Bitcoin Level 2

“We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers. As a medium of exchange, Bitcoin has clear potential for growth, in our view.”

- Bank of America Report, Dec. 5, 2013

The point: Bitcoin lets us build a better financial system

Primary Characteristics

● Peer-to-peer

● Decentralized

● Open Source

Bitcoin makes it better

● Remittances

● Escape bad currencies

● Microtransactions

The Technology of Bitcoin

The Blockchain

● A global log of every bitcoin transaction that ever takes place

● Bitcoins exist only as account balances in the blockchain

● Adding a transaction to the blockchain is the action of sending that money

The Network

● Bitcoin is a peer-to-peer network

● You join the network by running a program called a Bitcoin Client

● The computers in the network relay transactions to each other and build the blockchain

Transactions

● To send bitcoins, your client announces the transaction over the network

● The nodes that hear it verify it and then repeat it to their neighbours

Transactions

● Transactions are composed of inputs and outputs

● The inputs to a transaction are the outputs from a previous transaction

● “Owning bitcoins” is having the key which allows you to spend an output

TransactionsTransactions

This is a big Breakthrough

● The entire network is able to come to an agreement

● Malicious entities in the network cannot do evil

Bitcoin Ecosystem

Places you can spend Bitcoin

20,000+ online retailers, including:

It’s easy to accept Bitcoins online

16tN2C5GvUhERbLxe9oC3GseaJvBXiQCq2

Ways to get Bitcoins

● Exchanges: CaVirtex, Bitstamp

● Brokerages: Coinbase, Tinkercoin

● In person sales: Localbitcoins, DVLB

Bitcoin and GovernmentsThree case studies

United States

● March 2013 FinCen guidance document is very harsh on Bitcoin businesses

● June 2013, Regulators cease-and-desist the nonprofit Bitcoin Foundation for unlicensed money transmission

United States

● October 2013, FBI Investigation shuts down Silk Road and arrests it’s owner on charges of drug trafficking and money laundering.

● Important: the indictment acknowledged his use of Bitcoin, but did not condemn it except the purposes for which he used it

“There are plenty of opportunities for digital currencies to operate within existing laws and regulations.”

- U.S Secret Service, November 2013

United States

● FEC says Bitcoin can be accepted as political donations

China

● December 2013, Companies can’t price products in Bitcoin or buy or sell Bitcoin

● Private use and ownership of Bitcoins is perfectly legal

Canada

● Canada has the most liberal Bitcoin regulation in the world

“Your [exchange] is not, at this time, engaged as a Money Services Business in Canada.”

- Letter from FinTRAC to the operator of a Canadian exchange

Canada

Bitcoin is not finished

Engineering Hurdles

● Scale Bitcoin from 1 transaction per second to 1000s per second

● The Blockchain and Tragedy of the Commons

● Increase privacy while not encouraging illegal use

Adoption Hurdles

● It’s still too hard for many people to use

● Missing killer-application for Bitcoin in the first world

● Price volatility makes people nervous to hold bitcoins

What are the downsides to Bitcoin?

● Deflationary monetary policy

● Anonymous, but not

● Difficult to regulate and tax

Crazy ideas

● contracts inside the blockchain

● blockchain as copyright protection

● Alternative cryptocurrency explosion

Mining Pool Network Share