“Bitcoin, the future of payment?”
By Wessel Kooyman, CEO, Cole Street
Representative currency: deriving its worth from a
link to some physical store of value like gold, silver
Fiat currency: Derives its value from the fact that a
government or central authority guaranteed it.
How to build a digital currency?
- Decentralized (Peer to peer)
- As anonymous as possible
- Fraud proof: No double spending, no theft
- Gradual availability of more currency, effort required
What is a hashing algorithm?
File length: 12,322 bytes
How to build a digital currency?
The block chain: the innovative part of Bitcoin
Bitcoin – How the blocks in the blockchain are created
All transactions are logged in the blockchain (ledger)
All nodes (miners, clients in P2) have the full blockchain
New blocks are mined by the miners, who get a reward (first transaction)
New blocks are verified by all and refused if not valid
If you are miner, you must also process transactions – most earn a small
Bitcoin – The network
Miners create blocks and process transactions
All the miners are connected to each other peer-to-peer
A Bitcoin client connects to the peer-to-peer network
Transactions are written into the blockchain
Confirmations are sent to the client
Bitcoin – Ways to do transactions
Currency exchanges like Mt Gox (EUR to BTC, BTC to EUR)
Local exchange (with other individuals)
Using your mobile phone
Unlimited – after all, you only need to exchange some data to do a
Bitcoin - Mining
How it works
Falling reward level
Technology rat race: cpu, gpu, asic
Profitability depends on BTC exchange rate, cost of electricity, cost of
Not a representative currency, because it is not
linked to anything physical.
Not a fiat currency, as its supply is actually
finite and it lacks any central backing authority.
Something new, only possible because of the Internet
and high-speed processing power of modern
Unforgeable, verifiable, secure, (almost) no
transaction fees, quasi-anonymous
No trusted third party needed for transactions (bank)
Part two: Bitcoin and society
- Impact on government
- Context from privacy perspective
- Impact from real life events in Bitcoin (Cyprus,
Government and privacy – a tug of war
- Tor, WikiLeaks, Snowden
- Cyprus, Argentine
Bitcoin - History
Created by “Satoshi Nakamoto”, an alias for the creator(s). Must be
mathematician(s) and programmer(s). Released a paper describing the
entire protocol in 2008.
2009-2010: First implementations of the miners. First transactions
2011-2012: Wikileaks, EFF, Silk Road, 1000+ merchants accept BTC.
2013: Accidental fork of the blockchain, government starts regulating,
Coinbase and MtGox run out of trading capacity, exchange rate spikes to
Part three: Bitcoin and money
Making money with Bitcoin – how are people
doing it today?
Mining, rate speculation, currency exchanges,
casino’s, crime, payment processing, securities
Bitcoin – Has its own securities exchanges
MPEx, BitFunder, btct are Bitcoin denominated stock exchanges
Recent acquisition of a casino for 126315 BTC ($12.4 million
Companies on the exchange are mining companies, exchanges,
casino’s, etc. All Bitcoin related ventures.
The securities are priced, naturally in Bitcoin.
The first exit in Bitcoin
SatoshiDice acquired for 126,315 BTC (€8.69 million) on
Was trading publicly on MPEx, a Romanian Bitcoin
Bitcoin – Startup investors are here and ready
Angel network BitAngels put together $7m from 120 angels
Boost VC in San Mateo has a incubator program for Bitcoin
VC’s: Liberty City Ventures has $15m Bitcoin fund, Union Square
Ventures, Andreessen Horowitz have invested in Bitcoin startups.
French VC’s : on the beach
Bitcoin – follow up currencies are “altcoins”
Primecoin: the mining work results in discovery of new prime
PPCoin: Includes “Proof of stake”
Freicoin: Includes exploration of demurrage