Post on 03-Dec-2014
description
฿ bitcoin /ˈbɪtkɔɪn/
colin@bendell.cazach@zachscott.ca
WARNING
The following presentation should be considered ฿ullshit. The presenters are not financial advisers. Please consult a professional before investing your money in Bitcoin or any other money laundering scheme.
FBI
With any talk that involves money, a warning is always apt.
WARNING
One of the presenters is a hardcore capitalist and doesn’t like change, the other is more reasonable.
I’ll be presenting the facts and Colin will be presenting the ฿ullshit.
FBI
Zach: I have my own warning too!
What is money?
Money is a proxy
Money buys beer
Cost of Beer over time
USD Purchasing Power vs.Circulation Total
1914 1919 1924 1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
CA$201m
CA$401m
CA$602m
CA$802m
CA$1,003m
Fiat Currency
Fiat Currency is issued by governments to pay taxesWorth something because, by law, it must be accepted as a payment of debt. Therefore people trust that if they have money, by law, they can trade it for goods.
And really, it’s run by men like these:Mark Carney - Bank of CanadaBen Bernanke - US Federal Reserve
bitcoin: We can do better
• Increase security while simplifying infrastructure overhead
• Reduce transaction costs
• Make transactions as fast as the internet
• Remove government from money supply
• Stabilize money supply to address inflation
Satoshi Nakamoto
Satoshi Nakamoto - creator of Bitcoin in 2009Vanishes in 2010 leaving Gavin Andreeson and others to continueWho is he?
bitcoin Quick Facts
• ~10million BTC in existence
• Market Price: $11.72 USD
• Market Cap: $110 million USD
• Transaction Volume: $2,800,000 USD / day
• Total miners revenue: $80,000 USD / day
BTC:USD
CA$0
CA$6.00
CA$12.00
CA$18.00
CA$24.00
CA$30.00
2010/0
7/17
2010/0
8/21
2010/0
9/25
2010/1
0/30
2010/1
2/04
2011/0
1/08
2011/0
2/12
2011/0
3/19
2011/0
4/23
2011/0
5/28
2011/0
7/08
2011/0
8/12
2011/0
9/16
2011/1
0/21
2011/1
1/25
2011/1
2/30
2012/0
2/03
2012/0
3/09
2012/0
4/13
2012/0
5/18
2012/0
6/22
2012/0
7/27
2012/0
8/31
2012/1
0/05
How does it work?
Bob: I wants beer
[I think he’s high]
Alice: 5 dollars please
=$5.00
nurff nomm nomm beer bitcoin
?
Sure, just scan this QR code
mmmmm... beer
Thank you
The bitcoin P2P Network
Transactions are broadcast on the P2P Network
TX messageAmount: 2
To: 175tWpb8…Node 1
Node 2
Node 3
Node 5
Node 4
Node 6
TX
TX
TX
TX
TX
TX
Bob’s transaction is broadcast to peers, and propagates through the network
TX messageAmount: 2
To: 175tWpb8…Node 1
Node 2
Node 3
Node 5
Node 4
Node 6
••••
Miner 1
••••
••••
••••
••••
••••
••••
TXs are rolled together into blocks originating from a miner
collectively miners generate new block roughly every 10 minutesA txn is harder to reverse once incorporated into a block (because it’s hard)miners are incentivized bt reward
TX messageAmount: 2
To: 175tWpb8…Node 1
Node 2
Node 3
Node 5
Node 4
Node 6Miner 1
Each node has the entire chain of blocks
••••••••••••
••••••••••••
••••••••••••
••••••••••••
••••••••••••
••••••••••••
••••••••••••
every txn ever - exists in the chainpresents scalability problems - but many feel these can be addressed
The Block Chain
TXTXTX
Ref IDnonce
TXTXTX
Ref IDnonce
TXTXTX
Ref IDnonce
TXTXTX
Ref IDnonce
blocks consist of a collection of txns, a crypto-hash to make forgeries/changes too hard, and a random number called a nonce.bitcoins are not stored on your hard-drive, usb stick, iPhone - but in this shared chain
TX messageAmount: 2
To: 175tWpb8…Node 1
Node 2
Node 3
Node 5
Node 4
Node 6Miner 1
Miners compete to “find” new blocks and transmit to nodes
••••••••••••
••••••••••••
••••••••••••
••••••••••••
••••••••••••
••••••••••••
••
Miner 2
•••••
Miner 3
••••
Miner 4
••••••••••••
miners work to incorporate transactions the see into blocks of transactionsthis is done both as a way of introducing new BTC and securing the network
this is what mining hardware looks like...mining is performed by powerful computersincentives to be the fastest miner have driven efficiency enhancementsfrom CPU to GPU to FPGA and soon ASIC
what is mining?Yatzee! Similar to Yatzee computers attempt to generate a new block using a predictable amount of trial and error.
MinerTXTXTX
Ref IDnonce
TXTXTX
Ref IDnonce
TXTXTX
Ref IDnonce
miners working to discover next blocklistening to txns and incorporating into this next block
Miner SHA-256TXTXTX
Ref IDnonce
hash = sha256[sha256(version id + previous hash reference+ sha256(transaction list) + nonce)]
How?Mining hardware builds new block ‘attempt’includes reference to prev block, random number and transactions
2^256115 quattuorvigintillion115792089237316195423570985008687907853269984665640564039457584007913129639936
Current Difficulty
Miner SHA-256TXTXTX
Ref IDnonce
800+ Mhash/secdifficulty adjusts to ensure 1 block / 10 mintues
MinerTXTXTX
Ref ID0
Current Difficulty
MinerTXTXTX
Ref ID1
Current Difficulty
MinerTXTXTX
Ref ID2
Current Difficulty
MinerTXTXTX
Ref ID4
Current Difficulty
We have a winner...
MinerTXTXTX
Ref ID4
TXTXTX
Ref IDnonce
TXTXTX
Ref IDnonce
TXTXTX
Ref IDnonce
Newly minted block
Why mining?
• The only way new BTC enter circulation
• Difficulty is adjusted to ensure 1 block / 10 minutes
• Confirms transactions
• Prevents double spending
• Nakamoto compared this process to gold miners expending resources to add gold to circulation.
What’s in it for miners?
• 50 BTCs for each discovered block (declining over time)
• Transaction fees paid by users
@ 800 Mhash/sec -> $80/mo
Mining Reward v. Total Volume
฿0
฿10
฿20
฿30
฿40
฿50
2009 2013 2017 2021 2025 2029 2033฿0million
฿4million
฿8million
฿13million
฿17million
฿21million
There is a cap to the amount of bitcoin currency in the systemThe reward for mining will go down over time; revenue to be augmented by transaction volume
Total TX Fees Paid to Miners
Total Revenue to Miners
General trend is that miners are making more money each day. consider that there is a rate limit of max 1 block every 10 min, the overall gross revenue for each block is going up.
How is it doing?
• Increase security while simplifying infrastructure overhead
• Reduce transaction costs
• Make transactions as fast as the internet
• Remove government from money supply
• Cap money supply to address inflation
A+AA
bitcoin is cool.
Governance is the byproduct of government monetary policy
But there are some dark sides of bitcoin: the lack of governance* allows extortion from organizations like Russian Business Network* allows Money Laundering* and Ponzi schemes (Bernard Madoff shown here)* and also allows the grayer areas like Silk Road
How is it doing?
• Increase security while simplifying infrastructure overhead
• Reduce transaction costs
• Make transactions as fast as the internet
• Remove government from money supply
• Cap money supply to address inflation
A+AAC+?
caping money supply is an interesting idea ...
... but, inflation and money supply are not real problems
The human brain is the problem
Humans are predisposed to growthhumans like growthsocial evolutionary theory: hunter-gather to agrarian; shift value from quantity to quality
Our economy is built on growth
economy is built on the assumption of growth.“buy low, sell high” mantraGrowth leads to efficiencies and inc. productivityFueled by growth of the population, growth in efficiencies and growth of earning power
USD Purchasing Power vs.Circulation Total
1914 1919 1924 1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
CA$201m
CA$401m
CA$602m
CA$802m
CA$1,003m
isn’t the economic growth artificial because we are pumping money in the system?No.example: community of 10 people; 10 bitcoins each (100 total); community grows 2x but still only 100 bitcoins in circulation; prices have to go down.
The real story is about standard of living
no. add currency to compensate for growth; ensure that earning power doesn’t decrease the truth: earning power is going up;The Achilles heal of the system: limited money supply scarcity, hoarding, mattress’ingTo compensate: add money supply added at a steady rate while also encourage monetary liquidityNo one wants their buying power to go downNo one wants their wages to go down
Humans again are the problem:
emotionally driven
Supply can be pumped inconsumer spending is a purely emotionally driven function * the happier we feel* the more we spend* the more liquidity in the market* the less inflation (monetary devaluation)Achilles heal: no spending; example: small town
GDP = C + I + G + (X-M)
+ ++
formulas that will kill the mood at a dinner party4 big levers usually used to keep liquidity; ensure price increases don’t rise too quickly:spend your own moneygive the banks so they can invest;government spends (eg: ‘new deal’) to artificially cause liquiditymore imports > exports; what about a global economycf: 2008
Last 30 years of data: inflation is under control
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
1914 1920 1926 1932 1938 1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010
% Change CPI
Over the last 30 years we’ve figured this thing out this experimenteconomics is like flying an airplane using the rear-view mirror.Overall, we know how to adjust the right levers (G vs. i vs. C)
How is it doing?
• Increase security while simplifying infrastructure overhead
• Reduce transaction costs
• Make transactions as fast as the internet
• Remove government from money supply
• Cap money supply to address inflation
A+AAFF
For this reason, I think bitcoin is flawed. caping the money supply will be the undoing of bitcoin
฿ bitcoin: crossing the chasm
• Growth: uncapped potential for money supply
• Governance: don’t let the bad guys win
• Government: or algorithms that can stimulate a currency
• Greenback: technology for daily adoption
Early Adopters Pragmatists Conservatives Laggards
Predictions & Prognostications
ColinTechnology is coolideology is flawedquestions about scalabilityBanking could benefit from the algorithms
ZachReminds me of early days of internet (Hype + Skepticism = both were right + evolution)Will see volatile prices for a whileExpect governments to intervene good? bad? - some governance okayNeeds its Mosaic/Netscape moment - current apps work but have terrible UXIf this happens... expect $100/BTC within 5 yearsDeflation is not a problem - don’t expect BTC to replace Fiat - ebooks didn’t replace paperGold is hoarded, therefor deflationary, you can exchange gold for USD, no problems right?Expect more rapid adoption in 3rd world accompanied by cell phone growth / lack of infrastructure.Reduced friction in moving money around = more global collaboration / distributed ventures => GOOD
How to get involvedhttp://sourceforge.net/projects/bitcoin/files/Bitcoin/bitcoin-0.7.1/
Bitcoin clients* Bitcoin-Qt (original) - bitcoin.org* MultiBit - multibit.org* Armory - bitcoinarmory.com* Electrum - electrum-desktop.com* Bitcoin Wallet (Andriod)
Free Resources* bitcoin.org* bitcointalk.org * bitcoincharts.com* Bitcoin Block Explorer - blockexplorer.com* Bitcoin Monitor - bitcoinmonitor.com* Bitcoin Wiki - https://en.bitcoin.it/* weusecoins.com
Bitcoin merchants* VPN Services - privateinternetaccess.com
Exchanges:* bitinstant.com* cavirtex.com
Online Wallets / Merchant Tools:* blockchain.info* coinbase.com* bitpay.com* paysius.com
Economics stuff: Money Supply and Purchasing PowerBitcoin Collusion problems
Other talks:http://www.youtube.com/watch?v=SvZGjF1aJhM&feature=relmfu
How do I get my own bitcoins?
• Mine them yourself
• Buy them at an exchange:
• http://bitcoincharts.com/ - 50+ active markets
• I use https://www.cavirtex.com/
• Buy them at Wallmart, 7-11 !
• 700,000 locations - bitinstant.com/cashpayment.com
฿ bitcoin /ˈbɪtkɔɪn/
colin@bendell.cazach@zachscott.ca
Thank You!