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Researching Distributed Currencies.

Over the course of my time here studying Web Science, I would like to do some in depth research into distributed currencies. A distributed currency is a form of money with no centralized processor or controlling authority. At the moment there are only a handful of distributed currencies in existence, and the majority of them stem from Bitcoin. Bitcoin is a “totally” anonymous and distributed online currency. It’s similar to PayPal in that you can use it to buy things online and send/receive currency quickly and conveniently.

PayPal is the opposite of a distributed currency, it’s centralized. PayPal handle all the processing of transactions, and they are also the authority for all transactions and for this service they charge a small fee on each transaction (varying from 2% – 8% of a transaction + a fixed 20p.) If PayPal doesn’t like a transaction, it will slow it, stop it or outright take your money away (googling PayPal took my money returns over 6million results.)

A distributed currency is not centralized. The transaction processing is handled by anybody who chooses to use the currency which normally involves running some client software. Because it’s running on anybodies computer, the currency must be designed in a secure way that doesn’t allow individual clients to tamper with or reverse transactions. The implications of this are a totally unregulated currency where nobody can decide what is right or wrong.

The pro’s of this are that people can make transactions for anything they want, without the worry of their account being frozen or their transaction being blocked or slowed or outright refused by a regulatory authority like PayPal. There is no single point of failure (or corruption.) Also, there is no mandatory fee’s to use these currencies or make transactions. The open distributed nature utilizes the internet in the way it was intended. It could be argued that centralized services governed by one authority undermine the entire point of have the internet (a distributed network) in the first place.

Bitcoin is totally anonymous also. If you want to receive money, you give someone a wallet address. You can have as many wallet addresses as you want which has the end result of it being impossible to link transactions to people. However, combine anonymity, money, and no regulation or authority and sure enough, you get criminals.

Bitcoin received a lot of publicity after the launch of a website called silkroad which was described as “the Amazon marketplace of drugs” which allowed users to by all sorts of illegal items including drugs and weapons – all paid for by the anonymous distributed currency Bitcoin. As well as Silk Road for weapons and drugs, there have also been suggestions that Bitcoin is used to trade in other illicit things such as hiring bot nets, hitmen, slaves, prostitutes and more.

Because there are supposedly a large amount of criminals using Bitcoin, there is a lot of fraud. Browsing Bitcoin forums and it’s not hard to find posts of people frustrated at being scammed out of several hundred Bitcoins (the current conversion is 1btc = $3) because there is no regulatory authority to reverse fraudulent transactions.

However, that’s not to say everyone that uses Bitcoin is a criminal or that every transaction is related to an illegal item. The idea of totally free online transactions should appeal to anybody that sells online, as it could result in lower product prices for the end user.

Over the course of my research, 1 of the many aspects of distributed currencies I would like to look into is ways of making a distributed economy that is less risky to use (e.g. reducing fraud and scams, it maybe that this means reducing anonymity) but maintaining the benefits of free transactions and no single point of failure/corruption.

My 2 subjects of research

My background is in computing science, I think it would be useful for me to also have a better understanding of economics and and criminology for the aspect of research above. Why?:

Economics: wikipedia described economics as “the social science that analyses the production, distribution, and consumption of goods and services.” I believe a deeper understanding of this and the methods associated with economics would allow me to conduct more informed, appropriate and educated research and to account for and explain the necessity of currency, trade and economies. Specifically I would like to look into online/cyber economics as it’s important to understand the differences (if any) between how people trade online vs. in the real world and how to cater towards these differences and incorporate them into my future research.

Reading Material
I’m not sure yet, I’ve been looking for economics books relating to the web and internet but have been unsuccessful in finding any so far. If anyone has any suggestions, please don’t hesitate to put them forward!

Criminology: wikipedia describes criminology as “the scientific study of the nature extent, causes and control of criminal behaviour in both the individual and in society.” In order to protect something against crime and fraud, I believe it’s important to first understand why people commit crime and fraud in the first place. Specifically I would like to look into cyber criminology to try and get an idea of the research methods used to access and understand such a dark corner of the web. I’d like to learn if and how researchers in this area get full, truthful and honest answers from an area that is inherently full of people willing to mislead.

Reading Material
Not 100% sure on this one yet, but here’s a few ideas:

Cyber Criminology: Exploring Internet Crimes and Criminal Behaviour (2011)

http://www.crcpress.com/product/isbn/9781439829493

“Approaching the topic from a social science perspective, the book explores methods for determining the causes of computer crime.”

Cyber Forensics and Cyber Crime: An Introduction (2008)

http://www.amazon.com/Computer-Forensics-Cyber-Crime-Introduction/dp/0132447495/

“It includes and exhaustive discussion of legal and social issues, fully defines computer crime…provides a comprehensive analysis of current case law, constitutional challenges and government legislation”