EPCA Payment Summit, Brussels, March 20-22nd, 2013

1. Bitcoin: Cash Becoming Digital
Jon Matonis
Bitcoin Foundation

2. 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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3. 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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4. 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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5. 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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6. 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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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
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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
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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
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10. 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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11. 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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12. Bitcoin Merchant Benefits: Deposit Alternatives
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13. 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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14. 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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15. 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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16. Bitcoin Statistics: Market Capitalization
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17. Bitcoin Statistics: Hashrate Distribution
 An estimation of hashrate distribution amongst the
largest mining pools
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18. Bitcoin Statistics: Mining Rigs (or De-Central Banks)
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19. Future Prospects
 Bitcoin has the ideal virtual currency attributes
 Two-way convertibility
 Independent floating exchange rate
 Nonpolitical unit of account
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20. 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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21. Future Prospects
“Digital cash is to legal tender
as BitTorrents are to copyrights”
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22. Thank You – Questions?
Twitter: jonmatonis
Email: matonis@hushmail.com
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