bitcoin: cash becoming digital
DESCRIPTION
EPCA Payment Summit, Brussels, March 20-22nd, 2013TRANSCRIPT
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
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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
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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
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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
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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)
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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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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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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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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
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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
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Bitcoin Merchant Benefits: Deposit Alternatives
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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
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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
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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
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Bitcoin Statistics: Market Capitalization
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Bitcoin Statistics: Hashrate Distribution
An estimation of hashrate distribution amongst the largest mining pools
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Bitcoin Statistics: Mining Rigs (or De-Central Banks)
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Future Prospects
Bitcoin has the ideal virtual currency attributes Two-way convertibility Independent floating exchange rate Nonpolitical unit of account
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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
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Future Prospects
“Digital cash is to legal tender as BitTorrents are to copyrights”
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