Apr 30, 2014, 11:30 PM ETPanel, Conference Presentation

Money Goes Virtual: The Bitcoin Bourse

Bitcoin is defined as "cash for the internet," designed to enable person-to-person value transfer without intermediaries.
The system operates as a global, decentralized distributed ledger where every computer validates transactions, effectively making "everybody the cop."
Satoshi Nakamoto solved the "double-spend" problem and the Byzantine Generals' problem by creating a trustless, consensus-based network where no single entity controls the ledger.
The Bitcoin Foundation, CoinX, Coinbase, and GoCoin are the organizations represented, highlighting roles in research, regulatory compliance, user infrastructure, and ecosystem building.

Miners validate transactions and secure the network by competing to solve cryptographic hash puzzles, a process known as "Proof of Work."
The reward mechanism includes new bitcoins issued to miners (currently 25,000 millibitcoins per block) plus transaction fees, incentivizing participation.
Transaction history is stored in a blockchain, where each block links to the previous one via a hash, making tampering with past transactions computationally impossible.
Bitcoin uses a one-way cryptographic hashing function; while creating a hash is easy, reversing it to find the original data is physically infeasible with current technology.
The network's total computing power reportedly exceeds the combined power of the world's top supercomputers.

The total supply of Bitcoin is strictly capped at 21 million coins, creating a deflationary asset class.
New coin issuance (mining reward) is halved approximately every four years (a "halving event"), extending the mining period for roughly another 100 years.
Currently, approximately 12 to 13 million bitcoins have been mined, distributed based on the work performed by participants.
The smallest unit of Bitcoin is the "satoshi," allowing for micro-transactions and high divisibility compared to physical gold.
Volatility is a significant current challenge, though proponents argue it will decrease as market liquidity increases and the asset matures into a large-cap currency.

Access points include Bitcoin ATMs, online retail exchanges, peer-to-peer platforms (e.g., LocalBitcoins), and institutional exchanges.
"On-ramps" and "off-ramps" are critical for converting fiat currency to Bitcoin, requiring local regulatory compliance and banking relationships.
Wallets have evolved from complex user-managed software to secure, multi-signature systems that reduce individual risk.
Companies like Coinbase offer tools to merchants to instantly convert Bitcoin payments to fiat dollars, shielding businesses from price volatility.
The Mount Gox exchange collapse resulted in the loss of $500 million in customer deposits affecting 127,000 people, with 20% of funds recovered; the cause remains partially unclear but involved security governance failures.
Brock Pierce disclosed an active bid to acquire Mount Gox from bankruptcy to attempt recovery of remaining assets.

Bitcoin is a "pseudonymous" currency; addresses are public numbers, but the identity of the owner is hidden unless voluntarily disclosed.
Unlike traditional credit cards, Bitcoin transactions cannot be reversed, preventing "chargeback fraud" but requiring users to safeguard private keys.
A Bitcoin address breach does not compromise other users' funds, as the system does not store credit card credentials like Target breaches did.
Panelists argued that cash is a superior tool for money laundering compared to Bitcoin due to the inherent transparency of the public ledger.
Law enforcement currently finds it difficult to launder large sums in Bitcoin because every transaction is permanently recorded and traceable.
Potential threats include quantum computing, which could theoretically compromise digital signatures, though the network can hard-fork to adopt new, quantum-resistant algorithms.

In the U.S., the Financial Crimes Enforcement Network (FinCEN) classifies exchanges as money transmitters subject to federal oversight.
State-level regulations vary significantly, with some states recognizing Bitcoin as monetary value and five states refusing to recognize it entirely.
China and Russia have implemented restrictions on banking interactions with Bitcoin, though the U.S., UK, Canada, and Europe are generally moving toward clearer, integration-focused frameworks.
Regulated exchanges in the U.S. often adopt conservative compliance standards (treating Bitcoin like cash) to mitigate regulatory uncertainty.
The "innovator's dilemma" explains incumbent resistance (e.g., MasterCard lobbying against Bitcoin) as a natural defense of established payment processing margins.

Bitcoin enables financial inclusion for the unbanked (estimated 50 million in the U.S. and billions globally) who possess only a phone and internet connection.
The technology democratizes money, removing geographic barriers and allowing instant, low-fee global remittances without relying on traditional banking rails.
Decentralized applications beyond currency are emerging, such as decentralized storage (MadeSafe/SafeCoin) and peer-to-peer bandwidth sharing (Mesh Coin).
Bitcoin provides freedom of payment, allowing unrestricted transactions to entities like WikiLeaks that have been cut off from traditional banking systems.
Philanthropy could be revolutionized by using Bitcoin to send aid to regions like Africa with near 100% transparency and efficiency, avoiding intermediary fees.

Adoption Volume: Panelists predict 30 to 50 million users by the next year, potentially reaching over 1 billion users within 5–10 years.
Infrastructure Replacement: Bitcoin is expected to replace traditional payment rails (ACH, SWIFT, SEPA) within a decade.
Normalization: The goal is for Bitcoin to become "boring" and ubiquitous, functioning as a seamless background utility like the internet.
Savings Behavior: A deflationary currency may incentivize saving over spending, potentially altering traditional economic consumption models.
Long-term Resilience: The core concept of a decentralized, consensus-based ledger cannot be "uninvented" and will likely persist even if Bitcoin itself is superseded by a superior protocol.

Myth: Bitcoin is exclusively for illegal activity. Reality: Cash is more effective for illicit transactions; Bitcoin's transparency makes large-scale laundering risky.
Myth: Bitcoin is a Ponzi scheme. Reality: There is no central organizer or top-level beneficiary; value is derived from the network's utility and scarcity.
Myth: Bitcoin is too difficult to use. Reality: User interfaces (e.g., Coinbase) have abstracted complexity, similar to using a Visa card without understanding the underlying processing.
Myth: The network is insecure. Reality: The infrastructure is inherently secure; failures like Mount Gox were due to poor corporate governance, not protocol flaws.