CRYPTOCURRENCY

OVERVIEW & ANALYSIS

INTRODUCTION

• Cameron Butterfield, CTO Beneficial International

• U of U Alumni, Graduated 2009 in Accounting
• Published in MaximumPC Magazine
• Technical writer for AnandTech
• Involved in cryptocurrencies since 2013.
CRYPTOCURRENCY EVANGELISM
(OR… WHY CRYPTOCURRENCY IS REALLY REALLY NEAT!)
• Modern cryptocurreny started by an unknown, faceless founder who solves major
problems with trust and money, who then disappears. Nobody knows who this entity
is.
• For the first time ever; Wealth can be stored invisibly, inside your brain and cannot
be forcibly taken away, by anyone, even the government.
• For the first time ever; value can exist, because of trust in mathematics and the literal
rules of the universe; not because any single government says it has value.
• For the first time ever; history itself can be preserved, cannot be rewritten or
whitewashed and can be trusted that it occurred when it says it did.
• For the first time ever; unknown people on the internet who do not trust each other
can transact without requiring any trust in any single player.
EARLY “DIGITAL CASH”

• David Chaum, American Cryptographer invents “binding” algorithm, which is

an extension of the same concept used in RSA encryption on the web today.
• Digicash, e-gold, web money
• All required central points of trust.
• None really caught on.
YOU CANT TALK CRYPTOCURRENCY WITHOUT TALKING
BITCOIN - WHAT IS IT?

• “I've been working on a new electronic cash system that's fully peer-to-peer, with
no trusted third party... ” - Satoshi Nakamoto, when publishing the
whitepaper "Bitcoin: A Peer-to-Peer Electronic Cash System". October 2018
BITCOIN - WHAT IS IT?

• Peer to Peer Cash system

• No trusted third party
• Distributed ledger system (blockchain)
• Value stored via a system of public and private keys
• Digital signatures provide strong controls over ownership and double-
spending is prevented.
BITCOIN - WHAT IS IT?

From the source: Bitcoin Whitepaper – 2008:

1. Transactions (transactions one to another) 7. Simplified Payment Verification (Payments can be

verified “offline”)
2. Timestamp server (hashing blocks of transactions)
3. Proof-of-work (each block has a puzzle to solve)
8. Combining & Splitting Value (recombining coins
for efficiency)
4. Networking (announcing transactions and answers
9. Privacy (Public / Private Key system)
to the puzzle)
5. Incentive (Block Rewards) 10. Calculations. (Avoiding Fraud on the network 51%
attacks)
6. Reclaiming Disk Space (Efficiency in the size of the
Blockchain)
BITCOIN WHITEPAPER CONCLUSION
• A system for electronic transactions without relying on 3rd party trust has been
proposed.
• Digital signatures provide strong controls over ownership and double-
spending is prevented
• A peer-to-peer network using proof of work is used to create a public log
which is impractical for attackers to change, provided honest nodes are in
control of the system.
• Nodes work with little coordination, they do not need to be identified since
messages are not ever sent to a sole location.
• Nodes can leave and rejoin the network at any time, provided they update
their blockchain upon re-entering the network.
• Rules and incentives can be enforced using a voting system.
PROPERTIES OF MONEY
DURABILITY
• Paper money not suited for long term usage,
must be replaced.
• Gold can last thousands of years, but will
tarnish and lose shape.
• Bitcoin; eternal as long as people wish to
use it.
• Wallets can be duplicated to prevent file
corruption.
PORTABILITY
• Coins and Bills are highly portable.
• Currencies even more portable with advent
of debit & credit cards.
• Gold is not very portable because it is
heavy and difficult to carry.
1 million in Gold = 52.22lbs
1 million in $100 Bills = 22.05lbs
1 million in bitcoin = < 1 oz.
PORTABILITY (SOME CAVEATS)
• In most cases, Bitcoin requires network to
function.
• Where the network is not required… trust
becomes a concern.
UNIFORMITY
• Bitcoin is highly uniform
• Most modern currencies are highly uniform
as well.
• Money lacking uniformity (things like beads,
animal skins, etc.
LIMITED IN SUPPLY (SCARCITY)
• Fiat currencies are created in controlled
amounts by very few people.
• Gold cannot be easily created or found.
• Cryptocurrencies are usually highly
controlled and predictable in their supply.
• Bitcoin has a supply cap at 21 million.
LIMITED IN SUPPLY (SCARCITY)
OTHER DYNAMICS OF BITCOIN SCARCITY
• Bitcoin can be lost… very lost.... Once
private keys are truly lost, they won’t be
found.
• Hard drive failure / fire / any way
information is lost.
• Lost Bitcoin current estimate ~4 Million
ACCEPTABLE
• Cash is highly acceptable
• Credit Cards also highly acceptable
• Checks becoming less acceptable
• While adoption continues, Bitcoin loses on
this front. (Various factors to consider with
this; which we will discuss later.)
DIVISIBLE
• Cash is divisible down to .01 cent. (requires
place of exchange)
• Gold is divisible. (requires special tools)
• Bitcoin is instantly divisible down to the
smallest unit (called a satoshi or .00000001
bitcoin)
• 1 satoshi = .00008 centse
• It would be possible to programmatically
allow for smaller denominations if necessary
(pending bitcoin core code changes)
FUNGIBLE
• Cash is highly fungible, but not always.
(marked bills, etc..)
• Bitcoin has a fungibility problem.
• Mixers, Freshly minted, blacklisted
SWOT ANALYSIS (STRENGTHS)
AMAZING THINGS CRYPTOCURRENCY LETS YOU DO.
• Wealth can be stored as Information. – Brain Wallet
• Trust and confidence in commerce.
• Send value worldwide Instantly.
• Programmability of money. Smart Contracts (we will talk about this later)
CRYPTOCURRENCY MINING
CRYPTOCURRENCY MINING
CRYPTOCURRENCY MINING
CRYPTOCURRENCY MINING
CRYPTOCURRENCY MINING
ALT – COINS

Biggest examples: Validation Methods:

• Ethereum (ETH) • Proof of Work
• Litecoin (LTC) • Proof of Stake
• Ripple (XRP) • Proof of Storage
• Bitcoin Cash (BCH) • Proof of Sweat?
SMART CONTRACTS
SWOT ANALYSIS – STRENGTHS

• Decentralization* • Upgradeable (segwit, example)

• Low Transaction Fees* • Deflationary rather than inflationary.
• Anonymity – Psuedoanonymity*
• Resilience (bad actors)
• Accuracy
• Secure Payments
SWOT ANALYSIS – WEAKNESSES

• No Intrinsic Value
• Much of the activity is Speculative
• Hard Forks
• Transaction capabilities (Bitcoin originally 3tps, segwit upgrades to 20tps,
Lightning Network in the future, for reference Visa=2000tps)
• Right now using cryptocurrency can be difficult
• More infrastructure required
SWOT ANALYSIS – WEAKNESSES
THE CASE AGAINST BITCOIN
Decentralization, Anonymity, Low Transaction Fees (WHAT HAPPENED?)

• Decentralized? Miners controlling supply chain of mining hardware. Bitcoin

developers on the payroll of certain companies… unregulated by design
• Anonymity? Controls being put in place at all the entrance and exit points of
traction between traditional money and cryptocurrencies. The IRS now has all
coinbase records. Despite being pseudoanonimity, tools have been developing
which make bitcoin is really easy to trace.
• Low Transaction Fees? (see chart, consider last december)
SWOT ANALYSIS – OPPORTUNITIES

• Entire new class of asset / currency

• Shift in attitudes from financial institutions
• Blockchain technology
SWOT ANALYSIS – OPPORTUNITIES

Use cases for Blockchain: • Vehicle Registries • Delivery Records

• Currency • Business licenses • Fantasy Sports Records
• Private and public equities • Incorporation records • Coupons
• Trading records • Criminal records • Software Licenses
• Mortgage Loan records • Passports, Voter IDs, Voting • DRM
• Servicing records in general • Proof of Authorship / Art
• Crowd funding • Contracts, Signatures • Your Grades
• Land titles • Genome Data / DNA
CRYPTO, BLOCKCHAINS & ACCOUNTING
Transparent, constantly updated, impossible to alter via unauthorized means, blockchains can
overturn entire industries.
WAYS BLOCKCHAIN CAN CHANGE ACCOUNTING:
• Smart Contracts: automatic, transparent, quick
• Consolidated Bookkeeping: Rather than keeping multiple incomplete records, money IS data and
can be perfectly recorded.
• Standardization in Auditing: immutable standardization, performing audits becomes cheaper and
easier.
• Security and Trust in Auditing: A company can now “prove” they did what they say they did.
• Less Paperwork , more opportunities: Imagine a future where taxes happen automatically. Brace
for disruption and stay ahead of the trends. These disruptions and complexities will most likely
increase the value of your work in general if you understand them.
SWOT ANALYSIS – THREATS

• Hard Forks
• Quantum Computing
• Cannibalism
• Regulatory Threats
• Defects / exploits in code (Ethereum Exploit)
• Rogue Programmers
• General Trust in Developers (Also Ethereum exploit)
• Malware / Ransomware
CRYPTOCURRENCY PRACTICAL APPLICATION

• How do I get it? (coinbase.com)

• How do I store it? (mycelieum, coinbase wallet)
• How to send a transaction? (wallet usage) fees?
• How do I mine bitcoin? (whattomine.com)
• How do I store wealth securely? (offline cold storage)
• How do I trade it? (gdax.com, binance.com, bitmex.com, wex.nz)
• How do I stay up to date? (coindesk.com, coinmarketcap.com)
THE PRICE
THE PRICE
THE PRICE
THE PRICE
THE PRICE
THE PRICE
SHOULD I INVEST?
• Don’t invest blindly, Make sure you understand the utility behind the coins and
projects you choose to invest in.
• More established coins = least amount of risk in the crypto space.
• Brand new coins = extreme risk, extreme reward
• Avoid fluff, or new coins or projects that are vague or don’t have real utility or
are simply clones with no new or desirable features.