1.
Trends and speculative possibilities of trustless asset
management

2.
◦ The chart does not fully capture the costs of storing private keys
which is increasingly expensive yet necessary for those uninterested
in hosting the keys locally
◦ Furthermore “payment clearing” is not cheap as the costs to
maintain the network shift in relation to the market price of bitcoins
themselves

3.
 Bitcoin versus Credit
Card and Bank Wire
◦ The typical bitcoin transaction
is processed and confirmed
(6x) in about an hour
◦ International Bank Wire can be
a matter of days
◦ Credit card varies
 Estimated cost:
 ~$15 for Bitcoin*
 ~$50 for Credit Card
 ~$40-$80 for Bank Wire
 *Based on costs of running the
network divided by number of
transactions

4.
 Cannot beat them on speed and
confirmations, go where Visa is
not
 Paypal is not in 60 countries
hence WordPress adopted Bitcoin
 Goldman Sachs report: $210
billion of savings in three areas:
◦ Retail, online merchants, remittances
◦ Remittances are $550 billion annually
 Average African migrant pays 12.4% in
remittance fees

5.
 Slow transaction rate
◦ Block speed of ~10 minutes
per confirmation
◦ 7 per second with BTC
versus 10,000+ per second
with Visa
◦ Not adequate for
decentralized HFT
 M-PESA handles 43% of
Kenya’s GDP because it is
sent instantly via SMS

6.
 None of the benefits of
centralization yet with all
of the costly overhead of
decentralization
◦ CAP theorem
 Consistency, Availability,
Partition tolerance

7.
 ASIC centralization
◦ Depreciating capital good provides
incentive to create ‘pumped’ alts
after profitable period of BTC
mining ends
 Coiledcoin & Eligius
 Hasher versus miners
◦ Not transparent (“selfish-mining”)
 Mining pool centralization
◦ Though efficient payments and
value-added centralization on edges
(Coinbase/BitPay)
◦ BIP 70

8.
 5460 satoshi to prevent DDOS and
‘bloat’ yet impacts microtransactions

9.
 No financial incentive to be a
core developer
 No financial reward for
contributing code on a regular
basis (i.e., a job)
 Only 2-3 funded developers
(Gavin, Jeff and half of Mike)
 Tragedy of the crypto
commons, growth by volunteer
work

10.
 $200 million - $1 billion in hardware for
mining*
◦ Funds went to utility oligopolies and silicon
companies, not software developers or
ecosystem
 ‘Regulatory capture’ – miners will not
switch to a fork that does not repay their
investment (e.g., Proof-of-stake) so status
quo remains
◦ Network roughly same speed as 5 years ago,
10 minute confirmation times
 If Visa spent $200 million and was no faster, CTO
would be fired

11.
◦ Centralized, managed pools
◦ April 1, 2013: 51,925 GH/s
◦ March 25, 2014: 37,582,751 GH/s
 723x increase in hashrate, yet roughly same network performance

12.
 Digital signature superficial illustration
of a corporation
◦ Blend between stakeholder versus
shareholder
 Wall separating fiduciary responsibility is
nebulous
◦ No clear decision makers, no clear
responsibilities, no governance or
accountability determined via private keys
 Cargo cult handwaving (Vanuatu as seen in
picture)

13.
 Historically: incentive not to build the
ecosystem because speculating BTC is
less risky than developing services (this
may be changing)
 Buying and burying bitcoins around the
globe instead of building part of the
ecosystem
 Jesse Powell perseverance versus the
free-rider problem
 Socialize the labor, privatize the gains
 SugarCRM, MySQL, MongoDB, Jira, all
succeeded in the market due to a
dedicated company

14.
 Does one-size fit all?
 Subsidized all you can eat
 “Unlimited is not unlimited”
with transaction fees
 TINSTAAFL
 FedEx, Disneyland, CDNs
 Tragedy of the commons
◦ Communal
◦ “Public goods” animosity
towards MSC, CC, XCP

15.
 The incentive to provide this public good (hashing), via a
private method (seigniorage via the coinbase), lessens with
block reward halving
 Hashrate is treated as “public good” (non-scarce/rivalrous)
 Inclusion of tx is a private good due to block size
 Incentivize via transaction fees
 Future: free floating, determined by miners (planned)
 Supply limitation 1 MB block, have to increase block size
◦ Trade off between block size, speed and decentralization
 Cost of actual network costs is likely higher, certainly not free
 Actual costs masked by price appreciation and token dilution

16.
 What is a financial transaction? Real quotes this past week
regarding the OP_RETURN change:
◦ “It’s called a free ride.”
◦ “Too many people were getting the impression that OP_RETURN
was a feature, meant to be used.”
◦ “Not acting like bitcoin is your personal property.”
◦ “Every full node has consented to download and store financial
transactions.”
◦ “The community agrees and the protocol is updated.”
◦ “All data storage attempts, even the OP_RETURN stuff, are
technically abuses the protocol was never intended for.”
 Cookies, JavaScript, AJAX (unintended uses from original
internet protocols)
◦ Permissionless invention
 Counterwallet uses Insight from BitPay Bitcore fork

17.
 Dev quote: “Then contact more than
a couple of pools. This statement
sounds like you wish to force
miners to include your transactions;
surely you didn't mean it that way?”
 How to contact unknown miners?
 “Hello unknown mining pool, I
would like…”
 Decentralized, anonymous mining?
 What if they only spoke Putonghua?

18.
 All but 0.000146% of
multisig outputs are
unrelated to either
Mastercoin or Counterparty
 March 24, 2014
 CoinSecrets.org lists recent
metadata embedded in the
Bitcoin blockchain using
OP_RETURN outputs

19.
 “Bitcoin won’t succeed unless
there are a lot of Bitcoin
companies building the Bitcoin
infrastructure / Bitcoin economy.
So there seems to be a classic
public good / positive
externality problem here: People
are better off free riding on the
efforts of others, but if
everybody did that there would
be nothing to free ride on.”
 Koen Swinkels

20.
 Colored Coins
 Mastercoin
 Counterparty (POB)
 NXT (POS)
 BitShares/Invictus (POS)
 Ethereum (POW/POS)
 Ripple (Consensus ledger)
 Open-Transactions (Ledgerless)

21.
 How to fund 30 developers working on 8
projects?
◦ “IPO” can receive actual financial compensation, no
longer just motivated by goodwill, altruism and
ideology
 4,700 bitcoins raised by Master Foundation
 2,130 bitcoins ‘burned’ by Counterparty
 Solve other use-cases:
◦ Real estate title tracking (developing countries)
◦ Middle office automation (no need to worry about
bloat if it is internal)
◦ HMO can share medical records, m-of-n
multisignature transaction to work with health care
providers
◦ Crowdequity and content rewards (LTBCoin,
JoinMyIPO)

22.
 If you built the best, most elegant
solution, people might still not use
it:
◦ Stephen Pair noted Betamax vs VHS
◦ BeOS
◦ Itanium
◦ Gentoo
 “I want an OS not a hobby”
 Consumers may just care for
simplicity and “smart fine print”
◦ Geeks and early adopters care about
tokens for payments, later adopters
may not (i.e., do you know or care how
Visa’s transfer mechanism works?)
◦ Android and Mac OS X versus Gentoo
and FreeBSD

23.
 Only Ripple protocol (distributed)
can today, perhaps POS with fast
block times can in the future
◦ GeistGeld had 15 second blocks (but
many orphans)
◦ Litecoin has 2.5 minutes blocks (max
28 transactions per second)
◦ Dogecoin has 1 minute blocks (70
transactions per second)
◦ NXT has 1 minute blocks, 255
transactions per minute (~4 tx/s)
◦ Ripple has 5-10 second ledger
closings, 100-1000 tx/s
 Coinbase, Circle, Bitstamp effective
and efficient but centralized (in the
long run consumers may be okay
with that)

24.
 Pamela Morgan, Chicago-based smart contract attorney
◦ Bloat does not matter if it is internal
◦ Proof of existence can be done right now, can maintain
confidentiality -- able to prove the exact copy of the document
◦
 Preston Byrne – London, based securitization attorney
◦ Taking Munibit, developed by Startup Cities Institute (to help
mitigate and prevent leakage of funds in institutions of
developing countries)
 One public input and one output address for all funds (transparent
to public)
 Use a cryptoledger internally to monitor trading desks

25.
 Sometimes good is good enough (e.g.,
Yamaha vs Steinway piano)
 Incentives are being overlooked (e.g.,
developer pay, ASIC depreciation)
 Special interest groups may exert pressure
and lobby due to a “public goods” issue
 ‘Jawboning’ against alts will not work in the
long-run (i.e., “Slackware or bust!”)
 Bitcoin (the protocol), despite these
shortcomings, will still likely flourish in the
near term
 Tools are agnostic and open-source,
multiple new use-cases by new parties
 Let a thousand cryptoledgers bloom

26.
 tswanson@gmail.com
 Ofnumbers.com
 @ofnumbers

27.
 Block rewards for Dogecoin were halved on February 14th
 LTC hashrate moved back to trend line
◦ MiddleCoin, CleverMining, HashCows, WafflePool, Hashbros

28.
 Adam Back, invented
Hashcash which is the proof-
of-work algorithm used in
Bitcoin
◦ Designed to prevent spam such
as email and DDOS
 Bitcore fork of bitcoinjs from
BitPay
 0.9 bitcoind / 40 or 80-byte
hash
◦ SPV
◦ Fund devs with assurance
contracts?

29.
 If lowest hanging fruits are securities, how to convince
professionals at electronic exchanges to do that?
◦ Chris Odom with Open-Transactions is a one man army, perhaps he can
solve it with federated voting pools?
 Andreas Antonopoulos:
◦ Antonopoulos compares the invention of the blockchain to nuclear fission.
"There's the discovery of fission, then there's building an actual nuclear
reactor and then there's the electricity that comes out of it. And
everybody's focusing on the price of the electricity that's coming out of it,
and they're missing the point that fission in itself changes physics,
changes energy, changes everything, really. Maybe you can ban electricity,
maybe you can regulate reactors. But you certainly can't make people
forget that fission exists. And you can't make that discovery disappear."

30.
 Many Western residents have few immediate incentives to use BTC
(other payment methods “good enough”)
 Users in developing countries have more incentives but capability
limitations (few smartphones, unreliable internet connection,
shared devices)
◦ There are roughly 253 million unique mobile phone subscribers in Africa
(many have two SIM cards) and an estimated 70% of the population on the
continent are underbanked or have no access to a bank
 Private key storage and usage too complicated for regular user
 Meaningless string addresses not user friendly
 Technology advocates in the defense position still –> wait-and-
see easier and less risky

31.
 In 2013, the 50 top global accounting networks and
associations grew by an average 3% in 2013, earning a
combined $169.7 billion in fee income
 Ernst & Young 12th annual Global Fraud survey:
◦ 39% of respondents reported that bribery or corrupt practices occur
frequently in their countries
◦ In Indonesia, 60% of respondents consider making cash payments to
win new business acceptable
◦ In Vietnam, 36% of respondents consider it acceptable to misstate a
company's financial performance

32.
 Pamela Morgan, Chicago-based smart contract attorney
◦ Smart contracts cannot be nullified due to technical limitations
◦ Bloat does not matter if it is internal
◦ Provide a method for elections (corporate, civic) providing greater
transparency, instant results, unforgeability
◦ Proof of existence can be done right now, can maintain confidentiality
◦ Able to prove the exact copy of the document
 Prove that a Will exists
 “Documents need to be secured and protected so that they can be delivered to
another party (judge/heir/executor) when they are needed. One issue is ensuring
document integrity - that the document presented today hasn't been altered - that
it's the exact same document. PDF version of a document uploaded to the
blockchain can provide that proof. For around $3. It is so inexpensive, why wouldn’t
you do it?"

33.
 Preston Byrne – London, based securitization attorney
◦ Taking Munibit, developed by Startup Cities Institute (to help
mitigate and prevent leakage of funds in institutions of developing
countries)
 One public input and one output address for all funds (transparent to
public)
 Use a cryptoledger internally to monitor trading desks
 Can be used as an automated accounts reconciliation to compare with
trusted ledgers
 Traders have trading limits but can game the books since accountants
are 1-2 weeks behind)
 Subledger.com could be used
 Exposure can be controlled, flags raised, books impossible to forge due
to digital keys required
 Use cases: Jérôme Kerviel, Nick Leeson, Kweku Adoboli, LIBOR fraud and
manipulation

34.
 70 year leases are often
40-50 year leases
 4 million rural Chinese
evicted each year
 Local gov’t generate
70% of annual income
from land sales
 120-150 million
migrant workers
without urban hukou’s