SlideShare a Scribd company logo

Bitcoin for Microstates: How Iceland Could Adopt Bitcoin

Describe how microstates could adopt a virtual currency such as Bitcoin. Presented at BTC London, July 2, 2013 (CoinSummit, London).

1 of 18
Download to read offline
Bitcoin for Microstates
How Iceland could adopt Bitcoin

Sveinn Valfells, PhD
linkd.in/wtaHi5

July, 2013

Sveinn Valfells, PhD (linkd.in/wtaHi5 )

Bitcoin for Microstates

July, 2013

1 / 18
Outline

1

The Economic Consequences of Bitcoin

2

Iceland — A Microstate in Need of a New Currency

3

About the Author

Sveinn Valfells, PhD (linkd.in/wtaHi5 )

Bitcoin for Microstates

July, 2013

2 / 18
The Economic Consequences of Bitcoin

Outline

1

The Economic Consequences of Bitcoin

2

Iceland — A Microstate in Need of a New Currency

3

About the Author

Sveinn Valfells, PhD (linkd.in/wtaHi5 )

Bitcoin for Microstates

July, 2013

3 / 18
The Economic Consequences of Bitcoin

Satoshi Stands on the Shoulders of Giants
Isaac Newton and the Great Recoinage of 1696 [1]

Newton @ Royal Mint, 1696–1727
Significant debasement of currency
(≈ 10–20%).
Old coins taken back by weight (not
face value).
Invented ridges on new coins to reduce
“clipping”.
Successfully prosecuted counterfeiters.
Supervised currency union of England
and Scotland.

Sveinn Valfells, PhD (linkd.in/wtaHi5 )

Figure: Isaac Newton; Quarter Guinea
(1718).

Bitcoin for Microstates

July, 2013

4 / 18
The Economic Consequences of Bitcoin

Bitcoin Is a Token AND a Network
Dual property: Store of value AND medium of exchange

Virtual currency economics
Token: Fungible, impossible to
counterfeit, prescribed supply, low
cost of carry, tested governance
model.
Network: Fast, inexpensive, open,
reliable.
Value of network increases faster
than number of users.
Winner takes all: Endstate is one
dominant network, 2–3 runners-up
[2].
Figure: BTC private key–public address
(top); peer-to-peer network (bottom).
Sveinn Valfells, PhD (linkd.in/wtaHi5 )

Bitcoin for Microstates

July, 2013

5 / 18
The Economic Consequences of Bitcoin

Bitcoin Has Large Addressable Markets
Virtual currencies can store and transmit value

“In an extreme case, virtual currencies could have a
substitution effect on central bank money if they become
widely accepted.”
— ECB [3]

Global asset classes (value storage)
Private investment in gold >$1T [4].
London housing stock >£1T [5].
Global payment streams (value transmission)
Global non-bank payments in major economies >$609B (2011) [6].
Global m-payments ≈ $300B (est. 2013) [7].

Sveinn Valfells, PhD (linkd.in/wtaHi5 )

Bitcoin for Microstates

July, 2013

6 / 18

Recommended

July Banking Sector Update
July Banking Sector UpdateJuly Banking Sector Update
July Banking Sector UpdateQNB Group
 
Synergies Related To Consolidation of 27 Public Sector
Synergies Related To Consolidation of 27 Public SectorSynergies Related To Consolidation of 27 Public Sector
Synergies Related To Consolidation of 27 Public SectorAakash Singh
 
Investment Outlook 2010 03 For Public
Investment Outlook 2010 03 For PublicInvestment Outlook 2010 03 For Public
Investment Outlook 2010 03 For PublicGloeschi
 
Way2wealth Morning Note
Way2wealth Morning NoteWay2wealth Morning Note
Way2wealth Morning NoteIndiaNotes.com
 
Dissertation Final - 12021587
Dissertation Final - 12021587Dissertation Final - 12021587
Dissertation Final - 12021587Liam James
 
Fiscal Policy stump speech (draft 7.27.2013)
Fiscal Policy stump speech (draft 7.27.2013)Fiscal Policy stump speech (draft 7.27.2013)
Fiscal Policy stump speech (draft 7.27.2013)Brad Keithley
 
IceCap Asset Management Limited Global Markets October 2012
IceCap Asset Management Limited Global Markets October 2012IceCap Asset Management Limited Global Markets October 2012
IceCap Asset Management Limited Global Markets October 2012IceCap Asset Management
 

More Related Content

Similar to Bitcoin for Microstates: How Iceland Could Adopt Bitcoin

Minting Money With Megawatts - How To Mine Bitcoin Profitably (University of ...
Minting Money With Megawatts - How To Mine Bitcoin Profitably (University of ...Minting Money With Megawatts - How To Mine Bitcoin Profitably (University of ...
Minting Money With Megawatts - How To Mine Bitcoin Profitably (University of ...Sveinn Valfells
 
Bitcoin and the Future of Money (Scottish version)
Bitcoin and the Future of Money (Scottish version)Bitcoin and the Future of Money (Scottish version)
Bitcoin and the Future of Money (Scottish version)Sveinn Valfells
 
Bitcoin and the Future of Money (Icelandic version)
Bitcoin and the Future of Money (Icelandic version)Bitcoin and the Future of Money (Icelandic version)
Bitcoin and the Future of Money (Icelandic version)Sveinn Valfells
 
Minting Money With Megawatts - How to mine Bitcoin profitably (Reykjavik Univ...
Minting Money With Megawatts - How to mine Bitcoin profitably (Reykjavik Univ...Minting Money With Megawatts - How to mine Bitcoin profitably (Reykjavik Univ...
Minting Money With Megawatts - How to mine Bitcoin profitably (Reykjavik Univ...Sveinn Valfells
 
COULD ICELAND EMBRACE CRYPTO BEFORE ANYONE ELSE?
COULD ICELAND EMBRACE CRYPTO BEFORE ANYONE ELSE?COULD ICELAND EMBRACE CRYPTO BEFORE ANYONE ELSE?
COULD ICELAND EMBRACE CRYPTO BEFORE ANYONE ELSE?Steven Rhyner
 
Investasi Bitcoin - Presentasi VanEck
Investasi Bitcoin - Presentasi VanEckInvestasi Bitcoin - Presentasi VanEck
Investasi Bitcoin - Presentasi VanEckRein Mahatma
 
Learning from the worst behaved icelands financial crisis and nordic comparis...
Learning from the worst behaved icelands financial crisis and nordic comparis...Learning from the worst behaved icelands financial crisis and nordic comparis...
Learning from the worst behaved icelands financial crisis and nordic comparis...Mar Wolfgang Mixa
 
Financial Stability Policy Options
Financial Stability Policy OptionsFinancial Stability Policy Options
Financial Stability Policy Optionspkconference
 
International business group project editing phase
International business group project   editing phaseInternational business group project   editing phase
International business group project editing phaseJojo Umubyeyi
 
Kenapa harus Investasi bitcoin ? Report Vaneck
Kenapa harus Investasi bitcoin ? Report VaneckKenapa harus Investasi bitcoin ? Report Vaneck
Kenapa harus Investasi bitcoin ? Report VaneckRein Mahatma
 
The Icelandic Financial Crisis of 2008.docx
The Icelandic Financial Crisis of 2008.docxThe Icelandic Financial Crisis of 2008.docx
The Icelandic Financial Crisis of 2008.docxAmanBurman6
 
How To Mine Bitcoin Profitably (Scaling Bitcoin - Montreal)
How To Mine Bitcoin Profitably (Scaling Bitcoin - Montreal)How To Mine Bitcoin Profitably (Scaling Bitcoin - Montreal)
How To Mine Bitcoin Profitably (Scaling Bitcoin - Montreal)Sveinn Valfells
 
Finance Economics revisited, a primer (abstract) - Maverlinn
Finance Economics revisited, a primer (abstract) - MaverlinnFinance Economics revisited, a primer (abstract) - Maverlinn
Finance Economics revisited, a primer (abstract) - MaverlinnOlivier Coispeau
 
Overview of Bitcoin - Sweden
Overview of Bitcoin - SwedenOverview of Bitcoin - Sweden
Overview of Bitcoin - SwedenRobin Teigland
 
The golden opportunity
The golden opportunityThe golden opportunity
The golden opportunityClaude Gaudin
 
The Case for Gold and Silver: Mutual Fund Directors Forum May 2016
The Case for Gold and Silver: Mutual Fund Directors Forum May 2016The Case for Gold and Silver: Mutual Fund Directors Forum May 2016
The Case for Gold and Silver: Mutual Fund Directors Forum May 2016Thomas Frankl
 
(Movie) Macro- Econ Presentation
(Movie) Macro- Econ Presentation(Movie) Macro- Econ Presentation
(Movie) Macro- Econ PresentationAriannaGonzalez20
 
EC4024 Lecture 14: Iceland and Ireland: Fair and Unfair Comparisons
EC4024 Lecture 14: Iceland and Ireland: Fair and Unfair ComparisonsEC4024 Lecture 14: Iceland and Ireland: Fair and Unfair Comparisons
EC4024 Lecture 14: Iceland and Ireland: Fair and Unfair ComparisonsStephen Kinsella
 

Similar to Bitcoin for Microstates: How Iceland Could Adopt Bitcoin (20)

Minting Money With Megawatts - How To Mine Bitcoin Profitably (University of ...
Minting Money With Megawatts - How To Mine Bitcoin Profitably (University of ...Minting Money With Megawatts - How To Mine Bitcoin Profitably (University of ...
Minting Money With Megawatts - How To Mine Bitcoin Profitably (University of ...
 
Bitcoin and the Future of Money (Scottish version)
Bitcoin and the Future of Money (Scottish version)Bitcoin and the Future of Money (Scottish version)
Bitcoin and the Future of Money (Scottish version)
 
Bitcoin and the Future of Money (Icelandic version)
Bitcoin and the Future of Money (Icelandic version)Bitcoin and the Future of Money (Icelandic version)
Bitcoin and the Future of Money (Icelandic version)
 
Minting Money With Megawatts - How to mine Bitcoin profitably (Reykjavik Univ...
Minting Money With Megawatts - How to mine Bitcoin profitably (Reykjavik Univ...Minting Money With Megawatts - How to mine Bitcoin profitably (Reykjavik Univ...
Minting Money With Megawatts - How to mine Bitcoin profitably (Reykjavik Univ...
 
COULD ICELAND EMBRACE CRYPTO BEFORE ANYONE ELSE?
COULD ICELAND EMBRACE CRYPTO BEFORE ANYONE ELSE?COULD ICELAND EMBRACE CRYPTO BEFORE ANYONE ELSE?
COULD ICELAND EMBRACE CRYPTO BEFORE ANYONE ELSE?
 
Investasi Bitcoin - Presentasi VanEck
Investasi Bitcoin - Presentasi VanEckInvestasi Bitcoin - Presentasi VanEck
Investasi Bitcoin - Presentasi VanEck
 
Learning from the worst behaved icelands financial crisis and nordic comparis...
Learning from the worst behaved icelands financial crisis and nordic comparis...Learning from the worst behaved icelands financial crisis and nordic comparis...
Learning from the worst behaved icelands financial crisis and nordic comparis...
 
Financial Stability Policy Options
Financial Stability Policy OptionsFinancial Stability Policy Options
Financial Stability Policy Options
 
International business group project editing phase
International business group project   editing phaseInternational business group project   editing phase
International business group project editing phase
 
Kenapa harus Investasi bitcoin ? Report Vaneck
Kenapa harus Investasi bitcoin ? Report VaneckKenapa harus Investasi bitcoin ? Report Vaneck
Kenapa harus Investasi bitcoin ? Report Vaneck
 
The Icelandic Financial Crisis of 2008.docx
The Icelandic Financial Crisis of 2008.docxThe Icelandic Financial Crisis of 2008.docx
The Icelandic Financial Crisis of 2008.docx
 
How To Mine Bitcoin Profitably (Scaling Bitcoin - Montreal)
How To Mine Bitcoin Profitably (Scaling Bitcoin - Montreal)How To Mine Bitcoin Profitably (Scaling Bitcoin - Montreal)
How To Mine Bitcoin Profitably (Scaling Bitcoin - Montreal)
 
Finance Economics revisited, a primer (abstract) - Maverlinn
Finance Economics revisited, a primer (abstract) - MaverlinnFinance Economics revisited, a primer (abstract) - Maverlinn
Finance Economics revisited, a primer (abstract) - Maverlinn
 
Overview of Bitcoin - Sweden
Overview of Bitcoin - SwedenOverview of Bitcoin - Sweden
Overview of Bitcoin - Sweden
 
Iceland krona vincent wedelich
Iceland krona vincent wedelichIceland krona vincent wedelich
Iceland krona vincent wedelich
 
The golden opportunity
The golden opportunityThe golden opportunity
The golden opportunity
 
IT Case Competition Case 2015
IT Case Competition Case 2015IT Case Competition Case 2015
IT Case Competition Case 2015
 
The Case for Gold and Silver: Mutual Fund Directors Forum May 2016
The Case for Gold and Silver: Mutual Fund Directors Forum May 2016The Case for Gold and Silver: Mutual Fund Directors Forum May 2016
The Case for Gold and Silver: Mutual Fund Directors Forum May 2016
 
(Movie) Macro- Econ Presentation
(Movie) Macro- Econ Presentation(Movie) Macro- Econ Presentation
(Movie) Macro- Econ Presentation
 
EC4024 Lecture 14: Iceland and Ireland: Fair and Unfair Comparisons
EC4024 Lecture 14: Iceland and Ireland: Fair and Unfair ComparisonsEC4024 Lecture 14: Iceland and Ireland: Fair and Unfair Comparisons
EC4024 Lecture 14: Iceland and Ireland: Fair and Unfair Comparisons
 

Recently uploaded

National Income National Income National Income
National Income National Income National IncomeNational Income National Income National Income
National Income National Income National Income19920606201903202019
 
Slideshare - ONS Economic Forum Slidepack - 19 February 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 19 February 2024.pptxSlideshare - ONS Economic Forum Slidepack - 19 February 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 19 February 2024.pptxOffice for National Statistics
 
Cultural background and entrepreneurial spirit in retail - European Business ...
Cultural background and entrepreneurial spirit in retail - European Business ...Cultural background and entrepreneurial spirit in retail - European Business ...
Cultural background and entrepreneurial spirit in retail - European Business ...Antonis Zairis
 
Indistinguishable from Magic: How the Cybersecurity Market Reached a Trillion...
Indistinguishable from Magic: How the Cybersecurity Market Reached a Trillion...Indistinguishable from Magic: How the Cybersecurity Market Reached a Trillion...
Indistinguishable from Magic: How the Cybersecurity Market Reached a Trillion...Adrian Sanabria
 
Stock Market Brief Deck for 2/21/24 .pdf
Stock Market Brief Deck for 2/21/24 .pdfStock Market Brief Deck for 2/21/24 .pdf
Stock Market Brief Deck for 2/21/24 .pdfMichael Silva
 
99MW Nearshore Wind Farm in Colombia.pdf
99MW Nearshore Wind Farm in Colombia.pdf99MW Nearshore Wind Farm in Colombia.pdf
99MW Nearshore Wind Farm in Colombia.pdfVictoriaGaleano
 
business-model-canvas for collaborative business
business-model-canvas for collaborative businessbusiness-model-canvas for collaborative business
business-model-canvas for collaborative businessramijadpro
 
20240220 Calibre Q4 and FY 2023 Conference Call Present.pdf
20240220 Calibre Q4 and FY 2023 Conference Call Present.pdf20240220 Calibre Q4 and FY 2023 Conference Call Present.pdf
20240220 Calibre Q4 and FY 2023 Conference Call Present.pdfAdnet Communications
 
2023_-_Master_Trust___GPP_Defaults_Report (2).pdf
2023_-_Master_Trust___GPP_Defaults_Report (2).pdf2023_-_Master_Trust___GPP_Defaults_Report (2).pdf
2023_-_Master_Trust___GPP_Defaults_Report (2).pdfHenry Tapper
 
Q4 2023 Conference Call Presentation FINAL-v4.pdf
Q4 2023 Conference Call Presentation FINAL-v4.pdfQ4 2023 Conference Call Presentation FINAL-v4.pdf
Q4 2023 Conference Call Presentation FINAL-v4.pdfAdnet Communications
 
letter to the EF and Premiership about pension liabilities
letter to the EF and Premiership about pension liabilitiesletter to the EF and Premiership about pension liabilities
letter to the EF and Premiership about pension liabilitiesHenry Tapper
 
TIM GROUP FY '23 Preliminary Results.pdf
TIM GROUP FY '23 Preliminary Results.pdfTIM GROUP FY '23 Preliminary Results.pdf
TIM GROUP FY '23 Preliminary Results.pdfGruppo TIM
 
Shrambal_Distributors_February_Newsletter_2024.pdf
Shrambal_Distributors_February_Newsletter_2024.pdfShrambal_Distributors_February_Newsletter_2024.pdf
Shrambal_Distributors_February_Newsletter_2024.pdfvikashdidwania1
 
Chartered accountant in delhi (top 10 CA in delhi)
Chartered accountant in delhi (top 10 CA in delhi)Chartered accountant in delhi (top 10 CA in delhi)
Chartered accountant in delhi (top 10 CA in delhi)supriyadmpinstitute
 
2024.02-The-radical-option-in-UK-pensions-New-Financial.pdf
2024.02-The-radical-option-in-UK-pensions-New-Financial.pdf2024.02-The-radical-option-in-UK-pensions-New-Financial.pdf
2024.02-The-radical-option-in-UK-pensions-New-Financial.pdfHenry Tapper
 
Demand and Supply Elasticity in Healthcare
Demand and Supply Elasticity in HealthcareDemand and Supply Elasticity in Healthcare
Demand and Supply Elasticity in HealthcareZulfiquer Ahmed Amin
 
The Case for Commodities as an Asset Class.ppt
The Case for Commodities as an Asset Class.pptThe Case for Commodities as an Asset Class.ppt
The Case for Commodities as an Asset Class.pptJinzhiFeng1
 
Stock Market Brief Deck for 2:22 youtube vid.pdf
Stock Market Brief Deck for 2:22 youtube vid.pdfStock Market Brief Deck for 2:22 youtube vid.pdf
Stock Market Brief Deck for 2:22 youtube vid.pdfMichael Silva
 

Recently uploaded (19)

National Income National Income National Income
National Income National Income National IncomeNational Income National Income National Income
National Income National Income National Income
 
Slideshare - ONS Economic Forum Slidepack - 19 February 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 19 February 2024.pptxSlideshare - ONS Economic Forum Slidepack - 19 February 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 19 February 2024.pptx
 
Cultural background and entrepreneurial spirit in retail - European Business ...
Cultural background and entrepreneurial spirit in retail - European Business ...Cultural background and entrepreneurial spirit in retail - European Business ...
Cultural background and entrepreneurial spirit in retail - European Business ...
 
Indistinguishable from Magic: How the Cybersecurity Market Reached a Trillion...
Indistinguishable from Magic: How the Cybersecurity Market Reached a Trillion...Indistinguishable from Magic: How the Cybersecurity Market Reached a Trillion...
Indistinguishable from Magic: How the Cybersecurity Market Reached a Trillion...
 
Stock Market Brief Deck for 2/21/24 .pdf
Stock Market Brief Deck for 2/21/24 .pdfStock Market Brief Deck for 2/21/24 .pdf
Stock Market Brief Deck for 2/21/24 .pdf
 
99MW Nearshore Wind Farm in Colombia.pdf
99MW Nearshore Wind Farm in Colombia.pdf99MW Nearshore Wind Farm in Colombia.pdf
99MW Nearshore Wind Farm in Colombia.pdf
 
business-model-canvas for collaborative business
business-model-canvas for collaborative businessbusiness-model-canvas for collaborative business
business-model-canvas for collaborative business
 
20240220 Calibre Q4 and FY 2023 Conference Call Present.pdf
20240220 Calibre Q4 and FY 2023 Conference Call Present.pdf20240220 Calibre Q4 and FY 2023 Conference Call Present.pdf
20240220 Calibre Q4 and FY 2023 Conference Call Present.pdf
 
2023_-_Master_Trust___GPP_Defaults_Report (2).pdf
2023_-_Master_Trust___GPP_Defaults_Report (2).pdf2023_-_Master_Trust___GPP_Defaults_Report (2).pdf
2023_-_Master_Trust___GPP_Defaults_Report (2).pdf
 
Q4 2023 Conference Call Presentation FINAL-v4.pdf
Q4 2023 Conference Call Presentation FINAL-v4.pdfQ4 2023 Conference Call Presentation FINAL-v4.pdf
Q4 2023 Conference Call Presentation FINAL-v4.pdf
 
letter to the EF and Premiership about pension liabilities
letter to the EF and Premiership about pension liabilitiesletter to the EF and Premiership about pension liabilities
letter to the EF and Premiership about pension liabilities
 
TIM GROUP FY '23 Preliminary Results.pdf
TIM GROUP FY '23 Preliminary Results.pdfTIM GROUP FY '23 Preliminary Results.pdf
TIM GROUP FY '23 Preliminary Results.pdf
 
Shrambal_Distributors_February_Newsletter_2024.pdf
Shrambal_Distributors_February_Newsletter_2024.pdfShrambal_Distributors_February_Newsletter_2024.pdf
Shrambal_Distributors_February_Newsletter_2024.pdf
 
Chartered accountant in delhi (top 10 CA in delhi)
Chartered accountant in delhi (top 10 CA in delhi)Chartered accountant in delhi (top 10 CA in delhi)
Chartered accountant in delhi (top 10 CA in delhi)
 
2024.02-The-radical-option-in-UK-pensions-New-Financial.pdf
2024.02-The-radical-option-in-UK-pensions-New-Financial.pdf2024.02-The-radical-option-in-UK-pensions-New-Financial.pdf
2024.02-The-radical-option-in-UK-pensions-New-Financial.pdf
 
Demand and Supply Elasticity in Healthcare
Demand and Supply Elasticity in HealthcareDemand and Supply Elasticity in Healthcare
Demand and Supply Elasticity in Healthcare
 
The Case for Commodities as an Asset Class.ppt
The Case for Commodities as an Asset Class.pptThe Case for Commodities as an Asset Class.ppt
The Case for Commodities as an Asset Class.ppt
 
Stock Market Brief Deck for 2:22 youtube vid.pdf
Stock Market Brief Deck for 2:22 youtube vid.pdfStock Market Brief Deck for 2:22 youtube vid.pdf
Stock Market Brief Deck for 2:22 youtube vid.pdf
 
Monthly Economic Monitoring of Ukraine No.229, February 2024
Monthly Economic Monitoring of Ukraine No.229, February 2024Monthly Economic Monitoring of Ukraine No.229, February 2024
Monthly Economic Monitoring of Ukraine No.229, February 2024
 

Bitcoin for Microstates: How Iceland Could Adopt Bitcoin

  • 1. Bitcoin for Microstates How Iceland could adopt Bitcoin Sveinn Valfells, PhD linkd.in/wtaHi5 July, 2013 Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 1 / 18
  • 2. Outline 1 The Economic Consequences of Bitcoin 2 Iceland — A Microstate in Need of a New Currency 3 About the Author Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 2 / 18
  • 3. The Economic Consequences of Bitcoin Outline 1 The Economic Consequences of Bitcoin 2 Iceland — A Microstate in Need of a New Currency 3 About the Author Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 3 / 18
  • 4. The Economic Consequences of Bitcoin Satoshi Stands on the Shoulders of Giants Isaac Newton and the Great Recoinage of 1696 [1] Newton @ Royal Mint, 1696–1727 Significant debasement of currency (≈ 10–20%). Old coins taken back by weight (not face value). Invented ridges on new coins to reduce “clipping”. Successfully prosecuted counterfeiters. Supervised currency union of England and Scotland. Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Figure: Isaac Newton; Quarter Guinea (1718). Bitcoin for Microstates July, 2013 4 / 18
  • 5. The Economic Consequences of Bitcoin Bitcoin Is a Token AND a Network Dual property: Store of value AND medium of exchange Virtual currency economics Token: Fungible, impossible to counterfeit, prescribed supply, low cost of carry, tested governance model. Network: Fast, inexpensive, open, reliable. Value of network increases faster than number of users. Winner takes all: Endstate is one dominant network, 2–3 runners-up [2]. Figure: BTC private key–public address (top); peer-to-peer network (bottom). Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 5 / 18
  • 6. The Economic Consequences of Bitcoin Bitcoin Has Large Addressable Markets Virtual currencies can store and transmit value “In an extreme case, virtual currencies could have a substitution effect on central bank money if they become widely accepted.” — ECB [3] Global asset classes (value storage) Private investment in gold >$1T [4]. London housing stock >£1T [5]. Global payment streams (value transmission) Global non-bank payments in major economies >$609B (2011) [6]. Global m-payments ≈ $300B (est. 2013) [7]. Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 6 / 18
  • 7. The Economic Consequences of Bitcoin Bitcoin Will Grow Like Bacteria in a Petri-Dish Money will rotate into virtual currencies from traditional assets, payment streams Main scenarios: Fast growth (+2σ) Fast rotation into Bitcoin from assets, payments. Steady growth Stead rotation into Bitcoin from assets, payments (expected case). Contraction (−2σ) Bitcoin stagnates, money leaks out. Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Figure: Growth of Bitcoin market cap modelled as Geometric Brownian motion (µ = 50%, σ = 50%) [8]. Bitcoin for Microstates July, 2013 7 / 18
  • 8. The Economic Consequences of Bitcoin Bitcoin Is Not Fully De-Risked Systemic risk is concentrated in mining, regulation Positive shocks Negative shocks Major e-commerce company accepts Bitcoins for payments. A financial services provider launches first bitcoin ETF. Bitcoins are adopted by a sovereign nation as (de facto or official) currency. Another banking crisis in a major currency zone. Security compromised at one (or more) major exchange(s). The Bitcoin network suffers a sustained, co-ordinated attack by an organization with substantial computational resources. Co-ordinated clampdown on bitcoins by G20. Positive and negative shocks will significantly influence Bitcoin adoption Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 8 / 18
  • 9. Iceland — A Microstate in Need of a New Currency Outline 1 The Economic Consequences of Bitcoin 2 Iceland — A Microstate in Need of a New Currency 3 About the Author Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 9 / 18
  • 10. Iceland — A Microstate in Need of a New Currency Iceland Is A Wealthy, Literate, Digitised Nation. . . Main exports are fish, energy and travel services [9] Literacy: 100%. Energy per capita: 130MWh/year. Life expectancy: 82Y. Fish catch per capita: 3t/year. GDP per capita: $43K. Inhabitants per km2 : 3.1. Internet usage: 91%. Tourists per capita: 2.0/year. E-payments per capita: 328/year. Sheep per capita: 1.5. Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 10 / 18
  • 11. Iceland — A Microstate in Need of a New Currency . . . With a Broken Financial System Iceland has far from adjusted from crash of 2008 [9] Some financial facts: Ringfenced economy (FX controls). Large overhang of hot-money (1.7×GDP gross, 0.5×GDP net). Bloated banks, largest banks with assets ≈ 1.6×GDP, down from ≈ 9×GDP in 2007-8. Expensive banks, 2 − 3× higher costs as % of assets than Nordic banks. Central Bank QE-ed in 2006-8 on “love letters” issued by private institutions. Central Bank recapitalised in 2009 for ≈ 10% of GDP. Icelandic kr´na (ISK) depreciated over o 50% since 2007. Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Figure: Homer Simpson goes to Iceland, finds banks closed. Bitcoin for Microstates July, 2013 11 / 18
  • 12. Iceland — A Microstate in Need of a New Currency The Saga of the Icelandic Kr´na (ISK) o An epic tale of value destruction Icelandic kr´na leads fiat currency “race to the bottom” [10]: o US$ has lost 92% of its value since WW2 (≈ £ has lost 97% of its value since WW2 (≈ 1 12 ) 1 30 ) [11]. [12]. Icelandic kr´na has lost 99.99% of its value since WW2 (≈ o 1 10,000 ) [13]. ⇒ Figure: One kr´na in 1945 (left); 10,000 kr´na in 2013 (right). o o Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 12 / 18
  • 13. Iceland — A Microstate in Need of a New Currency Iceland Needs a New Currency The current choice is between fiat and fiat Currency Liquidity Store of Value Cultural ties Economic ties Labor mobility USD Good Middling Good Middling Poor EUR Good Unproven Good Good Good NOK Middling Middling Good Good Good CAD Middling Middling Middling Middling Poor Table: Rough comparision of some fiat alternatives to kr´na. o Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 13 / 18
  • 14. Iceland — A Microstate in Need of a New Currency How Will Bitcoin Qualify as Currency for Iceland? For Iceland, Bitcoin can meet several straightforward criteria RFC: Criteria for a microstate (Iceland) to adopt Bitcoin Market Cap Bitcoin market cap (≈$1B) must exceed monetary base needed by comfortable margin (current monetary base ≈$0.6B) [14, 15]. Liquidity Bitcoin liquidity (≈$2B/year) must exceed Iceland’s gross imports by comfortable margin (≈$7B/year) [14, 16]. Volatility Bitcoin volatility (σ ≈ 100% of avg. price in last 12 months) must reduce to “fair weather” range of Icelandic kr´na σ 20%. o Mining At least two independent, reliable ASIC technologies deployed and in operation for 3–5 years. Exchanges At least two independent, reliable exchanges in operation in 1st world jurisdictions for 3–5 years. Governance Bitcoin Foundation agrees to board representation for sovereigns. Mindshare A substantial part of the population must have gained trust in Bitcoin. Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 14 / 18
  • 15. Iceland — A Microstate in Need of a New Currency Bitcoin Has Partly Qualified To Replace ISK Virtual currencies will eventually become credible alternatives for microstates Conclusions: Hackers make great central bankers! Money from traditional asset classes & payment streams will rotate into virtual curencies, including Bitcoin. The Icelandic kr´na is “walking dead”; o Bitcoin is on a fast trajectory to becoming a credible alternative. Buy some Bitcoins, experiment. . . Figure: Satoshi Nakamoto is a modern Isaac Newton. Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 15 / 18
  • 16. About the Author Outline 1 The Economic Consequences of Bitcoin 2 Iceland — A Microstate in Need of a New Currency 3 About the Author Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 16 / 18
  • 17. About the Author About Sveinn Valfells, PhD linkd.in/wtaHi5 Some relevant previous predictions: Iceland’s leading banks may go the way of Northern Rock. — Letter to FT, March, 2008 Icesave deposit guarantee claims have “no legal basis”, Icelandic public will reject the agreement between Iceland, UK and Netherlands to guarantee them. — Today Programme, BBC Radio 4, April, 2011 Bitcoin can easily be projected to rise to $20 – $120 within 3 years. — Communication with Pamir Gelenbe, January, 2013 Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 17 / 18
  • 18. About the Author References [1] Wikipedia. Isaac Newton. http://en.wikipedia.org/wiki/Isaac_Newton. Retrieved June, 2013. [2] Wikipedia. Network effect. http://en.wikipedia.org/wiki/Network_effect. Retrieved June, 2013. [3] European Central Bank. Virtual Currency Schemes. http://www.ecb.europa.eu. October, 2012. [4] Wikipedia. Gold reserve. http://en.wikipedia.org/wiki/Gold_reserve. Retrieved June, 2013. [5] Savills. UK Housing Stock Climbs [to] £5T. http://www.savills.co.uk. February, 2013. [6] Global Finance. Payments Volumes Worldwide. http://www.gfmag.com. Based on BIS report published January, 2013. [7] Eileen Yu. Global mobile payment transactions to surpass $235B. http://www.zdnet.com. June 4, 2013. [8] Wikipedia. Geometric Brownian motion. http://en.wikipedia.org/wiki/Geometric_Brownian_motion. Retrieved June, 2013. [9] Various sources incl. Central Bank of Iceland, Statistics Iceland. [10] Bill Gross. Sell currencies of serial QE offenders. Financial Times. February 27, 2013. [11] Information Please. The shrinking value of the dollar. http://www.infoplease.com. Retrieved, June 2013. [12] Ed Parry. Uk inflation calculator. http://www.moneysorter.co.uk. Retrieved, June 2013. [13] Hafsteinn Hauksson. Icelandic krona lost 99.99% of value since WW2. http://www.visir.is. December 20, 2010. [14] BitcoinCharts. Bitcoin charts / markets. http://bitcoincharts.com. Retrieved, July 2013. [15] Central Bank of Iceland. Statistics from the Central Bank of Iceland. http://statistics.cb.is/. Retrieved, June 2013. [16] Statistics Iceland. Various publications. http://www.statice.is. Retrived June, 2013. Sveinn Valfells, PhD (linkd.in/wtaHi5 ) Bitcoin for Microstates July, 2013 18 / 18