Bitcoin: Disintermediation of finance & decentralization's social impacts.

The purpose of currency

● The coincidence of wants– The problem of barter exchange

● Medium of transfer– Easy to transport

● Store of value– Limited supply

● Pricing of goods and services– Universal demand

What is Bitcoin?

● A secure, decentralized currency● A protocol for social consensus● A distributed database system● Free software

– (Both free as in freedom & free beer)● The freedom to run the program as you wish, for any purpose● The freedom to study how the program works, and change it so it

does as you wish● The freedom to redistribute copies to others

Bitcoin security

● You cannot falsify a Bitcoin● Bitcoins are backed by cryptography rather

than a state● You cannot double spend a Bitcoin● You cannot spend a Bitcoin without the

“Private Key”● It is (practically) not possible to “guess” the

private key and steal Bitcoins

Bitcoin mining

● Bitcoins come into existance via “mining”● Mining is there to protect the network ● Miners are rewarded with new bitcoins● A maximum of 21 million Bitcoin will ever exist

Bitcoin myths

● Bitcoins are mainly used by criminals– Statistics tell us that Bitcoin is used less for crime than cash

● The bitcoin network was hacked– Although some exchanges have been hacked, bitcoin never has

● 21 Million bitcoins isn't enough, it doesnt scale– A bitcoin is divisible to 8 decimals (0.00000001 BTC =

0.000002901 EUR at current rate)

● I dont trust the cryptographic security– Do you trust your doctor? Trust your programmer!

● Mining is a waste of energy– Mining is necessary for now until theoretical problems are solved

with Proof of Stake

Traditional value transfer

Customer

Merchant 1 Merchant 2

1: “I transferred the money”

- How our financial system has worked for decades

3: No 3: Yes

2: Did he transfer?2: Did he transfer?

Bank

4: Ok, thank you4: Try again

The problem with intermediaries

● Banks & other intermediaries charge fees● Using a third party is always a risk

– Bankruptcy

– Inflation of money supply

– Corruption

● Until now there has been no alternative

Byzantine generals problem

General

Leutinant 1 Leutinant 2

“Attack at 13:00!”

“He said 13:00”

“He said 14:00”

How do you know who is being truthful, if you cannot verify a claim?

The only solution has been trusted intermediaries.

- The problem of decentralization

An army is attacking Byzantium, both Leutinants have to attack at the same timeThey are separated by an enemy force and can only send messages, but don't know1: if the message has been tampered with & 2: if the other Leutinant is an imposter

Double spending with Bitcoin

Alice → Bob 1 BTC

Alice → Carol 1 BTC

Alice: 1 BTCBob: 0 BTCCarol: 0 BTC

Alice: 0 BTCBob: 1 BTCCarol: 0 BTC

Blockchain

Transaction 1

Transaction 2

Transaction 1: AcceptedTransaction 2: Denied

Balances:

New balances:

Alice has transferred 1 BTC to Bob

- Why the byzantine generals problem is relevant

Value transfer with Bitcoin

Customer

Merchant 1 Merchant 2

1: “I transferred the money”

- Why we don't need banks anymore

3: No 3: Yes

2: Did he transfer?2: Did he transfer?

Blockchain

4: Ok, thank you4: Try again

What is the Blockchain

● An accounting ledger with no intermediaries● Transactions are recorded & stored by the

entire network

Alice → Bob 1 BTCAlice: 1 BTCBob: 0 BTC

Alice: 0 BTCBob: 1 BTC

Transaction aee4c329c702c1930e3847f7fa60f47ad5419ba454f89c4260fc56b4713f0c70

Aee4c3..Hfg42c..Sdgf23..

Aee4c3..Hfg42c..Sdgf23..

Aee4c3..Hfg42c..Sdgf23..

Aee4c3..Hfg42c..Sdgf23..

….

- The innovation that makes Bitcoin work

Blocks

More than “just” a currency

● What else can the blockchain be used for?– Tokenization

● Assets, Commodities, Stocks, Property

– Programmable “smart contracts”

– Incentivization of networks● Data storage, Bandwidth, Computing, Any other service provider

– Disintermediation of any value transfer● Computer to computer value transfer without risk

– “Blockchain 2.0 projects”● Ethereum, NXT, Counterparty.

- Our future and the Blockchain

BitcoinBitcoin

Decentralization's social impact

Direct impactsDirect impacts

● Access to banking and credit ● Remittances ● Fight of oppressive regimes● Charity

Banking & CreditBanking & Credit

Source: www.web.worldbank.org

Addressing unevennessAddressing unevenness

● Offering banking to millions unable to access traditional banking services. Current regulations and risk combine to ensure that offering services to certain segments of the population is unprofitable. Bitcoin drastically lowers the cost and risk of extending those services to people with low-incomes and poor credit scores. N.B. In America alone, up to a third of the population is unbanked or underbanked.

● Harnessing the potential of the blockchain via the promise of Smart ContractsSmart Contracts. By creating and enforcing contracts through the blockchain instead of the state, people who currently don’t have access to credit will be able to enjoy vehicles, places to live, and other necessities, allowing for greater social mobility.

RemittancesRemittances

● Power of money transfers in the fight against poverty. A currently slow & expensive service vs Bitcoin's instant & nearly-free

● Case study: Western Union £1000 transfer to Philippines has a transfer fee of £24.90 if delivered in cash

Escaping oppressionEscaping oppression

● Bitcoin as an escape hatch for people trapped under oppressive regimes. ● E.g. Bitcoin's price spiked when people began moving their money from bank

accounts to Bitcoin in Cyprus after the government announced plans to seize cash from the country’s bank accounts.

Source: Mt Gox Live Graph (https://mtgox.com/)

CharityCharity

● The subreddit /r/Bitcoin makes up the vast majority of funding for Florida’s most effective and innovative homeless shelter, Sean’s Outpost, whose operating budget is almost entirely made up of bitcoin donations by reddit users. In addition, the BitGive Foundation exists to harness Bitcoin’s tremendous power to innovate the way we tackle charitable giving.

Thank youThank you