Bitcoin----

Challenging the fiat money system or catalyzing economic development?

Dr. Robin Teigland Stockholm School of Economicswww.knowledgenetworking.orgwww.slideshare.net/eteigland

@RobinTeiglandwww.hhs.se

March 2014

Today’s presentation

Brief history of BitcoinWhat is a cryptocurrency?How does Bitcoin work?Variations on BitcoinBenefits and drawbacksRecent eventsMoving forward

Within 5 years: Challenging

the fiat money system?

Bitcoin – An emergent phenomenon

• Open source project on SourceForge in Jan 2009 • Original source code by “Satoshi Nakamoto” –

pseudonym?• Developed by self-organizing community of

thousands of strangers across globe• Approx USD 7.8 bln in circulation (March 2014) and

80,000 daily transactions• SEK 50 bln of Bitcoin vs Swedish Crown: 91 bln SEK

Teigland, Yetis, Larsson 2013 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263707

Bitcoin Online Forums

Bitcoin Foundations across the globe

Institutions

Emergent Collective vs

E.g., Bitcoin Community ~ Emergent collective of users across globe connected through internet

Teigland, Yetis, Larsson 2013

E.g., Central Bank~ Long-standing financial

institutions and regulations

What is a cryptocurrency?

DigitalDecentralized, peer-to-peer (P2P), i.e., no

central, third party

Uses cryptography to validate transactionsAlso uses cryptography to generate

currency itself

How does Bitcoin work?

Screenclip from: How Bitcoin Works under the hood, by “Curious Inventor”

Block chain • Shared public

ledger • All transactions

ever made included

• Chronology and integrity enforced by cryptography

Screenclip from: How Bitcoin Works under the hood, by “Curious Inventor”

Transactions between Bitcoin wallets secured through digital signatures

Screenclip from: How Bitcoin Works under the hood, by “Curious Inventor”

Verifying a transaction

“Mining” confirms waiting transactions through distributed consensus system

Generates new Bitcoins (at decreasing rate)

Does coding and de-coding that verifies and stores transactions (increasingly complex)

Screenclips from: How Bitcoin Works under the hood, by “Curious Inventor”

Preventing double spending fraud

Mycelium Bitcoin Wallet

Where can I buy Bitcoins in Sweden?

Benefits of Bitcoin

Improved transaction securityTrust in cryptography rather than

institution(s)Transparency Lower transaction costsCross-border, faster transactionsNo outside intervention No inflation (although market volatility)

Who accepts Bitcoin?

http://coinmap.org/

Bitcoin becoming more mainstream?

Drawbacks of Bitcoin

Tax concernsOnly as safe as wallet holding coins or

exchange’s serversConsumer uncertaintyMarket volatility (commodity or currency?)Potential for illicit useHigh electricity consumption to “mine”

Bitcoin – one of many cryptocurrencies

Currency CodeYearEst.

Founder(s)

Active Website PoW PoS

Bitcoin BTC or XBT 2009

Satoshi Nakamoto (pseudonym)

Yes N/A Yes No

Ripple XRP 2013

Chris Larsen & Jed McCaleb

Yes ripple.com  No No

Litecoin LTC 2011 Charles Lee Yes litecoin.org  Yes No

Peercoin PPC 2012Sunny King (pseudonym)

Yespeercoin.net 

Yes Yes

Dogecoin DOGE 2013

Jackson Palmer& Billy Markus

Yesdogecoin.com 

Yes No

Namecoin NMC 2011 N/A Yes dot-bit.org  Yes No

Mastercoin MSC 2013 J. R. Willett  Yesmastercoin.org 

No No

Primecoin XPM 2013Sunny King (pseudonym)

Yesprimecoin.org 

Yes No

Variations on a theme

Finite (e.g., Bitcoin) or infinite number of coins available to be mined to no mining at all

Differing levels of transparence, e.g., of identities of those transacting

Proof of work, i.e., show work in order to generate value (mining)

Proof of stake, i.e., show legitimate ownership of currency (so possession /= ownership)

Recent events

Closure and bankruptcy filing of world’s largest Bitcoin exchange, Mt Gox in Japan−Unclear what happened – Exchange says it was

hacked−Others allege CEO, Mark Karpeles, stole millions of

dollars of BitcoinWill the “real” Satoshi Nakamoto please step

forward?

Optimism prevails among users, new and old

Future scenarios?

vs

Opportunity? Threat?

We are stuck in our old ways …

Valuecreation

People• “Net generation”• 24x7 “mobile”

workforce• Social entrepreneurship

Technology • Broadband access• Mobile hardware • ICTs• 3D printing• Robotics

Open Source

• Software • Hardware• Physibles

Convergence of…..

Finance•

Microlending/microfinance

• Crowdfunding/equity• Digital, non-fiat

currencies

“Made in Africa” 3D printer (Togo)crowdfunded through Ulele

Winner of International Space

Apps Challenge

http://www.engineering.com/3DPrinting/3DPrintingArticles/ArticleID/5712/E-Waste-3D-Printer-to-Mars.aspx

Recommended viewing:How Bitcoin Works under the hood, by “Curious Inventor” http://youtu.be/Lx9zgZCMqXE

Karinda Rhode

aka Robin Teiglandrobin.teigland@hhs.se

www.knowledgenetworking.org

www.slideshare.net/eteigland

www.nordicworlds.net RobinTeigland

Photo: Lindholm, Metro

Photo: Nordenskiöld

Photo: Lindqvist

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