Is Bitcoin a disruptive innovation? A talk at Portsmouth Business School, UK


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This talk explains Bitcoin and its innovations within the fields of politics, finance and technology.

I first explain a bit about what Bitcoin is as only about 20 of the 70 attendees knew what it was. None of them had any yet. It is still quite hard to buy Bitcoin. I offered them the chance to go grab some Bitcoin from my digital wallet, if they could figure out how to do so! It's still not that simple to get a wallet and figure it out.

First I spoke about why a digital or crypto currency has taken off now, mainly due to the recent financial crises and loss of trust int he banking system. And that it's a very secure system, designed to be a currency.

I spoke about the main innovations as I see them of Bitcoin:

Innovation 1
Peer to Peer: Bitcoin is simplifying the system. Way less players now get involved in a 'simple' payment transaction between 2 people. This brings down the transaction costs hugely.

Innovation 2
Bitcoin has a money supply that grows at a steady rate that is predicted, and is fixed at a certain date in the future. It is non-inflationary. Inflation has crippled our savings. this could really change the way we relate to money.

Innovation 3
We are putting our trust in Maths to verify the transactions, rather than in governments or banks. It is non -hierarchical - it is not developed by a company or a government. The founder set up the system and disappeared leaving it for us all to use. Hayek and the Libertarians love it because governments can't manipulate the money supply for political reasons or to win wars. We have moved from a commodity-based currency to a political-based currency to mathematical currency.

Innovation 4
It's not created by a country or a company- it's out there for everyone to use freely.
Story of Satoshi Nakamoto- its creator, who disappeared.
Innovation 5
It's Open Source- which means it's constantly being improved and tested. It's 'the people's job' to peer review the code and make sure it's secure, and that it doesn't favour any one party, or provide back-doors for a minority of vested interests.

Innovation 6
It is transparent- there's been a lot of hype about how black money can hide in Bitcoin. However all transactions are publicly available and so it's not anonymous, but rather pseudonymous. Swiss banks are much more anonymous.

Innovation 7
Bitcoin is for everyone to use, there is no one controlling the system making it exclusive. Now 1/3 of Kenyans have a Bitcoin Wallet for mobile transactions. The barriers to use Bitcoin are technical- both in knowledge and access to digital technology.

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  • Bitcoin has been designed to be used a currency.But people are calling it a Ponzi Scheme and others say it is taking back power of our money back to the people.So it’s controversial often misunderstood. Here we are to understand more and to particularly look at how it’s innovating.
  • However, if we consider that the Fed, led by its chairman, is the most powerful organization in the world — because by printing money, it can finance the government (fiscal deficits)and wars, manipulate the cost of money (interest rates), directly intervene in the economy by bailing out failing institutions (banks) or countries (Greece, etc.), intervene in the foreign exchange market and even influence elections — then the question arises whether it makes sense that so much power should be given to Fed members, who are “group thinking” academics and most of whom have never worked in the private sector. In my opinion, the enormous power of the “academic” Fed is a frightening thought.- Mark Faber- Daily Reckoning
  • When buying or selling bitcoins you can do it through an exchange or you can pay someone directly through your digital walletOr you can meet them in person and do it via your wallet.
  • Cleverly designed to be a currency Loss of trust in governments to control the money supply Mistrust of relationship between banks and governmentsDemand for low-cost global digital transactionsAfter Cyprus currency controls, etcLots since the 1980s- DigiCash by Chaum, etcThe Liberty Dollar was a private currency minted in Idaho and used by at most a quarter million people between 2007 and 2009, during which time its value doubled in relation to silver. It came to an ignominious end when the federal government arrested its creator, among others, and declared the operation a federal crime. E-gold, a digital currency backed by real gold, met a similar fate when the U.S. Department of Justice charged its creators with money-laundering
  • Hayek- an Economist from Austria-Hungary 1899- 1992Lived a long time and saw huge changes.His most famous book was The Road to Serfdom- anti-totalitarian book, cautious of the State, but saw the need for governments in roles such as institutions, labour hours, etcNobel Prize in Economics in 1974Hayek advocates a system of private currency in which financial institutions create currencies that compete for acceptance.Stability in value is presumed be the decisive factor for acceptance. Influenced Milton Friedman, Margaret Thatcher, Ronald ReaganRon Paul- End the FedCato InstituteNeo liberal or libertarianCentral banks cannot be reformed. There can never be sound money so long as they are in charge. He calls for their complete abolition, no compromises accepted. He wants the market in charge of money from top to bottom.
  • - Print money for political reasons Instability inflationThe currency loses valueWe lose out
  • Something we can’t imagine- no printing of extra money to eat away at the value of our money!Can encourage people not to spend!
  • Prevents double spending- cryptography better solution, clients run validationAnonymity – pseudonyms- using public and private keys which are not linked to a person
  • Finite supply of bitcoins- 21mbut self-limited by the code
  • The Banksy of the InternetDisappearedNo hierarchy
  • As Forbes saidSilk Road doesn’t really sell drugs. It sells insurance and financial products,” says Carnegie Mellon computer engineering professor Nicolas Christin. “It doesn’t really matter whether you’re selling T-shirts or cocaine. The business model is to commoditize security.”
  • Don’t need an addressPoor people, small business those with mobile phones can use it
  • A protocol is sticky. We use smtp for email, http for web browsing.
  • For Bitcoin to work it needs a large ecosystem
  • SO Bitcoin might not be the final currency we end up using, But to me it has many defining characteristics will likely feature in the final currency we use
  • Is Bitcoin a disruptive innovation? A talk at Portsmouth Business School, UK

    1. 1. Bitcoin & Innovation Niki Gomez @nikigomez 17 Oct 2013 - Portsmouth Business School (updated 22 Nov 2013) Creativity that pays - innovation in finance session
    2. 2. Give me control of a nation’s money supply, and I care not who makes its law - AmschelRothchild
    3. 3. What is bitcoin?
    4. 4. Bitcoins are ‘mined’ or released to people who crack complex Maths problems They need very powerful computing power to do so, like this specialisedBitcoin Avalon machine.
    5. 5. Fragile as a house of cards but growing hugely in importance Source: The Atlantic
    6. 6. How Big is Bitcoin? On17 October 2013 • Economy Total 11m BTC in circulation • Transactions last 24h 54,958 • Bitcoins sent last 24h 927,536.58 BTC • Bitcoins sent avg. per hour 38,647.36 BTC Recent survey of people who know about Bitcoin • 40% UK respondents trust Bitcoin as much as Pound • 38% think it’s the currency of the future * Survey: On Device Research, June 2013
    7. 7. A UK/US Credit Card Transaction Bank Bank UK treaty Forex trading Short term debt instrument US treaty Clearing
    8. 8. Innovation 1: Bitcoin is Peer to Peer Alice Internet (Bitcoin Miners) Bob
    9. 9. Why First Digital Currency to Go Mass? -
    10. 10. Friedrich Hayek Nobel Prize in Economics, 1974 “Central banks cannot be reformed. There can never be sound money so long as they are in charge.” Download Hayek for free:
    11. 11. When Governments control money
    12. 12. Innovation 2: A money supply that grows steadily and then is fixed • Every 10 minutes 25 Bitcoins are released into the system currently • No more than 21m BTC will exist after 2040 Encourages saving!
    13. 13. A currency is based on trust. Innovation in trust
    14. 14. Innovation 3: Cryptography Ensures Trust “With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.” Satoshi Nakamoto
    15. 15. Bitcoin is not backed by anything! • Not state-backed fiat currency • Not backed by anything of value (e.g. gold)
    16. 16. In Maths We Trust “We have elected to put our money and faith in a mathematical framework that is free of politics and human error.” Tyler Winklevoss, Entrepreneur “There are 3 eras of currency: Commodity based, politically based, and now, math based.”
    17. 17. Innovation 4 : Currency Not via a Country or Company! Satoshi Nakamoto, disappeared 2009
    18. 18. Innovation 5 : • Democratic • Always being improved • Secure: all transactions are monitored collectively by the Bitcoin network.
    19. 19. Governance? • Bitcoin Foundation- Gavin Andresen, lead developer • Hackers/ coders verifying each transaction and mining for new coins
    20. 20. Innovation 6: Transparent • • • Robust and resilient - data on every single transaction is logged Anonymity - less personal data needed for transactions Opposite of Swiss Banks!
    21. 21. Innovation 7 : A global currency everyone can use • Low transaction fees1/3 of Kenyans have a Bitcoin Wallet (Mpesa add-on) • Sell directly to with no middleman - Coffee traders in Bali • Earn bitcoins for online jobs Homeless people in US (Wired)
    22. 22. Disruptive Innovation? A protocol for money
    23. 23. Threat to Governments and Banks? “Doing Banking Better than Bankers. It's money 2.0, a huge huge huge deal.” - ChamathPalihapitiya "Bitcoin will do to banks what email did to the postal industry” - Rick Falkvinge [Bitcoin] is a techno tour de force." - Bill Gates
    24. 24. Show me what you can do! Grab 0.15 BTC Use the Pass Phrase I mention. Go to : Get your digital wallet at:
    25. 25. Spawned a host of digital currencies • • • • • Ripple Lite Coin Name Coin Peer Coin Prime Coin
    26. 26. Bitcoin Ecosystem - innovation • • • • Chip Manufacturers Mining as a service Compliant Exchanges Secure Wallets
    27. 27. Bitcoin Ecosystem Making Bitcoin easier to use • Dark Wallet • Cash converters/Bitcoin ATM machines • Building payment protocol into web browser
    28. 28. “You can put a bank in your pocket. That’s pretty big” Gavin Andresen, Bitcoin Foundation
    29. 29. Parallel Bitcoin Economy We can buy and sell between us in Bitcoin
    30. 30. Who is richer now? @cybrsalon
    31. 31. Links Bitcoin News Aggregators: • • On Bitcoin • Bits of Coin (Android App) • • Brain Wallet •