Bitcoin: Cash Becoming Digital

Jon MatonisBitcoin Foundation

Overview

Quest for the Cashless Society History of Digital Cash The Story of Bitcoin

Consumer Wallets Merchant Benefits Statistics

Future Prospects Questions and Answers

2

Quest for the Cashless Society

Goals of the Cashless Society No messy paper cash and bulky coins No cash production and handling costs No anonymous transactions above a certain limit No untraceable transactions No informal or ‘grey’ economy No missing tax revenue

3

Quest for the Cashless Society

Scary Aspects of the Cashless Society Identity becomes the new money Full traceability of all personal transactions Full unit of account control to the monetary

sovereign Payment blockades and confiscation become

easier Total elimination of the informal shadow economy Near absolute efficiency in tax collection

4

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

We have arrived at the historic crossroads! User-defined privacy – or – Identity-based money

5

History of Digital Cash (Pre-Bitcoin)

What public key cryptography enables E-Money is not regular payments going online Nomenclature of digital cash (digitalcash.org) Concept of digital bearer instruments

If you can click “forgot password” and have balances restored, then it’s not a digital bearer instrument

Centralised issuing mint schemes DigiCash (1990-1998) eCache (1999-2008) Voucher-Safe (2010-present)

6

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

7

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

8

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

9

Bitcoin Consumer Wallets

Full Client Installs locally Downloads entire block chain User maintains private keys

Lightweight Client Involves some level of trust in the server Downloads block headers only using Simple Payment

Verification User maintains private keys

Browser-based Client Access via the browser Service provider downloads block chain Hosting server may or may not maintain private keys

10

Bitcoin Merchant Benefits

Extend acceptance to countries not reached by Visa, MasterCard, and PayPal (60+)

Provide payment method for the unbanked No disallowed merchant categories codes

(MCCs) Not subject to payments embargo Eliminate chargeback and fraud risk Processing fees approaching zero Near immediacy of settlement Flexible wallet solutions

11

Bitcoin Merchant Benefits: Deposit Alternatives

12

Bitcoin Statistics

Exchange Rate ~ 47.00 USD Size of Economy $520.0 million Total Bitcoin Mined 10,899,150 Maximum Potential Bitcoin 21,000,000 Total Block Count 225,965 Average Blocks per Hour 6.0

13

Bitcoin Statistics: Numbers Tell The Real Story

Bitcoin Network ‘Horsepower’ ● December 2009: 0.008 Ghash/sec ● December 2010: 103 Ghash/sec ● December 2011: 8,303 Ghash/sec ● September 2012: 19,284 Ghash/sec ● March 2013: 42,000 Ghash/sec

14

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 June 2011: $32.00 January 2012: $ 5.26 November 2012: $12.00 March 2013: $47.00

15

Bitcoin Statistics: Market Capitalization

16

Bitcoin Statistics: Hashrate Distribution

An estimation of hashrate distribution amongst the largest mining pools

17

Bitcoin Statistics: Mining Rigs (or De-Central Banks)

18

Future Prospects

Bitcoin has the ideal virtual currency attributes Two-way convertibility Independent floating exchange rate Nonpolitical unit of account

19

Future Prospects

Regulatory Issues Decentralised nature inhibits third party shutdown Exchanges will be a focal point of government

scrutiny Pressure on larger merchants No direct legislation (similar to air guitars) Only four jurisdictions have any official comment

USA Australia Norway France ECB

20

Future Prospects

“Digital cash is to legal tender as BitTorrents are to copyrights”

21

Twitter: jonmatonisEmail:

matonis@hushmail.com

22

Thank You – Questions?