The Evolution of E-Money
Jon Matonis
Lydia Group

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
2

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
3

History of Digital Cash
• E-Money is not regular payments going online
• Means of exchange vs. store of value
• Nomenclature of digital cash
• Concept of digital bearer instrument
• Centralised issuing mint schemes
– DigiCash (1990-1998)
– eCache (1999-2008)
– Voucher-Safe (2010-present)
4

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
• Launched in January 2009 by Satoshi Nakamoto
• Open source built on cryptographic primitives
– Elliptic Curve DSA and keypairs
– RPOW
– SHA-256 Hash (incorporating distributed block chain)
5

Precursors to Bitcoin
• Adam Back Hashcash (1997)
– Proof-of-work system to limit email spam
– SHA-1 hash of the header
• Wei Dai B-money (1998)
– Public keys identify pseudonyms
– Broadcast solution to computational problem
– Arbitrator and fine schedule
– Broadcasted subset account servers with bail
• Nick Szabo BitGold (2001-2005)
– Public challenge string of bits
– Client puzzle functions
– Securely timestamped
– Distributed property title registry
6

Bitcoin Statistics
• Exchange Rate ~ 5.00 USD
• Size of Economy $43.7 million
• Total Bitcoin Mined 8,802,250
• Maximum Potential Bitcoin 21,000,000
• Total Block Count 176,044
• Average Blocks per Hour 6.0
• Host Node Distribution (last 24h)
– United States 7,535
– Germany 1,373
– Russia Federation 1,136
– Canada 1,004
– United Kingdom 969
7

Total hosts connected in previous 24
hours
8

Exchange Volume Distribution
9

Primary Bitcoin Apps
• Wallets
– Local client wallets
– Lightweight wallets
– Web-based online wallets
• Merchant Processing
– BitPay
– Bitcoin 24/7
– Paysius
• Mining Pools
– Deepbit
– BTC Guild
– Slush
10

Merchant Deposit Alternatives
11

Bitcoin Mining Rigs (or de-central
banks)
12

Hashrate Distribution
• An estimation of hashrate distribution amongst the
largest mining pools
13

Security Issues
• 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
14

Watch bitcoin robbery in slow motion
15

Regulatory Issues
• 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
16

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
17

Future Prospects
“Digital cash is to legal tender as BitTorrents are to copyrights”
18

Thank You - Questions?
Follow me on Twitter @ jonmatonis
Email me at matonis@ hushmail.com