Kermit Lowry, John Whatley, Wesley Cooper, and Matthew Eith Bitcoin Kermit Lowry, John Whatley, Wesley Cooper, and Matthew Eith

What is Bitcoin? Digital currency created in 2009 Peer-to-peer technology with no central authority No physical bitcoins; seen as property by IRS Price is volatile Uses blockchain technology Anonymous

What is Blockchain? Decentralized database with ledger of all transactions “Blockchain is a vast, global distributed ledger or database running on millions of devices and open to anyone, where not just information but anything of value — money, but also titles, deeds, identities, even votes — can be moved, stored and managed securely and privately. Trust is established through mass collaboration and clever code rather than by powerful intermediaries like governments and banks.” -Don Tapscott Not only associated to Bitcoin, but that was its first and most prominent use

How does it work? To naked eye nothing more than an app or ewallet Bitcoins can be transferred by providing a digital wallet address Blockchain keeps ledger of every transaction

Bitcoin Exchanges Allow people to buy and exchange bitcoins Bitcoins can be transferred in matter of minutes Top Exchanges Coinbase Localbitcoins Mt. Gox Kraken

Bitcoin Value History Jan 2009 - Mar 2010 - $0 Feb 2011 - April 2011 - $1.00 July 2011 - $31.00 December 2011 - $2.00 April 2013 - $266.00 June 2013 - $100.00 Nov 2013 - $350-$1,242 January 2014 - $750-$1000 May–June 2016 - $450-$750 March 2017 - $1,290+ June 11th, 2017 - +$2900

Mining Mining doesn’t create bitcoins, instead bitcoins are rewarded for validating blocks that are composed of transactions. Blocks are considered valid if they contain a proof of work. Bitcoin uses the hashcash proof of work function. Bitcoin miners compete to find an input that gives a specific hash value Difficulty is measurable and is increased every 2 weeks

Mining Each block is created in sequence using the hash of the previous block, proving the order of the blocks. Transactions need to be ordered in order to prevent double spending. If multiple blocks are created at the same time, then whichever branch generates a new block first is considered valid.

Mining Mining requires processing power which is translated into hardware, time, and energy. Mining can be done with your computer’s CPU or GPU, but special technology has been made to specifically mine bitcoins, called application-specific integrated circuit, ASIC. Profitability is hard to determine based on fixed and variable costs and fluctuation in price level.

Encryption Fundamental to understanding cryptocurrencies Encrypting with a password is single-key Dual-key encryption uses two keys If one key is used to encrypt, the other key can be used to decrypt and vice versa However, the key that encrypted CANNOT decrypt

Encryption A key (like a password) can encrypt data Key Unencrypted Data

Encryption Use the key to encrypt data Key Unencrypted Data

Encryption Use the same key to decrypt the data Problem is you have to give away the key Key Unencrypted Data Encrypted Data

Dual Key Encryption There are two passwords Keys are made in pairs One key cannot be used to find the other Key 1 Key 2 Unencrypted Data Encrypted Data

Dual Key Encryption Encrypt with the first Key Key 1 Key 2 Unencrypted Data Encrypted Data

Dual Key Encryption Decrypt with the second Key Key 1 Key 2 Unencrypted Data Encrypted Data

Dual Key Encryption Encrypt with the second Key Key 1 Key 2 Unencrypted Data Encrypted Data

Dual Key Encryption Decrypt with the first Key Key 1 Key 2 Unencrypted Data Encrypted Data

Dual Key Encryption Remember, If you only have one key you can’t decrypt your own data! Key 1 Unencrypted Data Encrypted Data

Dual Key Encryption Although keys are usually made together, one key is kept private (your wallet) and the other is public Therefore, if you want to receive payment, you tell them your public key to encrypt the data Now nobody, not even the person who encrypted it, can read the encrypted data except you This relationship works backwards too. If you want to send a payment you use their public key. Key 1 Private Key 2 Public

Advantages Reduced transaction costs Some firms providing protection against volatility (BitPay.com & Coinbase.com ) Makes accounting more transparent Payouts can be received faster

Disadvantages Volatility still exists for large investors such as banks or hedge funds Not regulated so the amount in circulation can vary Cyber Security A major Government could block internet traffic Competition from other digital currencies Taxes (IRS treats it as property) Failing payout system

Ethics Paul Krugman “Bitcoin is Evil” (Nobel Prize Winning Economist) Taxes Keeps Funds from Banks What it is used to purchase

Questions?

Sources https://www.entrepreneur.com/article/237026 https://www.forbes.com/sites/laurashin/2015/12/28/should-you-invest-in-bitcoin- 10-arguments-against-as-of-december-2015/#1edae5733895 https://seekingalpha.com/article/3986721-6-reasons-invest-bitcoin https://www.bitcoinmining.com/ http://www.cnbc.com/2017/06/12/now-bitcoin-is-crashing-along-with-the-drop-in- technology-stocks.html http://www.coindesk.com/goldman-sachs-bearish-bitcoin-price/