it for financial services is356. agenda what is bitcoin? a digital currency that is created and...

IT FOR FINANCIAL SERVICESIS356

Agenda

• What is Bitcoin?• A digital currency that is created and exchanged independently of

any government or bank. Bitcoin is computer generated and can be converted into cash after being deposited in a virtual wallet.

• Digital currencies in general• Why now?

• How does Bitcoin work?• Peer-to-peer network• Mining

• Signs of a Bubble2

Why now?

• Payment methods like cash are problematic…• Cash wears out, needs to be replaced• Not always easily traceable • Potential for counterfeit / forgery• Theft – cannot be easily deactivated• Expensive to transport, heavy, bulky• Inflation – just print more• Costly to produce

• 5.7 cents for a dollar bill• 10 cents for a dollar coin• 12.5 cents for the new $100 bill

• Once retired, cash must be destroyed3

In Cash We Trust

• Why does cash work so well?• TRUST• Cash is just paper… exchangeable paper• As long as I know that I can exchange it…

• Liquidity… as good as gold

• Convertible into gold• Nixon Severs the Dollar from Gold: 8-15-71

4

1971

Digital Currency

• The USD is kind of digital already• You don’t have to run the printing presses just to expand the

money supply• Buy back bonds, pay with digital deposit

• But Bitcoin isn’t like that…• Removes the central function of a federal reserve (government)• With the full force and backing of… nobody!• How do you get Bitcoin? Exchange rate applies… (weird)• Figure out a way to move Bitcoin currency… easy• How can you increase the money supply… mine more

5

6

Source: https://bitcoin.org/bitcoin.pdf

Bitcoin Origins, October 2008

Exchange Rate

7

January 2009 – Bitcoin v0.1 announced

Flat line – no activity extending all the way back to January 2009

Source: https://blockchain.info/charts/market-price?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

Real Time Pricing

8

Bitcoin Exchanges

9

Arbitrage Opportunities

10

Demise of Mt. Gox

11

MIT Technology Review

Bitcoin Wallet

12

Bitcoin – Managing Supply

13

There will never be more than 21 million bitcoins in circulation.

Bitcoin – Circulation to date…

14

Bitcoin Mining…

15

Bitcoin – Signs of a Bubble

16