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

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