Risk & challenges in virtual currencies - Cocon 2013

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Presentation describes about the risk and challenges in virtual currencies. It also describes about the working of virtual currencies and bitcoin in specific.

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  • Upper stack is cryptographic functions Lower stack is p2p networkWhat is bitcoin? / How its differentA Crypto Currency Serves as a medium of exchanging value having base of cryptographyPeer 2 peer Works like bitorrentDigital Has no physical existence (exception cacasius coins.)Decentralized No government or no central authority can make it.Minting / making bitcoin is a process which any one can do and is subject to control by definition of protocol. AnonymousIdentity of a person is not revealed.
  • Money controlled by banks, banks can use money make more money.Tantra need comments on this… Closed Ledger Vs Open Ledger
  • Thanx brian 
  • I intend to show that india is lacking behind in bitcoin world.
  • Ease of transactionFarster clearing.Less burden on
  • Ease of transactionFarster clearing.Less burden on
  • Risk & challenges in virtual currencies - Cocon 2013

    1. 1. Risk and Challenges in Virtual Currencies Harsh Patel & Swatantra Kumar Gupta
    2. 2. Page 2
    3. 3.  Co-founder and moderator of Team Matrix  Bitcoin education committee member in Bitcoin Foundation  Fellow at Bitcoin education project  Currently working with IT Giant  SCIT Alumni Swatantra  Co-founder and moderator of Team Matrix  Community Leader for the ISACA Online Community for ISO 27001  APWG member  Currently working with a Big 4 consulting firm  SCIT Alumni About Us Harsh
    4. 4. All the information depicted in this presentation is purely out of research orientation. It has no intent to harm any individual / organizational sentiment. Disclaimer
    5. 5. THEY SAY “TIME IS MONEY” WHAT THEY DON’T SAY IS “MONEY IS RUNNING OUT OF TIME”
    6. 6. Currency  a : circulation as a medium of exchange  b : general use, acceptance, or prevalence  c : something (as coins, treasury notes, and banknotes) that is in circulation as a medium of exchange  d : paper money in circulation  e : a common article for bartering Source : Merriam-Webster Dictionary Page 6
    7. 7. Definitions – Currency and its types
    8. 8. Page 8
    9. 9. What is Bitcoin? Page 9 A form of online currency which can be exchanged for goods and services at places which accept it. First created in 2008 by an anonymous hacker Satoshi Nakamoto. He named these first Bitcoin as the genesis Block. Borderless currency and can be used anywhere.
    10. 10. Ummm, but what is the value of 1 Bitcoin ??? Page 10
    11. 11. Ummm, but what is the value of 1 Bitcoin ??? Page 11 As of 01 January 2013, Source : Mt. Gox – Bitcoin Exchange
    12. 12. Ummm, but what is the value of 1 Bitcoin ??? Page 12 As of 09:11 AM of 28 September 2013, Source : Mt. Gox – Bitcoin Exchange
    13. 13. Interesting!!! Now we are talking… Page 13
    14. 14. Drill down into Bitcoin Upper Stack- Cryptographic functions Lower stack- Peer to peer network
    15. 15. Drill Down in to Bitcoin – Technicalities (Ledger Systems) Closed Ledger System Open Ledger System Definitions A System where in transaction details are kept by a central organization A system where in transaction details are kept open Example Banking system Crypto currencies Ethics Defined by laws and terms and conditions Defined by technical protocols (i.e.- Mining process) Privacy Maintained by Agreement between central organization and individual (Defined by law of land) Maintained by inherent principles of the system. Control mechanism Regulatory bodies Self stabilizing ecosystem
    16. 16. Drill Down in to Bitcoin – Technicalities (Address)
    17. 17.  All Transactions are serialized and arranged in blocks based on timing of transaction  Simple rule - Public key for receiving - Private key for spending Drill Down in to Bitcoin – Technicalities (the Transactions)
    18. 18. Drill Down in to bitcoin – Technicalities (the Transactions) Types of Transaction (Tx) :- Reward/generation Tx , Normal Tx and Signed Tx
    19. 19.  Is a record of audited and valid transaction  Block are serialized and form a block chain  Blocks are generated every 10 min by the distributed mining operation Identified by unique hash which is based on merkel root. Drill Down in to bitcoin – Technicalities (the Block and Block Chain)
    20. 20.  Process of generating block  It is a task of constantly auditing transactions and generating new blocks  Miners earn by - Protocol Defined Rewards - Transaction fees  Resource intensive process - ASICs / GPU / FPGA required  Mining is subject to difficulty factor of successfully auditing a legitimate transaction Drill Down in to Bitcoin – Technicalities (the mining Process)
    21. 21. Drill Down in to bitcoin – Economics
    22. 22. Risks & Challenges
    23. 23. Crypto-currencies are as legal as TCP/ IP and as Illegal as TCP/ IP Risk 1. Legal Acceptance Risk Description Risk Rating Importance Impact Legal Acceptance 5 5 90
    24. 24. All transaction from inception of block chain are open but yet anonymous Risk 2. Anonymity Risk Description Risk Rating Importance Impact Anonymity 3 4 70
    25. 25. Use of virtual currencies to facilitate money laundering Risk 3. Misuse (Cybercrime) Risk Description Risk Rating Importance Impact Unethical use 2 3 60
    26. 26. http://blockchain.info/nodes-globe Risk 4. Distribution Risk Description Risk Rating Importance Impact Distribution 4 3 60
    27. 27. Mining infrastructure can be applied in cracking cryptographic hashes (only valid for SHA256 hashing algorithm) Risk 5. Misuse (Mining) Risk Description Risk Rating Importance Impact Unethical use of mining Infrastructure 1 1 10
    28. 28. Altering the block chain by owing more than 51% of network Risk 6. Hard Fork (51% attack) Risk Description Risk Rating Importance Impact Hard Fork 1 1 1
    29. 29. Risk Overview 0 1 2 3 4 5 6 0 1 2 3 4 5 6 Priority Risk Rating Legal Acceptance Anonimity Distribution Hard Fork Unethical use Unethical use of mining Infrastructure
    30. 30. CHALLENGES
    31. 31. Regulators dilemma How to tame virtual currencies? Challenge 1. Regulation Linked Risk Legality/ Misuse
    32. 32. FINCEN Guideline on Virtual Currencies. Challenge 1. Regulation (Contd) Entity Currency Types E Currencies and E precious metals Centralized Virtual Currencies De-Centralized Virtual Currencies Eg EGold Liberty Reserve Bitcoin User No MSB regulation No MSB Regulation No MSB regulation Exchanger MSB Regulation MSB Regulation MSB Regulation Administra tor MSB Regulation MSB Regulation No MSB Regulation
    33. 33. In open ledger system, Privacy is granted by anonymity As addresses are not linked to identity Concept note - Zerocoin Challenge 2. Privacy Linked Risk Anonymity
    34. 34. Challenge 3. Pricing More than 5% of price Fluctuation weekly Linked Risk Distribution
    35. 35. Who would be a cop for such a system? And how would the cop function? Challenge 4. Policing Linked Risk Misuse / legality / regulation
    36. 36. Who to trust and whom not to trust? Challenge 6. Standardization Linked Risk Misuse /Hardfork
    37. 37. Linker map ( Challenges to Risk )
    38. 38. Virtual crypto Currencies is a 4 year old baby and is getting into mature stage. End Note
    39. 39. Page 39 THANK YOU harsh.patel@teammatrix.org swatantra.gupta@teammatrix.org

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