The document discusses the evolution of digital cash and cryptocurrencies like Bitcoin. It provides background on the quest for a cashless society and history of digital cash concepts prior to Bitcoin. It then focuses on describing Bitcoin, including its origins, technology, usage statistics, applications, security issues, and regulatory challenges. Finally, it explores the future prospects of Bitcoin becoming an established currency and opportunities for financial institutions.

1. The Evolution of E-Money
Jon Matonis
Lydia Group

2. Overview
 Quest for the Cashless Society
 History of Digital Cash
 The Story of Bitcoin
 Statistics
 Apps
 Security Issues
 Regulatory Issues
 Future Prospects
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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13. Bitcoin Exchange Volume Distribution
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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
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15. Bitcoin Hashrate Distribution
 An estimation of hashrate distribution amongst
the largest mining pools
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16. Bitcoin Merchant Deposit Alternatives
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17. Bitcoin Mining Rigs (or de-central banks)
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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
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19. Watch Bitcoin Robbery in Slow Motion
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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
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21. Regulatory Issues With Bitcoin
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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
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23. Future Prospects
 Upcoming Technical Challenges For Bitcoin
 SPV (simplified payment verification)
 Default privacy in the client
 Ongoing transaction fees for miners
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24. Future Prospects
“Digital cash is to legal tender as BitTorrents are to copyrights”
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25. Thank You - Questions?
Twitter: jonmatonis
Email: matonis@hushmail.com
themonetaryfuture.blogspot.com