Cryptocurrency

Currency system

• Cryptographic
  • Math-based
  • Secure
• Online
• Exchange rate as of Monday: 1 BTC = $249.35

Bitcoin is also not controlled by a central authority; no individual has power over the entire network. 

How does this differ from regular online banking?

Bitcoin transactions often take around 7-8 minutes.

This is a result of confirming the transaction, essentially checking that the bitcoins are your property and not duplicated. 

There is also a public ledger of all transactions- this is why downloading a bitcoin 'wallet' takes so long the first time.

Does not require name, address, SSN, and such to sign up.

Who trusts Bitcoin?

Millions of people who own bitcoins, for one.

I fear my dollars may someday be worth pennies. So I bought Bitcoins.
Bitcoins are digitally created -- or "mined" -- at a slow, fairly predictable rate.
...incomprehensible (incomprehensible to me, anyway)
...I bought Bitcoins even though I don't understand how Bitcoin mining works.

-John Stossel, Fox News

Bitcoin is not the only existing cryptocurrency.

• Quarkcoin
• Ekrona

On the day of January 14, 2014, almost 34 billion dogecoins were traded. This was more than the total amount in existence.

There's obviously no Federal Reserve or Mint equivalent for Bitcoin, given that it is decentralized.

Mining

Bitcoins are created by a process called mining. One downloads a BTC wallet, and then runs a program on their computer to 'mine' coins.

The program solves cryptographic math problems. Essentially, users are trading computing power for money.

Some people buy mining rigs, computers designated specifically for mining coins.

Profit margin

People have made hundreds of thousands of dollars just by mining bitcoin.

Advantages

• No transaction fees
• Public ledger of all transactions
• Allows anonymity
• Anyone anywhere can use it
• Open source
  • this means everyone can see how the software was built

Silk Road?

Online market, known mostly for selling drugs.

What makes it special?

1. Distributed via TOR (The Onion Router). TOR is a browser made anonymous by routing requests through many separate connections (onion layers)

2. Accepts Bitcoin for payments. Another anonymous part of the system.

Correspondence between two Silk Road sellers

Dread Pirate Roberts 3/31/2013 17:00: Thank you R&W. I’ve only ever commissioned
the one other hit, so I’m still learning this market. I have no problem
putting my faith in you and I am sure you will do a good job. The exchange rate
is above 90 right now, so at $90/btc, $150k is about 1670 btc.
If the market tanks in the next few days, I will send more.
Here are some random numbers for a picture: 83746102
Here is the transaction # for 1670 btc to 1MwvS1idEevZ5gd428TjL3hB2kHaBH9
WTL4a0a5b6036c0da84c3eb9c2a884b6ad72416d1758470e19fb1d2fa2a145b5601
Good luck and be safe,

-Andy Greenberg, WIRED

• Dread Pirate Roberts hiring assassins
  • Another seller tried to blackmail him
• Random numbers included in picture
  • Verifies the sender is really Redandwhite
• BTC 1670 = $415,000 at current rate

Silk Road's founder, Ross Ulbricht, was indicted over a year ago.

This marketplace gave Bitcoin a bad name, and made many who didn't know much about it associate it with drugs and illegal activities.

Drugs are also bought with cash, but dollar bills aren't famous for that.

[Carl] Force allegedly set up fake online personas and tried to extort money from Ulbricht,
including once trying to get $250,000 from him in exchange for not providing information
to federal investigators, the criminal complaint says.

-Evan Perez

Carl Force is a US DEA officer.

But it's not scalable.

• There is a limit to the total amount of Bitcoins. Approximately $5 billion, which obviously can't support the entire US economy.
• Quantum computers can mine bitcoins at a quadratically faster rate, so those with quantum computers will have an unfair proportion of all bitcoins, causing an unprecedented spike in the supply.

What to learn from it

Should I trust it?

It's up to you. Majority of the safety lies in the hands of the user. Viruses and giving away private keys

(like passwords)

are ways for security to be compromised.

Nevertheless, Bitcoin is a good view of the future.

• Open source software is getting more and more common. Many companies that release a paid product (for example, Unreal Engine) still post the source code online.
• Math-based currency is very compatible with technology (mining, for example).
• No fees or country barriers that slow down payments.
• Free to start.

• What will happen when quantum computers are cheap? Will Bitcoin already be outdated by then?
• Is Bitcoin not commonly used because of the technology or the connection to Silk Road?
• How are financial services adjusting in the face of a fee-less, barrier-less currency like this?

Learning more

• Download a Bitcoin wallet and try it for yourself
  • https://bitcoin.org/en/choose-your-wallet
• https://blockchain.info/
  • Live feed of transaction ledger
• Basic cryptography tutorial
  • khanacademy.org/computing/computer-science/cryptography
• http://bitcoinfilm.org/

Articles

• wired.com/2015/01/price-bitcoin-doesnt-matter-right-now/
• theatlantic.com/technology/archive/2015/01/without-drugs-whats-the-point-of-bitcoin/384622/

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