The Evolution of e-Money (DeepSec)

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DeepSec 2012
November 27-30th, 2012
Vienna, Austria

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The Evolution of e-Money (DeepSec)

  1. 1. The Evolution of E-Money Jon Matonis Lydia Group
  2. 2. Overview  Quest for the Cashless Society  History of Digital Cash  The Story of Bitcoin  Statistics  Apps  Security Issues  Regulatory Issues  Future Prospects 2
  3. 3. 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 3
  4. 4. Quest for the Cashless Society  Goals of the Cashless Society  No messy paper cash and bulky coins  No anonymous transactions above a certain limit  No untraceable transactions  No parallel or ‘grey’ economy  No cash production and handling costs  No missing tax revenue 4
  5. 5. Quest for the Cashless Society  Scary Aspects of the Cashless Society  Full traceability of all personal transactions  Dependence on electronic networks and gadgets  Full unit of account control to the monetary sovereign  Total elimination of the informal shadow economy  Near absolute efficiency in tax collection 5
  6. 6. History of Digital Cash (Pre-Bitcoin)  E-Money is not regular payments going online  Nomenclature of digital cash (digitalcash.org)  Concept of digital bearer instruments  What public key cryptography enables  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 Statistics  Exchange Rate ~ 12.00 USD  Size of Economy $125.4 million  Total Bitcoin Mined 10,492,650  Maximum Potential Bitcoin 21,000,000  Total Block Count 209,850  Average Blocks per Hour 6.0  Host Node Distribution (last 24h)  United States 6,458  Germany 1,113  Russia Federation 941  Canada 855  United Kingdom 827 10
  11. 11. Bitcoin Statistics: Numbers Tell The Real Story  Bitcoin Network ‘Horsepower’ (via J. Garzik)  ● December 2009: 0.008 Ghash/sec  ● December 2010: 103 Ghash/sec  ● December 2011: 8,303 Ghash/sec  ● September 2012: 19,284 Ghash/sec  Bitcoin Sent By Year (via J. Garzik)  ● 2009: 35 trillion BTC  ● 2010: 1,925 trillion BTC  ● 2011: 29,497 trillion BTC  ● 2012: 60,896 trillion BTC 11
  12. 12. 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 (pre-bubble)  January 2012: $5.26 (post-bubble)  November 2012: $12.00 12
  13. 13. Bitcoin Exchange Volume Distribution 13
  14. 14. Bitcoin Primary Apps  Wallets  Local client wallets  Lightweight wallets  Web-based online wallets  Merchant Processing  BitPay  Mt. Gox  Paysius  Mining Pools  Deepbit  BTC Guild  Slush 14
  15. 15. Bitcoin Hashrate Distribution  An estimation of hashrate distribution amongst the largest mining pools 15
  16. 16. Bitcoin Merchant Deposit Alternatives 16
  17. 17. Bitcoin Mining Rigs (or de-central banks) 17
  18. 18. Security Issues With Bitcoin  For bitcoin users:  Wallet.dat attack vector  Online wallets  Backups (USB stick, offline computer)  For bitcoin companies:  Recent Linode incident  Deterministic wallets  Multi-signature capability  Offline backups  Policies and procedures 18
  19. 19. Watch Bitcoin Robbery in Slow Motion 19
  20. 20. Regulatory Issues With Bitcoin  No direct legislation (similar to air guitars)  Variance in jurisdictional approaches  Decentralised nature inhibits third party shutdown  Exchanges will be a focal point of government scrutiny  Pressure on larger merchants  Only four jurisdictions have any official comment  USA  Australia  Norway  France  ECB 20
  21. 21. Regulatory Issues With Bitcoin 21
  22. 22. Future Prospects  Bitcoin has the required currency attributes  Two-way convertibility  Independent floating exchange rate  Nonpolitical unit of account  Opportunities for current financial institutions  Payment processing  Foreign exchange conversion  Escrow services  Surrogate ‘green addressing’  Enable mobile bitcoin transactions  Prepaid debit cards 22
  23. 23. Future Prospects  Upcoming Technical Challenges For Bitcoin  SPV (simplified payment verification)  Default privacy in the client  Ongoing transaction fees for miners 23
  24. 24. Future Prospects “Digital cash is to legal tender as BitTorrents are to copyrights” 24
  25. 25. Thank You - Questions? Twitter: jonmatonis Email: matonis@hushmail.comthemonetaryfuture.blogspot.com

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