Bitcoin: Opportunities, Risks & Regulations

December 2014

REMCO MARCELIS

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‣ Movies

‣ Carbon Credits

‣ Housing

‣ Mobile Apps

‣ Cancer Diagnostic

‣ Bitcoin on mobile phone

‣ Waste Management

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remco@marcelis.com.au 0400 474 228

‣ $20m early stage technology

‣ $30m buy out / expansion

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‣ $30m bitcoin equity fund

THAT WAS THEN ... THIS IS NOW ...

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Is it Legal?

Agenda

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• Why is it important to you?

• Bitcoin 101

• Opportunities

• Risks

• Regulatory

Why do I need to know this?

5

Risk

Opportunity

A beginner's guide to bitcoin

6 http://www.coindesk.com/information/

http://youtu.be/Gc2en3nHxA4

7

bitcoin IS money … as a medium of exchange

8

X ATO guidance August 2014: bitcoin is not money

Is a digital currency legal

tender?

How does a bitcoin transaction work?

9

Transparent public ledger

10

The Blockchain

Opportunity: No More Bank Fees

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• Cryptography and Transparency replace the role of banks as Trusted Intermediaries

• Eliminate bank fees

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Source: Goldman Sachs Global Investment Research

$300

$350

$400

$450

$500

$550

$600

$650

$700

30-Jun 7-Jul 14-Jul 21-Jul 28-Jul 4-Aug 11-Aug 18-Aug 25-Aug 1-Sep 8-Sep 15-Sep 22-Sep 29-Sep

Bitcoin’s Price Has Been Declining …

State of Bitcoin Q3 2014 13

18 Aug

Bitcoin price

suddenly drops

in ‘flash crash’

11 Aug

18 Jul

Dell

announces it

will accept

bitcoin

Blockchain first

company to

pass over 2m

bitcoin wallets

22-23

Sep

PayPal and

Square

announce

bitcoin

integration

8 Jul

Xapo

announces

$20m funding

round

Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC www.coindesk.com/price

9 Jul

Bitcoin industry discussion

of concerns over mining

pool 51% network control

Following

complaints, NY

extends BitLicense

comment period

21 Aug

9 Sep Supposed Satoshi

Nakamoto email

account ‘hack’,

blackmail attempt

… but Bitcoin Trading Volume is increasing

State of Bitcoin Q3 2014 14

Source: CoinDesk, Bitcoinity

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

Cumulative Trading Volume (bitcoins)

… and advancing on other networks

Source: Coinometrics.com, 30 April 2014

International Remittance Fees

10-20% PayPal

Fees 3-5%

International Remittance

16

Sending remittances costs an average of 7.90 percent of the amount sent Cutting prices by at least 5 percentage points can

save up to $16 billion a year.

2.5 billion people (half the world) have no banking at all

17 Source: McKinsey & Co

18

75,000 Merchants accept bitcoin

Source: Coindesk: State of Bitcoin Q3 2014

19 Source: Coindesk: State of Bitcoin Q3 2014

@Dell tweet:

If you’re a retailer, there’s really no reason not

to accept bitcoin at this point “

”

Dell is offering up to 10% off certain

products for purchases made with bitcoin

Overstock.com

Domino’s: increase EBITDA by $5m (9%)

20

Bitcoin’s Price is Now on Yahoo Finance, Google Finance and Bloomberg

21 Source: Coindesk: State of Bitcoin Q2 2014

Venture Capitalists are backing the opportunities 2014 Bitcoin VC Investment Projected to Surpass Early-Stage Internet Investments

22

*Includes first sequence venture deals but excludes late-stage 1995 internet investments ($257.6m). For additional disclosure on

methodology see http://www.coindesk.com/following-money-trends-bitcoin-venture-capital-investment/

Source: CoinDesk, PricewaterhouseCoopers

$91.8

$290.0

$250.1

$0

$50

$100

$150

$200

$250

$300

$350

2013 Bitcoin 2014 Bitcoin Run Rate 1995 Internet*

Bitcoin vs Early Internet VC Investment (millions)

Source: Coindesk: State of Bitcoin Q3 2014

The emergence of bitcoin (sometimes referred to as the

Internet of money) is often compared to both the erly days

of when the Internet came about as well as as for its

potential

What are the risks?

• Reputational (isn’t it used to buy drugs?)

• Can’t it be hacked?

• Regulatory uncertainty

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Risks: Bitcoin is used by drug dealers

24

Source: Global Financial Integrity, FBI. Full chart: http://cf.datawrapper.de/Gc83O/4/

Source: Coindesk: State of Bitcoin Q2 2014

Risk: I could lose all my bitcoin

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Mt. Gox Allegedly Loses US$350m in Bitcoin (744,400 BTC)

Security matters

Keeping Mt. Gox in Perspective

State of Bitcoin Q2 2014 26

Source: Baseline Scenario

$8.9bn fine

Regulation Update

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Talk to: - Alan Tsen, www.coindoctrine.com - Reuben Bramanathan, www.adroitlawyers.com.au

August 2014 (Interpretation of current law) • For tax law purposes, bitcoin is property. Therefore, CGT asset

for income tax. • Personal use exemption applies, < $10,000 • Supply of bitcoin is a taxable supply. Therefore, GST may

apply to transactions. http://blog.coindoctrine.com/some-thoughts-on-the-atos-bitcoin-guidance/

December 2014 • Senate Inquiry

Double GST

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Bitcoin

buyer

In Australia

In Singapore Bitcoin exchange

Price

$550

Price

$500

GST

$50

ATO (currently) takes the view that it is a taxable supply and not ‘money’ under the GST Act

This applies to

businesses who

have received

bitcoin too

Business that has

received bitcoin as

payment

Bitcoin exchange

International Comparisons

• Canada – Dealing in virtual currency constitutes a money services businesses (AML +

KYC requirements)

• US – IRS Notice 2014-21 - bitcoin is property – NY Bitlicense - broad regulations proposed – FinCEN October 2014 - money services business – Reported SEC investigation - unregistered securities

• EU – VAT directive 135 and Sweden VAT case – EBA report July 2014

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http://en.wikipedia.org/wiki/Legality_of_Bitcoin_by_country

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Bitcoin 2.0: Proposed Blockchain Uses • Decentralized transaction ledger could be used to encode

and confirm/transfer all property • Financial

– Currency, Stock, Private Equity, Bonds, Derivatives, Crowdfunding

• Public Records – Land Titles, Vehicle Registries, Business Licenses, Passports, Voter

IDs, Death Certificates, Proof of Insurance

• Private Records – Contracts, Signatures, Wills, Trusts, Escrows

• Physical Asset Keys – Home, Hotel Rooms, Rental Cars, Car Keys

• Intangibles: Patents, Trademarks, Reservations, Domain Names

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http://ledracapital.com/blog/2014/3/11/bitcoin-series-24-the-mega-master-blockchain-list

Smart Contracts: Programmable Money

• Multisignature (multiparty) escrows (~Bitrated 2.0) • Financial exchanges • Savings Accounts • Domain name registries

• Self-enforcing contracts and agreements • Crowdfunding platforms, Prediction markets • Smart property • Intellectual property – Voting systems – Company governance • Nationstate constitution and bill of rights

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Write your own self-executing, automatically triggered, automatically enforced, transparent Smart Contracts

33 http://forum.ethereum.org/discussion/1402/how-to-get-started-your-first-dapp-under-one-hour

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Not only is the universe bitcoin stranger than we imagine, it is stranger than we can imagine. - Arthur Stanley Eddington

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We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run - Roy Amara

Closing

• Stay open & Educate yourself

• Informed decision

• Recognise the risks AND opportunities

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APPENDIX: Resources • Coindesk (Bloomberg of Bitcoin)

– http://www.coindesk.com

• Let’s Talk Bitcoin podcast – http://letstalkbitcoin.com/

• Industry experts

‘Crypto-guru’ Andreas Antonopoulos – http://antonopoulos.com

Economist Susan Athey (Stanford, Microsoft, Ripple) – http://www.coindesk.com/professor-susan-athey-people-use-bitcoin-intrinsic-value/

• Bitcoin Original White Paper

– Satoshi Nakamoto’s design for the blockchain (2008) – https://bitcoin.org/bitcoin.pdf

• Coindoctrine (Melbourne bitcoin advisory) – www.coindoctrine.com

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