bitcoin is coming
TRANSCRIPT
Bitcoin is coming…Presenter: Nelson M. Rosario
Date: 11/7/15
Defense Entrepreneur’s Forum 2015
Roadmap
• Introduction
• What is bitcoin?
• Three Things
• Bitcoin Mechanics
• So What?
• Current Legal Considerations
• Emerging Use Cases
Introduction
• Who am I?
• Who has heard of bitcoin?
• Who owns bitcoin?
Scan to connect on LinkedIn
What is bitcoin?
• “No one owns bitcoin.” — Satoshi Nakamoto (probably)
• Bitcoin is the world’s first open source public decentralized append only distributed ledger.
• Bitcoin is also used as a currency by many.
Bitcoin is Open Source
• The bitcoin code is open source and changes may be proposed by anyone
• You can fork the code from Github at the following address: https://github.com/bitcoin/bitcoin
• Advantage is that bitcoin changes are democratic
• Disadvantage is that bitcoin changes are democratic
Bitcoin is Public
• All bitcoin transactions are publicly viewable by anyone
• Companies exist that crawl the blockchain and allow people to view all the transactions
• Block Explorer is one such company: https://blockexplorer.com/
Bitcoin is Decentralized
• There is no central authority for bitcoin
• Bitcoin nodes are all over the world
• The network is sustained by miners
Bitcoin is Append Only
• You can only add blocks to the bitcoin blockchain
• You cannot go back and remove or change blocks without changing all the subsequent blocks
Bitcoin is a Distributed Ledger
• Bitcoin is a record of transactions
• Bitcoin functions like a ledger
Luca Pacioli, inventor of Double Entry Bookkeeping
Three Things, or Why You Should Care
• Comparisons to the Early Internet
• Investment in Bitcoin/Blockchain Companies
• Patent Filings That Mention Bitcoin
Comparisons to the Early Internet
• “A mysterious new technology emerges, seemingly out of nowhere, but actually the result of two decades of intense research and development by nearly anonymous researchers.”
• “Political idealists project visions of liberation and revolution onto it; establishment elites heap contempt and scorn on it.”
• “On the other hand, technologists – nerds – are transfixed by it. They see within it enormous potential and spend their nights and weekends tinkering with it.”
• “Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn’t more obvious from the start.”
• “What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014.” – Marc Andreessen in the NYT
• http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/?_r=1
Investment in Bitcoin/Blockchain Companies
A Note on Terminology
• Bitcoin v. bitcoin
• Bitcoin v. blockchain
• Lots of debate in the community as to whether you can separate bitcoin the currency from bitcoin the technology
Patent Filings That Mention Bitcoin
Patents by Filing Date
• 2010 – 1
• 2011 – 6
• 2012 – 14
• 2013 – 9
• 2014 – 28
• 2015 – 1
Patent Applications by Filing Date
• 2010 – 0
• 2011 – 13
• 2012 – 32
• 2013 – 93
• 2014 – 180
• 2015 – 67
Bitcoin Mechanics
• Balances
• Transactions
• Mining
Balances
• Bitcoin is typically held in wallets
• There are online services, mobile services, and offline services
• Wallets have an address and a public and private key pair
Transactions
• Transfer of value from one bitcoin address to another bitcoin address
• All transactions are broadcast to the network once initiated
Mining
• Validate transactions
• Supports the network
• Rewarded in bitcoins
So What?
Advantages
• Low transaction fees
• Transactions confirmed fast
• New economic models• Micro-tipping
• Remittances
• Autonomous payments
Disadvantages
• Can’t handle many transactions
• Pseudo-anonymous
• Not widely accepted
• No central counter party
Current Legal Considerations
• Biggest concern is anti-money laundering
• Bitcoin gains and losses need to be reported to IRS
• Not considered legal tender anywhere
Anti-Money Laundering Regime
• If a bitcoin business qualifies as a money service business they need to keep track of customer information for AML purposes
• Money Service Business is:• A dealer in foreign exchange
• A check casher
• An issuer or seller of travelers checks or money orders
• A seller or provider of prepaid access
• The United States Postal Service
• A money transmitter
• Required to register with FinCEN
FinCEN
• FinCEN issued guidance that bitcoin is a convertible virtual currency
• FinCEN issued guidance that bitcoin is a decentralized virtual currency for purposes of the Bank Secrecy Act
• As such if a company operates as an exchanger of bitcoin it must comply with the Bank Secrecy Act and establish an anti-money laundering regime
Emerging Use Cases
• Identity Verification for Refugees
• Diamond Verification on the Blockchain
• Smart Contracts
Identity Verification for Refugees
• The identity of refugees are being registered on a blockchain by Bitnation to help refugees to Europe prove who they are
• https://refugees.bitnation.co/
Registering Diamonds on the Blockchain
• There are currently more than 300,000 diamonds already registered with Everledger, and 800,000 more waiting to be registered. Every diamond has a unique ‘fingerprint’, consisting of 40 different parameters. Law enforcement and insurance data is maintained on a special private platform linked to the blockchain.
• http://www.coinfox.info/news/company/2606-everledger-registers-diamonds-in-the-blockchain
Smart Contracts
• Self-executing agreements stored on the blockchain
• Goodbye lawyers, accountants, and banks
• http://www.fastcolabs.com/3035723/app-economy/smart-contracts-could-be-cryptocurrencys-killer-app
Things We Did Not Talk About
• Security
• Privacy
• Scalability
• Adoptability
Questions?
Nelson M. RosarioAssociate AttorneyLempia Summerfield Katz LLCEmail: [email protected]: @NelsonMRosarioBlog: https://medium.com/@nelsonmrosarioLinkedIn: www.linkedin.com/in/nelsonrosario