 This special episode of the Bitcoin shows brought to you by MtGoxMTGox.com and Bit-Pay.com from there mostly in the RBC area the back end connecting websites to Bitcoin that's where to next slide please. So first section of the talk just sort of what is Bitcoin and do next slide would be surprised at how difficult that is to answer. Is it a currency? You know actually I'm going to do a audience participation here. Is it a currency? Is it a commodity? Wow, multiple yeses here. Is it a security? Is it a digitally signed message? Is it a distributed digital notary service? The last one is 100% right. The others are open to debate. Well I guess digitally signed message isn't really for the debate. Most people are pretty sure it is not a security but is it a currency or a commodity? That is a long long long topic that I am not going to cover here. It is what I consider the first truly global currency. There were some other global currencies the IMF has special drawing rights which is sort of a basket of currencies but that is not really an everyday trading type of currency and it was started in 1960 and no one really cares about it. Is there any way we can get the cut off right side of the screen here? Alright go back. Alright is it a transactional currency or a store of value? That is another good question and you know only time will tell and only use will tell which one it is if it is not indeed one or the other or both. But looking at bitcoinwatch.com which is I founded that site Full Disclosure and sold it profitably for Bitcoins. It is the world's largest distributed supercomputer. We haven't been able to find any larger network. It is bigger than Boink. It is bigger than pretty much all the other projects that we have been able to find on Google. Benefits? Yes mostly preaching to the choir here. Very rapid transactions. Highly redundant. Your bank probably stores your digital dollars in 2, 3, 5 locations. We store your Bitcoins in 10,000. It is highly secure using well known cryptographic algorithms and technologies. Public, private, ECDSA key pairs under the system. Satoshi's key observation was not cryptography. What Satoshi did was Satoshi took off the shelf proven well understood cryptography and put it together in a way that no one had ever seen before. People asked me what Satoshi invented. It is the Nakamoto blockchain as we call it. He used well proven algorithms to underpin the system. Resilient, if any of these nodes go down, that is not a problem at all. Pretty much every single person who runs Bitcoin has the entirety of the blockchain history on their system. It is self supporting and what I mean by that is Satoshi paid very close attention to the incentives that underpin the entire system so that miners are consented to secure the transactions for Bitcoin users yet miners would be nothing and have no money without users using the system. There are a whole host of other incentives but that is sort of broad strokes. It's decentralized which is of great value to a great many people. You don't have a central bank just waking up and deciding one day that your money supply has doubled and therefore probably having value of the existing money. It's usable by anyone, anywhere. It's cross border, cross culture, hopefully soon interplanetary. It is a fixed and predictable money supply, emphasis on predictable. One of the big things that businesses are complaining about these days is it doesn't matter what your politics are, it's regulatory uncertainty. You just don't know what the crazy politicians are going to pass next so you can't plan 12 months ahead, 24 months ahead, 5 years ahead. In Bitcoin you can. In the short word about a couple things that people often criticize Bitcoin about, one of the things they say unlike gold Bitcoin has no intrinsic value. Bosch services have value and Bitcoin network provides a highly distributed, highly secure transactional service for its users. So that is a very, very big powerful value. That's the value of Bitcoin itself is the network. And deflation. I'm not an economist, I'm not a social scientist, and I'm not here to defend inflationary or deflationary policies. But the thing that people need to understand is that most expectations of deflationary currents, or excuse me, most people, I'm skipping down the point. Most people's inbred expectations are that prices always go up. And so as the economist Rush Roberts mentioned a deflationary economy, it would be weird. But it would be not what people expected, but that doesn't mean that it would be necessarily wrong or bad. Most studies about deflation are built around assumptions related to debt. And you don't create Bitcoins by issuing debt from a central bank. Therefore, most of those studies aren't necessarily as applicable as people might think. And in general, economics is a highly debated social science. And there are major schools of thought on both sides of the equation. And I don't think that anyone says that one side is 100% right. So Bitcoin today, this is sort of a response to a lot of journalist questions that I've gotten and have been misreported all over the web and back. So where are we? What is Bitcoin really working like right now? What are our expectations? Because it's important to set expectations properly. It is very early in Bitcoin's life. We just started a couple years ago. So we are not going, we're going to have many, many bumps in the road. I stole this phrase or line from Gavin. It's from, I think, his Ignite talk. It's a startup currency. And just like a startup business, there's a huge chance for failure. And I'm not pointing to any one specific problem. I'm just speaking generally that you have to figure that into the equation that it's a very risky venture. The economy, the size, the total size of Bitcoins is very small. As of, I think earlier today when I pulled those numbers, we're looking at about 7,000 transactions per day. And if you multiply the current share price by the total number of Bitcoins, you get 81 million dollars, which is, you know, it might sound like a lot. I'd love to have 81 million in my pocket. But to anyone at a bank, that's Petties. You know, that's BitSense. It's nothing. So one small trader can cause the price to double in a day with a big Bitcoin buy. And they can cause the price to half in a day with a big Bitcoin sell. So, you know, such expectations properly. The core system, Gavin really covered this pretty well. The core system is really secure. You know, knock on wood and wake up the dog. But knock on wood, we're looking pretty good so far. The public-private key and the core system assignment transactions is so far has not been successfully a sale. On the other hand, Bitcoin websites so far have been sort of one small one-two-person shops. And they didn't really pay too much attention to security, especially when you're talking about, oh, all of a sudden, my website is securing millions of dollars worth of assets. And that's a PHP script they coded while drinking Jack Daniel. So, you know, there's been sort of a disconnect there, in part because the RPC interface, which Gavin mentioned, is it makes it so easy to automate transactions. And that's one of the things I love about Bitcoin is you can just download the software and all of a sudden, you have this interface that can move money around the world and you can come up with the most fantastic business ideas. And just, you know, in your garage, drinking Jack Daniel's maybe, you can come up with a really wonderful business idea, launch it, and people have and they do. So that's really sort of the 10-second snapshot of where we are today. There's plenty of promise, especially in this room. I've been talking with some of the businesses that are some of the exchanges and the other businesses here today. And I'm really pleased with what I've been hearing and seeing. It definitely adds a level of confidence. Where are we with the Bitcoin network? We are about 8,000 nodes that accept incoming connections. That's not total network size. That's what I'll dub important network size. These are the nodes that we need in order for everyone else to be able to connect. Because if you don't accept incoming connections on the network, there is no network. In terms of what's available storage-wise, bandwidth-wise, the network is not very loaded at all. I think that transaction volume could increase significantly and the network wouldn't blink an eye. However, we desperately need some web science and some volunteers to help monitor the network health right now. It's largely an ad hoc effort, some coordinated over IRC and email, that sort of thing. There have been a couple of interesting websites, but we need your help, we need your ideas to keep the network running. We need more peer-to-peer nodes in general. If you can spare the bandwidth and the network, then run a network node that accepts incoming connections and you're going to help your fellow Bitcoin users. Mining. Where is mining today? Mining is very highly competitive, as you might expect because there's a very, very low barrier to entry. You just download some software and you're helping secure the network and in exchange you're receiving some bit-sense. There is an astounding amount of network power collectively as securing each Bitcoin transaction. Having worked with somewhat all-called legacy banks there, and as you probably read in the headlines, their systems aren't as secure as you might have suspected. A fascinating new development which really makes me happy is there's something called B2Pool, which helps address the network effect of people centralizing their mining work into a few big pools. As you might know, there are about three big pools, DeepBit, Slushes, and BBC Guild, which serve to validate over 50% of the transactions. There's quite a few other pools sort of in the other category. So that was a really pleasing development. And just a quick word on botnet. Stealing resources, very bad, but I really don't think that that's going to be a huge ongoing problem because when you wind up stealing someone's computer in mind, their electricity and their computer runs really hot. It makes it really obvious that your computer's being compromised. There's not a whole lot of profit in that short term. Inanimity. Sorry, Bitcoins aren't anonymous. It is more private and more anonymous than your credit card or PayPal, but it is less private and less anonymous than just a face-to-face cash transaction. So again, you have to set your expectations properly. True anonymity is very, very, very hard. Tor helps a little bit, but to give one example, even if you're using Tor, it's completely obvious to your ISP that you're using Bitcoin because the Bitcoin protocol looks quite a bit differently from surfing to CNN.com or something like that. So unless you're very careful, and this is almost a direct quote from Dan Chuminsky's presentation, which I highly recommend, unless you're very, very careful, assume a motivated attacker may link your IP address to your Bitcoin transactions. So motivated means they're, you know, they're sneaking your internet connection, they're loading malware on your computer. So that's how you protect yourself is through the normal means of antivirus software and familiar computer security. Community and trust. Due diligence, checking into the websites that you're sending Bitcoins to, understanding who you're paying. Just because it's a virtual currency doesn't mean that you can give your money to someone named Tom Williams and the West Indies and that they'll keep your Bitcoins absolutely safe. So trust remains paramount and using a virtual currency over the internet doesn't change that at all. So make sure you know who you trust, make sure that they are competent to secure your Bitcoins. Regulatory compliance. That's often a sticky issue with some of the more freedom-minded people in the Bitcoin community. But it's a, it's definitely an issue for businesses that want to accept Bitcoins. So make sure what's going on there. And finally, a shout out to Nanotube in the front here who created BitcoinOTC and building the GBG-based Web of Trust. You can log on to the BitcoinOTC.com. Bitcoin-OTC.com. And that'll tell you how to start building an identity which you can integrate into a Web of Trust and begin to interact and build trust with people that you may not have met directly face to face, but over time, you know, just like you build trust anywhere else, that will help identify the person with whom you're dealing with. Bitcoin versus the press. There's been, you know, plenty of misreporting and totally absent fact-checking and loads of stories. My favorites are Bitcoins or anonymous and non-traceable. The Bitcoin Wiki has said no, no, no for quite a while, but apparently they were unable to perform a Google search. You know, another couple gems, you know, $9 million stolen from Mt. Gox, or the Bitcoin value dropped to zero, none of which are true. But my favorite, my favorite came from the TurboTax blog that said Bitcoins are tax-free. The device following that advice. But really, I mean, you know, there have been some howlers, but what does this tell us, you know, number one, Bitcoin is just very complex. It's difficult to understand. It's difficult to explain to other people. And that's really a challenge for us as a community is to better communicate what's going on. And really, you know, it demonstrates the need for some motivated individuals to help work on a Bitcoin PR effort, which is something that I'd like to see. Moving on to the Bitcoin client. In my opinion, and stress this, I'm only speaking for myself, I'm not speaking for Gavin or anyone else. It's only really for power users. I don't think that, you know, Uncle Joe and Aunt Tilly are willing to understand how to properly secure a wallet and run a peer-to-peer node on a network that may be subject to denial of service attacks. But that said, absolutely, the user experience needs work. I think Gavin covered well the transaction fee issue, which right now we just sort of threw a dart at a wall and blatantly hope that we got the default transaction fees right. We had to lower them and lower them again just because Bitcoin value kept going up and up. And that's really not the way we should be doing things. The market should be setting the proper transaction fee level. And in rare cases, I don't want to alarm anybody because this is truly a rare case. But in rare cases, transactions may simply never confirm and it requires you to go in with some sort of esoteric tools and fix that issue. And so that leads to a disappointing user experience to say the least. And SPV mode, that stands for Simplified Payment Verification, which is sort of shorthand for just putting Bitcoin on your mobile device. We don't expect that a full peer-to-peer node with the full one gigabyte blockchain and etc. will be realistic to run on a smartphone. So what you're going to be looking at is a more lightweight client that can access the Bitcoin network, connect, send transactions, receive transactions, and disconnect. And right now, Mike Hearn at Google who works on the Bitcoin J client is focusing on that direction. Another thing that what we have, just sort of an overview of not just software but monetary tools in general, we have, you know, stating the obvious, we have basic transactions and exchanges that are highly automated. We have excellent APIs that are very easy to use, pretty much every programming language you can imagine, there's some way to access Bitcoin and perform transactions. Unfortunately, we do lack some tools like, you know, being able to short or to option Bitcoin prices for the future, futures, that sort of thing, I believe would be beneficial to the Bitcoin ecosystem and make Bitcoin a healthier monetary tool. So looking, that's sort of Bitcoin today, but let's look at the future. Challenges. Bullet point number one, Gavin, I think, covered really well. It's just not sexy to fix bugs and do the important run work that is necessary to keep financial software safe, secure, and working. So, you know, we're definitely looking for people interested in QA, interested in helping out that effort, even so much as if you're willing to run the latest Git version, which is the not yet released version of the software. I strongly believe from my work on the kernel that the internet is the biggest test lab in the entire world. We need to make use of that. Another challenge in general is the paradox of the decentralized nature versus the network effect. In broad strokes, network effect simply means that Amazon.com is huge, it has all the books that you want, so everyone goes to Amazon, and competitors have a really, really tough time because everyone goes to Amazon. eBay is similar. There are other startups, but eBay is where everyone goes to sell. So network effects, you see that in pools, for example, mining pools, where a lot of people just collect into the bigger mining pools. And it affects pretty much anything decentralized. There is a pull towards a monopoly in power or size or picture attribute. And some amount of self-policing is required. And I don't mean I'm not talking about laws here, I'm just talking about network health. We need to be able to rapidly address core security bugs. And so far, I think that Gavin and the dev team and a lot of our helpers on IRC, which we really depend on, and paneled Bitcoin Dev have really been doing Yeoman's work, but we could do better for a piece of financial software. There ought to be, I think, ideally some sort of dedicated security team. And similarly, if there is an issue in network health, we need to rapidly address that as well before it becomes a problem. If there is a DOS on the network, we need to notice that and take action almost as soon as it happens, ideally. And previously mentioned, we're a bunch of geeks, we're a bunch of hackers, and we all like to write code, and none of us are PR people. And Bitcoin can be somewhere PR people. So that's a Bitcoin challenge going forward so that we don't have US senators squawking to the press and having silly statements run unchallenged. Specifically, challenge is scaling up. As transaction rates increase, sort of fewer and fewer people can afford to run peer-to-peer nodes. I think that it'll probably wind up that not everyone runs the full Bitcoin client. Most people would probably prefer to use the smartphone client, and that'll leave enthusiasts, minors, which I left off the list, wallet providers, etc., being the people who are running the full Bitcoin nodes. Network and disk, they really won't be an issue for some time, and so this is, you know, a year or more into the future. Block database size is beginning to become a problem, in particular bringing up a full node takes hours, days, if you're really unlucky, and some work is going on to address that problem. The future, it's awesome. It works right now, Bitcoin works right now, which says a whole lot considering all of the people who are trying to test the system, stress the system, you know, steal currency, all the things that people try to do with US dollars. You know, we have the same problems at Bitcoin except they're now all automated and over the internet, and it works. That's big. There is plenty of room to grow, even with the current software, before any of these challenges, I think, become major problems. The websites, as I mentioned, I've been talking to some of the vendors around here, they're definitely paying more attention to security and engineering than maybe the first generation of Bitcoin websites did. They're realizing that, you know, 10,000 Bitcoins is actually worth a whole lot, whereas when some of the earlier websites started, 10,000 Bitcoins, that paid for a pizza, and that was about it. So Bitcoin has gone very far and very in a short amount of time, I guess. Thinking sort of outside of Bitcoin itself, Bitcoin is open source software, so people can and have started their own global currencies. Bitcoin is, at least as I'm claiming, people can dispute this, but I think it's the first global currency which has major implications all over the world. It's just fun to think about. And will Bitcoin spark other global currencies? Will Bitcoin spark other blockchain, Nakamoto blockchain currencies? There is already Neem Coin and a couple other startup currencies based on the Bitcoin technology. Will one of those become more attractive than Bitcoin itself? You know, only the future will tell. The main thing that Bitcoin has going for it right now is that number one, everyone is invested in the current system, i.e. the network effect, and number two, Satoshi really thought hard about the incentives and collectively the community seems to agree with it. So you have big hurdles starting another currency, but it's open source. The source is out there and fantastic things can come from it. And will we see Bitcoin specific banking regulations? Because this is a brand new thing that no one's ever seen before. Different governments might say Bitcoin is stored value, or it isn't, or it's a commodity, or it's a currency. And we're going to have to live through the politicians figuring that out as we go along. So I predict that there will be a Bitcoin specific law. Hopefully it's not a banning, but this is how you treat Bitcoin. And that's really just in general what I think is a really bright future. Bitcoin has a lot of room to grow. It has a fantastic, highly secure technology backing it. And the future is this room. A special thanks to our sponsors, the first Mt. Gox, mtgox.com. You know them by now. They are the largest exchange for Bitcoins. They are now taking the British pound, Australian dollars, and Canadian dollar should be here any day now. The euro is now here with the Bitomac Acquisition. Mt. Gox mobile app is now on the Android market. It allows you to take Bitcoins on the go. And finally, with the USB security device, the UB key, it protects your account even on compromised computers. And brought to you by BitPay, that's BIT-Pay. They are the official merchant processor for the Bitcoin conference. They allow you to accept payment in Bitcoin and receive US dollars instead. 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