VAT has to be applied). The big question is whether there will be VAT on
transactions, which happens if Bitcoin is treated as a good, which is the case in Norway, Denmark
and United Kingdom
If the two assumptions, that Bitcoin as a protocol keeps working and regulation remains positive,
holds true, we are able to make some educated guesses about what will happen during the next
years. It seems clear that 2014 will be the biggest year for Bitcoin so far, with a growing interesting
from multiple parties. This is clear from a network effect perspective.
I also think we will see bigger investments in the Bitcoin ecosystem coming soon. The 9 mio USD
investment in Circle was a start, and more will follow. That will bring in bigger organizations to the
ecosystem; with will attempt to dominate the current actors. The ecosystem will also experience
acquisitions. If Bitcoin continue to grow, it is expected biggest investments companies would want
to acquire some of the biggest existing companies.
On the micro-level of the ecosystem, there will be a stronger competition on nearly all products.
That will bring a more broad range of products and services, but it will also improve any other
development variable. That means services will become more accessible, more accepted and more
secure. The services will also be broader, and use more vertical integration.
On the meso-level, it seems obvious partnerships and strategic alliances will be performed during
the next years. Currently there havent been a lot of partnerships, but it is expected to come. These
partnerships will both be within the Bitcoin ecosystem, where the user experience will be continued
at partners, but also with companies outside the ecosystem, in order to bring in new users and
target audience.
On the macro-level not much is expected to happen. In the bigger picture is Bitcoin still extremely
small, and wont impact any industry for real yet. It might gain some ground in the market as a
payment system or remittance technology, but probably not gain a big market share. What we might
see is some acquisitions, if existing companies not working with Bitcoin today, want to become part
of the ecosystem.

In December 2013, United Kingdom changed that decision

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Comparison to expectation
After thoroughly analyzing the Bitcoin ecosystem, it seems clear it has developed a lot during the
last year. Companies such as the four biggest exchanges, Coinbase and BitPay has detached
themselves as just another company, and have a big role in the ecosystem. They are easy to use and
provide enormous value. These few companies are starting to show a new level of professionalism,
with very easy to use services and a start of vertical integration.
When looking at the sources for the thesis, nearly anything related to Bitcoin is from 2013. All the
analyses also showed that it was late 2013 most happened. In general I would say that the Bitcoin
had evolved further than I expected. The discourse analysis also showed how many different areas
people had made up ideas for, which show some of the potential of Bitcoin.
A thing which surprised me, however, was the general hyper-optimism in the Bitcoin ecosystem.
Despite a lot of good things has happened in 2013, no one working with Bitcoin, seemed to believe
Bitcoin could fail, especially in the long run. Even Jacob Hansen who said it might become illegal in
USA or China, said that would be good for Bitcoin, because it would give the opportunity for it to
grow and become stronger, just like torrents and similar decentralized systems. I had expected a
more objective expectation from the developers, but it seems a lot like old vs. new, with no
chance of Bitcoin ever failing, which isnt the general populations opinion.
In the literature review it was shown that ecosystems usually are perceived from the three
perspectives: micro, meso and macro. In relation to Bitcoin, this was interesting as the actors inside
the Bitcoin system mostly have been active on the micro level, and much less on the meso and
macro level. This was a key finding, and it was later shown, that the actors inside the Bitcoin
ecosystem is expected to start focusing on partnerships and thereby work on a meso level as well,
and later on a macro level. The usual financial ecosystem model differed from the Bitcoin
ecosystem model, by the Bitcoin ecosystem being centered around an algorithm, while the usual
financial ecosystem usually just has actors and internal factors. Bitcoin is a technological invention
and not a social construct in the same way, which is clear when comparing Bitcoin to the ecosystem
literature. In a financial ecosystem, there has to be three types of institutions: depositary,
contractual and investment institutions. As shown, Bitcoin has elements from all these types of
institutions built in, and there is no limit in the technology for it not being possible. Therefore can
Bitcoin be seen as a financial ecosystem, solving more than just a payment system.
Bitcoin is a new technology, which brings a series of new cryptocurrencies. It has been showed that
for a lot of people, is Bitcoin primarily been an investment vehicle. However, there was found 13
different applications and areas, where Bitcoin could have a big role to play. The first real life
applications seem to be the areas of remittance, as a currency and for illegal activities.
No one knows that exact amount of users of Bitcoin, but it has a market cap above 10 billion USD.
The price is highly volatile, and cannot be trusted to stay the same two days in a row. It was shown
that the sentiment of Bitcoin is very positive when the media do not focus on Bitcoin, but turn
objective or negative when the media looks at Bitcoin. That shows Bitcoin still is very sensitive and

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Bitcoin isnt without risk. The most significant threat, which however seems unlikely, is still there is
a flaw in the underlying algorithms, which could ruin the whole system. A more likely threat, which
would have a huge impact, is bad regulation. There are two likely scenarios for bad regulation:
Bitcoin becomes partially or fully illegal, or Bitcoin is treated as a good with VAT. Both of these
scenarios would temporarily halt or stop Bitcoin assuming legal usage. Another risk is the reasons
why people enter Bitcoin. Many people do it purely for investment reasons, which threat if people
want to get out at the same time, which could crash much of the monetary value in Bitcoin.
The Bitcoin ecosystem differs from the casual financial ecosystem by having the following internal
elements: the Bitcoin algorithm at the center which supports the whole network, a social element
and a technological element. The social element covers users, companies, exchanges, associations,
miners and investors. These interact and are a vital part to the Bitcoin ecosystem. However, the
companies are probably the most vital internal element, and there are several interesting categories
of companies. It was shown the Bitcoin exchanges was the most interconnected category, which
shows a huge important for the exchanges right now.
The Bitcoin ecosystem relies on four important variables: regulation, security, accessibility and
acceptance. It was shown that regulation is the most influential variable, at least in the shorter run.
Currently Bitcoin lacks many things. One of the most obvious areas is in the regulatory space, where
little regulation is clear. It was also shown that regulation is the most important variable, as it could
damage Bitcoin so severely its questionable if it would survive or not. However, the accessibility
and acceptance lacks a lot right now. Security and trust is also an issue, with 18 out of 40
exchanges being hacked from 2011-2013. Bitcoin will face several challenges during the next
years. As argued, its very likely Bitcoin will experience its biggest year in 2014, and 2015 will be
bigger. Therefore, many of the questions about regulation, technology and scalability will be
answered the next couple of years, which will become a challenge.
During the next years, we will see a growth in the four variables. Weve shown that Bitcoin grow
exponentially, and is exposed to network effects. Therefore, the growth is expected to be faster and
faster, with big players entering the industry in 2014.Where Bitcoin will end, we dont know. The
next years will be the years which determine the fate of Bitcoin. Maybe will it die, maybe it will
stagnate and stay where it is, or maybe, just maybe, can it disrupt the finance sector for real and
even make the world a better place.

An exploration of the Bitcoin ecosystem
Author: Lars Holdgaard from www.Bitcoin-Expert.net
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Future works
As it has been shown, Bitcoin is a technology subject to network effects. Therefore it is expected
that Bitcoin will grow exponentially. This is both the technology itself, but also the ecosystem and
its actors. Therefore, it would be interesting to make the same analysis in just a year or two. Here
the results would probably be different.
It is very interesting to look at the ecosystem from both a meso and macro level in a couple of years,
in order to see if Bitcoin has grown more mature in that matter. At the moment the exchange seem
to be in the center of everything, which might change if Bitcoin became much bigger.
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An exploration of the Bitcoin ecosystem
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Cohen, Reuven, 2013, Global Bitcoin Computing Power Now 256 Times Faster Than Top 500
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An exploration of the Bitcoin ecosystem
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Lorentzen, Marius, 2013, Skatteetaten har bestemt seg:Handler du bitcoins m duut med bde
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An exploration of the Bitcoin ecosystem
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Appendix A - Discourse analysis data
Positive / focus area
Payment system Storage of wealth Investment
Disruptor Chris Larsen returns with a
Bitcoin-Like payment system -
Big VC says Bitcoin
is 'Gold 2.0'. It's a
huge, huge, huge
deal -
Valuing BTC using a macro
framework -
Bitcoin: behind the bubble -
Bitcoin's vast overvaluation
appears partially caused by
(usually) illegal price-fixing -
Bitcoin infrastructure evolving to enable
greater use for payments -
78 percent of Bitcoin currency
stashed under digital mattress,
study finds -
The elephant in the payments room -
Fortresss Novogratz Says
Bitcoin Will Be Worth a Lot -

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Anonymity Gamling Currency Asset register
Forget Bitcoin Is
'Tor' the Best Way
to Anonymize
Digital Payments? -
Bitcoin: Making
online gambling
legal in the US -
Lets cut through the Bitcoin hype -
Could Bitcoin
be as
disruptive as
the World
Wide Web -

Could digital
currency Bitcoin
set online poker
free? -
The future of money -

Currencies of the future -

The death of banks and the future
of money -

Bitcoin And the Value of Money -

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Illegal activites Third world
safe havens
Yes you can buy drugs -
Bitoin poised
to grow in
Africa and
beyond -
Bitcoin really is
an existential
threat to the
modern liberal
state -
Boom: is this
the new safe
haven? -
Bitcoins: the currency of the darknet -

What Bitcoin is
teaching us -
Bitcoin may
be the global
last safe
haven -
Bitcoin Black Market Competition Heats Up,
With Pro Marketing And Millions At Stake -
should be
nervous about
Are Bitcoins
Europe's new

An exploration of the Bitcoin ecosystem
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Bitcoin, says
Rushman -
safe haven
currency? -
Bitcoin Great for Narco-Dollar Traffickers:
Pro - http://www.cnbc.com/id/100618934

Bitcoin is a money platform with many APIs - http://radar.oreilly.com/2013/05/bitcoin-is-a-

Bitcoin won't work Regulation
Iterations: How five real economists think about
Bitcoin's future -
RIP Bitcoin, I think -
5 Reasons
grids should
avoid Bitcoin -

An exploration of the Bitcoin ecosystem
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Strategist predicts end of Bitcoin -
This is what's really going to
happen to Bitcoin -

Obamas Fmr. Chief Economic Advisor On
Bitcoins Usefulness: Hahahaha. ROTFL -
Winklevii Warn Investors in
Their ETF That Bitcoin May
Become Illegal -

Why Bitcoin is doomed to fail -

Why dollars are better then Bitcoins (and
always will be) - http://www.zdnet.com/why-

Bitcoin is a joke -

Sorry - Bitcoin isn't a currency -

Bitcoin Combines Ph.D-Level Computer
Science With Sub-Kindergarten-Level Monetary
Understanding -

Don't trust anonymous e-currencies like Bitcoin
- http://www.infoworld.com/d/security/dont-

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No need Technical problems
The antisocial network -
Bitcoin Is Broken -

Bitcoin at risk of network attack, say
researchers -

Appendix B - Negative tween analysis

An exploration of the Bitcoin ecosystem
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Appendix C - interview table

Player name Person Position Date Where
Keywords in

Bitcoin money sellers
Lasse Birk
Olesen Owner 24/11/2013 Skype

Grnager COO 12/12/2013 Skype

MyCelium Jan Mller Owner 26/11/2013 Skype
Mandrik Unknown 27/11/2013 Hangout

Bitcoin Foundations
Danisy Bitcoin
economist 2/11/2013 Real life
third world

An exploration of the Bitcoin ecosystem
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Bitcoin merchants
Manager 25/11/2013 Skype
ease of use

News sites
Manager 4/12/2013 Skype Convinience

Hansen Co-founder 9/12/2013 Hangout
Future of
revolution of

Casual investors
Private investor Anonymous Himself 15/11/2013
Real life -

Appendix D - interview questions
What do you see as the most interesting applications of Bitcoin?
Who do you see as the most significant and important companies working with Bitcoin?
What do you see as the biggest threats to Bitcoin in general, and to the companies/organizations
working with Bitcoin?
Bitcoin has for a lot of people primarily been an investment. Do you see that change in the coming
What should companies/organizations working with Bitcoin focus on during the next years, in order
to help Bitcoin become mainstream?
What do you think it will take for Bitcoin to become truly mainstream?
Where do you see Bitcoin in five years?

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What are the biggest challenges you currently have as a company / organization?
What are the biggest opportunities you currently see as a company / organization?

Appendix E - conference speakers

Speaker Company Title Title of talk Keywords
Ole Bjerg CBS Lecturer
What is money?
And what kind of
money is
Money, money
Michael Grnager Payward COO What is a Bitcoin Bitcoins
Pascal Mikkelsen Chairman
Predicting the
future of Bitcoin
Social structure,
value, ecosystem
Peter Nrregaard SKAT
Bitcoins - best in
class, or terrible
tool for fraudsters Regulation
Jon Matonis
Developing a
more open
Dr. Michael
Maier Chairman Fidor Bank AG
Bitcoin and
business models
Joerg Platzer
Crypto Economics
Consulting Group
A bitcoin
community right
round the corner
Real life
Martin Carlsson Board member
Bitcoin - the
impact on
national and
economies Economy, society
Jacob Hansen Bitcoinfilm.org Co-founder
A bitcoin outlook
- what happens
Global, real life

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globally right
Rasmus Brygger Chairman
Liberal Alliance's
Bitcoin seen from
a politicl
perspective Politics

Appendix F - sentiment analysis

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Appendix G - average amount of transactions

Date Transactions Date Transactions Date Transactions
01-10-2013 55320 21-10-2013 58142 10-11-2013 57169
02-10-2013 60542 22-10-2013 64906 11-11-2013 54558
03-10-2013 61708 23-10-2013 54572 12-11-2013 58510
04-10-2013 54796 24-10-2013 63265 13-11-2013 63151
05-10-2013 47895 25-10-2013 59853 14-11-2013 70175
06-10-2013 44751 26-10-2013 49353 15-11-2013 62100
07-10-2013 43235 27-10-2013 44388 16-11-2013 51595
08-10-2013 42865 28-10-2013 48635 17-11-2013 48041
09-10-2013 46991 29-10-2013 51237 18-11-2013 73198
10-10-2013 57769 30-10-2013 47911 19-11-2013 93322
11-10-2013 54449 31-10-2013 56476 20-11-2013 77962
12-10-2013 49674 01-11-2013 48306 21-11-2013 71024
13-10-2013 51248 02-11-2013 41179 22-11-2013 76646
14-10-2013 55763 03-11-2013 35815 23-11-2013 75165
15-10-2013 57320 04-11-2013 42094 24-11-2013 60018
16-10-2013 51947 05-11-2013 51134 25-11-2013 71937
17-10-2013 45193 06-11-2013 55035 26-11-2013 80055
18-10-2013 60446 07-11-2013 58631 27-11-2013 91169
19-10-2013 54639 08-11-2013 59961 28-11-2013 102010
20-10-2013 49864 09-11-2013 57804 29-11-2013 90409
30-11-2013 84351
Average: 59142