1. The Evolution of E-Money
Jon Matonis
Lydia Group

2. Quest for the Cashless Society History of Digital Cash
Overview
Quest for the Cashless Society
History of Digital Cash
The Story of Bitcoin
Statistics
Apps
Security Issues
Regulatory Issues
Future Prospects

3. 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

4. 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

5. 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

6. History of Digital Cash (Pre-Bitcoin)
E-Money is not regular payments going online
Nomenclature of digital cash (digitalcash.org)
Concept of digital bearer instruments
What public key cryptography enables
Centralised issuing mint schemes
DigiCash ( )
eCache ( )
Voucher-Safe (2010-present)

7. History of Digital Cash (Precursors to Bitcoin)
Hashcash (1997) Adam Back
Proof-of-work system to limit 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 ( ) Nick Szabo
Public challenge string of bits
Client puzzle functions
Securely timestamped
Distributed property title registry

8. Launched in January 2009 by Satoshi Nakamoto
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

9. Bitcoin is a reaction to 3 separate developments
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

10. Size of Economy $125.4 million Total Bitcoin Mined 10,492,650
Bitcoin Statistics
Exchange Rate ~ USD
Size of Economy $125.4 million
Total Bitcoin Mined ,492,650
Maximum Potential Bitcoin 21,000,000
Total Block Count ,850
Average Blocks per Hour
Host Node Distribution (last 24h)
United States 6,458
Germany 1,113
Russia Federation
Canada
United Kingdom

11. Bitcoin Statistics: Numbers Tell The Real Story
Bitcoin Network ‘Horsepower’ (via J. Garzik)
● December 2009: Ghash/sec
● December 2010: 103 Ghash/sec
● December 2011: 8,303 Ghash/sec
● September 2012: 19,284 Ghash/sec
Bitcoin Sent By Year (via J. Garzik)
● 2009: trillion BTC
● 2010: 1,925 trillion BTC
● 2011: 29,497 trillion BTC
● 2012: 60,896 trillion BTC

12. 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 (pre-bubble)
January 2012: $5.26 (post-bubble)
November 2012: $12.00

13. Bitcoin Exchange Volume Distribution

14. Wallets Merchant Processing Mining Pools Bitcoin Primary Apps
Local client wallets
Lightweight wallets
Web-based online wallets
Merchant Processing
BitPay
Mt. Gox
Paysius
Mining Pools
Deepbit
BTC Guild
Slush

15. Bitcoin Hashrate Distribution
An estimation of hashrate distribution amongst the largest mining pools

16. Bitcoin Merchant Deposit Alternatives

17. Bitcoin Mining Rigs (or de-central banks)

18. Security Issues With Bitcoin
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

19. Watch Bitcoin Robbery in Slow Motion

20. Regulatory Issues With Bitcoin
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
Only four jurisdictions have any official comment
USA
Australia
Norway
France
ECB

21. Regulatory Issues With Bitcoin

22. Bitcoin has the required currency attributes
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
Prepaid debit cards

23. Upcoming Technical Challenges For Bitcoin
Future Prospects
Upcoming Technical Challenges For Bitcoin
SPV (simplified payment verification)
Default privacy in the client
Ongoing transaction fees for miners

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

25. Thank You - Questions?
Twitter: jonmatonis
themonetaryfuture.blogspot.com