Bitcoin

Juraj Bednár

juraj@bednar.sk

Twitter: @jurbed

Blog: http://juraj.bednar.sk/

Businesses:

Non-profit:

@progressbarsk

www.progressbar.sk

The mysteries

Economy and evolution

I like the evolution

because of it's lack of

central authority and

ability to maintain balance

In economy, markets do the

same thing (if we don't

touch it)

When central banks try to

regulate and fix some

"problems caused by market",

they usually trigger reaction from

the market "self-regulatory"

mechanisms which retaliate

Satoshi Nakamoto

Who wrote it?

The paper and code is pretty solid,

would have probably earned

him a PhD

Little known about him

We don't even know if he's from Japan

Can we trust him? Look at the code!

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

-Genesis block

of Bitcoin

Yes, [we will not find a solution to political problems in cryptography,] but we can win a major battle in the arms race and gain a new territory of freedom for several years.

Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.

It's very attractive to the libertarian viewpoint if we can explain it properly. I'm better with code than with words though.

Is it legal?

Does it matter?

Bitcoin & freedom

Virtual commodity is okay in most countries, currencies (even alternative) are protected by law.

Laundering, tax evasion, financing of crimes all possible.

Does the good side outweight the bad? Is it worth fighting for?

It is not possible to freeze accounts by 3rd parties

It is not possible to block receiving of Bitcoins

(receiving is completely off-line!)

It is not possible to forbid someone to send BTC

Direct exchange between two parties

Brain wallets - bitcoins stored in your brain

Is it safe?

Bitcoin monetary base setup

Crypto pretty solid

Market determined value

Money supply created at a prespecified

rate, converges to 21 million. Inflation was expected by many, deflation actually happened and there is volatility in this early stage.

After 21 mil BTC, there will be no new supply of Bitcoins (probably deflation)

Inflation and deflation, that is expected is reflected in value of money

Would you like to earn money in

that currency? Would you sell

your house for that currency?

Deflation in the US (The Great Sag)

1873-96

The Great Sag had a global scope, and featured incredible advances in technology (the Industrial Revolution) that lead to unprecedented cost-cutting and productivity-enhancing technologies—an increase in the supply of goods that caused downward pressure on prices.

Zimbabwe &

various cases of

hyperinflation

of fiat currencies

State does not directly set inflation, it is not an arbitrary number: market does

State guarantees have failed before

Entrepreneurship

Flexibility

Privacy

Accept payments right now

- no scanning of passports,

paperwork, ....

Brain wallet -- leave country

with your money in your head

You can have as much privacy as

you need

Problems

From completely public & transparent

(PB) to completely anonymous (mix)

No chargeback risk

Mobile apps - payments practically

free & from your phone

Buy anything you want:

non-compliant bananas,

Silk Road, gold, ...

Works over Tor. Enables:

Our customer, our lord

- accept money from any

country in the world

No clear upgrade path when SHA-256 and ECC

are no longer safe

VPS, VoIP, VPN, blog, domains

e-mail, work ...

Value volatility, was expected, should converge

"soon"

Scalability and "speed" (could be solved by other

services, BTC would be used as backend)

Outlook

Some people compare BTC to Napster and

Bittorrent => large-scale effects

Bitcoin contracts (pledges, bets, futures,

colored Bitcoins)

Tokens of exchange

What is wrong with traditional

money & transaction networks?

How did this "money" thing start?

Myth: A wise king came and said "let there be money"

Usable commodities bought

because of their scarcity and

easy transportation/storage

Barter trade

Commodity money

Money functions

Representative money

(paper representing claim)

Fractional reserve banking

(last 40 years)

Fiat money

(representation / backing took away

by state monopolized central bank)

Metals

Other commodities

Medium of exchange

Have some value of their own

Fiat currencies

Storage of value (in time)

Control (companies, banks and goverments control

how wealth can be transfered and to who and

creation of money)

Mandatory fraud insurance

Transaction fees

Chargeback risks

No underlying "value"

"Guaranteed" by state

Unit of account

Fiat money

Value ~ Trust

Value is defined by market (usability)

Token of status / reputation

Required for paying taxes

Currency for debt recovery

Metric or measure

Other alternative currencies and transfer methods

Commodities vs. fiat money

Hawala

Gold

Bitcoin

Fiat currencies

Natural scarcity

Centrally planned scarcity

Algorithmically defined scarcity

(not possible to change)

Value anchor

Value based on trust

Anonymous

Cash: Anonymous

Electronic: Tracked

Pseudonymous

(anonymity can be easily achieved)

Stable value

Based on trust (very

volatile right now)

Based on trust, usually slow

inflation (until something bad

happens)

Simulated mining

Mining

Created by central and commercial

banks

Fractional reserve banking

supported by state

Fractional banking

possible, but limited

Verifiable cash (you can be sure

that Bitcoin in your wallet is

not fractional reserve)

Hawala (also known as hundi) is an informal value transfer system based on the performance and honour of a huge network of money brokers, which are primarily located in the Middle East, North Africa, the Horn of Africa, and South Asia.

Basic properties

Resistant to "Cypriot theft" and other funny EU "ideas"

Resistant to rogue states (according to gossip it's the second most popular currency of Iran)

No identity tracking (no login/password)

It is not possible to create money out of thin air

You can not "create" new gold

out of thin air

Cryptocurrency

Uses strong cryptography

No central point

Usage

Everyone has to comply with the

rules -> all nodes check compliance

Trade (!)

Coffee, computers, cloud

Drugs, Currencies,

Auctions ...

Mining

Similar to mining gold

everyone can do it

it is not "easy"

There are only 25 new BTC

every 10

minutes

LEDS

Physical Bitcoins

Network calibrates this

(new block ~10 min)

Less flexible

Repeat

Guess nonce so the hash of the

block will be less than difficulty

BTC vs. USD

3. Add my address for reward

2. Add timestamp + hash of previous block

1. Collect transactions (motivation: fees)

Difficult to guess nonce

Easy to validate

Only known possible way of issuing decentralized electronic currency

Operations that miners perform are required for protection of the network

Mining, validation

Where to start

Some value is guaranteed

Projects

Bitcoin faucet

Currency exchanges

(mtgox.com, tradehill.com)

Cooperative BTC mining

(mining.bitcoin.cz, deepbit.net)

Trade page on Bitcoin wiki

Bitcoin Laundry (Mike)

Paper bitcoins

(like scratchable lottery tickets)

Trade

Tooling

~ > 10 thousand people

~ 2 000 000 EUR a day

Central banks usually do more

harm than good in the long term

Statistics

E-Gold, Pecunix, Liberty Reserve

Predictability

Central server

After intervention from

US goverment more or less

unusable

Cause for rise of BTC value

Costarican goverment decided

to regulate the field, people panicked

exchanged LR for BTC, BTC gained

parity

Anonymity and regulations

Financial and debt crises

Business cycles: credit expansion + low interest

rates, bubble collapse, recession

What's next

Caused by fractional reserve banking

(arbitrary credit expansion impossible with 100%

commodity money)

Solution: Risk balancing with different currencies

Add-on trading platforms

Plán C (Juraj Karpiš): http://bit.ly/ulJlIK

Juraj Bednár

jooray+bitcoin@gmail.com

Creative Commons Attribution License

Remember:

During history, there were only two "final games" of elastic ("paper")

money => voluntary abolition or financial collapse

Trading stock (entirely bitcoin), futures, bonds

Paying dividends, stockholder voting, ...

Namecoin

Bitcoin contracts

Why are central banks so bad?

Use for other needs of

The Next Net: Distributed consensus

Based on Bitcoin

Central

planning

does not

work!

How many T-Shirts will market need tomorrow?

DNS or any name-value pair

namecoin new, name's hash is propagated, "network-fee" paid

Names that are not refreshed expire. Owner of private key can do updates

d/ space is reserved for bitcoin for "virtual tld" .bit. Values are JSON encoded

DNS values

No central authority required

See Game of Life

If you could print money, how much would you

print?

Interest rate ~ risk

Interest rate ~ demand for credit

Cheap credit

Politicians

Short term promises

Giving away

Peniaze v "cloude"?

doma (cash)

v banke

v komoditách alebo drahých kovoch

v investíciách

Which currency is good for storing value?

?

Frakčné rezervy

Why electronic money?

Nie je"málo peňazí"

Cryptocurrencies are not state controlled

(states can not produce cars, food, ... - why

money?)

Papierik ako potvrdenka

o uložení zlata

Ľudí nezaujíma, či rožky stoja

1 EUR, 1000 EUR, 20 korún

5 gramov zlata alebo 8BTC

theft

If you use it correctly, taxation is very difficult

User has money under direct control

(brain-wallet, brings risk, ...)

Banka môže požičať

viac ako má (môže vytvoriť peniaze)

Very easy to accept (MVP)