Research Paper on Blockchain and Bitcoin: Reimagining Electronic Transactions and Economic Systems

Introduction

Commerce and economic systems worldwide are entirely dependent on centralized institutions to process and settle electronics transactions (Nakamoto 2). Most of these institutions, which include banks and other monetary organizations, charge comprehensively for each transaction. Likewise, their clients also incur several hidden costs to maintain their accounts. Such is the nature of the current financial and economic system. Blockchain and bitcoin are some of the upcoming paradigms that turn the current system over and creates a disruption so great that predicting its future has become difficult. Blockchains and Bitcoin systems have changed the manner at which people trust, work together, transact and even identify themselves (Elsden et al., 4). Therefore, despite being new systems in the economy a considerable number of people have become interested in learning and transacting under Bitcoin and Blockchain as they have been transforming the conventional centralized electronic transaction lineages.

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Bitcoin and Blockchain Precursors

Decades before bitcoin was developed by unknown person or group of people universally referred to as Satoshi Nakamoto, people like David Chaum attempted to create digital currencies to break free of institutionalized monetary systems (Narayanan & Clark, 3). For instance, from the 1980s, digital cash systems like e-cash, offline e-cash, hash-cash, and bit-gold had begun to take over the economy (Nakamoto 7). However, digital currencies did not gain commercial success because they needed centralized systems like servers to run them. After its release in 2009, Bitcoin became the first commercially decentralized electronic peer to peer (P2P) currency that did away with centralized institutions like banks successfully (Nakamoto 7). It was a paradigm-shifting concept that later inspired the development of Blockchain technologies. Currently, Bitcoin and Blockchain have been disrupting economic systems worldwide making them some of the first growing cryptocurrencies.

Bitcoin's and Blockchain Theoretical Pedigree

Bitcoin and Blockchain were built from several ideas largely ignored in the literature. The developers of these systems are believed to have put seemingly unrelated ideas together to create the bitcoin system (Narayanan & Clark 5). In financial accounts, ledgers have developed as some of the most significant documents in preparation of financial statements. Bitcoin is basically a ledger whose entries are time-stamped and immutable. The entries are like chains pointing to previous entries. This makes them act like digital solicitors (Narayanan & Clark 6). The ledger uses a data structure known as a Merkel tree. The ledger is also faulted tolerant, meaning individuals trying to disrupt ledger operations by adding fake blocks will not succeed. As a result, Bitcoin helps in verifying transactions and solving the double-spending problem making computational easy to verify and validate.

Bitcoin and Blockchain Set-ups

Bitcoin's ledger is distributed and highly decentralized. Individuals called miners to solve the proof of work problems in a manner that secures the ledger. By solving one puzzle, a miner gets the opportunity to solve the next puzzle which coincidentally, is equivalent to processing transactions in blocks. In return, they get rewarded with new currencies. Bitcoin's genius lies in the way individual miners contribute to making the whole system secure through time-stamping, consensus scheme, and incentives (Narayanan & Clark 8).

Application of Bitcoin and Blockchain

A transaction in Bitcoin or Blockchain is a string encoding information about Party A, making a statement or giving something to Party B and signed by party A. The transaction is settled after the miners add it to the public ledger or Blockchain. Identities about involved parties are in the form of cryptography, which generates public keys and verification is done using private means. However, the process does not involve any central authority to register and add new users to the ledger. Anyone can create an identity by generating a new key-value pair at any time (Nakamoto 9). Therefore, Bitcoin operates under the notion of decentralized identity management.

The Emergence of Bitcoin and Blockchain and Their Disruptive Power

Having emerged from the ideology behind the formation of Bitcoin, Blockchain system partially resembles Bitcoin and its ledger data structure (Narayanan & Clark 6). Blockchains, therefore, selectively use Bitcoin's components in innovative ways to solve other problems in ways that Satoshi Nakamoto did not foresee. Mainly, this is the disruptive and transformative power of Bitcoin and Blockchain. A bank implementing a Blockchain ledger, for example, would have no use for consensus schemes, but the Merkle tree data structure and cryptographically generated identities would be very useful.

The decentralized nature of Blockchain is applied in services like digital assets, copyright and ownership, remittance and electronic payment (Zheng et al. 3). Blockchains can also be extended to sharing systems in the Internet of Things (IoT) and smart contracts (Huckle et al. 2). Likewise, financial activities such as international investment, payments, margin trading, insurance, and crowdfunding have already been implemented on Blockchain (Elsden et al., 3). Other areas in the economy that Blockchain has taken over gradually include supply chain management, logistics, manufacturing, and business information networks. In fact, Blockchain platforms such as eternity have been creating ecosystems closely interconnected, and sustaining through feedback loops (Pilkington 6). As a result, Blockchains have infiltrated society to the point where a Blockchain-based voting system could be used to brings transparency to existing democracies.

Ethical and Political Issues With Bitcoin and Blockchain

Some of the features of Blockchain and Bitcoin such as decentralization and anonymity open them up for serious misuse. The Silk Road, for example, was a website that sold illegal drugs and arms and payments were made through Bitcoin. Likewise, hackers use Bitcoin and other cryptocurrencies as their mode of payment for their illegal actions like removing ransomware. These issues are part of the ethical considerations surrounding Blockchains. There are no standards and implementations of how accountability is enforced within the system.

On the other hand, Bitcoin and other cryptocurrencies like Ethereum are unregulated and extremely decentralized. As a result, this raises issues with the government where the legal tender is being challenged, crypto transactions are not taxed and who owns and controls them. Some of these issues touch on the politics of how decentralized systems could exist in centralized environments without causing major problems. Anonymity is also another ethical and political issue surrounding Bitcoin and Blockchains. Most of the people who opt to use Blockchains and cryptocurrencies may be encouraged because of the anonymity they provide and not necessarily because they are committing illegal acts. Currently, these ethical and political issues are on standby with minimal literature or research being done to resolve them. However, despite some of the ethical and political challenges associated with cryptocurrencies Bitcoin and blockchain technologies have been disrupting and transforming the world. There is a paradigm shift everywhere including economic systems, governance systems, and financial systems among others.

Corruption

Corruption is the abuse of entrusted authority and discretion for illicit gain (Kaufmann & Vicente 1). It can also be defined as an action taken by a person of authority to provide special favor to a third-party for the benefit of one or all parties involved (Senior, 1). People, organizations, and governments can engage in corruption in various ways. When manifested corruption can be classified by its magnitude. For instance, grand corruption occurs when individuals in high positions of government abuse their authority to redirect policies. It undermines political, legal and economic systems for private gain at the cost of the public good. In this case, political corruption occurs when individuals manipulate policies, resource allocation, and finances to gain and sustain political power within a governance system (Elliott 2). On the other hand, petty corruption occurs at the lowest levels of society when individuals of low power abuse their authority in their daily activities.

Great thinkers and philosophers have thought about corruption and its effects on society at some point in their lives. For example, Plato, Aristotle, and Machiavelli wrote about the corruption of rulers in governments and democracies. Such is the public face of corruption, but what of private corruption? A lot of literature exists on public corruption and its manifestations. However, literature and research on private corruption are sorely lacking. Bribery, nepotism, and tribalism have become some of the most visible forms of private corruption. Therefore, they are various forms of corruption cases which makes the definition of corruption is non-exhaustive to cover all the manifested cases. As a result, this is a way of showing the extent corruption has preserved in human society.

Philosophy of Corruption

As illustrated, corruption manifests in ways that are out of the scope of the definitions provided so far. For example, public accountants skimming from public accounts, police officers who destroy crime scene evidence, nurses who fail to testify against their colleagues, and traders that trade on insider information are all corrupt. In fact, the list is endless, and the reasons for corruption are diverse. If a list is to be used to record all corrupt actions, and demarcate from actions that are not corrupt, it would be infinitely long, non-exhaustive, and still would not provide a precise definition of corruption. Every domain, profession, and context has actions that are deemed corrupt. Such is the universal nature of corruption.

Demarcating certain actions as legal or illegal, corrupt or not corrupt is very hard, if not impossible (Elliott 2). Based on philosophy corruption is therefore not as a political, institutional, legal, and economic phenomenon; but as a moral occurrence. To separate corrupt actions from other immoral behavior, corrupt actions are viewed as part of a pattern forming behaviors. It should also be noted that people, things, constructs, and languages can be corrupted, which expound the scope of corruption even further. From a philosophical point of view, institutions rise from people, and people make up institutions. Therefore, corruption can be classified into different classes. Institutional corruption happens in institutions like governments and corporations while non-institutional corruption happens to constructs and things. Personal corruption happens when someone's moral character is eroded while non-personal corruption happens to institutions, languages.

Causes of Corruption

They are at least three theories that explain the origins of corruption. The public choice, bad apple, and organizational culture theories all give varying ideology in regard to corruption. The public choice theory states that corruption starts when people make rational decisions to take actions that will result in more benefits at the least cost. Likewise, the bad apple theory claims that corruption is a result of a flaw in the personalities of people. However, the organizational culture theory states that corruption starts when people work and live in corrupt organizations, institutions, and cultures. Therefore, corruption does not only involves engaging in fraudulent and unethical behaviors but it is also a way of life....