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The Evolution of E-Money

       Jon Matonis
       Lydia Group
Overview

      Quest for the Cashless Society
      History of Digital Cash
      The Story of Bitcoin
          Statistics
          Apps
          Security Issues
          Regulatory Issues
      Future Prospects




   2
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




    3
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




    4
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




    5
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)




    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 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


       10
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



    11
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




    12
Bitcoin Exchange Volume Distribution




   13
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

   14
Bitcoin Hashrate Distribution

     An estimation of hashrate distribution amongst
      the largest mining pools




    15
Bitcoin Merchant Deposit Alternatives




   16
Bitcoin Mining Rigs (or de-central banks)




    17
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

    18
Watch Bitcoin Robbery in Slow Motion




   19
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
   20
Regulatory Issues With Bitcoin




   21
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

   22
Future Prospects

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




   23
Future Prospects




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




   24
Thank You - Questions?



            Twitter: jonmatonis
 Email: matonis@hushmail.com

themonetaryfuture.blogspot.com

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The Evolution of e-Money (DeepSec)

  • 1. The Evolution of E-Money Jon Matonis Lydia Group
  • 2. Overview  Quest for the Cashless Society  History of Digital Cash  The Story of Bitcoin  Statistics  Apps  Security Issues  Regulatory Issues  Future Prospects 2
  • 3. 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 3
  • 4. 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 4
  • 5. 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 5
  • 6. 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) 6
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. 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 10
  • 11. 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 11
  • 12. 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 12
  • 13. Bitcoin Exchange Volume Distribution 13
  • 14. 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 14
  • 15. Bitcoin Hashrate Distribution  An estimation of hashrate distribution amongst the largest mining pools 15
  • 16. Bitcoin Merchant Deposit Alternatives 16
  • 17. Bitcoin Mining Rigs (or de-central banks) 17
  • 18. 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 18
  • 19. Watch Bitcoin Robbery in Slow Motion 19
  • 20. 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 20
  • 22. 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 22
  • 23. Future Prospects  Upcoming Technical Challenges For Bitcoin  SPV (simplified payment verification)  Default privacy in the client  Ongoing transaction fees for miners 23
  • 24. Future Prospects “Digital cash is to legal tender as BitTorrents are to copyrights” 24
  • 25. Thank You - Questions? Twitter: jonmatonis Email: matonis@hushmail.com themonetaryfuture.blogspot.com