Difference between revisions of "Group 4 Overview"

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[[File:Bitcoin.png|180px]]  
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<font size = 5; color="#ffffff">Group 4 Project - A Tale of Bitcoin</font>
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<font size = 5; color="#ffffff"><span style="font-family:Century Gothic;">Group 4 Project - A Tale of Bitcoin</span></font>
 
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[[Group_4_Overview| <font color="#FFFFFF">'''Overview'''</font>]]
 
[[Group_4_Overview| <font color="#FFFFFF">'''Overview'''</font>]]
 
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[[Group_4_Poster| <font color="#FFFFFF">'''Data Prep'''</font>]]
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[[Group_4_Data_Prep| <font color="#FFFFFF">'''Data Prep'''</font>]]
 
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[[Group_4_Poster| <font color="#FFFFFF">'''Design & Built'''</font>]]
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[[Group_4_DesignBuilt| <font color="#FFFFFF">'''Design & Built'''</font>]]
 
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=Motivation=
 
=Motivation=
−
Some of the major bitcoin headlines in the past months
+
Some of the major bitcoin related headlines in the month of September and October of 2017 include:
 +
# China banned cryptocurrency. The following is 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.”'' 
 +
# 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.”''
  
−
# 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)
+
Judging from these news, there is, without a doubt, a lot of hype in cryptocurrency and, at the same time, cautionary views on the roles it should play. No one can discount the fact that recent technology has disrupted various industries in many ways; and bitcoin (we will use bitcoin as a representation of cryptocurrency in this article) is seen as a potential disruptor.
−
# 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"
+
Bitcoin was first introduced in 2009 by a person that goes by the pseudo name Satoshi Nakamoto. The system is such that bitcoins will be ‘mined’ on a daily basis adding to the volume of bitcoin in circularisation. The supply of bitcoin is defined by its algorithm which ensures there is a steady or at least less volatile supply of bitcoin. The price, on the other hand, follows a simple economic rule of demand and supply. Prior to 2016, the price had never touched $1000. However, things have changed.  
−
# CNBC news on 2nd October: “Goldman Sachs exploring bitcoin trading operation”
+
So, what then causes the price to exceed and surge up to $7000 (as of October 2017)? Was that due to a sudden glut in supply? And how high can the price go?
−
# 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.”
+
What puzzles us is the fact that there are a lot of talk over news media but little action is seen to be taken to give stability to bitcoin. One possibility is the lack of information and studies done on bitcoin to provide a clear direction for the authorities. Thus, in this article, we seek to:
  
 +
# explore various visual analytics that will give a better insight to price trend and movement; and
 +
# other comparatives against different commodity types and risk
  
−
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=
  
 +
Before proceeding any further, it is essential that we clarify what is meant by bitcoin. Bitcoin is a form of cryptocurrency. There are many other forms of cryptocurrency such as ethereum and tether. We have chosen to analyse bitcoin because it is the first of its kind in terms of technology and implementation.
  
−
=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.  
+
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.
+
There are, on average, 251,000 transactions per day . All new transactions will be verified and added to the blockchain at 10 minute intervals by nodes in the network. These nodes are also known as miners. The new transactions together with the relevant blocks added to the blockchain are broadcasted throughout the network. This is one of the major advantages of blockchain technology – where the entire network shares and is able to view all data.
  
  
−
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.  
+
Blockchain acts as a general ledger. Its integrity needs to be protected and thus hashes, a cryptography method, have some interesting properties that are vital to achieving this. The cryptography method used is known as SHA256. This cryptography method makes it is extremely difficult to reverse engineer the original message once the data has been encrypted. Each time a new block is added to the block chain, a reference is made back to the previous hash. Thus, the new hash is unique and incorporates traces of the historical transactions. In order for anyone to temper with the blockchain, one would need to re-run all the hashes in the entire blockchain, which is impossible.
  
  
−
It’s uses currently is limited as can be seen that it is not widely accepted in most major stalls.  
+
In order to obtain a bitcoin, one could be a miner or purchase a bitcoin through one of the exchanges available worldwide. These exchanges publish the prices daily.  
  
  
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|-
 
|-
 
| Price of Gold (XAU) || https://finance.yahoo.com/quote/%5EXAU/history?period1=1325347200&period2=1510243200&interval=1d&filter=history&frequency=1d
 
| Price of Gold (XAU) || https://finance.yahoo.com/quote/%5EXAU/history?period1=1325347200&period2=1510243200&interval=1d&filter=history&frequency=1d
−
|-
 
−
| US Housing Price Index || https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index-Datasets.aspx#mpo
 
 
|-
 
|-
 
| Nasdaq Composite Index || https://finance.yahoo.com/quote/%5EIXIC/history?period1=788889600&period2=1510243200&interval=1d&filter=history&frequency=1d
 
| Nasdaq Composite Index || https://finance.yahoo.com/quote/%5EIXIC/history?period1=788889600&period2=1510243200&interval=1d&filter=history&frequency=1d
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*Data Preparation
 
*Data Preparation
−
*Preparing visualisation
+
*Application built
 +
*Analytics
 +
*Report
 
*Poster
 
*Poster
  
 +
=Acknowledgement=
 +
 +
We would like to thank Professor Tin Seong Kam (Singapore Management University) for his relentless guidance for this project.
 +
 +
 +
=Authors=
  
−
=Technology in Application=
+
Hon Tak YAU (Singapore Management University)
−
The following tools will be used in this project
 
  
−
*R
+
Yutend DENG (Singapore Management University)

Latest revision as of 16:46, 30 November 2017

Bitcoin.png Group 4 Project - A Tale of Bitcoin

Overview

Data Prep

Design & Built

Report

Poster

R Application

 


Motivation

Some of the major bitcoin related headlines in the month of September and October of 2017 include:

  1. China banned cryptocurrency. The following is 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.”
  2. 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."
  3. CNBC news on 2nd October: “Goldman Sachs exploring bitcoin trading operation.”
  4. 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.”

Judging from these news, there is, without a doubt, a lot of hype in cryptocurrency and, at the same time, cautionary views on the roles it should play. No one can discount the fact that recent technology has disrupted various industries in many ways; and bitcoin (we will use bitcoin as a representation of cryptocurrency in this article) is seen as a potential disruptor. Bitcoin was first introduced in 2009 by a person that goes by the pseudo name Satoshi Nakamoto. The system is such that bitcoins will be ‘mined’ on a daily basis adding to the volume of bitcoin in circularisation. The supply of bitcoin is defined by its algorithm which ensures there is a steady or at least less volatile supply of bitcoin. The price, on the other hand, follows a simple economic rule of demand and supply. Prior to 2016, the price had never touched $1000. However, things have changed. So, what then causes the price to exceed and surge up to $7000 (as of October 2017)? Was that due to a sudden glut in supply? And how high can the price go? What puzzles us is the fact that there are a lot of talk over news media but little action is seen to be taken to give stability to bitcoin. One possibility is the lack of information and studies done on bitcoin to provide a clear direction for the authorities. Thus, in this article, we seek to:

  1. explore various visual analytics that will give a better insight to price trend and movement; and
  2. other comparatives against different commodity types and risk


A brief introduction to bitcoin

Before proceeding any further, it is essential that we clarify what is meant by bitcoin. Bitcoin is a form of cryptocurrency. There are many other forms of cryptocurrency such as ethereum and tether. We have chosen to analyse bitcoin because it is the first of its kind in terms of technology and implementation.


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 .


There are, on average, 251,000 transactions per day . All new transactions will be verified and added to the blockchain at 10 minute intervals by nodes in the network. These nodes are also known as miners. The new transactions together with the relevant blocks added to the blockchain are broadcasted throughout the network. This is one of the major advantages of blockchain technology – where the entire network shares and is able to view all data.


Blockchain acts as a general ledger. Its integrity needs to be protected and thus hashes, a cryptography method, have some interesting properties that are vital to achieving this. The cryptography method used is known as SHA256. This cryptography method makes it is extremely difficult to reverse engineer the original message once the data has been encrypted. Each time a new block is added to the block chain, a reference is made back to the previous hash. Thus, the new hash is unique and incorporates traces of the historical transactions. In order for anyone to temper with the blockchain, one would need to re-run all the hashes in the entire blockchain, which is impossible.


In order to obtain a bitcoin, one could be a miner or purchase a bitcoin through one of the exchanges available worldwide. These exchanges publish the prices daily.


Data Set

Follow the link for data sets used

Data Data Source
Bitcoin Price https://https://www.kaggle.com/mczielinski/bitcoin-historical-data
S&P 500 index https://finance.google.com/finance/historical?cid=700145&startdate=Jan+1%2C+2012&enddate=Nov+10%2C+2017&num=30&ei=3fkEWqiNE4msugTy2LPYBQ
Price of Gold (XAU) https://finance.yahoo.com/quote/%5EXAU/history?period1=1325347200&period2=1510243200&interval=1d&filter=history&frequency=1d
Nasdaq Composite Index https://finance.yahoo.com/quote/%5EIXIC/history?period1=788889600&period2=1510243200&interval=1d&filter=history&frequency=1d


Milestones

  • Data Preparation
  • Application built
  • Analytics
  • Report
  • Poster

Acknowledgement

We would like to thank Professor Tin Seong Kam (Singapore Management University) for his relentless guidance for this project.


Authors

Hon Tak YAU (Singapore Management University)

Yutend DENG (Singapore Management University)

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