Bitcoin Seminar - Stockholm

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My slides from the Bitcoin seminar at the Stockholm School of Economics in October 2013.

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  • Three types of financial innovationNot affected by financial crisis to same degree as rowReaction to financial crisisNot same need to revamp financial systems
  • http://www.youtube.com/watch?v=Um63OQz3bjoJon Matonis, Forbes, Rhetorically, I posed the question: “In fifty years, would you rather own 100 euros, 100 Amazon Coins, or 100 bitcoins?” http://www.forbes.com/sites/jonmatonis/2013/05/20/bitcoin-comes-to-swift/Peer-to-peer digital currency, i.e., not a fiat currency, no central authority>USD 2 billion in circulation with 60,000 transactions daily Exchangeable to more than 30 fiat currenciesUsed globally to purchase wide range of virtual and physical goods and to pay salaries
  • http://techcrunch.com/2013/10/22/bitcoin-breaks-200-again/Challenging the fiat money system or catalyzing economicdevelopment?http://www.ibtimes.com/baidu-bidu-approves-bitcoin-payment-virtual-currency-value-skyrockets-1437956Despite Bitcoin’s hard-to-regulate nature, the Chinese government has been indulging, even optimistic about the currency. CCTV, China’s official state network, aired a 30-minute documentary about Bitcoin, and People’s Daily published a story on the same topic, both of which added to Bitcoin’s growing popularity in China. For now, it seems Bitcoin’s future in China is secure, but that could quickly shift if the government changes its mind and attempts to regulate or ban the currency.Aside from China, Malaysia and Indonesia are among the nations in Asia that have welcomed Bitcoin usage and now enjoy booming Bitcoin exchanges, the Diplomat reported. Thailand banned the currency earlier this year, but Bitcoin continues to be used in the country because it is technically hard to track and regulate.The value of the Bitcoin topped $200 for the second time since its inception, thanks to an announcement from China’s main search engine Baidu that one of its subsidiary services now accepts the virtual currency, which has been making headlines this year as an alternative type of payment.Baidu Inc. (Nasdaq:BIDU), China’s domestic equivalent of Google, is the fifth most-visited website in the world, ahead of familiar U.S.-based sites like Wikipedia, Twitter and Amazon, and the Chinese company’s announcement has rallied China’s demand for the virtual currency, the Diplomat reported on Wednesday.http://www.coindesk.com/hunger-bitcoin-grows-scandinavia-regulatory-approach-evolves/In Finland, the tax authority introduced a guide to taxing virtual currencies last month, which imposed capital gains tax on bitcoins, and taxes bitcoins produced by mining as earned income.However, in Sweden, the Finansinspektionen financial regulator classified bitcoin as a means of payment late last year, requiring anyone who wants to create an exchange to register with it and meet the requirements faced by other financial institutions. Bitcoin.se suggests that the tax authorities in Sweden may also be ready to make a ruling on sales tax soon.
  • *No central clearing house nor are any financial or other institutions involved in the transactions.*There is a limit to Bitcoin supply (21 million bitcoins) to be reached in 2140. According to Bitcoin supporters, this implies in theory that the system will avoid inflation as well as business cycles stemming from excessive money creation.
  • November 2009 is the month when the first message to the forum was posted. Therefore, we have the complete forum between day 1 and beginning of Jan 2013.
  • For this we used the bottom-up approach of semantic analysis whereby the relationship between each Bitcoin forum user's posts and the proper nouns they contain are analyzed. This enables the identification of the topics that people from different parts of the world have discussed within the Bitcoin community during its first four years. The Stanford Log-linear Part-of-Speech Tagger (Toutanovaet al., 2003) was used to automatically assign parts of speech, such as noun, proper noun and verb, to each word in the posts. We then extracted a word list of all the proper nouns posted on the Bitcoin forum.The next step was to conduct a network analysis to map the relations between the proper nouns, which enabled us to determine the social distance between words. To explain, two words have a short social distance if they are often used in posts written by the same individuals, and a long social distance if they are mainly used in posts written by different individuals. In this manner, we were able to determine the distribution of topics across the community or, in other words, the social structure of the discussion in the community (appendix 1).We also conducted a factor analysis to analyze the variation over time among our observed variables, namely the word frequencies of proper nouns. All proper nouns with a frequency of 40 mentions or more in the entire database, totaling 3,296, were used in the analysis. Factor analysis is a statistical method for analyzing interrelationships among observed variables in order to reduce them to a smaller set of underlying variables. In our case, the variation over time of the 3,296 proper nouns hides a lower number of underlying variations. For example, the words "Zhou Tong", "AurumXChange", "Bitcoinica" and several other words related to an investigation into the hackings of Bitcoin trading platforms rose in tandem in July and August 2012, a discussion that is captured by one of the factors. In other words, each factor can be interpreted as a topic discussed by the community and which distribution over time can be examined.We analyzed the 50 factors that explained most of the variance, both in terms of the words that loaded strongly on them and their time profiles to provide an overview of the most important topics discussed on the Bitcoin forum over time. In other words, each date is assigned a value for each factor based on how active the factor is on that date. A high value on a certain date results when there is a high frequency of use on that date of the words that load strongly onto that factor. The distribution for each factor over time sums to zero, meaning that the number on the vertical axes in figures x and y are relative values. Hence the values can be compared across dates within a factor but not between factors. An initial investigation of these 50 factors revealed that 42 (82%) were topics that had a limited degree of activity during a very short time, i.e., led to a sharp spike in activity (e.g., figure 4). However, eight of the 50 (18%) factors were active topics for longer than three months (e.g., figure 5).
  • Bitcoin Foundation Registered as 501c of US Internal Revenue Code Bylaws effective July 23, 2012Governed by board with five seatsTwo seats by Individual member classTwo seats by Corporate member classOne seat by Founding member class Board member criteria Individual member in good standingAny business is conducted openly using real identityPass background check for felony convictionThe Bitcoin Foundation was founded by seven of the community’s most instrumental individuals, such as Gavin Andresen – a core Bitcoin developer (table 1). The Bitcoin Foundation has been registered under section 501c of the US Internal Revenue Code in Washington, D.C., and its bylaws were effective as of July 23, 2012. The Foundation is governed by a board with five seats split by membership class. Two seats elected by the Individual member class (annual membership costs .23 BTC), two seats by the Corporate member class (five different levels from 9.4 BTC for companies younger than two years and with less than 25 employees to 935.4 BTC for Platinum companies), and one seat by the Founding member class. The Individual member class currently has 426 members (of which 68 are anonymous) while the Corporate member class comprises two platinum and eight silver members (table 2). The Board has established the following requirements for its board members: 1) an Individual member in good standing, 2) any business is conducted openly using their real identity, and 3) they pass a background check for felony conviction.https://github.com/pmlaw/The-Bitcoin-Foundation-Legal-Repo/blob/master/Bylaws/Bylaws_of_The_Bitcoin_Foundation.mdhttps://bitcoinfoundation.org/about/governance 
  • Bitcoin Seminar - Stockholm

    1. 1. Stockholm School of Economics Bitcoin: Challenging the fiat money system or catalyzing economic development? October 25, 2013
    2. 2. Program 14.30-14.45 Welcome and Introduction to Bitcoin Dr. Robin Teigland
 14.45-15.15 Associate Professor, SSE The Appeal of a Nonpolitical Monetary Unit Jon Matonis, Executive Director & Board Member, Bitcoin Foundation 15.15-15.45 Case Study: Kipochi and Implications of Bitcoin for Developing Countries Pelle Braendgaard
 15.50-16.20 Future of and Alternative to Bitcoin Michael Grönager
 Officer, Payward Inc. 16.20-16.30 Founder, Kipochi Chief Operating Concluding Remarks Moderator: Dr. Robin Teigland 2013-10-26 │ 2
    3. 3. Finance + ICT 2013-10-26 │ 3
    4. 4. Opportunity? Threat? vs 2013-10-26 │ 5
    5. 5. E.g., Central Bank ~ Long-standing financial institutions and regulations Emergent Collective vs Institutions E.g., Bitcoin Community ~ Emergent collective of users across globe connected through internet 2013-10-26 │ 7 Teigland, Yetis, Larsson 2013
    6. 6. Bitcoin Online Forums Social network analysis & Semantic network analysis • Bitcoin Forum (English) • 1.15 mln posts by 21,903 people • 85% all posts / 89% all people • Secondary data • SNS, blogs, websites, etc. 2013-10-26 │ 8
    7. 7. Informal organization 10 Most Active in Forum 5 Bitcoin entrepreneurs 5 anonymous Forum Topics over Time Technical Exchanges Legal 2013-10-26 │ 9
    8. 8. 2013-10-26 │ 10
    9. 9. Program 14.30-14.45 Welcome and Introduction to Bitcoin Dr. Robin Teigland
 14.45-15.15 Associate Professor, SSE The Appeal of a Nonpolitical Monetary Unit Jon Matonis, Executive Director &Board Member, Bitcoin Foundation 15.15-15.45 Case Study: Kipochi and Implications of Bitcoin for Developing Countries Pelle Braendgaard
 15.50-16.20 Payward Inc. 16.20-16.30 Founder, Kipochi Future of and Alternative to Bitcoin Michael Grönager
 Chief Operating Officer, Concluding Remarks Moderator: Dr. Robin Teigland 2013-10-26 │ 11

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