Virtual CurrenciesVirtual Currencies

““Analyzing BitCoin and Market Crashes to Analyzing BitCoin and Market Crashes to Understand the Future of Money”Understand the Future of Money”

By: Bryan Copeland

What is Money?What is Money?

Payment Providers, Credit CardsPayment Providers, Credit Cards CurrencyCurrency is a geopolitical symbol/code & is a geopolitical symbol/code &

indexindex Other things that have been used for $:Other things that have been used for $:

FeathersFeathers Jewels & Unique stonesJewels & Unique stones Items for Items for barterbarter Salt (hence “salary”)Salt (hence “salary”)

““Measurement of an exchange of value”Measurement of an exchange of value”

Digital CurrencyDigital Currency

Money differs from differs from scrip only by lawsonly by laws Used in B2B, E-Commerce activities, giftingUsed in B2B, E-Commerce activities, gifting Easily converted to real-world currency, ex:Easily converted to real-world currency, ex:

OpenCoin (eCash) Flattr BitCoin

““Value of an exchange stored, transacted or Value of an exchange stored, transacted or fulfilled wholly by electronic means”fulfilled wholly by electronic means”

Virtual CurrencyVirtual Currency

Used in B2C, Games, In-app purchases, App Used in B2C, Games, In-app purchases, App storesstores

Examples:Examples: Facebook Credits Linden Dollars WoW currencies ...

Currency representing the value of an Currency representing the value of an exchange which takes place in a “exchange which takes place in a “

Virtual Economy””

Virtual EconomyVirtual Economy

MMORPGss SecondLife, , WoW, etc..., etc...

FB apps: FB apps: Farmville, , MafiaWars, etc..., etc...

Online CommunitiesOnline Communities Wikipedia, , StackOverflow (privileges)(privileges)

Dribble, , DeviantArt, , Forums (rep points)(rep points)

Virtual GoodsVirtual Goods Real estate, Game objectsReal estate, Game objects (items, powers, equipment, (items, powers, equipment,

weapons, etc)weapons, etc)

Why Do Users Buy Virtual Why Do Users Buy Virtual Goods?Goods?

StatusStatus Pay to obtain skills/tools more quicklyPay to obtain skills/tools more quickly Quickly gain reputation or unlock levelsQuickly gain reputation or unlock levels

RelationshipsRelationships Gifts to friends/familyGifts to friends/family (Birthday, holiday, etc) (Birthday, holiday, etc)

Spouse/gf/bf/crushSpouse/gf/bf/crush (Valentine, Anniversary)(Valentine, Anniversary)

BusinessBusiness Donations, Contests, PR campaignsDonations, Contests, PR campaigns Branded items, templates, sprites, audioBranded items, templates, sprites, audio

BitCoin (BC)BitCoin (BC)

P2P, decentralized digital crypto-currency P2P, decentralized digital crypto-currency and client, started by the mysterious and client, started by the mysterious Satoshi Nakamoto

Legally a form of “scrip”Legally a form of “scrip” To use legally today, daily trades must be < $1000 To use legally today, daily trades must be < $1000

USDUSD

Can't be used at many locations (except Can't be used at many locations (except online))

More traction than other digital currenciesMore traction than other digital currencies

BC: AlgorithmBC: Algorithm

Encryption: Encryption: SHA256(SHA256(Block_Header))

Signature: Signature: Elliptic Curve DSA

Potential weaknesses foundPotential weaknesses found Exchange account attack (Mt.Gox)Exchange account attack (Mt.Gox) 51% attack & Concerted sell-off, buy-back attacks51% attack & Concerted sell-off, buy-back attacks Sybill attack, Mining pools, Covert mining attack, Mining pools, Covert mining attack Value-overflow & Unencrypted wallets (fixed)Value-overflow & Unencrypted wallets (fixed) P2P, yet not “really” P2P, yet not “really” decentralized

BC: Market CrashesBC: Market Crashes

Flash crash in June 2011Flash crash in June 2011 (from $33/BTC down to (from $33/BTC down to $0.01/BTC)$0.01/BTC)

Major, sustained crash and sell-off Nov 2011Major, sustained crash and sell-off Nov 2011

(from $20/BTC down to $2.84/BTC)(from $20/BTC down to $2.84/BTC)

Not immune to Booms/BustsNot immune to Booms/Busts Disproportionate early-adopter advantageDisproportionate early-adopter advantage

Real-World Market CrashesReal-World Market Crashes

Perpetual debt only good for debtorsPerpetual debt only good for debtors Stock Market crashes despite corporate profit Stock Market crashes despite corporate profit

gainsgains Joblessness at an all-time highJoblessness at an all-time high Enter “Enter “Occupy Wall Street” and related ” and related

movementsmovements

Key Measures of WealthKey Measures of Wealth

Purchasing PowerPurchasing Power

Why does it happen?Why does it happen?

By Design By Design (flaws inherent in the system)(flaws inherent in the system)

Future of Money?Future of Money?

Not BitCoin... but similar Not BitCoin... but similar ((SolidCoin, , OT, , PaySwarm, etc), etc)

Digital Gold and and Self-issued CreditSelf-issued Credit projects projects could merge BitCoin anonymity & decentralizationcould merge BitCoin anonymity & decentralization

P2P, Community reservesP2P, Community reserves

Interest-free, no 2-lenders problem, more like a Interest-free, no 2-lenders problem, more like a Neighborhood WatchNeighborhood Watch or or Credit UnionCredit Union than Bank than Bank

Image courtesy: Image courtesy: DigitalMoneyWorld

Thanks!Thanks!

→ → Movie guide to Occupy Wall Street (by Reuters)(by Reuters)

→ → Money as Debt,, Zeitgeist series, Clarke & Dawe (clips used)(clips used)

→ → The Creature from Jekyll Island (by G. Edward Griffin)(by G. Edward Griffin)

→ → The Money Masters,, Capitalism and Freedom (by Milton Friedman)(by Milton Friedman)

→ → Who Got Bailed Out?,, Which Banks Got Loans? (economic analysis)(economic analysis)

→ → Loan Repayment Calculator,, Retirement Calculator (useful tools)(useful tools)

→ → Complimentary Currency, , CommunityExchange (alternative currency projects)(alternative currency projects)