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Bitcoin is coming

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This is a presentation on the basics of bitcoin, some of the legal considerations surrounding bitcoin, and some of the opportunities presented by bitcoin.

Published in: Technology

Bitcoin is coming

  1. 1. Bitcoin is coming… Presenter: Nelson M. Rosario Date: 11/7/15 Defense Entrepreneur’s Forum 2015
  2. 2. Roadmap • Introduction • What is bitcoin? • Three Things • Bitcoin Mechanics • So What? • Current Legal Considerations • Emerging Use Cases
  3. 3. Introduction • Who am I? • Who has heard of bitcoin? • Who owns bitcoin? Scan to connect on LinkedIn
  4. 4. What is bitcoin? • “No one owns bitcoin.” — Satoshi Nakamoto (probably) • Bitcoin is the world’s first open source public decentralized append only distributed ledger. • Bitcoin is also used as a currency by many.
  5. 5. Bitcoin is Open Source • The bitcoin code is open source and changes may be proposed by anyone • You can fork the code from Github at the following address: https://github.com/bitcoin/bitcoin • Advantage is that bitcoin changes are democratic • Disadvantage is that bitcoin changes are democratic
  6. 6. Bitcoin is Public • All bitcoin transactions are publicly viewable by anyone • Companies exist that crawl the blockchain and allow people to view all the transactions • Block Explorer is one such company: https://blockexplorer.com/
  7. 7. Bitcoin is Decentralized • There is no central authority for bitcoin • Bitcoin nodes are all over the world • The network is sustained by miners
  8. 8. Bitcoin is Append Only • You can only add blocks to the bitcoin blockchain • You cannot go back and remove or change blocks without changing all the subsequent blocks
  9. 9. Bitcoin is a Distributed Ledger • Bitcoin is a record of transactions • Bitcoin functions like a ledger Luca Pacioli, inventor of Double Entry Bookkeeping
  10. 10. Three Things, or Why You Should Care • Comparisons to the Early Internet • Investment in Bitcoin/Blockchain Companies • Patent Filings That Mention Bitcoin
  11. 11. Comparisons to the Early Internet • “A mysterious new technology emerges, seemingly out of nowhere, but actually the result of two decades of intense research and development by nearly anonymous researchers.” • “Political idealists project visions of liberation and revolution onto it; establishment elites heap contempt and scorn on it.” • “On the other hand, technologists – nerds – are transfixed by it. They see within it enormous potential and spend their nights and weekends tinkering with it.” • “Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn’t more obvious from the start.” • “What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014.” – Marc Andreessen in the NYT • http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/?_r=1
  12. 12. Investment in Bitcoin/Blockchain Companies
  13. 13. A Note on Terminology • Bitcoin v. bitcoin • Bitcoin v. blockchain • Lots of debate in the community as to whether you can separate bitcoin the currency from bitcoin the technology
  14. 14. Patent Filings That Mention Bitcoin Patents by Filing Date • 2010 – 1 • 2011 – 6 • 2012 – 14 • 2013 – 9 • 2014 – 28 • 2015 – 1 Patent Applications by Filing Date • 2010 – 0 • 2011 – 13 • 2012 – 32 • 2013 – 93 • 2014 – 180 • 2015 – 67
  15. 15. Bitcoin Mechanics • Balances • Transactions • Mining
  16. 16. Balances • Bitcoin is typically held in wallets • There are online services, mobile services, and offline services • Wallets have an address and a public and private key pair
  17. 17. Transactions • Transfer of value from one bitcoin address to another bitcoin address • All transactions are broadcast to the network once initiated
  18. 18. Mining • Validate transactions • Supports the network • Rewarded in bitcoins
  19. 19. So What? Advantages • Low transaction fees • Transactions confirmed fast • New economic models • Micro-tipping • Remittances • Autonomous payments Disadvantages • Can’t handle many transactions • Pseudo-anonymous • Not widely accepted • No central counter party
  20. 20. Current Legal Considerations • Biggest concern is anti-money laundering • Bitcoin gains and losses need to be reported to IRS • Not considered legal tender anywhere
  21. 21. Anti-Money Laundering Regime • If a bitcoin business qualifies as a money service business they need to keep track of customer information for AML purposes • Money Service Business is: • A dealer in foreign exchange • A check casher • An issuer or seller of travelers checks or money orders • A seller or provider of prepaid access • The United States Postal Service • A money transmitter • Required to register with FinCEN
  22. 22. FinCEN • FinCEN issued guidance that bitcoin is a convertible virtual currency • FinCEN issued guidance that bitcoin is a decentralized virtual currency for purposes of the Bank Secrecy Act • As such if a company operates as an exchanger of bitcoin it must comply with the Bank Secrecy Act and establish an anti-money laundering regime
  23. 23. Emerging Use Cases • Identity Verification for Refugees • Diamond Verification on the Blockchain • Smart Contracts
  24. 24. Identity Verification for Refugees • The identity of refugees are being registered on a blockchain by Bitnation to help refugees to Europe prove who they are • https://refugees.bitnation.co/
  25. 25. Registering Diamonds on the Blockchain • There are currently more than 300,000 diamonds already registered with Everledger, and 800,000 more waiting to be registered. Every diamond has a unique ‘fingerprint’, consisting of 40 different parameters. Law enforcement and insurance data is maintained on a special private platform linked to the blockchain. • http://www.coinfox.info/news/company/2606-everledger-registers- diamonds-in-the-blockchain
  26. 26. Smart Contracts • Self-executing agreements stored on the blockchain • Goodbye lawyers, accountants, and banks • http://www.fastcolabs.com/3035723/app-economy/smart-contracts- could-be-cryptocurrencys-killer-app
  27. 27. Things We Did Not Talk About • Security • Privacy • Scalability • Adoptability
  28. 28. Questions? Nelson M. Rosario Associate Attorney Lempia Summerfield Katz LLC Email: nmrculebra@gmail.com Twitter: @NelsonMRosario Blog: https://medium.com/@nelsonmrosario LinkedIn: www.linkedin.com/in/nelsonrosario nrosario@lsk-iplaw.com

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