BITCOIN AS A DECENTRALIZED CURRENCY

Bikojn je prva decentralizovana „peer-to-peer“ kriptovaluta nastala 2009. godine. Osnovna specifičnost ove valute jeste činjenica da njen emitent ne postoji. Sa druge strane, ponuda ove valute je softverski programirana i ograničena. Između ostalog, njene osnovne karakteristike su i relativno sigurna plaćanja, niski transakcioni troškovi, anonimnost korisnika, praktično nemoguće falsifikovanje, nereverzibilnost transakcija, ali i izuzetno nestabilan devizni kurs. I pored brojnih prednosti, korišćenje ove valute je predmet brojnih diskusija, budući da ova valuta nudi mogućnost različitih zloupotreba i obavljanja kriminalnih aktivnosti. Budućnost ove i sličnih valuta u tom smislu zavisi kako od sigurnosti korišćenja tih valuta, tako i od zakonske regulacije ovakvih plaćanja.


Introduction
Development of information technologies, one of the today's most propulsive branches of economy, has led to the occurrence of new forms of alternate currencies. Their basic characteristics are decentralization, i.e. the absence of a central bank, state, municipality, company or any other central institution that would issue the concerned currency, along with the 100% reliance on information technologies in the process of their issuance and realization of transactions.
The subject of this paper will be bitcoin, the decentralized currency originated 4 years ago, which, among other alternate currencies, at the moment occupies the most significant place and attracts the biggest attention. By analysing the available academic literature, statistical data and other relevant sources, we will hereby try to single out the basic characteristics of bitcoin, advantages, disadvantages, effects and prospects of its usage as a form of decentralized cryptocurrency. Given that the number of papers describing the characteristics and effects of using bitcoins is relatively small, the objective of this paper will be to comprehensively present the main specificities of the bitcoin currency and controversies related to its usage.
The paper has the following structure. First, it describes the basic characteristics of bitcoins, and the manner in which transactions in this currency are conducted. This is followed by the description of the very process, flow and effects of bitcoin issuance, and the formation and fluctuations of the bitcoin foreign exchange rate, with a focus on the major advantages and disadvantages of bitcoin. The rest of the paper elaborates on the role of financial institutions using bitcoins, and the problems in bitcoins' functioning, first and foremost referring to various abuses and other sources of instability. To end with, the paper presents the regulatory aspects of using this currency. Bitcoin (BTC) is a form of electronic money enabling online payments to be conducted directly among the transaction participants without any participation of financial institutions. This currency was created in 2009. What makes bitcoins specific is the fact that this is a decentralized currency, functioning without a central bank or any other company representing the issuer. Moreover, there are practically not even any classical banks or other financial institutions as financial intermediaries. Therefore, to ensure payment security and prevent various abuses, the network itself is used as a system controlling the regularity of transactions.

Characteristics of Bitcoin
The basic characteristics of this virtual currency are the following: • BTC is a peer-to-peer (P2P) currency. In other words, as opposed to all other virtual currencies, BTC is based on P2P networks. Namely, peer-to-peer is a network of computers which are not based on clientserver technology, all computers being the equal network members instead. It is typically used to share information in the way that, once a computer "shares" a certain content, all other computers in the network will have access to the concerned file. • Also, BTC is the first crypted currency or "cryptocurrency", based on the implementation of cryptography aimed at the controlled issuance and turnover of the concerned e-money (Bitcoin.org/en/about, n.d.). In other words, the confidence in this currency is based on the security ensured by cryptography, as a science dealing with the information protection methods, such as encoding and digital signatures (Sh. wikipedia.org/wiki/Kriptografija, n.d. Navedene osnovne karakteristike bitkojna mogu se ilustrovati kroz sledeću rečenicu: "Temelj bitkojn filozofije je u kombinaciji kriptografske sigurnosti digitalnog sveta koju čini veliki broj računara povezanih u jaku i neuništivu peer to peer mrežu i ograničenoj količini raspoloživih resursa kao što je to slučaj sa srebrom i zlatom (maksimalan broj bitkojn novčića je 21 milion, trenutno u opticaju je oko 11,5 miliona (prim. aut.)) čineći tako jaku i stabilnu takozvanu kriptovalutu koja se nalazi na Internet mreži ali fizički nije prisutna ni u jednoj zemlji na svetu" (Bitcoinbalkan.com 2012).
• BTC is an open-source currency, given that the code managing issuance and transactions is of open nature, with all interested parties being able to gain access. • In the bitcoin system of payments there are practically no accounts like the ones existing in banks. BTC could be understood as a safe storing certain value. What the formal owners of a certain amount of BTC actually own is the key enabling them a unique and authorized access to that safe, i.e. payment. The above-listed basic characteristics of bitcoin can be illustrated by means of the following sentence: "The foundation of bitcoin philosophy lies in the combination of cryptographic security of the digital world consisting of a large number of computers connected into a strong and indestructible peer-to-peer network, and the limited amount of available resources like silver and gold (the maximum number of bitcoins is 21 million, with about 11.5 million currently in circulation), thereby making the so-called cryptocurrency, strong and stable, to be found on the Internet network, without being physically present in any of the countries worldwide" (Bitcoinbalkan. com, 2012).

Bitcoins Transaction Scheme
Bitcoins can be generated on the Internet by anyone, i.e. by any network member whose computer verifies the transactions. In this process, every computer in the network may represent the so-called node, i.e. the mining computer, which together with other computers participates in the verification of initiated transactions. The transactions verification process itself represents the addition of a digital signature into the "general ledger" of conducted bitcoin transactions, i.e. into the "block chain of transactions" (En.bitcoin.it, n.d.). The block chain of transactions implies a series of recently generated transactions waiting to be verified by other computers in the network. Bitcoin itself can be considered a chain of digital signatures. Namely, each transaction gets verified by a certain number of other computers in the network, with all these transactions in the digital entry being kept in electronic format representing bitcoins.
The transactions verification process is thereby conducted by a large number of network computers, in order to ensure higher security and regularity of verified transactions. Additional security is provided by the so-called timestamp, as an integral part of every chain of digital signatures (Nakamoto, n.d, p. 2), granting authenticity of transactions, i.e. preventing the possibility of multiple usage of one and the same amount of bitcoins for purchasing different goods and services. Moreover, each block carries with it a certain mathematical problem that the computer has to solve. Each of the tasks can be solved in several ways, but it is sufficient to find just one in order for the transaction to be conducted. Each successfully solved task generates a certain number of bitcoins, as a reward for the computer owners who "solved the task". At the same time, this is how bitcoins attract new users. After receiving bitcoins in respect of a transaction, a certain time period, from 10 minutes to 1 hour, is required before the recipient can actually use the concerned money. The reason behind this waiting period is the fact that it takes some time to find the transaction block chain to be verified (En.bitoin.it, n.d.). Bitcoins are generated in a computer program called Bitcoin miner.
Međutim, primena ovakve programirane stope ograničenog i usporenog monetarnog rasta za posledicu može imati rast deviznog kursa bitkojna, kao i pad cena proizvoda izraženih u bitkojn valuti, što bi u konačnom trebalo da utiče na rast tražnje za ovom valutom. Prema nekim shvatanjima, upravo je ekspanzivna monetarna politika mnogih centralnih banaka nakon 2008. godine sa ciljem ublažavanja negativnih efekata krize i strah od inflacije jedan od najvažnijih faktora koji su uticali na relativno veliku tražnju za bitkojn valutom (Christin, Moore 2013, p.1). Po shvatanju kejnzijanaca, pad cena izraženih u jednoj valuti i istovremena apresijacija te valute može motivisati transaktore da više štede, a manje troše, što u konačnom može imati As illustrated by Scheme 1, each transaction between two network computers requires a verification of that transaction by a certain number of computers in the network. Following a successfully verified transaction, the chain of digital signatures representing bitcoins gets expanded. Those mining computers conducting the so-called hashing and verification of transactions receive, i.e. generate a certain amount of BTC as a compensation for their role, which they can use at their own discretion. In this context, the consumption of electrical power and the operation of mining computers, in a manner of speaking, stand as the real coverage for the issued bitcoins. However, what is largely neglected here is the fact that the value of consumed electrical power and hardware resources may exceed the value of generated bitcoins, which brings us to the issue of economic profitability, i.e. sustainability of such a currency. One of the factors that might be used to justify these costs is the anonymity that the usage of this currency provides. Nevertheless, at the today's market it is possible to find gadgets which increase the capacity of mining computers manifold, hence the mining of bitcoins can be deemed profitable. For instance, the funds invested in the purchase of graphics processing units (GPU) or ASIC Bitcoin Miner used for these purposes can be retrieved within several months (Barber et al, 2012, p. 400).
The factor determining the probability of the mining computer finding the block chain of transactions to be verified is known as the difficulty factor. It basically represents the measure of how difficult it is to find the concerned block (En.bitcoin.it, n.d.). In cases when a relatively large number of network computers are ready to conduct verification, this factor increases, and vice versa. The role of this factor is to encourage the usage of bitcoins by those who would like to profit from "mining", because the lowering of the difficulty factor raises the possibility of finding the block chain, under the conditions when a small number of participants are interested in verifying the transactions. On the other hand, the difficulty factor increases when a large number of network members are ready to perform the order verification, so that the monetary growth rate could be limited within the desired frame (Nakamoto, n.d., p. 3). The difficulty factor's value changes after every 2016 blocks.
The network itself, i.e. algorithm on which bitcoin transactions are based, defines how many bitcoins can be generated by each individual, in line with the controlled supply rule. The number of bitcoins that could be generated in this way originally amounted to 50 BTC per block, whereas since 2013 the reward has amounted to 25 BTC per block. The number of generated bitcoins per block chain of transactions will be halved every 4 years, which will over time slow down the growth rate of the amount of bitcoins in circulation.

Issuance of Bitcoins and its Effects
The issuance of bitcoins is fully planned, i.e. programmed, and it is managed by the network itself, that is by the computers conducting the verification of transactions. Such an algorithm was chosen because it approximates to the largest extent the growth rate of the extraction of certain ores, such as gold, given the limited amount of bitcoins that can exist at one point in the system, and the maximal amount that can be "mined".
The programmed dynamics of growth of BTC in circulation determines that the maximal amount of issued bitcoins should never exceed the level of 21,000,000 BTC. Given that the verification of a single block chain of transactions takes 10 minutes on average, this is, at the same time, the period over which the number of bitcoins increased by the above mentioned 25 (from the beginning of 2013 through 2017), only for the number of newlyissued BTC per time unit to decrease in the programmed manner over time.
However, the implementation of such programmed rate of a limited and slowed down monetary growth can consequently cause appreciation of the bitcoin foreign exchange rate, and a drop in prices of products denominated in bitcoins, which should ultimately result in heightened demand for this currency. According to some opinions, the expansionary monetary policy of many central banks after 2008 with a view to mitigating the adverse effects of the crisis and the fear of inflation was one of the most significant factors recesione efekte. Težnja ka štednji bi dovela do smanjenjog korišćenja ove valute, pa bi sve veći broj "mining" računara napuštao mrežu, zbog čega bi došlo do ugrožavanja stabilnosti i slabljenja deviznog kursa ove valute (Barber i saradnici 2012, p.404). Sa druge strane, po shvatanju predstavnika austrijske škole, pad cena se obuhvata samo pad cena finalnih prozvoda, već i inputa, tako da ne bi trebalo da dođe do smanjenja profita i recesije (En.bitcoin. it n.d.). Koja će se shvatanja pokazati ispravnim, zavisiće od niza faktora, pre svega stabilnosti i sigurnosti bitkojna kao valute.
Namely, at the moment this currency can be considered safe for the realization of transactions, but not sufficiently stable in terms of its resilience to speculative shocks and other sources of instability, given that currently its capitalization is relatively small, which is why even extremely small turbulences may cause substantial fluctuations in prices and FX rate. Specifically, this currency may, to a large extent, be susceptible to various speculative shocks, bearing in mind that there are no regulatory provisions and sanctions for those network members who would try to impact the FX rate through trading, thereby achieving speculation profit and jeopardizing the integrity of the currency itself. What should also be taken into consideration is that transactions themselves are anonymous, which could raise the issue of certain regulation of these transactions. However, that could compromise anonymity, as one of the major advantages of this currency. As the market develops, one could expect stronger immunity to speculative shocks. Nevertheless, given that in the forthcoming period the monetary growth rate will be relatively low, the market expansion could only be achieved through strengthening the FX rate of this currency, meaning that this currency could become more stable if it appreciates to a sufficient degree.
Deflationary trends would be additionally intensified due to the impact of the following factors: • Central banks of all countries would, more or less, increase the amount of money in circulation every year, whereas on the other hand the supply of bitcoins would be relatively slow-increasing. At the same time, one should bear in mind that the bitcoin FX rate would primarily depend on the demand for this currency. Although in 2010, compared to the initial 2009, the monetary growth rate of BTC amounted to 100%, at the moment amounting to 13% annually, due to the very nature of products and services that can be purchased with bitcoins, and due to the increasing number of companies accepting bitcoins (En.bitcoin.it, n.d.) as a means of payment, such monetary growth does not cause inflation. • In parallel with a drop in prices denominated in bitcoins, the marginal propensity to save would increase, and the upsurge in the velocity of money, as a potential factor that could reduce deflationary processes, would be lacking (ECB, 2012, p. 25). By effecting a relevant calculation, one comes to the conclusion that already in 2025 the monetary growth rate will amount to less than 1% (more precisely 0.83%), and in 2037 less than 1‰ (i.e. 0.095%). After that, monetary growth will continue at a negligibly low rate, but will never exceed the programmed limit of 21,000,000 BTC. The movements of bitcoins supply over time are illustrated in Graph 1 below: Inače, broj generisanih bitkojna dnevno koje jedan pojedinac može ostvariti po osnovu "mining" aktivnosti je implementiran u samom kodu bitkojn valute i određuje se po sledećoj formuli (Bitcoin.stackexchange.com 2011): Ukoliko bismo uprostili ovu formulu time što bismo deo formule sačinjen od više konstanti sveli na jedan realan broj dobili bismo njenu skraćenu verziju: U ovom izrazu značenje parametara je sledeće: • X predstavlja broj generisanih bitkojna, • D predstavlja trenutni "difficulty" faktor, • H predstavlja trenutni "hash-rate", odnosno brzinu kojom konkretan uređaj koji pojedinac poseduje vrši "rudarenje", • B predstavlja nagradu u bitkojnima za realizovan blok transakcija, • 20,11626 predstavlja konstantu u formuli.
U Tabeli  Already in 2035, 99% of the programmed ceiling for bitcoins will be in circulation (approximately 20,800,000 BTC), i.e. by 2040 there will be no interest for further mining in the sense it has today, because huge resources would be required to generate even the minimal segment of one bitcoin. After that, it is envisaged for the owners of mining computers to profit based on charging transaction costs for the verified transactions in a certain percentage (ECB, 2012, p. 25), so that, in the long run, this system may be assessed as sustainable. The natural semi-logarithm of the monetary growth rate over time is illustrated in Graph 2 below: The number of daily generated bitcoins that an individual can achieve from his mining activity is implemented in the very code of the bitcoin currency, and is calculated according to the following formula (Bitcoin.stackexchange. com, 2011): If we simplified this formula by reducing its segment consisting of several constants into a single, real number we would get its abbreviated version: In the above formula, the parameters imply the following: • X is the number of generated bitcoins; • D is the current difficulty factor; • H is the current hash-rate, i.e. the speed at which the concrete device owned by the individual performs the mining; • B is the reward in bitcoins for the realized block chain of transactions; • 20.11626 is the constant in the formula.
As can be observed, in addition to the fact that earnings in respect of the mining process depend on the so-called difficulty factor, and the anticipated speed of generating BTC within a time unit (currently 25 BTC per block, i.e. about every 10 minutes), this process also depends on the speed of mining conducted by the computers. The speed is measured in h/s (i.e. hash per second), in Mh/s or Gh/s. Based on the calculations, it can be concluded that the earnings and speed of repayment in respect of the mining process depend on the quality of computers used for that purpose. The earnings made by means of the classic GPUs which were until recently used for this process are at the moment incomparably lower (from several dozen to several thousand times), compared with the state-ofthe-art mining computers (En.bitcoin.it, n.d.).
Given that in the forthcoming years one may expect an increase in the difficulty factor (in line with the tendency expressed so far (Bitcoinx.com, n.d.)) and a reduction in the number of generated bitcoins per chain block of transactions, under the assumption of stable FX rate and unchanged prices of mining computers and electricity, there will be a multiple decrease of profitability.
Krajem avgusta se u opticaju nalazi ukupno skoro 12 miliona BTC, pri čemu njihova ukupna vrednost izražena u USD približno iznosi preko 1,4 milijarde USD. Konkretno, to As can be observed, compared to the period 5 months ago, there was an increase in bitcoin monetary units in circulation, which had been expected, given that the concerned process is programmed. Moreover, the market capitalization of BTC also increased, mostly as a consequence of its appreciation. The increase of capitalization over time, from the BTC origination in 2009, and especially in 2013, both due to the increased number of bitcoins, and due to the appreciation of their FX rate, can be seen in Graph 3 below: One may say that the BTC currency system shares certain similarities with the gold standard, because there is the ceiling for growth of the amount of currency in circulation, so that, similarly to the gold standard system, this can hinder further development, given that it makes it impossible for demand to be increased through increasing the amount of money in circulation. Regarding the controlled supply rule, it should be underlined that Milton Friedman himself believed that monetary policy of a programmed or constant monetary growth rate can be successfully implemented by using computers (Econlib.org, 2006). Besides that, the advocates of bitcoin criticize the system of fractional reserves. They also believe the creation of this currency to be the first step in abolishing the monopoly of a central bank as the exclusive issuer of money (ECB, 2012, p. 22). According to some other opinions, the creator of this currency was actually inspired by the gold standard. However, what makes this system different from the gold standard is the lack of intrinsic, i.e. material value, which is characteristic for commodity money such as precious metals, whereas bitcoins only have the functional value depending on their purchasing power.
Some are, however, of the opinion that the bitcoins currency actually functions as a Ponzi scheme, given that those who start to use it early get the possibility of yielding considerable profit if they sell their bitcoins while the prices are rising. Nevertheless, the following differences of this system compared to the Ponzi scheme can be hereby underlined (ECB, 2012, p. 27): • There is no expected financial revenue that can be achieved, and there is no contract signed on the occasion of first usage of bitcoins, guaranteeing high revenues, not even for initial investors. In practice, profit can be achieved both in respect of the mining activity, which generates new bitcoins, and in respect of appreciation of this currency's FX rate. However, this profit is uncertain, especially the component referring to the foreign exchange rate appreciation. • There is no central institution or company that could collect the money from system users and just "disappear". Even though, in practice, those who first started to "mine" manage to profit the most, every profit yielded in respect of "mining" and subsequent exit from the system could rather be characterized as speculation ("buy cheap, sell expensive") than as a Ponzi scheme. Nonetheless, there has been an example in practice denying this argument, i.e. the case of the company "Bitcoin Savings and Trust" ("BTCST"), which in 2011 and 2012, using the classic Ponzi scheme, embezzled the money of its clients. Still, this example can be assessed as an exception, i.e. as an abuse of the system, but not as proof that the bitcoin currency functions as a Ponzi scheme.
Inače at the stock exchange, based on the supply and demand of the concerned currency. Compared to the beginning of the year, when the BTC/ USD rate amounted to almost 13, in late August the value of bitcoin against the US dollar was approximately ten times higher, with the BTC/ USD rate amounting to about 130. Obviously, 1 BTC has a several times higher value than any official currency in the world, its value mostly being expressed in USD, given that at the bitcoin stock exchanges most bitcoins get exchanged for the US dollar.
In late August there was a total of almost 12 million BTC in circulation, their total value expressed in USD approximately amounting to over 1.4 billion USD. In particular, this means that the total value of all issued bitcoins is nominally higher than the gross domestic product of certain countries. Bearing in mind that the price of gold is about 50 USD/g, we may conclude that 1 BTC is worth somewhat more than 2.5 grams of gold. Converted into RSD at the rate of approximately 85 RSD/USD, for the purchase of one bitcoin as of 29.08.2013 it was required over 11,000 RSD. Moreover, 1 BTC equals 100,000,000 satoshis (the name "satoshi" was given after the pseudonym of Satoshi Nakamoto, i.e. the pseudonymous creator or group of people who created bitcoins).
The bitcoin FX rate depends on the supply and demand for this currency. Movements of the middle weighted daily FX rate of BTC against USD can be followed at the Graph 4 below: Based on the available data from early 2013, by means of a statistical analysis, one may come to the conclusion that a linear function of the trend best describes the movements of BTC values. The estimated linear function of the trend is as follows: BTC/USD = 27.95 + 0.45t with the basis period being 1 January 2013, and t the round number representing the number of days after 1 January. However, given that the determination coefficient is only r 2 = 0.52, the estimated function of the trend cannot be applied for extrapolation, meaning that we could not, with a high degree of certainty, assess the movements of bitcoin values in the future. Such a low determination coefficient indicates the fact that the bitcoin FX rate is extremely unstable. What largely contributes to the instability of the bitcoin FX rate is its susceptibility to various shocks, which we will subsequently elaborate on.

Advantages and Disadvantages of Bitcoins
The following are typically listed as the basic advantages of bitcoins compared to other both national and alternative currencies: • As opposed to transactions using the classic electronic money at the bank accounts, in case of bitcoins there are no or minimum transaction costs, with, on the other hand, no limits in terms of the minimal transaction amount which can be realized (Nakamoto, n.d., p. 1). • Transactions and BTC issuance are controlled by computer algorithms, preventing the occurrence of artificially generated inflation. Moreover, such verification enables the avoidance of double-spending, which can otherwise lead to system abuses (Bitcoin.org/en/about, n.d.) and uncontrollable growth of money in circulation. The security of payments is based on using cryptography.
On the other hand, as some of the main disadvantages of bitcoins we can single out the following: • BTC is not widely accepted as a means of payment. Namely, only a few business entities accept bitcoins when selling their goods, or providing services. Although the number of these entities has been increasing, the role of bitcoins as a means of payment is still rather limited. The reason for this lies both in the fact that there is a series of products that cannot be purchased for bitcoins, and in the fact that this currency does not exist in its physical, material version, which is why it can only be used for e-payments. • The bitcoin FX rate is extremely volatile.
What largely contributes to this is the lack of a central entity, like a central bank, which could, by means of its interventions at the FX market or some other monetary policy measure, facilitate its stabilization. • BTC transactions are non-reversible, which means that it is impossible to cancel an already realized transaction. Despite the fact that this characteristic of bitcoins can be considered their drawback, it is important to note that bitcoins are essentially more like cash than e-money, hence there is no possibility whatsoever of cancelling transactions, given that, by definition, there is no system for cash flows monitoring. In other words, transactions realized with e-money deposited at bank accounts can be cancelled within a certain deadline. On the other hand, in the majority of cases we will not be able to retrieve the cash spent in a store, unless we spent it to purchase goods with a guarantee. This is exactly where we are facing one of the biggest problems in the usage of bitcoins, the one concerning difficulties in retrieving money in case of defective products purchased without an adequately regulated guarantee. Yet, this is an excellent mechanism of protecting sellers from potential abuses, because this mechanism enables them a safe and prompt collection of their receivables in respect of the sold goods (Nakamoto, n.d., p. 1). When it comes to reversibility of transactions, it is important to underline that the main cause of this BTC feature is the fact that, generally speaking, there are no intermediaries in payments, i.e. all payments are effected directly between market entities. Although non-reversibility can be considered a shortcoming of bitcoins, one should bear in mind that the absence of intermediaries results in no fees that would have otherwise be charged by banks or other payment system intermediaries. Nevertheless, one should not neglect the fact that there are optional fees paid by those wishing for a bitcoin transaction to be realized more quickly (Stanford Bitcoin Group, n.d.). • Even though bitcoins are a type of e-money, there is a possibility of their loss. Namely, one of the specificities of this currency is that it exists only in its electronic version. Besides, payment orders differ from classic transaction accounts in banks, because there is no bank-like institution that would close or block the orders of transaction participants. Moreover, there are no limits whatsoever in terms of using bitcoins. An order can be deactivated by system users themselves, if they stop using it and if they get rid of all bitcoins on their account. An account is also lost if no back-up of bitcoins is provided in the process of recovering a computer's operating system. In fact, that money is thereby permanently gone from the system. This is where the essential similarity between bitcoins and regular money lies, given that kao i zahvaljujući činjenici da je veoma lako implementirati ovaj oblik prodaje i naplate prodaje putem Interneta. Međutim, time se može dovesti u pitanje legalnost obavljanja takvih aktivnosti, naročito kada je reč o prodaji digitalnih proizvoda (softvera, muzike,…) koji se mogu neograničen broj puta umnožavati i prodavati bez ikakve evidencije, čime se može izbeći izvršenje poreske obaveze.
Takođe, postoje i najave da će vlasnici BTC valute moći da na realnim bankomatima da povlače zvaničan novac čiji je emitent centralna banka u ekvivalentnom iznosu (eventualno umanjenom za određenu proviziju), kao i da će se moći koristiti prilikom kupovine u prodavnicama na POS terminalima (Newscientist.com 2012). they can both practically be lost or destroyed (Kaplanov, 2012, p. 116). Nevertheless, as opposed to regular money which may be additionally printed by the central bank, in case of bitcoins there are no entities that would issue new quantities of monetary units to replace the lost or destroyed bitcoins.
• As the final shortcoming of bitcoins, we could mention all those problems related to abuses it is susceptible to, referring to the possibility of performing illegal activities, money laundering, creation of "black markets", but also of tax havens, possibility of tax evasion, and non-resilience to various computer viruses attacks, etc. Usage of BTC is recommended to small enterprises and entrepreneurs, given that it enables them to sell products and charge them with lower transaction costs, i.e. without any fees by different financial institutions, and also in light of the fact that this form of sales and collection via the Internet is extremely easy to implement. However, this many bring into question the legality of such activities, especially when it comes to selling digital products (software, music, etc.), which can be reproduced countless times and sold without any records, thereby enabling the evasion of tax obligations.

Financial Institutions Dealing in Bitcoins
Currently there are about 50 active stock exchanges at which official currencies can be exchanged for bitcoins, the most important of which is "MtGox" at which about 64% of total bitcoins turnover gets exchanged on a daily basis for other official currencies, and vice versa. Bitcoins are most frequently exchanged for USD (74%) and EUR (14%), the significance of all other currencies being negligible (Bitcoincharts. com, n.d.). Statistical analysis of active and closed bitcoin exchanges has indicated several rules (Christin, Moore, 2013, p. 7): • The higher the turnover on a stock exchange, the lower the probability of its closure. • On the other hand, the higher the turnover on a stock exchange, the higher the chances for various forms of abuses and violations. One should bear in mind that in this analysis several factors, which could have potentially led to different results, were abstracted. For instance, the reputation of stock exchanges themselves was disregarded, i.e. the fact that the attractiveness of a stock exchange depends on the safety it provides to its users. Moreover, although one of the main characteristics of cryptocurrencies, and thereby bitcoins, is the fact that such currencies generally function without any intermediation by financial institutions, one should bear in mind that in March 2013 "Exante", the first hedge fund investing in bitcoins, appeared at the market. Yet, it should be underlined that this fund has a wide-ranging portfolio of activities, with bitcoin operations being just one of them. As a compensation for its services, the fund does not charge a percentage of the achieved profit, but a fixed fee amounting to 0.5% of the net value of Bitcoin Fund. The fund places huge importance on data protection and the fund's security. In March 2013 the fund was worth approximately 3.2 million USD. To access the fund, an initial investment of minimum 100,000 USD is required (Forbes.com, 2013). This fund achieves profit in respect of capital gains from purchased bitcoins, with one share of this fund being worth exactly one BTC. Taking into account the rapid appreciation of bitcoins, huge revenues are expected in respect of this fund's placements. The following facts are listed as the main advantages of investing in the fund instead of purchasing BTC directly (Exante.eu/ press/news, 2013[a]): • It is easier to purchase shares/investment units of the fund than bitcoins. • Assets invested in funds instead of in direct purchase of bitcoins are considered safer, given that such funds, including Exante, place huge importance on cryptographic security of their clients' assets. Starting from June 2013 this fund has been offering to its clients the Automatic Trading Platform (ATP), i.e. an electronic trading platform enabling them a series of services, among other things, related to various statistical tools and portfolio management (Exante.eu/ press/news, 2013[b]).
Furthermore, there have been some announcements that owners of BTC will be able to withdraw official money issued by the central bank, on real ATMs, in equivalent amounts (perhaps reduced by a certain fee), and that bitcoins will be used on the POS terminals when purchasing in stores (Newscientist.com, 2012).
As can be concluded, although bitcoin is in its nature a decentralized currency eliminating the need for financial intermediaries, the needs of its users obviously impose the need for appropriate financial institutions that would perform different functions in bitcoin transactions. For the time being, stock exchanges have singled out as a type of financial institutions currently operating with bitcoins, enabling the exchange of major global currencies for bitcoins and vice versa. Other financial institutions as well have been increasingly occupying the role of intermediaries in bitcoin payments, offering their clients higher data protection and security when conducting transactions, compared to direct payments without using the services of financial intermediaries. In this respect, if we compare the development of the decentralized bitcoin currency with the development of classic money, the occurrence of some form of a central entity in this system (based on economic power or certain legislative provisions), which would take over some functions of a classic central bank, no longer seems like science fiction. Namely, the first forms of money, as we all know, were cattle, leather, salt, honey, fur, later on metals like iron, copper and precious metals (silver and gold), and then banknotes. In parallel with the development of payment instruments, new participants entered the economic life, including goldsmiths, which issued certificates in respect of the deposited money, and performed mutual clearing and settlement of receivables from their clients.
The privileged banks were formed afterwards, as the only institutions authorized by the state to issue banknotes, whereas the first central banks were not to appear until the 17 th century (Djurovic-Todorovic, 2010, pp. [18][19][20][21][22][23]. In this sense, although the first forms of money were not issued by any central institution, but by people themselves, we should not eliminate the possibility of cryptocurrencies like bitcoin, which are decentralized in their nature, getting a central institution some time in the future. Nevertheless, bearing in mind that, according to many opinions, decentralization of such currency serves as exactly the factor which, to the largest extent, positively influences the demand for such currency, it is somewhat probable that, in case of a central entity entering the system, the demand for such currencies would diminish, and the demand for other, not yet centralized currencies, would increase. Ultimately, ceteris paribus, an attempt to regulate and centralize a cryptocurrency could only result in the abandonment of such currencies, erosion of their importance, migration of users and conversion of their funds into other currencies.

Functional Problems and Regulation of Bitcoins
The bitcoin currency is almost completely outside the regulatory scope of central bank and fiscal authorities. This is why certain authors consider it a suitable instrument for creating the "black market" of different goods and services, the major threat being its potential usage for conducting illegal activities. For instance, certain cases have been recorded when bitcoins were used to purchase drugs on the Internet (Manchin.senate.gov, 2011).
Jedno od osnovnih pitanja koje se postavlja od same pojave bitkojn valute odnosi se na legalnost njegove primene. Inače, kao razlozi zbog kojih bi bitkojn trebalo smatrati potpuno legalnom valutom navode se: pravo na slobodnu razmenu, činjenica da bitkojn ne predstavlja alternativu američkom dolaru kao zvaničnoj valuti, odnosno ni na koji način ne predstavljaju njegov falsifikat, niti se nalaze u širokoj upotrebi. Sa druge strane, kao razlozi zbog kojih bi trebalo zakonski preciznije regulisati korišćenje bitkojna navode se povećana mogućnost poreske evazije i činjenica da bitkojn otvara mogućnost za kreiranje poreskih rajeva i crnog tržišta različite robe (pre svega droge), kao i za pranje novca. One of the main issues raised since the very origination of bitcoins concerns the legality of their usage. The reasons why bitcoins should be considered a completely legal currency are as follows: the right to free exchange; the fact that bitcoin does not stand as an alternative to the US dollar as the official currency, i.e. in no way represents its counterfeit, nor is it widely used. On the other hand, the reasons why the usage of bitcoins should be legally regulated in a more precise manner are: the increased possibility of tax ecasion and the fact that bitcoins open the possibility to create tax havens and black markets for various goods (primarily drugs), and to launder money.
Namely, according to some assessments, transactions in bitcoins exhibit the classic elements of barter trading, and such transactions are non-taxable. Nonetheless, the nature of bitcoins offers anonymity and the possibility to hide numerous transactions from fiscal authorities, which leads to evading one's fiscal obligations. Another significant issue is related to competent legislation in case of bitcoin transactions at the international level, when it would be extremely difficult to determine the competent fiscal authorities. On one hand, cryptocurrencies (the most important of which at the moment is bitcoin) have been growing increasingly popular. On the other hand, financial institutions have been placed under ever more pressure to submit all the necessary information about their clients to tax authorities, and to cooperate with them in order to prevent tax evasion. Even though these two are completely independent processes, the fact is that they have been increasingly converging (Marian, 2013, p. 38). In this sense, using cryptocurrencies is, in its effects, much like offshore operations, given that profit achieved, say, in bitcoins is not taxable, and the users of these currencies also have their anonymity guaranteed. Practically, the appearance of cryptocurrencies granted tax payers a new tool for tax evasion. Moreover, there are no institutions from which tax authorities could request the submission of information on clients holding accounts in that currency. In payment systems based on cryptocurrencies there are no central banks as issuers, or classic financial institutions that could be subject to various pressures of tax authorities. In other words, for now, conditionally speaking, tax authorities cannot successfully control the usage of cryptocurrencies, i.e. they cannot detect the usage of these currencies in a systematic manner, except perhaps in individual cases. According to some opinions, there is a danger of tax evasion developing in the future by resorting to cryptocurrencies, at the expense of today's offshore areas, these two being direct competitors. However, one should bear in mind a relatively low value of virtual economy within which the concerned virtual currencies are being used, which is why, for now, it is accompanied by a relatively low interest on the part of competent tax authorities for introducing wider control of these flows. Also, the current economic potential of cryptocurrencies does not enable them to become a considerable competitor to offshore areas. In addition to tax evasion, the immanent anonymity of BTC provides a series of possibilities for covering up various criminal activities. This primarily refers to drugs trafficking, money laundering, and various other criminal offences.
Therefore, the following proposals can be singled out as potential solutions for risks entailed by this currency's usage (www-csfaculty.stanford.edu, n.d., [2]): • Enforce licensing -Given that in case of bitcoins there are no central entities or classic financial institutions that could be forced to register as money transmitters, some proposals have been put forward for the registration process to involve only the owners of the mining computers. However, this would be too complicated a procedure, and it would also incur the problem concerning regulation, if the mining process were performed from other countries with no regulation in this respect. • Demand tax reports -There is an idea for all users of bitcoins to be automatically obliged to submit to tax authorities all the reports on transactions in this currency. However, by implementing this measure tax authorities would face the following obstacles: possibility of crossborder transactions, low feasibility given the necessary compliance on the part of users, unstable value of bitcoins, etc. • Forced shut-down -One of the ways to shut down this and similar currencies could be the formal ban to use such currencies as a means of payment, accompanied by a series of restrictive legal provisions supressing or controlling the usage of these currencies. Besides, there have been ideas that virtual currencies, given their relatively low economic significance, could be fully acquired by the central bank, or that the central bank could engage resources to "mine" these currencies, which would eliminate them from further usage (Marian, 2013, p. 47). However, that would always entail lower or higher costs. Also, that would perhaps generate the potential for all kinds of abuses. Nonetheless, despite the prominent theoretical positions on the necessity and ways of regulating BTC transactions, hardly any countries have actually undertaken concrete measures in this respect. For example, in the USA there is not a single legal provision explicitly banning the usage of this currency and defining its usage as illegal activity (www-cs-faculty.stanford.edu, n.d., [1]). On the other hand, there have been certain attempts to provide guidelines, in the form of various recommendations, directives and by-laws, for the regulation of alternative currencies, including the decentralized virtual currencies like the bitcoin. One of them was the "Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies". It is a recommendation whereby the Financial Crimes Enforcement Network, as a US Treasury Department, tried to suggest how to implement the "Bank Secrecy Act" when it comes to virtual currencies. According to this recommendation, an economic entity creating a virtual currency and using it to purchase real goods and services is considered the user of that currency, and his activities are not subject to regulation. On the other hand, an entity creating a virtual currency and selling it as an official means of payment is considered a money transmitter, his activities undergoing regulation (Fincen.gov, 2013, p. 5). Yet, besides this differentiation in terminology, money"), čime je načinjen značajan korak napred the concerned recommendation does not provide the answer to a series of additional questions concerning the regulation of these transactions.
This year in Germany bitcoins were granted the status of "private money", which marked a significant step forward, towards a wider regulatory scope and mass usage of this currency. The usage of bitcoins and their issuance are not prohibited, but the profit in respect of using bitcoins undergoes fiscal laws. Namely, the revenues from selling products and providing services achieved in bitcoins incur value added tax, whereas the remaining profit in respect of issuing or using bitcoins incurs income, i.e. profit tax (Dw.de, 2013). Nevertheless, there is no mention of how to address the issue of tax evasion.
Even though France has not done much to regulate the issues of bitcoins either, it is worth noticing the fact that the regulatory bodies of Bitcoin Central, one of the bitcoin exchanges, gave their permission for conducting certain banking operations, mostly those related to payment system services. This would enable its clients to deposit their funds in euros or bitcoins, or to simply convert them (Tagteam.harvard. edu, n.d.). Also, these funds are deposited at the account of another financial institution, and in line with this, they are insured up to the amount of 100,000 EUR by the French Fonds de garantie des dépôts (En.bitcoin.it, n.d.).
However, despite these individual exceptions, generally speaking, the field of alternative currencies, first and foremost decentralized cryptocurrencies such as the bitcoin, has not yet been adequately, unambiguously and completely regulated in any of the relevant jurisdictions.

Conclusion
Bitcoin is a specific currency whose characteristics set it apart from all of its predecessors. Since it first appeared, it launched an avalanche of controversies related to both positive and negative effects of its implementation. The issuance of this currency is computerprogrammed and limited, based on peer-to-peer technology and data encryption technology, which practically eliminates the possibility of double-spending, counterfeiting and similar abuses. At the same time, this is one of the main reasons why this currency is considered safe, even though there is no central issuing institution. Transaction costs are very low, almost negligible, but the transactions themselves are non-reversible, which may be deemed a significant shortcoming of this currency.
Nevertheless, given the fact that the macroeconomic significance of bitcoins is trifling, even the slight shocks may adversely impact its stability and cause drastic fluctuations of its FX rate. All the while, there is no central institution whose measures could facilitate its stabilization, which may be a huge obstacle standing in the way of the mass usage of this currency. Bearing in mind that his currency practically provides to its users full anonymity and non-transparency of their activities, some criticism has been voiced, stating that this generates suitable environment for money laundering, black markets of illegal goods, tax evasion and many other criminal offenses. Moreover, there have been recorded cases of various abuses like Ponzi schemes and computer Trojans, used to steal e-wallets from bitcoin users.
This has resulted in frequent debates on the necessity of regulating such cryptocurrencies. Although some countries have started to regulate bitcoin transactions, not much has been done in this respect given that this issue requires an extremely cautious approach. Namely, any form of control and regulation of such currencies could consequently cause a redirection of these currencies' users to other cryptocurrencies that still have not undergone regulation, or a transfer of bitcoin transactions into those jurisdictions in which there is yet no regulation in this field. Therefore, one of the biggest challenges for central banks and national regulatory bodies in the forthcoming period will most likely be related to monitoring the effects of these currencies' usage and their regulation, and to undertaking adequate measures in case of various abuses or instabilities. The future of bitcoins and similar cryptocurrencies will depend both on the regulation of such currencies, and on how secure and stable they are.