Difference between revisions of "Group 4 Overview"
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Revision as of 22:08, 27 November 2017
Group 4 Project - A Tale of Bitcoin
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Contents
Motivation
Some of the major bitcoin headlines in the past months
- China banned cryptocurrency. The following an extract from CNBC news: “On September 4, the People's Bank of China announced a ban on digital token fundraisers called initial coin offerings. Then last week, several major Chinese bitcoin exchanges including BTC China announced they would end trading by the end of the month amid reports Chinese regulators planned to shut down the exchanges.” (https://www.cnbc.com/2017/09/19/chinas-bitcoin-clampdown-is-likely-here-to-stay-analysts-say.html)
- Jamie Dimon, CEO of JP Morgan mentioned the following about bitcoin at a banking industry conference organised by Barclays on 12 Sept 2017: "It's worse than tulip bulbs. It won't end well. Someone is going to get killed"
- CNBC news on 2nd October: “Goldman Sachs exploring bitcoin trading operation”
- Chicago Mercantile Exchange issued an announcement on 31st October: “CME Group, the world's leading and most diverse derivatives marketplace, today announced it intends to launch bitcoin futures in the fourth quarter of 2017, pending all relevant regulatory review periods.”
If the above has not spur your curiosity, the following should. On Jan 1st, 2017, the price of 1 bitcoin is worth $997.69. And today, 11th July, it is now worth $7,382.45. That is 700% price appreciation.
There is a lot of hype around cryptocurrency and at the same time, cautious views on what cryptocurrency can and should do and what the real value is. No one can discount the fact that technology has disrupt in many ways across various industries. And bitcoin (we will use bitcoin as a representation of cryptocurrency in this article) is seen as a possible disruptor.
Bitcoin was first introduced in 2009 by a person that goes with a pseudo name Satoshi Nakamoto. Daily, there will is a number of bitcoins mined which adds to the volume of bitcoin in circularisation. The supply of bitcoin is controlled by the algo, to ensure there is a steady or less volatile supply of bitcoin. Price on the other hand, follows a simple economic rule of demand vs supply. The price had never touches $1000 prior to 2016. So, what then causes the price to exceed and surge up to $7000? Was it due to a sudden glut in supply? How far can the price go?
Looking up on the internet doesn’t give much answer to these questions. Thus, in this article we seek to explore technical analysis on the price movement, employing various visual analytics tools with R. We will also compare the returns on bitcoin against various index and commodities. While we do not seek to explore the fundamental analysis side of bitcoin’s value (which very little could be found anyway), technical analysis has still it’s worth, as proven of it’s used in other Financial Market trading.
A brief introduction to bitcoin
Bitcoin is a decentralized digital currency with no central server running the software. It operates through a peer-to-peer network of connected computers. The core of bitcoin is a distributed database that holds a copy of common asset ledger.
Users are sending bitcoins to each other all the time (Average of 251k transactions per day. Source: https://blockchain.info/charts). These transactions are verified and consolidated into a block, which is then added to the block chain by miners. The blockchain serves as a general ledger, which every user in the network has a copy. For the effort of adding this new block, the miners will be rewarded with certain number of bitcoins by the system. Thus, new bitcoins are created.
Since blockchain is the general ledger, the integrity needs to be protected and hashes, a cryptography method, have some interesting properties to achieve this. A block is created when a hash is discovered. To create a hash, you will need the following inputs: 1) previous hash in the block, 2) new transactions and 3) nonce. 1 and 2 are available information. While the 3rd, is an input which needs to be discovered through trial and error. This process keeps repeating until the block accepts the right format. And there is no way to tamper with the ledger without affecting the hashes, thus providing a quick way to proof the validity of the entire blockchain.
It’s uses currently is limited as can be seen that it is not widely accepted in most major stalls.
Data Set
Follow the link for data sets used
Milestones
- Data Preparation
- Preparing visualisation
- Poster
Technology in Application
The following tools will be used in this project
- R
