bitcoin 101 & the state of the industry

Bitcoin 101 & The State of the Industry

William K. Santiago (william@wksit.com)Twitter (#williamsantiago)

Certified Bitcoin Professional (CBP ID 69d4e6)

We will discuss...•What is money?•What is Bitcoin?•What makes bitcoin a different kind of money?•How does bitcoin work? (micro + macro)•Fresh numbers from the bitcoin economy•Why bitcoin is so good, that it simply can’t fail•Why bitcoin can fail•The State of the Industry

Let’s talk about money first•Money is a medium to store and exchange economic value

• Was invented to replace barter (inefficient)• Money can be exchanged for goods and services (including

other money)• Historic examples: shells, boards, gold

•7 things that a good currency must be:• Acceptable, Divisible, Durable, in limited supply, Portable,

Uniform, Stable

Let’s talk about money first (Cont.)

•Value of a currency: balance between supply and demand

•Does money come with guarantee of value?• Strong guarantee: intrinsic (Gold)• Medium guarantee: convertible into a resource with intrinsic

value (old USD -> Gold)• Low guarantee (“Fiat money”): USD, EUR, AUD, CAD,

bitcoin?

What is Bitcoin?•Bitcoin (BIG B) is the technology•“bitcoin” (little b) is the (token)•Currently it is only the first wave of innovation coming from the technology

bitcoin is?•From the Washington Post:

“bitcoin is: an electronic cash system that allows online payments to be sent directly from one person to another without going through a financial institution (like a bank) or a third party (like PayPal).”

•It has (almost) all the properties of a good currency

•The Problem of Double Spending Solved

But it’s a different kind of token

What makes it different?• It’s completely digital (owning bitcoin is owning a private key)• It’s completely decentralized and not owned by anyone (company,

country)• It’s based on open sourced software and an open network• It was started by an anonymous entity (Satoshi Nakamoto, 2008)

Micro: how do you use bitcoin?• Install an open source wallet software (or choose an online

wallet)•The wallet will create:

• Your address: 13v8NB9ScRa21JDi86GmnZ5d8Z4CjhZMEd• Your private key:

5KJvsngHeMpm884wtkJNzQGaCErckhHJBGFsvd3VyK5qMZXj3hS•Receiving bitcoin is like receiving email: just give your

address to someone else•Sending bitcoin is like sending email: just put the recipient’s

address, choose amount and press “send”•How to buy bitcoin in the first place?

Macro: bitcoin in numbers• BTC/USD rate: 230 USD• Total bitcoins today: ~14.5M• Market cap today: ~3.3 bn USD• Total bitcoins wallets (accounts): 3.5M~ (source: Tim Swanson)• bitcoin transactions daily: 85-107k (100k-200k BTC, 50-100M

USD)• Businesses accepting bitcoins globally: ~100k• You can divide 1 bitcoin down to the level of 0.00000001 BTC• Investor-backed bitcoin companies raised $375 million in 52 deals

between January and June of 2015

bitcoin just can’t fail #1“The big 5” trillion-dollar economies that don’t like bitcoin:1. Credit cards: bitcoin has very low (close to zero)

transaction fees (CC: min $0.2 + 2-3%)2. Micropayments: bitcoin is micropayments-ready3. Banking & Financial Inclusion: half of the world

doesn’t have a bank account4. Money remittance5. Gold

bitcoin just can’t fail #2•It’s anonymous (sort of)•It’s inflation free (21M BTC in circulation by 2140- that’s it)•It has no single point of failure (banking system,

countries)•It’s international (globalization-ready)•Chargebacks will be more rare (transactions are

irreversible but third party will provide services & off-chain transactions)

•It publishes its entire history (easier to track)•It’s innovation-ready (transparency & protocol)

Well, actually bitcoin can fail•PKI cryptography could get hacked (very unlikely)

•Private keys could get hacked (quite likely)•Countries and regulators

• Can be used for illegal activity• Affects taxing, consumer protection, AML

laws

Well, actually bitcoin can fail (cont.)•Consumers & merchants

• Software is clumsy and hard to use• Considered too risky, unstable or “just a Ponzi

scheme”•Crazy volatility (BTC/USD rate) and high sensitivity

• Exchanges halts or closes and “bitcoins lost”• Apple takes blockchain.info wallet off the AppStore• Regulation talks

•We don’t know what we don’t know

The State of the Industry

bitcoin ScalabilityHardware WalletsThe Blockchain

bitcoin ScalabilityCore change to the design blueprint or hard fork is needed •Permanently keeping the 1MB (anti-spam) restriction is a

great idea, if you are a bank since it keeps it at 2 to 4 transactions per second (tps)

•VISA alone does 2,000 tps on average

Agreement is that the block size has to be increased

bitcoin Scalability (cont.)

Long term there is: The Bitcoin Lightning NetworkA decentralized system whereby transactions are sent over

a network of “payment channels” whose transfer of value occurs off-blockchain

Bitcoin transactions may occur between untrusted parties and secured by the bitcoin blockchain

Hardware WalletsManage private key generation, private key

storage, and transaction signing.Examples:

The Ledger WalletkeepkeyTrezor wallet“Hardware devices like the TREZOR that cannot be infected by

malware will make holding bitcoins as easy and secure as holding paper money. They are an exciting step in the evolution of Bitcoin from an experiment for geeks to a payment system anybody can use.” - Gavin Andresen

The BlockchainBlockchain 2.0 Other applications (Utilities)

● Distributed fair voting● Stock ownership● Asset registration and notarization● Smart Property● And others we have not thought about

“The New York Stock Exchange, Goldman Sachs, USAA and BBVA have all invested in Bitcoin startups.” -Forbes

Banking Superpowers Unite Behind Bitcoin’s Blockchain Tech -The Cointelegraph

Goldman Sachs, Barclays, J.P. Morgan Chase, State Street, UBS, Royal Bank of Scotland, Credit Suisse, BBVA, and Commonwealth Bank of Australia and more to come...

“First Global Credit CEO Gavin Smith Goes on the Record About Bitcoin’s Coming of Age” -Coinbase“Traditional financial products and instruments need to be offered through the medium of bitcoin to advance the transition of bitcoin from early adopter novelty to a fully integrated part of the world financial ecosystem.” Says Smith

bitcoin is Money of the Internet? True or False

Falsebitcoin is the Internet of Money.

Questions?