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IT FOR FINANCIAL SERVICESIS356
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Agenda
• What is Bitcoin?• A digital currency that is created and exchanged independently of
any government or bank. Bitcoin is computer generated and can be converted into cash after being deposited in a virtual wallet.
• Digital currencies in general• Why now?
• How does Bitcoin work?• Peer-to-peer network• Mining
• Signs of a Bubble2
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Why now?
• Payment methods like cash are problematic…• Cash wears out, needs to be replaced• Not always easily traceable • Potential for counterfeit / forgery• Theft – cannot be easily deactivated• Expensive to transport, heavy, bulky• Inflation – just print more• Costly to produce
• 5.7 cents for a dollar bill• 10 cents for a dollar coin• 12.5 cents for the new $100 bill
• Once retired, cash must be destroyed3
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In Cash We Trust
• Why does cash work so well?• TRUST• Cash is just paper… exchangeable paper• As long as I know that I can exchange it…
• Liquidity… as good as gold
• Convertible into gold• Nixon Severs the Dollar from Gold: 8-15-71
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1971
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Digital Currency
• The USD is kind of digital already• You don’t have to run the printing presses just to expand the
money supply• Buy back bonds, pay with digital deposit
• But Bitcoin isn’t like that…• Removes the central function of a federal reserve (government)• With the full force and backing of… nobody!• How do you get Bitcoin? Exchange rate applies… (weird)• Figure out a way to move Bitcoin currency… easy• How can you increase the money supply… mine more
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Source: https://bitcoin.org/bitcoin.pdf
Bitcoin Origins, October 2008
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Exchange Rate
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January 2009 – Bitcoin v0.1 announced
Flat line – no activity extending all the way back to January 2009
Source: https://blockchain.info/charts/market-price?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=
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Real Time Pricing
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Bitcoin Exchanges
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Arbitrage Opportunities
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Demise of Mt. Gox
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MIT Technology Review
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Bitcoin Wallet
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Bitcoin – Managing Supply
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There will never be more than 21 million bitcoins in circulation.
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Bitcoin – Circulation to date…
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Bitcoin Mining…
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Bitcoin – Signs of a Bubble
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