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Bitcoins and Altcoins Privacy in a decentralised world 1
Bitcoins and Altcoins
Privacy in a
decentralised world
1
“Bitcoins”
2
Block chain
Altcoins
“Bitcoin 2.0”
Today’s Agenda
• Bitcoins and Altcoins as currencies
• Q&A
• Bitcoin 2.0 and decentralisation
• Q&A
3
A Bit of History
• Precursor: crypto, many ecash technologies especially David Chaum and Stefan Brands
• November 2008: paper “Bitcoin: A Peer-to-Peer Electronic Cash System” by “Satoshi Nakamoto”
• January 2009: network came into existence
• August 2010: only major security flaw
• April 2011: 1st Altcoin launched (Namecoin) followed by Litecoin
• February 2014: Mt Gox collapse (70% of market)
4
Price Volatility, Immaturity
Full price history
Last 3 months
5
Supply Side
• Mimics gold mining
• Fixed supply of BTCs
– 21 million cap
– supply reduces geometrically
– currently 25 BTCs per block (10 minutes) which is about US$ 1M per day
• Inherently deflationary
13.9M, 66%
6
Chinese Exchanges Dominate
Source: http://bitcoincharts.com/charts/volumepie/
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Regulatory Focus on Exchanges
• Increasingly full AML (Anti-Money Laundering) processes required including KYC (Know Your Customer) and Suspicious Transaction Reporting
• Consumer protection laws- lots of scams, full custodial control of money
• Taxation laws
• Privacy concerns
8
All the Technical Details
Free version: http://chimera.labs.oreilly.com/books/1234000001802/index.html
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3 Things You
Need to Know
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1. Beautiful Design
• Completely decentralised
• No trust in anyone required
• Alignment of incentives for all roles
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2. Wallets Still Weak Point
• More key ring than cash store
• Bitcoin addresses (where BTCs received) can be public, unlike credit cards
• Lots of security innovation but wallets are still the weak point
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3. Not Anonymous
• Bitcoin addresses are pseudonymous
• Block chain has an immutable, public record of every transaction
• Mixing and laundry services are of dubious legality. More common: new address for every transaction
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Altcoins
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Altcoins
• Alternatives to Bitcoin, modifying it in one or more ways
• Around 900 but growing all the time
• Not yet significant- just 9 have market cap over $10M compared to Bitcoin’s $3.3B
• Many scams including pump and dump
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Ripple (XRP)
• Largest Altcoin (?), market cap $440M
• Re-developed in 2011 by the controversial Jed McCaleb, now with “Bitcoin killer” Stellar STRs
• Completely separate from Bitcoin but bridge exists between the two
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Litecoin
• 2nd largest Altcoin, market cap $66M
• Forked from Bitcoin in October 2011
• Compared to Bitcoin, Litecoin has:
– faster confirmation time (2.5 minutes)
– 4 times as many currency units
– different mining algorithm called scrypt
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Darkcoin
• 5th largest Altcoin, market cap $14M
• Focus on privacy by obscuring transactions and IP (Internet Protocol) addresses
• Compared to Bitcoin and Litecoin, Darkcoin has different mining algorithm called X11
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Zerocash
• Under development. Goal: anonymous “origin, destination, and amount of the payment”
• Extends Bitcoin’s protocol and software
• Utilises a special crypto technique called zk-SNARK (zero knowledge Succinct Non-interactive ARguments of Knowledge). Proof that something is true without disclosing it
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Dogecoin
• 4th largest Altcoin, market cap $14M
• Started as a joke currency in 2013
• Gained traction quickly as an Internet tipping currency
• Completely breached in December 2013. Community then donated to cover all losses in a month
• Community funded Jamaican Bobsled Team for the 2014 Winter Olympics
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Summary
• Bitcoin shows decentralised currencies without trusted intermediaries may work
• Still immature. No mainstream adoption yet but niches clear, e.g. international remittances
• Bitcoin network itself strong and secure but ecosystem has weaknesses
• Regulation increasing
• Bitcoin is not anonymous. Some Altcoins addressing this
• Future? Niches at low cost + digital applications
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Questions / comments
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Bitcoin 2.0
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The Block Chain
• Probably Bitcoin’s major innovation
• Foundation for new decentralised and distributed systems
The block chain is a technology step-change
to build a secure, scalable and open
coordination platform globally.
Not limited to currency or financial systems.24
The Block Chain is
• A ledger: an ordered record of transactions
– verified
– immutable
– public
– anyone can replicate and verify it independently
– records consensus of the “truth”
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1. Timestamping
• Cryptographic fingerprint of a file put in a block chain (content not revealed)
• Proof that file
– existed at particular point of time
– hasn’t been altered
• Widespread application
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2. Sidechains
• Bitcoin network innovation bogged down by vested interests and stability concerns
• Interconnect with other block chains, including altcoins, as a trust anchor
• Best of both worlds: innovation + stability
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3. Internet of Things
• Block chain acts as a database, determining state with smart objects, and adding security
• IBM and Samsung working on ADEPT (Autonomous Decentralized Peer-to-Peer Telemetry)
• [Full Disclosure: commercial interest]
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4. User-centric Identity
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5. New Wave of Decentralisation
• The Internet provides communication and cryptocurrencies (Bitcoins, Altcoins) digital money
• A new wave of decentralisation is coming
– Autonomous Agents
– Decentralised Applications
– Decentralised Organisations
– Decentralised Autonomous Organisations (DAOs) or Corporations (DACs)
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An Evil DAO
Evil DAO
Runs an evil marketplace
Buys human services from
Amazon’s Mechanical Turk
Pays for hosting
and other services
Launders Bitcoins or
converts to Darkcoins
Bad guys get profit
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Summary
• The block chain is a technology step-change with applications far beyond currencies and financial systems
• A new wave of innovative decentralised and distributed services and systems coming
• Some of them may require adaptation of current policy instruments but it’s still only a theoretical risk
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Questions / comments
Vikram Kumar © 2015
Co-founder, Swerl IO Ltd.
Email: [email protected]
Twitter: @vikram_nz
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Images Attribution
• Cover: Martin Sutovec, Cagle Cartoons, Slovakia http://www.truthdig.com/cartoon/item/bitcoin_not_accepted_20131129
• Altcoins: Fredo&Pid’Jin http://www.pidjin.net/2013/12/09/bitcoined/
