Bitcoin and Permissionless Innovation - The Dawn of Trustless Computing v.18

B I T C O I N A N D
P E R M I S S I O N L E S S
I N N O VAT I O N
T H E D AW N O F T R U S T L E S S C O M P U T I N G
Michele Mostarda <michele.mostarda@inbitcoin.it>
inbitcoin.it
v1.8_en
cover image source: http://www.goodfon.su

A B O U T
A U D I E N C E
This presentation is designed for informational purposes to
people interested in adopting Bitcoin and looking for
inspiration on blockchain technologies.

O U T L I N E
TA B L E O F C O N T E N T S
• Money and limitations
• What is Bitcoin
• Crypto facts
• How to use Bitcoin
• How does Bitcoin work
• Permissionless innovation
• Bitcoin vision
• Bitcoin for everybody
• Bitcoin and the economic theory
• Bitcoin and crime

M O N E Y A N D
L I M I TAT I O N S

I S M O N E Y D Y I N G ?
T H E O B S O L E S C E N C E T H E S I S ( 1 )
“Money has been a technology to facilitate
trade.
To reach this purpose it was designed to
facilitate value exchange.”

I S M O N E Y D Y I N G ?
T H E O B S O L E S C E N C E T H E S I S ( 2 )
“Today money is no longer facilitating task it
was designated for.
Time is come to create a better money.”
— Winklevoss Brothers - Money 2020, Oct 2014

T H E C U R R E N C Y
W H AT I S M O N E Y ( 1 )
Aristotle definition of money:
• Durable: money must stand the test of time and the
elements. It must not fade, corrode, or change through
time.
• Portable: money must be able to hold a high amount
of worth, relative to its size and weight.
• Divisible: easy to separate and recombine without
affecting its fundamental characteristics.
• Scarce: any good money would have intrinsic value,
without ties to any other object to support its worth.

W H AT I S M O N E Y ( 2 )
• Scarce
• Divisible
• Storable
• Durable
• Fungible
• Verifiable
• Portable
• Difficult to counterfeit
• Widely accepted
Modern definition of money:

T R U S T L E S S T H I R D PA R T Y
T O WA R D D E C E N T R A L I Z E D A U T H O R I T Y
What is needed is an electronic payment system based on
cryptographic proof instead of trust, allowing any two willing
parties to transact directly with each other without the need
for a trusted third party.
— Satoshi Nakamoto, "Bitcoin: A Peer-to-Peer Electronic Cash System” -- October 31, 2008
Trustless does not mean that we do not need to trust
anything, but that we do not need to trust anyone.

T O WA R D B I T C O I N
T H E G R E Y M E TA L M E TA P H O R ( 1 )
T H E F I R S T D I G I TA L G O O D T H AT
C A N N O T B E R E P L I C AT E D .

T O WA R D B I T C O I N
T H E G R E Y M E TA L M E TA P H O R ( 2 )
• boring grey in colour;
• not a good conductor of electricity;
• not particularly strong, but not ductile or easily malleable either;
• not useful for any practical or ornamental purpose;
and one special, magical property:
• can be transported over communication channels.
— Satoshi Nakamoto - Aug 27 2010
As a thought experiment, imagine there was a base metal as
scarce as gold but with the following properties:

A D VA N TA G E S O F G O I N G
T R U S T L E S S
T H E D I G I TA L M E TA L ( 1 )
• Permissionless: can be executed by anybody anywhere.
• Fast: transactions are instantaneous.
• Irreversible: cannot be deleted once settled.
• Extensible: money behaviour can be programmed.
• Internet ready: already on the Web.
• Cheap: nearly for free.

A D VA N TA G E S O F G O I N G
T R U S T L E S S
T H E D I G I TA L M E TA L ( 2 )
• Easily accountable: anybody can start with Bitcoin in
minutes.
• Transparent: anybody can see everything is going on.
• Stable: no government can directly manipulate its value.
• Conﬁdential: can be used anonymously.

T H E C U R R E N C Y, T H E N E T W O R K A N D
T H E L E D G E R
B A S I C T E R M I N O L O G Y
• ﬁat currency: any money emitted by governments.
• Bitcoin (upper case): the P2P network and the community
managing a distributed ledger designed to exchange crypto
locked digital assets.
• bitcoin: (lower case) the currency exchanged over the Bitcoin
network.
• cryptocurrency (crypto): any network exchanging digital assets
locked by a cryptographic proof, the first example was Bitcoin.
• altcoin: another way to say cryptocurrency.
• blockchain: the distributed ledger behind a cryptocurrency.
• ICO: Initial Coin Offer, a token equity crowdfunding initiative to
develop a business.

N E T W O R K O V E R V I E W
B I T C O I N P L AY E R S

C O N F I D E N T I A L I T Y O F T H E B L O C K C H A I N ( 1 )
Every transaction is publicly logged. Anyone can see the flow of
Bitcoins from address to address.
Alone, this information can't identify anyone because the
addresses are just random numbers.
P S E U D O A N O N Y M I T Y

C O N F I D E N T I A L I T Y O F T H E B L O C K C H A I N ( 2 )
However, if any of the addresses in a transaction's past or future
can be tied to an actual identity, it might be possible to work
from that point and guess who may owns all of the other
addresses.
https://en.bitcoin.it/wiki/Anonymity
P S E U D O A N O N Y M I T Y

S O M E N U M B E R S ( 1 )
• Availability of bitcoins is fixed at 21M, (already discovered
~16M).
• Each bitcoin can be divided in 10^8 units (1/100 000 000 is
called satoshi).
• The network tends to produce a block (12.5 new bitcoins) every
~10 minutes.

S O M E N U M B E R S ( 2 )
• The block reward is halved every ~4years (or 210 000 blocks).
• Currently in 3rd reward era out of 34 (rewards end at 2140).
• 1BTC ~ €8000 on online exchanges.
(At time of writing, November 2017)

P R E D I C TA B L E M O N E Y S U P P LY
Inflation distribution on monetary base

W H O I N V E N T E D B I T C O I N ?
A B I T O F H I S T O RY ( 1 )
In 2008, an unknown author using the name (likely a
pseudonym) Satoshi Nakamoto published a white paper,
Bitcoin: a Peer-to-Peer Electronic Cash System via The
Cryptography Mailing List.
In 2009-2011 he wrote a lot of posts (80000 words, the size of a
novel) in flawless English with British colloquialisms (aside only
the first post where he used American spellings).

W H O I N V E N T E D B I T C O I N ?
A B I T O F H I S T O RY ( 2 )
Satoshi is probably a pseudonym for a developer or a group,
vanished from the web in April 2011 because he moved to other
things.
If he is not a group, he is a world class programmer, with deep
knowledge of C++, economics, cryptography and peer-to-peer
networking.
His timestamps speculation are about either east-coast US with
a fairly normal sleep schedule or western Europe with a coder
sleep schedule (probably not Japan).

T H E C Y P H E R P U N K M O V E M E N T
W H AT I S B E H I N D

H I S T O R I C A L H A S H R AT E
T H E R I S E O F B I T C O I N ( 1 )
Mining hashrate trend from January 2016 to November 2017

P R I C E H I S T O RY
T H E R I S E O F B I T C O I N ( 2 )
Market price from January 2016 to November 2017

I N V E S T M E N T S
2 0 1 7 Q 2 F I N A N C E M E T R I C S ( 1 )
source: https://coinmarketcap.com/#EUR
source: https://media.coindesk.com/uploads/2017/09/state_of_blockchain_q2_2017.pdf

W H AT ’ S H A P P E N I N G
2 0 1 7 Q 2 N E T W O R K M E T R I C S ( 2 )
source: https://media.coindesk.com/uploads/2017/09/state_of_blockchain_q2_2017.pdf

I C O
E X P L O I T I N G E Q U I T Y C R O W D F U N D I N G ( 1 )
An ICO (Initial Coin Offering) is a public offer of crypto tokens
bought usually paying with other well capitalised crypto
currencies.
The acquired crypto tokens allow to use the functionalities of the
new distributed permissionless platform.
The success of such platform determines the rise of the value of
the crypto token.
Holding crypto tokens is the equivalent of holding company
shares.

L A R G E S T I C O C A M PA I G N S
E X P L O I T I N G E Q U I T Y C R O W D F U N D I N G ( 2 )
source: https://icostats.com/roi-since-ico

W H AT ’ S H A P P E N I N G
L I F E I N B I T C O N I A
source: The Evolution of the Bitcoin Economy - Tasca, Liu, Hayes

W H AT C A N I D O W I T H B I T C O I N S
In store payments: buy
goods and services from
shops accepting bitcoin
(or bitcoin debit cards).
See coinmap.org
Internet payments:
buy goods and services
on the web using
bitcoins.
Investments: buy, sell, fiat and crypto
on main exchanges.
See en.bitcoin.it/wiki/Trading_bitcoins
B I T C O I N A S C U R R E N C Y

H O W T O G E T B I T C O I N ?
M A N Y WAY S T O T H E C RY P T O E C O N O M Y ( 1 )
• Accepting payments: get paid in bitcoin for your
business.
• merchant payment
• web payment
• Currency exchanges: you can buy/sell crypto and
fiat currency (USD, EURO and more)
• P2P exchange: meet people and change fiat
currency for bitcoin.

H O W T O G E T B I T C O I N ?
M A N Y WAY S T O T H E C RY P T O E C O N O M Y ( 2 )
• Crypto purchase services:
• Bitcoin ATM: a growing number of ATM to buy
Bitcoins is going available worldwide.
• web/mobile services accepting fiat payments (cards,
bank transfer)
• Mining: supporting the Blockchain operations validating
transactions between users, you are rewarded with
Bitcoins.

B I T C O I N WA L L E T S
H O W T O S T O R E B I T C O I N S ( 1 )
Hot wallet (relies on Internet connection)
• Peer wallet
• SW wallet
• PC wallet
• Mobile wallet
• Web wallet
• with user private keys control
• without user private keys control
Cold wallet (works offline)
• Paper wallet
• HW wallet
• Brain wallet

WA L L E T T Y P E S
H O W T O S T O R E B I T C O I N S ( 2 )
further references: hardwarewallets.com
Mycelium
(mobile wallet)
Trezor
(hw wallet)
Coinbase
(custodian wallet)
Piper
(paper wallet)

B U Y / S E L L B I T C O I N A N D O T H E R C RY P T O C U R R E N C I E S
Web portals designed to exchange fiat (EUR, USD, …) and crypto
currencies, also supporting advanced trading setup and APIs.
B I T C O I N E X C H A N G E S
•Coinbase
•Bitfinex
•Kraken
•Bitstamp

B I T C O I N F O R M E R C H A N T S
Services enabling merchants to transparently accept bitcoins that are
instantly converted to fiat currency and sent on a specified bank account.
A C C E P T I N G C RY P T O PAY M E N T S
source: bitpay.com

H O W D O E S
B I T C O I N W O R K

K E Y S A N D WA L L E T
V I R E S I N N U M E R I S ( 1 )
Inspect wallet status:
https://blockchain.info/address/1fbk5AYjA7wLdwbru2CunWEuToBu1USsX
!Keep secret!
Allows to spend
bitcoins
Allows to receive
bitcoins
Bitcoin Wallet
Send to your
creditor

G E N E R AT E Y O U R O W N WA L L E T
https://www.bitaddress.org

T H E E A S I E S T WAY
https://wallet.mycelium.com

K E Y S A N D WA L L E T
kPrivate Key
KPublic Key
ABitcoin Address
Elliptic Curve Multiplication
(One-Way)
Hashing Function
(One-Way)
Elliptic Curve Digital Signature Algorithm: secp256k1
Hash: RIPEMD160(SHA256(PubKey))
4.1
• Private key (k): a random number to keep secret.
• Public key (K): the multiplication of the private key
number for an elliptic curve.
• Address (A): the hashing of the Public Key.

H I E R A R C H I C A L WA L L E T
4.1
Given a seed (a sequence of mnemonic words) all the
private keys can be deterministically (re-)generated.

T R A N S A C T I O N S
T H E B I T C O I N F L O W ( 1 )
• Transactions move bitcoins from a public key to another
public key.
• Sender selects previous transactions outputs she
controls and composes with them a list of inputs and a
list of outputs, usually the address of the Receiver and an
address he controls for the change.
• Sender signs transaction with her private keys.
• The difference from the sum of the inputs and the sum
of the outputs is the fee for the miners, higher fees
means higher priority.

• Sender propagates the signed transaction through the
network.
• Any node can verify with sender public key + signature
that the sender is allowed to spend the selected outputs
and that the transaction balance is consistent.
• Receiver detect a new transaction and its block (level of
security) within the blockchain.

F E E S
TA X I N G T R A N S A C T I O N S ( 1 )
•Fees are applied to transactions and do not depend on
the transferred amount.
•Fees are specified within transactions as the difference
between the sum of inputs and the sum of outputs.
•Being the block size limited, miners tend to build new
blocks selecting pending transactions ordered by proﬁt
rank. Profit is computed as satoshis per byte.

F E E S
•Fees are set by users to control the probability that a
transaction is included in a new block in a certain
amount of time (or in a certain number of blocks), higher
fees means higher probability to be included means lees
wait time.
•Various online services provide a real time fee estimation
in function of the block waiting time.
•Common sw wallets provide a simpliﬁed menu to
choose the fee level and corresponding wait time.

F E E S

T R A N S A C T I O N S - S I M P L E V I E W
Full node
with mining capabilities
Full node
Full node
Full node
Full node
Wallet
Wallet
Transaction
See the entire network at bitnodes.21.co

T R A N S A C T I O N S - C O M P L E X V I E W
source: BitData

T H E L E D G E R ( 1 )
Spending is signing a transaction which transfers value from a
previous transaction over to a new owner identified by a bitcoin
address.
— Andreas M. Antonopoulos - Mastering Bitcoin - O'Reilly 2014

T H E L E D G E R ( 2 )
Cryptographic transaction principle
source: Bitcoin: A Peer-to-Peer Electronic Cash System

T H E D O U B L E S P E N D I N G P R O B L E M ( 1 )
• Double-spending is the fraudulent activity of
spending same digital money more than once.
• Conventional financial systems prevent double-
spending using centralised authoritative servers.
• Consensus in a distributed ledger is the mechanism
to reach a shared agreement about the validity and
the temporal order of all transactions across all nodes.
• Bitcoin protects against double spending by
building a consensus on all accepted transactions.
B L O C K C H A I N C O N S E N S U S

The most relevant innovation of Bitcoin is the use of a
decentralized peer-to-peer system, where consensus
among nodes about the status of transactions is reached
using majority.

Consensus on a fully distributed system (which is known
to be an unresolvable algorithmic problem) is reached
introducing an economic incentive in acting honestly.
https://en.bitcoin.it/wiki/Consensus

C O N S E N S U S I N A D E C E N T R A L I Z E D
S Y S T E M
T H E B Y Z A N T I N E G E N E R A L S ’ P R O B L E M ( 1 )
A group of generals of the Byzantine army camped
with their troops around an enemy city.
Communicating only by messenger, the generals must
agree upon a common battle plan.

C O N S E N S U S I N A D E C E N T R A L I Z E D
S Y S T E M
T H E B Y Z A N T I N E G E N E R A L S ’ P R O B L E M ( 2 )
However, one or more of them may be traitors who will
try to confuse the others. The problem is to find an
algorithm to ensure that the loyal generals will reach
agreement.
— Marshall Pease, Robert Shosthak and Leslie Lamport, The Byzantine Generals Problem

C O N S E N S U S V I A M I N I N G
FA S T E S T W I N S ( 1 )
• Mining is the most relevant operation performed by the
network to build Consensus and generate new bitcoins.
• Mining is performed by special full nodes called Miners and
for Bitcoin blockchain it based on an algorithmic puzzle called
Proof-of-Work, which requires dedicated HW.
• Any Miner selects a bunch of valid Transactions to ﬁll a new
block.
• A Miner also earns Transaction Fees, so usually the selection
of valid Transactions is done ranking them by fees.
• Miners then race all together to win the next block
creation, solving an algorithmic puzzle under certain
constraints (Difﬁculty) fixed by the Network.

C O N S E N S U S V I A M I N I N G
FA S T E S T W I N S ( 2 )
• The first Miner solving the puzzle propagates the solution
(the new Block) and wins a prize (the creation of new bitcoins
+ the block transaction fees).
• At the propagation of a new Block, once validated, every other
Miner aborts its current block computation and starts
solving the next one.
• Proof of Work is the brute force computation of hashing
operations (doubleSHA256) given a certain constraint of
Difficulty.
• Difficulty is adjusted every 2016 blocks (~2 weeks) to adapt
to the Network global computational power and keep the
block generation rate at ~10 minutes distance.
For more informations about mining: http://www.slideshare.net/michele.mostarda/hydro-mining

T E M P O R A RY F O R K S
L O N G E S T C H A I N W I N S
Peer 1
chain
Peer 2
chain
Full Node
local chain
• Sometimes concurrent new blocks are
discovered, originating a temporary fork (two
or more versions of the Blockchain history).
• Statistically, after a certain number of blocks,
the concurrent chains will reach different
heights (different lengths).
• The Blockchain protocol is programmed to
promote always the longest chain and revoke
the deviant blocks of the shortest ones.
• The Number of Conﬁrmations of a Transaction
is the number of Blocks which sign that
Transaction. One confirmation means it
entered in the last block (head).
• Given the possibility of Temporary Forks, a
single conﬁrmation is never enough to
ensure the irreversibility of Transaction. The
accepted number of minimum confirmations
required to consider a Transaction irreversible
is 6.

C H A I N O F B L O C K S
T H E D I S T R I B U T E D L E D G E R
Secure Hash Algorithm — SHA256
The proof of work used in Bitcoin takes advantage of
the apparently random nature of cryptographic hashes.
A good cryptographic hash algorithm converts arbitrary
data into a seemingly-random number.

S E C U R I T Y AT TA C K S
B L O C K C H A I N M A I N T H R E AT S
• 51% attack (50% +1)
• Block Withholding Attack
• The Race Attack
• Key Guessing / Collision Attacks
• Non-Bitcoin: non infrastructural attacks
• Non-Technical Attacks: scam activities (fraud)
Well known Blockchain vulnerabilities
Full list of Bitcoin weaknesses: https://en.bitcoin.it/wiki/Weaknesses

P E R M I S S I O N L E S S
I N N O VAT I O N

T H E M I S S I N G I N T E R N E T P R O T O C O L
B I T C O I N A N D O P P O RT U N I T I E S ( 1 )
The World Wide Web has been the
Internet of contents.
Blockchains are the Internet of Value.

S P E E D U P C H A N G E
Before the Web we had just emails, P2P file
sharing, relay chats and some voice-over-ip
applications. Innovation required agreements with
Telcos, IT experienced a low advancement
speed.

S P E E D U P C H A N G E
Bitcoin introduces in finance and banking the
same type disruption carried by the World Wide
Web for the Internet.
Programmable digital gold has born.

T H E R E V O L U T I O N
D I S R U P T I V I T Y ( 1 )
‘60s definition of computer: a system that takes
digital data in input, elaborate it via an
algorithmic model and produces digital data as
output.
To fully understand Bitcoin try to think how
computer revolution has been seen at beginning.

T H E R E V O L U T I O N
D I S R U P T I V I T Y ( 2 )
Now try to perceive the potential just reading
today’s Bitcoin definition:
a peer-to-peer network that maintains a public
distributed ledger of digital math-based assets
known as bitcoins.
With this definition we hardly would have foreseen
applications like video games and smartphones.

T H E I N T E R N E T O F VA L U E
A S S E T A S E V E RY T H I N G
Smart
Contract
Deed
Marketing
Coupons
Loyalty
Points
Intellectual
Property
Copyright
token
Money
Identity
Reputation
Social
Capital
Attestation
Energy
Smart
Energy
Credits
Carbon
credits
Art
Music
Visual
Voting
Politics
Company
Governance
Notarization
Finance
Asset
Bonds
Stocks
Futures
DApp
DAO
Proof of
ownership
Micro
Payments
CDN
P2P
Cloud
services
Data
Storage
Cloud
Computing

B L O C K C H A I N A S D B
P E R M A N E N T S T O R A G E
• Anybody can write (a small amount of)
cryptographically signed data in the Blockchain.
• What is written in the Blockchain is forever.
• No one can remove or alter Blockchain
information.
• Application examples: Proof of Ownership,
Decentralized Notary Services.

G E N E R I C A S S E T L E D G E R
C O L O R E D C O I N S ( 1 )
• Colored Coins: virtual asset build on top of Bitcoin
to enable the exchange of physical and virtual
goods (assets). They assign a meaning to the
possession of a marked (colored) bitcoin and track
property transitions. Everybody can release and
exchange a Colored Coin.
• Tokens (CounterParty, ERC20): virtual asset
equivalent to Colored Coins in the Ethereum
ecosystem.

G E N E R I C A S S E T L E D G E R
C O L O R E D C O I N S ( 2 )
Transaction output
owned by Richard
1 bitcoin
Equals to 100 Xcom shares
Transaction output
owned by Alice
3.33 bitcoin
Transaction output
owned by Bob
10 bitcoin
Transaction output
owned by Alice
0.25 bitcoin
Equals to 25 Xcom Shares
Transaction output
owned by Bob
0.75 bitcoin
Equals to 75 Xcom shares
Transaction output
owned by Richard
13.33 bitcoin
Bitcoin
Transaction
https://en.bitcoin.it/wiki/Colored_Coins

C O I N V S T O K E N
D E V I L I S I N D E TA I L S
• A Coin is any cryptocurrency that can operate
independently.
• A Token is a second-layer cryptocurrency that
depends on another cryptocurrency as a platform
to operate.

M U LT I S I G N AT U R E
E N A B L I N G S M A RT C O N T R A C T S ( 1 )
Transaction outputs requiring k over n signatures to
be spent.
Enable various applications like:
• decentralised escrows
• micro-payment channels
• Smart Contracts that are trustless unbreakable
agreements
• Smart Properties that are Smart Contracts applied
on physical objects (IoT)

B L O C K C H A I N A S A T U R I N G M A C H I N E
An effort to generalise the capabilities of the blockchain by
extending the concept of transaction as a generic state
machine execution step, supported by a Turing Complete
language, to obtain a distributed general purpose trustless
machine.

Rootstock (RSK) is an open-source smart contract platform with a 2-way peg
to Bitcoin that also rewards the Bitcoin miners via merge-mining, allowing
them to participate in the Smart Contract processing. RSK goal is to add
value and functionality to the Bitcoin ecosystem by enabling smart-
contracts, near instant payments and higher-scalability.
rsk.co
white paper
Ethereum is a decentralized platform that runs smart contracts on a custom
built blockchain. The project was bootstrapped via an ether presale in August
2014 by fans all around the world. It is developed by the Ethereum Foundation,
a Swiss non-profit, with contributions from great minds across the globe.
ethereum.org
white paper

S M A R T C O N T R A C T S
• Self-enforcing and self-executing programmatic contracts that facilitate, verify
and enforce the negotiation or performance of a contract without a thrusted
party.
• Run exactly as programmed without any possibility of downtime, censorship,
fraud or interference.
• Provide superior security to traditional contract law and to reduce other
transaction costs associated with contracting, avoiding also to rely on a
centralised intermediator.
• Run on a custom built blockchain or using (pegging) an external blockchain like
Bitcoin, and provide a powerful shared global infrastructure that can move and
enforce value and represent rights.
• Enable developers to create markets, store registries of debts or promises,
move funds in accordance with instructions given long in the past (like a will or a
futures contract) and many other things that have not been invented yet, all
without a middleman or counter party risk.

source: http://www.the-blockchain.com/docs/Rootstock-WhitePaper-Overview.pdf

B I T C O I N F O R G O O D
M O N E TA RY S Y S T E M F O R D E V E L O P I N G C O U N T R I E S ( 1 )
Facts
• 50 % of the world is unbanked
• Kenya: 50 % of GDP is transacted via
Mpesa, SMS money
• Remittances: $400 B$ market, 8%
average fee

B I T C O I N F O R G O O D
M O N E TA RY S Y S T E M F O R D E V E L O P I N G C O U N T R I E S ( 2 )
Opportunities
• Remittances
• P2P lending
• Donation

A C T I V I T I E S A F F E C T E D B Y T H E A D O P T I O N O F B L O C K C H A I N T E C H N O L O G I E S
Category Disrupted Business Disrupted
Purchasing
Visa, Mastercard, American
Express
Digital Payment
Paypal, Google Play, Apple,
Amazon
Remittance Western Union
Donation Campaign Finance
Notary Notary Service
Legal Legal Service
B I T C O I N D I S R U P T I V I T Y

A LT C O I N S
1 1 0 0 + C O I N S S H O U L D B E E N O U G H F O R E V E RY T H I N G ( 1 )
• The most start as a fork of the Bitcoin codebase.
• They differ from Bitcoin for deflation parameters
or hashing algorithms.
• Being tied to Bitcoin, they become real money
too (crypto exchanges).

A LT C O I N S
1 1 0 0 + C O I N S S H O U L D B E E N O U G H F O R E V E RY T H I N G ( 2 )
• Less network effect, no real threat to Bitcoin.
• Ethereum is another story: complete rewrite of
the blockchain codebase, gained lot of attention
(and capitalisation) in less than one year.
https://www.ethereum.org

R A N D O M Q U O T E S
TA K I N G A B R E AT H
Bitcoin is a remarkable cryptographic achievement and the ability to create
something that is not duplicable in the digital world has enormous value.
— Eric Schmidt (Google's former CEO)
Not having an internet strategy in 1995 is the equivalent of not having a
Bitcoin strategy now.
— Moe Levin (Bitpay CEO)
By 2005 or so, it will become clear that the Internet’s impact on the
economy has been no greater than the fax machine’s.
— Paul Robin Krugman (Nobel Memorial Prize in Economic Sciences, 1998)
Bitcoin will do to banks what email did to the postal industry
— Rick Falkvinge (Swedish Politician)

W O R K I N P R O G R E S S A P P L I C AT I O N S
L O N G T E R M O P P O RT U N I T I E S
• Smart Property: a property controlled by a Smart Contract.
• Decentralized Marketplace: a distributed market to sell any
good implementing escrow and dispute mediation thanks to
Smart Contracts.
• Decentralized Exchange: a distributed exchange to buy/sell
crypto assets.
• Decentralized Application (DA): user applications that can be
used in a pseudo-anonymous way, not storing private data.
• Decentralized Autonomous Organisations (DAOs): a
distributed network of people and autonomous agents like
Smart Contracts and Smart Properties operating a self
sustainable strategy.

D E C E N T R A L I S E D A P P L I C AT I O N S
A N E W C L O U D F O R C O M P U T I N G
• Decentralized ﬁle storage
• StoreJ: decentralised file storage exchanging
Ethereum token, based on central coordination
nodes. storj.io
• IPFS: fully decentralised file storage based on
Ethereum token, still work in progress. ipfs.io
• Decentralized computing
• Golem is a global, open source, decentralized
supercomputer that anyone can access. It is made up
of the combined power of users’ machines, from PCs
to entire data centers. golem.network

A P P C O I N S
S M A RT F I N A N C I A L S Y S T E M S
AppCoins (DApps) are Decentralized Applications
(DA) using their own coins or tokens.
A DA is an application existing entirely on a
blockchain.
Several communities are developing platforms for
building DAs supporting fully fledged features like
identity management, distributed data storage,
distributed computation, efﬁcient data streaming.

D O
O R G A N I S AT I O N S W I T H O U T C E N T R A L C O N T R O L ( 1 )
Decentralized Organization (DO): a human
organization is a combination of properties and a
communication protocol for individuals to interact with
each other, including rules for use certain parts of the
properties.

D A O
H U M A N - M A C H I N E C O L L A B O R AT I V E O R G A N I Z AT I O N ( 1 )
Decentralised Autonomous Organization: a
decentralized network of autonomous agents which
attempt to maximise a production function and
which divides its labor into machine-intractable tasks
(which incentivises humans to do) and tasks which it
performs itself.

D A O
It can be thought of as a corporation run without any
human involvement under the control of an
incorruptible set of business rules.
These rules are typically implemented as publicly
audit-able open-source software distributed across
the computers of their stakeholders.

D A O
A human becomes a stakeholder by buying stock in
the company or being paid in that stock to provide
services for the company.
This stock may entitle its owner to a share of the
profits of the DAO, participation in its growth, and/
or a say in how it is run.

D A / D O / D A O
C O M PA R AT I V E M AT R I X
Read: Decentralized Autonomous Organization

B I T C O I N F O R
E V E RY B O D Y

W H AT I S G O O D F O R ?
C O M M U N I C AT I N G B I T C O I N ( 1 )
• For consumers is a payment system which
doesn’t require to provide private credentials,
(no cloning credit card fraud)
• For marketers is a way to save transaction
costs and target products to techno-
enthusiast early adopters.
• For investors and traders is a high-risk /
high-reward speculative good.

W H AT I S G O O D F O R ?
C O M M U N I C AT I N G B I T C O I N ( 2 )
• For emigrants is an instrument to send
remittances without charges.
• For unbanked is an opportunity to have free,
cheap and global value exchange network.
• For hackers is a brand new platform to create
innovative solutions.

L E G A L S TAT U S O F B I T C O I N W O R L D W I D E ( 1 )
B I T C O I N R E G U L AT I O N
•European Union: The European Central Bank
classifies Bitcoin as a convertible decentralized
virtual currency. A German court found Bitcoin to
be a unit of account. In July 2014 the European
Banking Authority advised European banks not to
deal in virtual currencies such as Bitcoin until a
regulatory regime was in place.

•United States: the U.S. Treasury classifies Bitcoin
as a convertible decentralized virtual currency. A
June 2014 U.S. government auction of almost
30,000 bitcoins, which the U.S. Marshals Service
seized from Silk Road, was said to increase
legitimacy of the currency. The U.S. Government
Accountability Office recommended that the (IRS)
formulate tax guidance for Bitcoin businesses.

•China: While private parties can hold and trade
bitcoins in China, regulation prohibits financial
firms like banks from doing the same.
Source: https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country

B I T C O I N A N D
T H E E C O N O M I C
T H E O RY

Permalink: http://bitcoincharts.com/charts/btcdeEUR#igWeeklyztgSzbgBza1gEMAzm1g10zm2g25zv
B I T C O I N E C O N O M Y I S D E F L AT I N G
Bitcoin economy grows faster than monetary base:
this causes deflation (value of Bitcoin raises without
investing it).
F I AT V S C RY P T O E C O N O M Y ( 1 )

I N F L AT I O N V S D E F L AT I O N
• Inﬂation: value of money decreases over time.
• Deﬂation: value of money increases over time.
• The first seems good while the second bad, but:
• Inflation erodes the values of savings →
encourages spending → sustains economic
growth.

I N F L AT I O N V S D E F L AT I O N
• Deflation discourages investments: why
spending today when spending the same
tomorrow will get me more?
• World central banks tend to regulate economy to
have a small but significant (~2%) inflation over
time.

B I T C O N I A E C O N O M Y
• A national economic system based on the
current Bitcoin configuration means economic
stagnation.
• Bitcoin can be used as side currency for
transactions and advanced services, not as
replacement for fiat currency. Bitcoin is digital
gold.

B I T C O N I A E C O N O M Y
Citation: http://www.slideshare.net/larsga/bitcoin-digital-gold
• There are several Altcoin proposals designed to
solve the current Bitcoin limitations in replacing
fiat currencies.

C RY P T O C U R R E N C I E S A N D I L L E G A L A C T I V I T I E S ( 1 )
B I T C O N I A C R I M E
Silkroad: black market platform for selling illegal
drugs paid in bitcoins, closed by FBI in 2013.
https://en.wikipedia.org/wiki/Silk_Road_(marketplace)

Mt. Gox: Bitcoin exchange based in Tokio,
handing 70% of transactions at that time, closed in
2014 for currency theft.
https://en.wikipedia.org/wiki/Mt._Gox

Bitcoin Savings and Trust Scam: a Ponzi scheme
to allow users to investing at an interest of 7% a
week
https://www.techdirt.com/articles/20130723/16121723913/sec-confirms-that-bitcoin-savings-trust-
was-ponzi-scheme-files-lawsuit.shtml

S U G G E S T E D R E A D I N G S ( 1 )
• Introductory video to Bitcoin:  
https://www.youtube.com/watch?v=Gc2en3nHxA4
• What is Bitcoin? Learn in 5 minutes:  
http://www.slideshare.net/ryaneshea/bitcoin-v9
• Bitcoin basics:  
http://www.slideshare.net/itBit_Bitcoin_Exchange
R E F E R E N C E S

• The Bitcoin vision:  
https://www.youtube.com/watch?v=YIVAluSL9SU
• The Dot.org coordinating development and adoption of Bitcoin:  
https://bitcoin.org/
R E F E R E N C E S

• Main news about crypto currency:  
http://www.coindesk.com/information/
• Original Bitcoin paper:  
https://bitcoin.org/bitcoin.pdf
R E F E R E N C E S

B O O K S
Mastering Bitcoin
a technical introduction to
the Bitcoin ecosystem
Crypto Assets
cryptocurrencies from a financial  
point of view
Blockchain Revolution
a visionary introduction to the  
blockchain disruption

A B O U T
Did you enjoy our presentation?
Then donate!
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T H A N K S !
Michele Mostarda <michele.mostarda@inbitcoin.it>
inbitcoin.it

Bitcoin and Permissionless Innovation - The Dawn of Trustless Computing v.18

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