This document discusses the evolution of digital cash and cryptocurrencies like Bitcoin. It outlines the goals and concerns of a cashless society, provides background on early digital cash systems, and describes how Bitcoin introduced a decentralized digital currency using cryptography. The document reviews Bitcoin statistics and applications, discusses security issues and regulatory concerns, and considers Bitcoin's potential future prospects as an independent digital currency.

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

2. 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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3. 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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4. History of Digital Cash
• E-Money is not regular payments going online
• Means of exchange vs. store of value
• Nomenclature of digital cash
• Concept of digital bearer instrument
• Centralised issuing mint schemes
– DigiCash (1990-1998)
– eCache (1999-2008)
– Voucher-Safe (2010-present)
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5. 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
• Launched in January 2009 by Satoshi Nakamoto
• Open source built on cryptographic primitives
– Elliptic Curve DSA and keypairs
– RPOW
– SHA-256 Hash (incorporating distributed block chain)
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6. Precursors to Bitcoin
• Adam Back Hashcash (1997)
– Proof-of-work system to limit email spam
– SHA-1 hash of the header
• Wei Dai B-money (1998)
– Public keys identify pseudonyms
– Broadcast solution to computational problem
– Arbitrator and fine schedule
– Broadcasted subset account servers with bail
• Nick Szabo BitGold (2001-2005)
– Public challenge string of bits
– Client puzzle functions
– Securely timestamped
– Distributed property title registry
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7. Bitcoin Statistics
• Exchange Rate ~ 5.00 USD
• Size of Economy $43.7 million
• Total Bitcoin Mined 8,802,250
• Maximum Potential Bitcoin 21,000,000
• Total Block Count 176,044
• Average Blocks per Hour 6.0
• Host Node Distribution (last 24h)
– United States 7,535
– Germany 1,373
– Russia Federation 1,136
– Canada 1,004
– United Kingdom 969
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8. Total hosts connected in previous 24
hours
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9. Exchange Volume Distribution
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10. Primary Bitcoin Apps
• Wallets
– Local client wallets
– Lightweight wallets
– Web-based online wallets
• Merchant Processing
– BitPay
– Bitcoin 24/7
– Paysius
• Mining Pools
– Deepbit
– BTC Guild
– Slush
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11. Merchant Deposit Alternatives
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12. Bitcoin Mining Rigs (or de-central
banks)
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13. Hashrate Distribution
• An estimation of hashrate distribution amongst the
largest mining pools
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14. Security Issues
• 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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15. Watch bitcoin robbery in slow motion
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16. Regulatory Issues
• 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
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17. 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
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18. Future Prospects
“Digital cash is to legal tender as BitTorrents are to copyrights”
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19. Thank You - Questions?
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Email me at matonis@ hushmail.com