Bitcoin: Cash Becoming Digital

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EPCA Payment Summit, Brussels, March 20-22nd, 2013

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Bitcoin: Cash Becoming Digital

  1. 1. Bitcoin: Cash Becoming Digital Jon Matonis Bitcoin Foundation
  2. 2. Overview  Quest for the Cashless Society  History of Digital Cash  The Story of Bitcoin  Consumer Wallets  Merchant Benefits  Statistics  Future Prospects  Questions and Answers 2
  3. 3. Quest for the Cashless Society  Goals of the Cashless Society  No messy paper cash and bulky coins  No cash production and handling costs  No anonymous transactions above a certain limit  No untraceable transactions  No informal or ‘grey’ economy  No missing tax revenue 3
  4. 4. Quest for the Cashless Society  Scary Aspects of the Cashless Society  Identity becomes the new money  Full traceability of all personal transactions  Full unit of account control to the monetary sovereign  Payment blockades and confiscation become easier  Total elimination of the informal shadow economy  Near absolute efficiency in tax collection 4
  5. 5. Quest for the Cashless Society  Does the Cashless Society have to mean that we lose all of the privacy attributes of physical cash?  Anonymous  Untraceable  Bearer Nature  We have arrived at the historic crossroads!  User-defined privacy – or –  Identity-based money 5
  6. 6. History of Digital Cash (Pre-Bitcoin)  What public key cryptography enables  E-Money is not regular payments going online  Nomenclature of digital cash (digitalcash.org)  Concept of digital bearer instruments  If you can click “forgot password” and have balances restored, then it’s not a digital bearer instrument  Centralised issuing mint schemes  DigiCash (1990-1998)  eCache (1999-2008)  Voucher-Safe (2010-present) 6
  7. 7. History of Digital Cash (Precursors to Bitcoin)  Hashcash (1997) Adam Back  Proof-of-work system to limit email spam  SHA-1 hash of the header  B-money (1998) Wei Dai  Public keys identify pseudonyms  Broadcast solution to computational problem  Arbitrator and fine schedule  Broadcasted subset account servers with bail  BitGold (2001-2005) Nick Szabo  Public challenge string of bits  Client puzzle functions  Securely timestamped  Distributed property title registry 7
  8. 8. The Story of Bitcoin  Launched in January 2009 by Satoshi Nakamoto  Open source built on cryptographic primitives  Elliptic Curve DSA and keypairs  RPOW (reusable proof of work)  SHA-256 Hash (incorporating distributed block chain)  Solved the double spend problem without centralisation  Dual role of payment system and unit of account 8
  9. 9. The Story of Bitcoin  Bitcoin is a decentralised electronic cash system using peer-to-peer networking, digital signatures and cryptographic proof to enable irreversible payments between parties without relying on trust.  Bitcoin is a reaction to 3 separate developments  Centralised monetary authority  Diminishing financial privacy  Dominant legacy infrastructure 9
  10. 10. Bitcoin Consumer Wallets  Full Client  Installs locally  Downloads entire block chain  User maintains private keys  Lightweight Client  Involves some level of trust in the server  Downloads block headers only using Simple Payment Verification  User maintains private keys  Browser-based Client  Access via the browser  Service provider downloads block chain  Hosting server may or may not maintain private keys 10
  11. 11. Bitcoin Merchant Benefits  Extend acceptance to countries not reached by Visa, MasterCard, and PayPal (60+)  Provide payment method for the unbanked  No disallowed merchant categories codes (MCCs)  Not subject to payments embargo  Eliminate chargeback and fraud risk  Processing fees approaching zero  Near immediacy of settlement  Flexible wallet solutions 11
  12. 12. Bitcoin Merchant Benefits: Deposit Alternatives 12
  13. 13. Bitcoin Statistics  Exchange Rate ~ 47.00 USD  Size of Economy $520.0 million  Total Bitcoin Mined 10,899,150  Maximum Potential Bitcoin 21,000,000  Total Block Count 225,965  Average Blocks per Hour 6.0 13
  14. 14. Bitcoin Statistics: Numbers Tell The Real Story  Bitcoin Network ‘Horsepower’  ● December 2009: 0.008 Ghash/sec  ● December 2010: 103 Ghash/sec  ● December 2011: 8,303 Ghash/sec  ● September 2012: 19,284 Ghash/sec  ● March 2013: 42,000 Ghash/sec 14
  15. 15. Bitcoin Statistics: Numbers Tell The Real Story  Bitcoin Value in USD By Year  July 2010: $ 0.04 (first Mt. Gox quote)  January 2011: $ 0.30  June 2011: $32.00  January 2012: $ 5.26  November 2012: $12.00  March 2013: $47.00 15
  16. 16. Bitcoin Statistics: Market Capitalization 16
  17. 17. Bitcoin Statistics: Hashrate Distribution  An estimation of hashrate distribution amongst the largest mining pools 17
  18. 18. Bitcoin Statistics: Mining Rigs (or De-Central Banks) 18
  19. 19. Future Prospects  Bitcoin has the ideal virtual currency attributes  Two-way convertibility  Independent floating exchange rate  Nonpolitical unit of account 19
  20. 20. Future Prospects  Regulatory Issues  Decentralised nature inhibits third party shutdown  Exchanges will be a focal point of government scrutiny  Pressure on larger merchants  No direct legislation (similar to air guitars)  Only four jurisdictions have any official comment  USA  Australia  Norway  France  ECB 20
  21. 21. Future Prospects “Digital cash is to legal tender as BitTorrents are to copyrights” 21
  22. 22. Thank You – Questions? Twitter: jonmatonis Email: matonis@hushmail.com 22

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