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This is a presentation about Bitcoin and it's use I gave at Liberty Camp in 2013.

Juraj Bednar

on 14 March 2017

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Transcript of Bitcoin

Money functions
Medium of exchange
Storage of value (in time)
Unit of account
Token of status / reputation
Metric or measure
Tokens of exchange
Other commodities
Have some value of their own
Fiat currencies
"Guaranteed" by state
Value is defined by market (usability)
Required for paying taxes
Currency for debt recovery
Commodities vs. fiat money
You can not "create" new gold
out of thin air
Less flexible
Some value is guaranteed
Central banks usually do more
harm than good in the long term
Anonymity and regulations
Uses strong cryptography
No central point
Everyone has to comply with the
rules -> all nodes check compliance
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
Trade (!)
Coffee, computers, cloud
Drugs, Currencies,
Auctions ...
Similar to mining gold
everyone can do it
it is not "easy"

There are only 25 new BTC
every 10
Only known possible way of issuing decentralized electronic currency

Operations that miners perform are required for protection of the network
Where to start
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)
~ > 10 thousand people
~ 2 000 000 EUR a day
Juraj Bednár
Creative Commons Attribution License
What is wrong with traditional
money & transaction networks?
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"
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.
E-Gold, Pecunix, Liberty Reserve
Other alternative currencies and transfer methods
Cause for rise of BTC value
Costarican goverment decided
to regulate the field, people panicked
exchanged LR for BTC, BTC gained
Central server
After intervention from
US goverment more or less
The mysteries
Is it safe?
Who wrote it?
Economy and evolution
Market determined value
Would you like to earn money in
that currency? Would you sell
your house for that currency?
Is it legal?
Does it matter?
Zimbabwe &
various cases of
of fiat currencies

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

State guarantees have failed before
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.
Satoshi Nakamoto
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
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
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?
Crypto pretty solid
The paper and code is pretty solid,
would have probably earned
him a PhD
Bitcoin monetary base setup
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
Deflation in the US (The Great Sag)

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.
No clear upgrade path when SHA-256 and ECC
are no longer safe
Value volatility, was expected, should converge
Scalability and "speed" (could be solved by other
services, BTC would be used as backend)
Some people compare BTC to Napster and
Bittorrent => large-scale effects
Bitcoin contracts (pledges, bets, futures,
colored Bitcoins)
1. Collect transactions (motivation: fees)
2. Add timestamp + hash of previous block
Guess nonce so the hash of the
block will be less than difficulty
Difficult to guess nonce
Easy to validate
What's next
Add-on trading platforms
Trading stock (entirely bitcoin), futures, bonds
Paying dividends, stockholder voting, ...
Bitcoin contracts
Use for other needs of
The Next Net: Distributed consensus
Based on Bitcoin
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
Mining, validation
How did this "money" thing start?
Myth: A wise king came and said "let there be money"
Barter trade
Usable commodities bought
because of their scarcity and
easy transportation/storage
Commodity money
Representative money
(paper representing claim)
Fiat money
(representation / backing took away
by state monopolized central bank)
(last 40 years)
Fiat money
Value ~ Trust
Physical Bitcoins
Financial and debt crises
Business cycles: credit expansion + low interest
rates, bubble collapse, recession
Caused by fractional reserve banking
(arbitrary credit expansion impossible with 100%
commodity money)
Solution: Risk balancing with different currencies
Plán C (Juraj Karpiš): http://bit.ly/ulJlIK
Fractional reserve banking
3. Add my address for reward
Network calibrates this
(new block ~10 min)
Why are central banks so bad?
How many T-Shirts will market need tomorrow?
does not
If you could print money, how much would you
Interest rate ~ risk
Interest rate ~ demand for credit
Short term promises
Giving away
Cheap credit
Twitter: @jurbed
Blog: http://juraj.bednar.sk/
Juraj Bednár
Peniaze v "cloude"?
Nie je"málo peňazí"
Ľudí nezaujíma, či rožky stoja
1 EUR, 1000 EUR, 20 korún
5 gramov zlata alebo 8BTC

Frakčné rezervy
Papierik ako potvrdenka
o uložení zlata

See Game of Life
During history, there were only two "final games" of elastic ("paper")
money => voluntary abolition or financial collapse
doma (cash)
v banke
v komoditách alebo drahých kovoch
v investíciách
Banka môže požičať
viac ako má (môže vytvoriť peniaze)

Fiat currencies
Natural scarcity
Centrally planned scarcity
Algorithmically defined scarcity
(not possible to change)
Value anchor
Value based on trust
Cash: Anonymous
Electronic: Tracked
(anonymity can be easily achieved)
Stable value
Based on trust, usually slow
inflation (until something bad
Based on trust (very
volatile right now)
Simulated mining
Created by central and commercial
Fractional banking
possible, but limited
Fractional reserve banking
supported by state
Verifiable cash (you can be sure
that Bitcoin in your wallet is
not fractional reserve)
Value based on trust
Why electronic money?
Cryptocurrencies are not state controlled
(states can not produce cars, food, ... - why

If you use it correctly, taxation is very difficult
User has money under direct control
(brain-wallet, brings risk, ...)

Very easy to accept (MVP)
Bitcoin & freedom
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
Accept payments right now
- no scanning of passports,
paperwork, ....
No chargeback risk
Our customer, our lord
- accept money from any
country in the world
You can have as much privacy as
you need
From completely public & transparent
(PB) to completely anonymous (mix)
Works over Tor. Enables:
VPS, VoIP, VPN, blog, domains
e-mail, work ...
Brain wallet -- leave country
with your money in your head
Mobile apps - payments practically
free & from your phone

Buy anything you want:
non-compliant bananas,
Silk Road, gold, ...
Which currency is good for storing value?
Full transcript