The Evolution of E-Money

Jon MatonisLydia Group

Overview

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

Statistics Apps Security Issues Regulatory Issues

Future Prospects

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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

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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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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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History of Digital Cash (Pre-Bitcoin)

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

Exchange Rate ~ 12.00 USD Size of Economy $125.4 million Total Bitcoin Mined 10,492,650 Maximum Potential Bitcoin 21,000,000 Total Block Count 209,850 Average Blocks per Hour 6.0 Host Node Distribution (last 24h)

United States 6,458 Germany 1,113 Russia Federation 941 Canada 855 United Kingdom 827

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Bitcoin Statistics: Numbers Tell The Real Story

Bitcoin Network ‘Horsepower’ (via J. Garzik) ● December 2009: 0.008 Ghash/sec ● December 2010: 103 Ghash/sec ● December 2011: 8,303 Ghash/sec ● September 2012: 19,284 Ghash/sec

Bitcoin Sent By Year (via J. Garzik) ● 2009: 35 trillion BTC ● 2010: 1,925 trillion BTC ● 2011: 29,497 trillion BTC ● 2012: 60,896 trillion BTC

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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 (pre-bubble) January 2012: $5.26 (post-bubble) November 2012: $12.00

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Bitcoin Exchange Volume Distribution

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Bitcoin Primary Apps

Wallets Local client wallets Lightweight wallets Web-based online wallets

Merchant Processing BitPay Mt. Gox Paysius

Mining Pools Deepbit BTC Guild Slush

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Bitcoin Hashrate Distribution

An estimation of hashrate distribution amongst the largest mining pools

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Bitcoin Merchant Deposit Alternatives

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Bitcoin Mining Rigs (or de-central banks)

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Security Issues With Bitcoin

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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Watch Bitcoin Robbery in Slow Motion

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Regulatory Issues With Bitcoin

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 Only four jurisdictions have any official comment

USA Australia Norway France ECB

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Regulatory Issues With Bitcoin

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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 Prepaid debit cards

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Future Prospects

Upcoming Technical Challenges For Bitcoin SPV (simplified payment verification) Default privacy in the client Ongoing transaction fees for miners

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Future Prospects

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

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Twitter: jonmatonisEmail: matonis@hushmail.com

Thank You - Questions?

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