Economic Analysis of Cryptographic Currencies on the Basis of Bitcoin

Bachelor Thesis from the year 2014 in the subject Economics - Monetary theory and policy, grade: 1,3, Rhine-Waal University of Applied Sciences, language: English, abstract: Cryptocurrencies have gained increasing attention in the recent years. Especially Bitcoin is on his way from being a very little known phenomenon towards becoming a seriously recognized player in the economy. Its origin lies in the subprime mortgage crisis of 2007 after which crypto anarchists attempted to take the matter of money distribution in their own hands. In 2013, most people still didn't know what the term Bitcoin is associated with. In a survey, conducted by a German newspaper, 51% of the interviewed persons couldn't identify Bitcoin. The other half has heard about Bitcoin but could not give further explanation except of identifying it as a virtual cyber currency. There exists a great need for enlightenment about cryptocurrencies such as Bitcoin. Cryptocurrencies are often associated with the Wild West, as there are still lots of open questions concerning its nature juristically, economically and tax status. The price of a Bitcoin has been growing with recurrences of high fluctuations in the last years and has shown similarities to the concepts of a speculative Bubble. Is this statement justified? The media either praises Bitcoin as a great innovation, or demonizes it. This makes it very difficult to obtain an objective position about Bitcoin. This work analyses the characteristics of Bitcoin and evaluates their relevance for a sustainable existence. Are cryptocurrencies just a temporary phenomenon or should we expect them to prevail in the future? The intention of this work is to provide an economical analysis of cryptocurrencies by investigating its biggest representative, Bitcoin. The main research questions are therefore: • How does Bitcoin work? • What are the benefits and risks of Bitcoin? • How is the price of Bitcoin determined? • Can Bitcoin currently be identified as money? • What does the future hold for Bitcoins development?