Introduction to BitcoinKarl R. Heintz

Speech 100

Prof. Smith

Main Points

• Short history of Bitcoin

• Brief description of Bitcoin

• Recent developments

Where did Bitcoin come from?

• Basic idea came from a group now known as the “crypto-punks” (Ever heard

of BitTorrent?)

• 1998 – Wei Dai first suggests a form of currency using cryptography to

“control its creation and transactions” (Bitcoin Foundation)

Satoshi Nakamoto

• Publishes the famous paper

“Bitcoin: A Peer-to-Peer Electronic

Cash System” in 2009

• Later released the code for Bitcoin

through mailing lists, left the

Bitcoin project to others in 2010

What is Bitcoin?

“

”

The short, geeky answer is BitCoin is the world's first

distributed electronic currency. If you are not a geek, some of

those words probably don't make any sense to you. The non-

geeky short answer is that it is a new kind of money that we are

using on the Internet.

Gavin Andresen, principal of the BitCoin Foundation, on a 2009 EconTalk interview

What’s so unique?

• P2P (Peer-to-peer) technology

• Open-source

• Decentralized

“

”

Open source means that the source code, the computer

programming language code, is available for anybody to look at;

in this case it's available for anybody to take and modify, do

whatever you like with it. Completely free and open.

Gavin Andresen on Bitcoin as an “open-source” currency

Decentralized

• No central organization manages or

controls the movement of Bitcoins

Recent Developments

IRS Decision Mt. Gox Crash

Mt. Gox Crash

• February of this year

• One of the largest online Bitcoin exchanges lost 850,000 BTC (Bitcoins),

valued at $425 million USD

Statement from Karpeles

• “There was a weak area in the

system, and, as a result, we lost

Bitcoins. I am deeply sorry that I

have caused trouble to everyone.”

(Mark Karpeles, CEO of Mt. Gox)

2014 IRS Ruling

• March 2014 – Internal Revenue Service ruled that Bitcoin will be considered

property rather than currency for all legal and taxation purposes

“

”

The IRS has officially stated that bitcoin is a property – similar

to any other valuable commodity – rather than a currency.

What does this mean? Not much. In short, if you pay someone

in bitcoin – in the same way you could pay them in gold – the

wages are taxed accordingly. It is also not considered legal

tender but a capital asset.John Biggs, “IRS Rules Bitcoin Is Property, Not Currency” (25 Mar 2014)

IRS on the legal status of Bitcoin

• “In some environments, virtual currency operates like ‘real’ currency … but

it does not have legal tender status in any jurisdiction”

• “A payment made using virtual currency is subject to information reporting

to the same extent as any other payment made in property”.