 Welcome to the Elwin Bitpoint Technology Centre. If you have no chance, I'll look around later on and ask questions. I don't know what's going on. I'd like to get as many people who can involve. So without any further ado, I'd like to introduce our keynote speaker, Andreas Handelhoff-Wiss. So it's wonderful to be in Australia. I came here and this is my first time in Melbourne. I was looking forward to meeting Australians. Turns out half of Melbourne is Greeks. So I guess I'll have a better chance in Sydney. I'll meet some Australians there. Or maybe you are all Australians. He's Greek too. I was really surprised. This is probably one of the most multicultural cities I've ever been to. It's really a fantastic city. If you have the kind of weather you had yesterday most of the time, I can see the appeal of living here. You can just leave me under the illusion that that's the kind of weather you have all of the time. First of all, how many people here are familiar with Bitcoin? Mostly insiders. How many of you have Bitcoin? How many of you have not heard much about Bitcoin until today? Just a few people who are new to the space. I'm not going to do an introductory presentation to Bitcoin since the vast majority of the audience is familiar with Bitcoin. I thought I was going to talk about some interesting topics around this. First of all, I recently heard that Australia is considering taxing Bitcoin as an intangible asset with sales tax. Is that true? Has this already happened? I think it's very likely to happen. That is a monumentally stupid idea. That was my diplomatic way of speaking to politicians. It's as monumentally stupid as it would have been in 1994 to classify the internet as a fax machine service and put it under the control of the telecom companies. Or to classify it as a CB radio, a fancy CB radio, and ask every user of the internet to pass a Morse code exam and get an operator's license. Those things didn't happen because at the time the regulators took a wait-and-see approach and decided to let the technology itself flourish for a while before trying to apply any regulations. It's a good idea because the truth is that very few people really understand what Bitcoin is exactly and how it works. I don't mean very few politicians. Very few people in general really, really, really understand Bitcoin. I wouldn't count myself as one of them. I understand parts of Bitcoin, but I don't think I can predict where this thing is going. I don't think I can predict even a fraction of the types of applications that are likely to be built on Bitcoin. None of us know. This is uncharted territory. The reason it's uncharted territory is because nothing like Bitcoin has ever happened before. I don't say that just as extreme statements. I think it's absolutely true. The idea of a trusted centralized network that allows any individual anywhere in the world to transmit value or establish ownership over a digital asset and transmit that in a matter of seconds. Anywhere in the world, transparently, safely, almost instantaneously, and for less than a third of a penny, that has never happened before. We don't know what uses that will be put to yet. I can think of a thousand different interesting uses, but we don't really know. It fundamentally changes some of the core assumptions of how money works. The thing is that, while we conceive of money as this universal thing, in fact we experience it as many different aspects of money. There's fast money. There's slow money. Money that works best in small increments, and money that works best in large increments. I have some money printed on metal coins in my pocket. That is fantastic money to use to pay a parking meter. If I try to buy a Porsche with that form of money, I will need a wheelbarrow. Most likely, they will look at me funny at the Porsche dealership. Or if I try to buy a house with that form of money. If I try to pay for the parking meter with a check or a bearer certificate bond, I will be looked at funny by the parking attendant. When I try to get on the tram here, apparently I need a mickey card. I don't know what a mickey card is. Or a mickey card. How to get it? How to charge it? I certainly don't know if I can use it for anything else. What I am getting at is that we don't experience money as a universal protocol. We experience money as a series of fragmented networks. Very, very fragmented networks. There is a parallel to this. Before the internet age, telecommunications was like this. If you wanted to send a long-distance message, you would write it down on paper and use the postal service. If you wanted to transmit video, you would use a broadband connection to a satellite and bounce it off there. If you wanted to transmit text rapidly, you would use a telegram or a telex. If you wanted to transmit an image, you would use a fax machine. If you wanted to transmit video, you couldn't really. You could put it on a VHS tape and mail it somewhere. Every type of content had a different network. Those networks were segregated by speed, convenience, cost, time-to-destination, and all of these restrictions. The internet brought all of these things together. It allowed us to use a single network, regardless of the type of message we were sending, and use it for fast and slow, for small and large, for cheap and expensive. That was really an interesting thing, because it suddenly changed the way we used information. It didn't just make it more convenient. It didn't just make it more accessible. It fundamentally changed the way we used information. Things that we would only do sparsely, we could do now continuously. Things that were too expensive to do were now cheap. Things that were too far to reach became close. We are about to do that with money. Bitcoin does that to money. In the financial environment, there are literally hundreds of different networks. There is SWIFT, the Society for Worldwide Interbank Fund Transfer. You've never used SWIFT, unless you're a broker. You've never used SWIFT. A SWIFT terminal is something a bank has. They use it to send $25 million wire transfers to another bank somewhere else in the world. That is the big payment only bank-to-bank network. There is Visa, and you can use that. If you are a merchant, you can receive on it. It is a consumer-to-business network, but it only works above $5 approximately. It doesn't work for less than $5. There is an upper limit on what you can send. If you want to send $25 million through Visa, you can't really do that. You can use checks and ACH clearing house, the way we call it in the States, which is checking account clearing house for transactions between individuals. I don't know how easily you can send money from individual to individual here. If you want to pay your rent. In the United States, most people write a check. That is the most convenient way to do it. They take money from a digital bank account. They write on a piece of paper. They put this paper into a terrestrial mail transport system where it takes three days to arrive at their landlord. Their landlord takes this piece of paper, presents it to the bank, which in itself is complicated. The bank then types something into a computer, and then the money is transferred. Then it sits there for three to five business days. This is in 2014, in the most prosperous country in the world. This is no less than insanity. I don't know if it's easier for you guys here in the UK. It's somewhat easier to send money between two individuals in a bank. It's probably a bit easier for you. But if you want to send money from here to New Zealand, even though it's not that far, I bet things would suddenly get a lot more complicated. You might have to revert to some kind of paper-based instrument, or pay some third-party intermediary, like Western Union, $35 for the privilege of moving money across an ocean, as if they have to physically carry stacks of gold. In fact, what they are doing in the back-end is no different than an email. We live in a world where banking is horribly fragmented, where finances we experience is broken. The experience for a consumer is different from that from a business. The experience for a small amount is different from a big amount. If you want to send money fast, you can only send small amounts. If you want to send large amounts and fast, you can't do that unless you pay a lot of money. It gets really complicated as soon as you try to send money across borders. Then there's Bitcoin, a single network that can transmit anything from microtransactions, meaning you can send a thousandth of a penny, two giga transactions, meaning you can send $100 billion. The fee you will pay is the same, exactly the same, a third of a penny, maybe. The time it will take to transmit is the same. Five seconds later, it will be visible across the entire global network. You will get clearance in ten minutes. It doesn't care about borders or who the recipient is. It doesn't care if the recipient is a consumer or a business. It doesn't care if the sender is a consumer or a business. If the device you are using to send it is a desktop, mobile, or not, it doesn't care if you took the keys off a paper wallet or typed a pin into a wallet, or if you used your desktop computer. Bitcoin bridges all of those things and provides for the first time something that has never happened before, which is a unified protocol for transmitting value. If you think about Bitcoin that way, it is as big a revolution in the affairs of finance as TCPIP was in communication. It provides a single unified transmission protocol that spans any amount, any destination, and gives you a flat-playing field that anyone can connect to. To call that an intangible asset and stick GST on it, as if you really understand exactly what that is, is hubris, at the very least. Short-sighted probably, and grossly idiotic, most likely. We don't know where this network is going, but what we do know is that it has opened the possibility for creating hundreds of thousands of applications that we could never envision. Even the most wild-eyed optimists and visionaries amongst us really don't know where this is going. I was on the internet in 1989. At the time it took days to send an email across the internet. You had to have UNIX command-line skills. It used an email protocol called UUCP Store and Forward, which was as clunky as it sounds. If you asked me then, what will people be able to do with this network? I could imagine instantaneous email. I could imagine online shopping, eventually, as a far possibility. I certainly couldn't imagine Facebook or Twitter, and I most certainly could not imagine Bitcoin could pop out of this internet experience, but it did. Today we look at Bitcoin as a protocol, and we have one app. It's a killer app. It's currency. It's a currency without governments and banks. It's something unique that's never been built before, but it's just the first app. We have no idea what other apps will be created. Maybe one day you'll be able to use Bitcoin instead of a mickey or mickey card. Maybe you'll be able to use the same payment network to pay for your tram, your parking meter, your Wi-Fi, and your hotel room. Instead of having to juggle five different payment systems. I've found the experience of visiting Australia quite funny. As an American, I come here bearing 20th-century technology. I have a credit card with no chip, which apparently is an alien artifact from a previous century, as far as most Australians are concerned. They'll take my card and they'll wave it over a reader, and nothing happens. It reminds me of this episode of Star Trek, where they go back in time and land on the planet. They go into a computer store, and one of the Star Trek crew picks up a mouse and goes, That's my experience with my card. Every time I have to explain, this is an old-style swipe and sign. They're like, wow. Swipe and sign. I'm like a time traveler to the future. It's amazing. That doesn't stop us, however, from sending our president here to tell you how to manage your Great Barrier Reef. It takes a certain level of audacity to go to another country, be completely oblivious about the fact that we have inferior technology... in the big scheme of things, and then tell other people how to run their business. We seem to be pretty good at that. My experience with credit cards here has been rather revealing, because even within the world of credit cards... you see these vast differences. Every time I travel, the same problem keeps happening to me. I've called every single one of my banks, and I've told them in every different way that I can, that I travel a lot. I try to explain to them that if you see my credit card pop up in Southeast Asia on Monday, in Australia on Tuesday... and in Kuala Lumpur on Wednesday, and Paris the next day, that is normal behavior for me. Do whatever you want me to do to your fraud management algorithms. That is my normal. Every time I go traveling, I swipe my card, and then I'll see on my email that I got a missed call on my US phone number... from Visa Fraud Prevention Services, asking me to verify that this was indeed a charge made on my account. If I don't respond to that message in three days, my card gets shut down. I'm traveling the world with a piece of plastic that is literally worthless. No matter how many times I've tried to explain this, there are notes on my account that say, don't shut down this card, this is normal behavior. They can't get their head around the possibility that someone would travel to different countries and interact with foreigners. My credit cards are broken, but if you think about it, credit cards are broken by design. Most of us don't really think about how broken credit cards are. Let's go back and look at credit cards with a clear eyes and examine all the ways in which they are broken. First of all, credit card technology was invented in the 50s. This technology started just after the Second World War. In 1950, I believe the first card was a diner's club card. This was essentially a plastic version of a traveler's cheque that had your name on it, and a member number, which at the time was a four-digit number. This technology has now been extended into our current, always connected internet-enabled, global, multipolar world. But it hasn't fundamentally changed. That's why it's failing at every level, because credit cards are broken by design. The most fundamental way in which a credit card is broken is the fact that every time I buy something with a merchant, what I'm giving them is the credentials to draw money from my account. I'm giving them the secret keys to every merchant I interact with. The more you use your card, the more you give your secret keys to every merchant. They then store them and build giant databases with 50 or 60 million of the secret access codes to everybody's credit accounts. Then they act with surprise and shock in dismay when a hacker comes along and steals all 60 million credit cards out of their super-secret database. There are two types of companies in this world. There are companies that have failed to protect their databases of credit cards and have been hacked. There are companies that will fail to protect their databases and get hacked in the future. No one can stop this from happening. If you put everybody's access credentials in a single database, it will get stolen. Simple as that. People will always find a way. Credit cards are broken by design because every time you do a credit card transaction, what you're doing is opening a channel that allows that merchant, or anyone who gets that information, to do a pull request to pull from your account. Credit cards are also broken by design in another very fundamental way, which is that the credit card information doesn't stand alone. It is connected to your identity. In order to execute a transaction, you have to provide your identifying information. You have to provide a name, you have to provide an address, you have to provide additional information. In many countries, it is not uncommon to provide a tax number or date of birth for almost every online commerce credit card transaction. What that means is that you are not just exposing the credentials that come from your account, you are also exposing the components of your identity, elements that, when enough of them are collected, you are now a victim of identity theft. Credit cards expose you both to theft and identity theft every time you use them. It is really difficult to see the comparison for people who don't understand Bitcoin, and to understand that Bitcoin transactions have no identity on them by design. That is not a problem, that is a feature. When you execute a Bitcoin transaction, the transaction itself gives the specific amount of value to the merchant, and nothing else. By having that transaction, they can't go back and charge your account again. They can't pull money from your account again, because you pushed a specific value to them. That is what you signed for. You can't forge that signature. Bitcoin doesn't expose you to theft, and it doesn't expose you to identity theft, which means that when you operate with Bitcoin, all of the rules of the game change. If you have ever tried to build a merchant solution, an e-commerce solution, or tried to take credit cards, you will notice that you have to do a lot of work to keep those cards secure. The moment you touch credit cards, every system that touches them has to be secured, firewalled, encrypted, audited, monitored, etc. Bitcoin systems don't have to do that. I can add a Bitcoin payment system on my website. Every transaction I receive with Bitcoin, I don't have to encrypt it. It doesn't have to come over an encrypted connection. I can store it in a database. It doesn't have to be encrypted. It doesn't have to be monitored. If you go in there and steal all of that information, you've managed to create a smaller replica of what's already on the blockchain. What did you achieve? Nothing. You just got a small subset of Bitcoin transactions. You can look them up on the blockchain. You don't need to break into my website to get them. I can transmit those over an unencrypted medium. What this means is that you can do an incredible amount of innovation with Bitcoin that you couldn't do before, because you can leave the network open to access, and you can make the e-commerce channels completely open. For example, there's a company in the US that is using CHERP to do Bitcoin transactions. CHERP is a protocol using sound. Your phone sings a little tune, almost like an old-style modem, in a frequency you can't quite hear. It's kind of like a buzzing sound. A microphone in the merchant's store picks up that sound and gets the Bitcoin. Anybody else can pick up that sound, too, but it doesn't matter, because Bitcoin transactions are not sensitive. You can transmit them in the open. You can write them on a poster. You can transmit them over unencrypted Wi-Fi, over unencrypted Bluetooth low-energy. You can use CHERP, you can use NFC. You can basically broadcast these transactions any way you like. You don't need to encrypt them. You don't need to protect them. That fundamentally changes the way we do payments networks, because all of that security goes away. But the most important thing that Bitcoin does in that context is it provides consumer protection. Bitcoin is consumer protection by design, because it doesn't force you to reveal your identity. It doesn't expose your account credentials to merchants. This seems hard to understand, because a lot of regulators want to regulate Bitcoin for the safety of the consumer. Quite honestly, the consumer is doing pretty fine with Bitcoin. We are safe. No Bitcoin merchant is going to get hacked and have 60 million Bitcoin accounts stolen. Consumer safety on Bitcoin comes from the design of the protocol and from two fundamental concepts. One, you remain firmly in control of your money at all times. Two, you don't reveal anything sensitive when you do a transaction. Those two things together make it the most secure payment network we have ever built. If you want to hack 60 million Bitcoin accounts, you have to hack 60 million devices. There is no one place where all these keys are stored. If you want to protect consumers, the best way to do that is to leave them firmly in control of their own money. A lot of the regulators believe that the best way to protect consumers is to add identity information... to every transaction and have every user identify themselves, provide that information to merchants... and intermediaries, regulators, auditors, and merchant processing companies. Take your private identity information and give it to the very same intermediaries... who have been losing your private identity information for the last decade. That is not consumer protection. What that is, is incumbent protection. What that does is it protects banks from competition. It makes Bitcoin lose some of its most powerful features, so that it is no longer a competitive threat for the banks. When you hear politicians here in Australia or anywhere in the world talk about regulating Bitcoin, we have to ask ourselves, what are they trying to achieve? Are they trying to achieve consumer protection, or are they trying to achieve incumbent protection? If they are trying to achieve consumer protection, they would encourage individual control over money... that Bitcoin already offers by design. In fact, they would encourage Bitcoin, because Bitcoin is the most exciting, disruptive innovation... that is likely to inject competition into the banking industry that desperately needs competition. If you create competition in the banking industry, that is good for consumers. So, in the context of the regulations around GST in this country, I think it is important to realize that regulations like that are not just short-sighted. They are not just missing the point about what Bitcoin is, but they serve to hamper a new, exciting innovation that has the very real possibility... of competing against banks and disrupting their environment, and giving them some competition that they desperately need. By doing regulation in that way, Australians are not making Bitcoin slow down. What they are doing is making Bitcoin move out. You see here these centres popping out all over the world, creating startups and opportunity. A few months ago, in the summer, we did a job-sphere in California. For everybody who graduated after 2008, we had to explain what a job-sphere is. The idea that companies would have jobs and come to a single place to find candidates seemed ridiculous. That is not the world most graduates after 2008 grew up in. The truth is that the Bitcoin industry is generating thousands of jobs already, tens of thousands in the US. I would guess it has already generated thousands of jobs here in Australia. These Bitcoin centres, the innovation, the excitement, the startups, the hundreds of programmers learning how to use these... currencies to invent new financial services and new products, and to create things that are easier to use for consumers and make Bitcoin easier to use. These are the beginning of a multi-billion dollar economy. That is just serving Australians. Once you put into the mix the possibility of serving up to two billion unbanked people... who live in regional terms a stone throw away in Indonesia, Malaysia, and other parts of Southeast Asia. Australia really has the possibility of being a hub for banking innovation across this entire region. From that perspective, I think it is important to realize that Bitcoin is not something that should be... regulated without at least some consideration for the possibility. I talked a bit about the idea of Bitcoin being much more than we can anticipate at the moment. An open network which combines the characteristics of slow money and fast money. It can do small transactions and large transactions. It transcends borders. It is open to innovation. All of those characteristics make it a very exciting space. I am very excited to be in this space. I think there are a lot of young people who see this as an opportunity to develop a career. I hope, as I am seeing here, that Australia is one of the places that is able to take advantage of Bitcoin... and create a booming new industry. With that, I will invite Sam up. Maybe we can do some Q&A. Thanks for coming here last minute. I know we didn't really give anyone much notice at all. This is a great turnout. I really appreciate Andreas stopping by and sharing his passion... for digital currency and what the future holds for Bitcoin in particular. I believe that with the right frame of mind, with the right dialogue... with industry associations as well as government... we are able to set the right foundations that allows Australia and also other countries... to bring in the capital from traditional markets into the Bitcoin ecosystem. We are going to open it up to the floor. If anyone has any questions, there is a mic. It has a bit of a cord. So, hands up. Anyone have a question for Andreas? Good day, Andreas. I am Louise from Suncorp, which is a banking and insurance company here in Australia. My question is actually about the future of Bitcoin into contractual spaces. How do you see the future playing out with conditions and contractual terms being attached? That is a great question. There is a broader space that people are calling Bitcoin 2.0. In fact, I think it is very much part of Bitcoin itself. The birth of Bitcoin didn't happen in a vacuum. It happened among a community that was very active in talking not just about currency... but about smart contracts and smart property. Bitcoin transactions within them have a scripting language. That scripting language can define the conditions you need to redeem an amount of Bitcoin. Almost all of the transactions you see on the Bitcoin network today... the condition they have on them is whoever can show the keys for this ownership can redeem the Bitcoin. But it doesn't have to be that way. You can put much more complicated scripts. For example, only after a certain date or a certain block number... you can require multiple signatures in a multi-sig, as it is known. You can do tiers of multi-sig. You can say one of these three, or two of these five... and after this date, and make very complex programming contracts. Even beyond Bitcoin, there are other protocols that are exploring that in more detail. I think the space of smart contracts is really exciting... because it also ties in very well with what people are calling the Internet of Things and Smart Property. Let me give you an example of a smart contract that you can execute today. Most cars today have electronic ignition and engine management systems that are keyed off your key. Your key isn't just a metal key that opens the lock on the ignition. Most of them have a chip inside that does a full encrypted challenge response protocol. The key identifies itself to the car, the car identifies the key, and that unlocks the electronic ignition system. You will find papers online specifically on the idea of smart property where, for example, a car... can use the blockchain to identify its owner. Instead of being presented with a physical key, you can present it with a key that is off your mobile wallet. Which proves ownership to your car every time you step inside, just over Bluetooth with your mobile wallet. The interesting thing here is that you could sell your car to someone and transfer that token with a Bitcoin transaction. We created a transaction which has two parts. One part gives me $10,000. The other part of the transaction transfers the key token from my car to Sam. Once that transaction is signed, both parts go into effect. As soon as that transaction is recognized on the blockchain, the car can validate that transaction itself without any external reference. It can validate from the blockchain either by keeping a full copy of the blockchain... or by being presented with a part of the blockchain called a Merkle path. It can validate ownership. The car says, here's a transaction. This transaction says I have a new owner. This transaction has proof of work behind it. It's been included in a block. Therefore, I believe it because it's on the blockchain. Ten minutes later, once that's part of a block, the car will start on his key, not mine. I basically not just sold the title and transferred it, but I've also transferred electronic control of the car. The interesting thing is this is not an essential registry. This is not the car calling Toyota to find out. It's looking at the proof in the blockchain to discover its own owner and verifying that completely within itself. Those are the kinds of things you can do. You can do that with a car, with a title for land, with a registry. In a conference I was at recently, a couple of people put their wedding vows on the blockchain... so they could essentially have their marriage registered on the blockchain. The blockchain technology itself is a synchronized, securely timestamped database that can store information about ownership. That means ownership of anything. In the Internet of Things, combined with the Internet of Money, you have this incredible potential... for creating tokens that transfer ownership for anything you can imagine. That's a really exciting thing, because it's also a much more secure transaction. I don't know if any of you have tried to sell a car, but when you do try to sell a car, what you'll notice is that that kind of transaction attracts a lot of bad actors. You have to be careful that you don't get robbed at gunpoint. You have to be careful when you're buying a car yourself and showing up somewhere with a lot of cash... that they don't run away with a cash and not give you the car. When I receive cash from my car, I have to make sure that cash is real. It's not easy to tell counterfeits. If I'm given counterfeit money, then I'm stuck, because I've given the car to someone else. If I'm given a check, then I don't know if it will bounce. I have to go to a bank and do all of this complicated dance inside a bank in order to sell a car. I sold my car in July for Bitcoin. Here's the interesting thing. The person who bought the car wasn't there. They bought it on behalf of their brother. They were in another state in the US. The brother came over, test drove the car, and he said, Yeah, it looks good. Can you buy it? I gave them my Bitcoin address. They transmitted the money from another state. It was 11 p.m. on a Wednesday. Banking hours were well past. What a unique arcane concept. Banking hours. What the hell is that? Anyway, so three to five business days later. No, I'm just kidding. Thirty minutes later, I had three confirmations. I sat down and had a late snack at a local eatery. After six confirmations, I signed over the title to the car. It was done. Six confirmations was not only enough to secure 10,000 transactions. I could have sold a Ferrari with six confirmations quite comfortably about receiving that kind of money. That was a seamless, easy, straightforward transaction. You can't do that with cash. You can't do that with a check. And that wasn't even using smart property. It was just the basic Bitcoin. So I was just going to ask you, Andreas, So there's Bitcoin, the currency, and then there's Bitcoin, the technology, to make the whole thing more mainstream, what's required in your eyes. And if you were to put money into something, what would you be putting money into to make it mainstream? There's Bitcoin, the currency, there's Bitcoin, the technology, the blockchain technology. There's also Bitcoin, the network itself. And those three things work together to create this system. You can't really take the technology out of the currency. So the technology itself doesn't work without a viable currency. And for the first year, probably a year and a half, arguably Bitcoin didn't work as a practical means of exchange because it didn't have value through adoption. It takes a certain momentum of people using it. Money is an interesting abstraction. As far as I'm concerned, money is a language we use to express value. But how money gets its value itself is a subject of a lot of philosophical debate. The bottom line today is that money gets its value through adoption, through use. Meaning that if I give you something and you're willing to give me something in return, then it's money. If I can buy eggs with it, it's money. People can tell me that Bitcoin isn't money, but I've been living off it for a year and a half. My life says otherwise. I use it to spend and buy things all the time, products and services. As far as I'm concerned, it's money. You can't separate the money from the technology from the network. What I can tell you is that this is still an experimental system. The currency itself is subject to volatility and fluctuation. It's subject to market sentiment, reputation risks, and manipulation. There are ways that conceivably Bitcoin could crash, probably very unlikely at this point. It survived so many rounds of near-death crashes. The thing about money is that the very fact that it bounces back and continues to exist gives it even more value. Reliance is part of the value. Bitcoin today, in my mind, is unlikely to suffer a crash. But if it did, I can't predict that because it's a market-based system. What I can predict is that the blockchain technology will be here a decade from now, and will fundamentally transform financial services. Most likely, I think probably higher than 90% probability, it's going to do that with Bitcoin as the currency and under the same name. But there is a small chance that it will do it under a different currency. If you were to fund something to make it more mainstream, what arena would you be funding? I've said this many, many times. I don't think Bitcoin is a sensible investment for most people. It's far too volatile. If you have a well-balanced portfolio, you understand what a high-volatility asset is like, and you're willing to take that kind of risk, and you really understand it, maybe you allocate a small percentage of your portfolio into the high-risk. For example, if you do that with penny stocks, or if you do that with small countries, small cap currencies, then maybe Bitcoin is for you. It's not for most people, and it's a really huge mistake to start day trading, or to assume that Bitcoin is some kind of get-rich, quick scheme. The most effective way to make a million dollars with Bitcoin in a year is to start with two million. And then lose half of it by day trading. What I would invest in is very simple. I would invest in skills. I would invest in innovation. I would invest in real products and services. Most of the products and services that are being developed for Bitcoin transcend Bitcoin itself. They're not really about the currency itself. They could be applied to any of the digital, decentralized currencies. They're really blockchain applications. Therefore, they transcend the single currency. They can be applied in many different concepts. Skills are something that no one can take away from you. If you learn how to use blockchain technologies, if you learn how to program, how to use the APIs, if you understand the architecture of blockchain, if you understand the proof-of-work algorithm, and the consensus mechanism that it allows, no one can ever take away from you. That skill, in my opinion, is as valuable as learning how to build a website in 1998, or learning how to build an iOS app in 2005. It's a skill that you can build a career on, and that's exactly what I'm doing. I built my career on Bitcoin, and I've built it on skills. I haven't invested in companies. I haven't invested in Bitcoin. I don't even own much Bitcoin. I invested in skills. My approach to this was to write a book to teach people how to use Bitcoin. No one can take away from you. It doesn't matter what the price is. You still know how to use blockchain technologies. That is a skill that will translate into a career, into a job, and into fun. At least for me it does. The definition of a geek is someone who thinks things like that are fun, right here. I'm a planning student in the university, and technology has become a political issue. We're about to have a state election in weeks time. One of the reasons that the government was lost is that they spent one billion dollars on the blockchain system, and we're left with something that barely works. So, for example, if you want to top up your account online, go on and say, well, put $20. It's linked to your bank account. That's all fine. But you won't be able to use that $20 for at least another 24 hours, because they have to go send that payment off to every single machine in the state, which is how many thousands of machines. It's a Windows CE based system. We'll probably be stuck with it for, I don't know, up to 10, 15 years, probably. What would you suggest? Is that something that Bitcoin can help with in the sense that you can sort of get rid of all that crap that you have to go through? Because it got to the point where they wanted to install GPS trackers in the city to keep track of where your fare is and to make sure that you've paid your fare. It's completely ridiculous. So, to solve the problem of centralization, you introduce more centralization, and then you need oversight over the people who have centralized the centralized system, so you can centrally oversee and audit what they centralized. And in order to do that, you then have to strip away privacy, and you have to strip away independence. And you keep stripping away privacy and independence to keep centralizing things. And the problem is that kind of slippery slope ends badly. It ends in technologies that are fragile, it ends in technologies that have single points of failure, that can be attacked maliciously, that can be hacked and have their funds stolen, or that collapse because of a localized problem or disaster. The power goes out, trams are still working, no one can get on because they can't pay their fare. Or whatever else might come out of that. So, for every problem in finance, there is a simple and easy solution. And that solution is wrong, and it's centralized. And then there is a slightly more complex and until 2008 impossible solution, which is the decentralized solution. Now we are learning how to decentralize everything. We are learning how to take things that previously required centralized solutions. And now we have the option to decentralize them. Just because we have the option doesn't mean we have the foresight or vision to decentralize them. So, for example, you go into Bitcoin and you have a decentralized currency, and some idiot in Japan goes and builds a PHP MySQL database exchange, called MT Gox, and re-centralizes control over all the keys. And guess what happens next? So, you can take a wonderfully decentralized system and make the mistake of trying to re-centralize it. Or you can look at, now we have a decentralized toolkit, or platform, if you like. Let's take the existing financial services networks and see where they most centralized, and which aspects of them can we decentralize. Right. So, a MyKey system that was based on a decentralized technology wouldn't require updates to be sent to all of the stations, because each station would be able to independently verify every transaction. In fact, they wouldn't need to sync with a blockchain more often than, say, once a day. If that, because you can actually carry proof on the card itself of the latest blocks. So, if I just suddenly show you a hundred blocks and they have proof of work behind them, you can deduce that that is a valid proof of work, because the effort required to fake that is enormous. Nobody is going to do it for tram cards. It's like, yeah, I saved myself two dollars. It only cost me two million dollars in silicon and electricity to do it. And I only managed to do it once. And that's basically game theory, which is the essence of Bitcoin, which is that it's cheaper to play by the rules than it is to cheat. And that simple mechanism is actually incredibly effective. So, all of these centralized problems you get from things like MyKey, which, frankly, for tourists is completely baffling, right? And means that I haven't used the trams. I used the free one, which was the Circle City Center Circle one. And then I tried to buy a MyKey card, and then it asked me for seven days and thirty-eight dollars. I'm going to be here for forty-eight hours like, no, I'll take taxis instead. And that is ridiculous. That makes no sense, but it's a barrier to entry for me. Yeah, technology is political. Technology has always been political from the very first technology. I come from the Greek tradition, and we actually talk about this. Part of our culture is building mythology and stories to describe technology. And one of the myths that I like the most is the myth of Prometheus. And Prometheus stole fire from the gods, because until then, only the gods had fire, right? He stole fire from the gods and gave it to man. And then man had fire, and once man had fire, it couldn't be ever taken away again. And for that, Prometheus was punished by the gods. Satoshi is Prometheus. He took money from the banks and gave it to man, and now there's no taking that back. Once you have knowledge, knowledge is eternal. We can keep that knowledge forever. We can recreate Bitcoin forever. You can't shut that thing down. The fact that the ancient Greeks, 3,000 years ago, already knew that technology was political, and they even described a political fight between gods and man over fire, the very first technology. So yeah, it definitely is. Hey, I'm Josh. I'm from the College of Profit Currency Network. Hi, Josh. So, I've spoken to a lot of students about Bitcoin, and they know about it. And the biggest comment that I get is comments about the Silk Road and about Mt. Gox. I hear a lot of negativity. So how might you sort of discard that negativity? Well, first of all, recognize the fact that technological innovation is always accompanied by negativity, especially by those who don't understand it or who fear change. When electricity was introduced, people didn't go, oh, this is miraculous. It's awesome. They said, oh, this is going to burn your house down, and it's ridiculous. Why not just use whale oil? It works fine. When the automobile was introduced, people said, well, we don't need a noisy horse that breaks down all the time. Horses are fine. Why would anyone work with these infernal machines that kill pedestrians? That was what the media of the time said. And so just accept the fact that sensationalism leads, and sensationalism is what you're going to get. As far as the specifics, you know, understand what actually happened. What happened with Mt. Gox was you had centralized control over keys. You gave control of the keys to a single organization or individual. And we know that when you give powerful money to a single individual, they run away with the money. The entire financial services regulatory infrastructure exists only for the reason that when you give people power of money, they run away with the money, and the only thing stopping them is someone watching. And the answer to that is, don't give them power of money. It's not build more regulators and more oversight. It's use a system like Bitcoin where you don't have to do that. Mt. Gox was a failure of centralization. You created a centralized banking infrastructure where none was necessary or needed. And then you didn't put the traditional regulation on top of it. It just existed in a gray zone. No blockchain security, no Bitcoin security, and no banking oversight right in the middle there. And yeah, it was kind of predictable. I started saying a year before that that was a bad idea, and it was going to blow up in our face. As for Silk Road, I have probably a controversial position on that. People ask me, well, aren't you worried about the fact that you can buy drugs with this money? As far as I'm concerned, I don't know of any form of money that you can't buy drugs with. More specifically, drugs are the second most traded commodity after food in the world, and have been for the last 150,000 years. And if you couldn't buy drugs with your money, I would argue it's not actually money. So one of the criteria of money is that you can purchase products and services. And if you couldn't purchase the second most traded commodity in the world with them, then it's not really money. The appeal for Silk Road, we need to understand what the appeal for Silk Road is. And the way I put it in a nutshell is this, you can't get stabbed over TCPIP. That's why people buy drugs online, because you can deal with the addiction without the violence. Violence is the main problem with drugs, and that's a problem of prohibition, not of the drugs themselves. You want to deal with Silk Road, deal with healthcare, deal with addiction treatment, and the root causes of addiction. Don't try to control the money used to buy something that people obviously need to buy, want to buy, and will continue buying for the rest of history, just like they have been doing for the last 150,000 years. You're not going to stop that. Bitcoin is going to be used to buy every product and service that is currently available on the market, everywhere in the world, just like every other form of money, and it's going to reflect the values of society. When you have a technology that's brand new and it's flexible enough to overcome barriers, it's going to be used in some of the corners that are the shadiests in society. But as it becomes mainstream, it starts reflecting mainstream societal values. Now in year five, the primary use of Bitcoin is for charitable donations and tipping. That's what we see from the statistics. And what that says is that the audience has expanded and now is no longer restricted to the shadiest parts. But remember what they said about the internet in 1995. That it was a den of thieves, pornographers, and terrorists, that you would never be able to find anything on it, and that it was full of fraud. And all of those things were true. And it still was the most valuable technology we could build, because the rest of us will use it for good. I've never bought drugs on the internet. I use Bitcoin. I don't use Bitcoin. I mean, I don't buy drugs. This drug, however... Now this is really addictive stuff. I cannot start my day without at least 20 milligrams of caffeine in my bloodstream. And I'm highly addicted to this stuff. But I can get that at the corner store. Unfortunately, they don't take Bitcoin, so thank you. I have actually got a question for Andreas. How did you actually find out about Bitcoin and what was the first thing you did to it? So this is an interesting story because I think it's the same thing that most people experience with Bitcoin. So I first discovered Bitcoin in the middle of 2011. And my first reaction to Bitcoin was, ha, nerd money. And then I ignored it for six months. So I did what I think most of the people in Bitcoin... Now, if you think about it, if you go back and you read the initial announcement of Bitcoin on the cryptographer's mailing list, on the crypto mailing list, the reaction of everybody except for Satoshi was, that's never going to work. So at first there was one advocate, Satoshi. And even he wasn't quite sure about this thing and whether it was going to work. And everybody else thought he was crazy. And then that circle gradually expands. Now there's about 5 million people who think it's not so crazy after all. But everybody starts as a skeptic. And that's a healthy thing. You should become a skeptic. In fact, I find that some of the most intelligent and thoughtful people I know who started out as skeptics, as they looked into Bitcoin and understood it better, realized that there was a lot more there than meets the eye at first. And have now become some of the strongest advocates for Bitcoin. The second time I discovered Bitcoin and came across my radar again, if you like, I read the white paper. And because of my background in distributed systems and security, when I read that white paper, it clicked. And I realized this isn't a currency. A currency is just an application. This is a trust model. This is a secure value transfer network. This is the largest PKI I ever built. This is a new security mechanism. This is a solution to the Byzantine generals' distributed computing problem. This is so much more than just money. And then it clicked. And once that clicked, I became absolutely obsessed with Bitcoin. So I think a lot of people, when they first discover it, discover it in weird ways. But now that it's mainstream, I think you're going to find the primary way that people discover Bitcoin as word of mouth. If you want to spread Bitcoin, the easiest way to do that is to tell two people. And if they tell two people, in two years we've got the world, exponential curves are pretty awesome. And what you'll see is that you go into conversations and people will say, Yeah, I heard about Bitcoin. My friend Chris has been talking about non-stop for six months. I couldn't have dinner with him without him bringing up Bitcoin at every opportunity. Right? You know who you are. We've all done that. And they say, and then I looked into it and now I'm hooked. And I'm the one who ruins every party by talking about Bitcoin non-stop. And that's how it goes, you know, from person to person to person. But what you'll find is now, I was reading on Reddit yesterday somebody's story, which was really funny. He went out to a dinner with friends. They had some new people they'd never met before. And before they went out, this is a couple, before they went out, the wife said to the husband, Listen, no Bitcoin tonight. Right? I don't want to hear it. No Bitcoin tonight. So they go to this dinner and about 20 minutes into the conversation, the other couple starts talking about Bitcoin. This guy spends the rest of the dinner like with a smirk on his face, like, see? Well, somebody else was, you know, being the new advocate. Just tell two people. It's as simple as that. This is a number two, you know, so that we get the exponential curve going. Who were your two people? Oh, no, I actually read about it online. So who were the two people I told about? I'll buy still your friends. Yes, they are. A business partner of mine who is an angel investor and has now invested a lot of time in the last several years into this. And a former colleague of mine who started his own Bitcoin business a year later. So yeah, my two people are still firmly in the community. But here's the simple truth. People ask me all the time, how do we make sure Bitcoin succeeds? Or how do we make sure Bitcoin spreads? And the answer really is just wait. You don't really have to do anything. This isn't something that needs to be heavily marketed. You're not trying to sell fracking to the people who have to drink the water. That you have to put a lot of marketing muscle behind. This is useful technology. It solves actual problems. It solves problems that in the developing world are perhaps minor irritants, but it can actually make commerce a lot easier. But in the developing world, in the third world, Bitcoin solves problems that are life or death. Bitcoin solves problems that affect a generation. Bitcoin solves problems that can bring two billion people out of poverty in the next decade. Just by solving one problem, which is international remittances, and diverting $175 billion from Western Union shareholders to the poorest people on the planet. Bitcoin solves real problems, and you don't need to market that. All you need to do is demonstrate it. So if you want to spread Bitcoin, show someone how to use it. They'll immediately get it. The next time they stand in line at a bank, the next time they're told by the bank that it takes three to five business days, the next time they're told by the bank that it's 4.30 now, and we can't process your check until tomorrow, and then get charged $35 the next day because another check bounced, even though the money was just sitting there. That will demonstrate itself. Just show people how to use Bitcoin, and they will quickly see the utility of it. Quite honestly, in many countries where I travel, I don't need to make the argument. Going to Argentina, I didn't need to tell them why Bitcoin. They have had three generation-destroying currency events in the last 30 years. Thirty years ago, their government was throwing people out of airplanes because they opposed them. They don't need to understand why money without government is a good idea. They don't need to understand why hyperinflation is a bad thing. They already know why Bitcoin. They wanted to know how to do Bitcoin and how fast they could do it. In the Western world, you have to explain why Bitcoin. We have it easy. We have Visa cards, credit, liquidity, and international banking. I can open a bank account and buy Japanese yen today, and my government won't stop me from doing it. I can move my money to a bank in another country, and my government won't stop me from doing that. That puts me in a population of about a billion people, and then there is the other 6 billion who don't have that. For them, Bitcoin is life and death. You don't need to sell it. It's useful. Just demonstrate. For anybody who comes across those questions about the Silk Road and Bitcoin being used to buy drugs, Tide's laundry detergent was used in a drug break in Maryland to buy drugs, and convenience sort of getting knocked over to the tune of tens of thousands a month. So that's a fun little anecdote to bring up on that. Secondly, Andreas, I think regulation in this particular space is inevitable. But you make an excellent point about Bitcoin being protecting consumer interests and rights by design. But a lot of the businesses that have strung up around it, as you noted so far, haven't been leveraging that. They've been, as you said, re-centralizing it. So what do you think the best way is, I suppose, to go about educating regulators on which businesses need the regulations and which don't, the businesses that centralize and cause problems in Bitcoin like Mt. Gox versus the blockchain.inverse? Yeah, that's a really good point. Bitcoin enables operating models that are on an entire range, from a full custodial banking environment that is very similar to a traditional banking environment, such as MT Gox. And will have the same failure modes as traditional banking, all the way to a fully decentralized system where the users have and always retain control over the keys, which is actually a lot harder to attack or compromise or disrupt with traditional mechanisms because it's decentralized. I think regulators need to be able to discern between these models. And there's a range in between as well, hybrid systems, including multi-signature systems. So the primary question there to ask is, who has control over the funds? Who has custodial control over the funds? Is that control entirely in the hands of the consumer whose interests are best aligned with protecting their own funds and their own privacy? In which case that doesn't really need much regulation. And in fact, any regulation you do to, say, add identity or things like that actually damages that control and security. Or is it the other way where you have a full custodial control over the accounts? In which case that absolutely does need regulation because that is a traditional custodial account. And what we learned from history is that the person who has control over that money will eventually run away with it unless they're stopped. And then there's the things in between. Maybe one of the parties is simply a signatory to a multi-signature transaction. They don't have custodial control. They can't take away the money. In fact, they're never controlling the funds at all. They're just providing signatory services for risk management. Do they need to be regulated, really? Or if the consumer, again, has majority control over the signatories, then essentially they're in control. So you have to make these very fine-grained distinctions. But in order to make those distinctions, you have to understand how this thing works, and that it's not just PayPal re-envisioned or something like that. It's not just a fancier version of what we've seen before. It is a fundamentally different type of thing. And that takes time. So I think really the advice for most regulators is wait and understand before you act. Because acting prematurely is much worse than not acting at all right now. Bitcoin affects very few consumers as it is, even with failures like empty gox. And the people who are taking risks in Bitcoin are well aware that they're taking risks in Bitcoin. So I think the best advice is to just wait and see until you understand those fine distinctions. And then you can apply regulation where consumers really need it, which is in custodial accounts. Interestingly, what that will do is it will encourage more and more companies to avoid that regulation going towards a decentralized model, which serves consumers best, to create some very nice incentive structures there. I don't know which countries are going to do that yet. We'll see. Bitcoin is probably going to be regulated at the edges, at the exchanges, but the Bitcoin protocol itself cannot be regulated. It's important to realize that that will continue to exist. It will continue to be global. It will continue to be transnational. Really, any attempts to stop it will only make it stealthier. In fact, it won't serve anybody. So where are the areas where it can be regulated around the exchanges? Where it needs to be regulated because you have custodial control? Those are the areas most regulators should focus on to offer consumer protection. Otherwise, if they're really looking for a target to regulate, I can give them a list of names of the six biggest banks, who are absolutely rife with corruption and steal billions every day, and they can go after them instead. Just a thought, since they have all of this free time to regulate. Great. I'd like to thank on behalf of the Melbourne Bitcoin community, Andres, for making himself available this morning to give us this address and open our eyes to where Bitcoin is heading and what it is now. Thank you.