Group 4 Overview
Group 4 Project - A Tale of Bitcoin
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Contents
Motivation
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.”
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:
- explore various visual analytics that will give a better insight to price trend and movement; and
- 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
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)
