E-Money vs Cryptocurrency

Dimaz Ankaa Wijaya

▸Education▹UGM – B. Computer Science (2007)

▹MONASH Uni.– M. Networks & Security (2016)▹MONASH Uni. – Ph.D Student (2017-current)

▸Field of Expertise▹Dig. forensic, cybersecurity▹Cryptocurrency, Blockchain

▸Work Experience▹Indonesian Government official (2009-2017)

Dimaz Ankaa Wijaya

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Today’s Menu

▸Money▸E-Money▸Cryptocurrency▸E-Money vs Cryptocurrency ▸Cryptocurrency in Depth

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MONEY

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Functions of Money (Mankiw, 2014)

▸Medium of exchange (to buy stuff)▸Unit of account (to measure prices and values)

▸Store of value (to transfer purchasing power to the future)

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Evolution of Money

▸Simple form (salt, shells, etc)▸Precious metals (gold, silver)▸Paper money and coins (fiat money)▸Digital currency▹Electronic money (electronic fiat money)▹Cryptocurrency?

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Challenges With Physical Money

▸International Trade▸Internet▸E-Commerce▸Smartphone Apps

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E-Money

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Electronic Money / e-Money

▸Fiat money in digital form▸Issued by bank/financial institution▹Hardware-based: credit card▹Software-based: e-Cash, Go-Pay

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Why e-Money Has Value

▸E-Money reflects your fiat currency▸Convenience: no physical money needed▸Highly regulated▸Financial technology▸Fits the function of money

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International Trade System: e-Money Needed11

Attacks on e-Money12

Cryptocurrency

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Various Types of Cryptocurrency14

Source: bitslog

Overview of Bitcoin

▸Created by “Satoshi Nakamoto”▹A Peer-to-Peer Electronic Cash System (Nakamoto, 2008)

▸Limited supply▸“Low” transaction fee▸ID theft protection▸“Fast” settlement

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What’s Special About Bitcoin

▸Blockchain (public ledger)▸No central authority▹Double spending▹Peer-to-Peer network

▸No middleman▸Customized transaction

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Blockchain: Identical Ledgers Across Nodes17

How Blockchain Works18

Double Spending Problem19

Peer-to-Peer Network

▸Identical information in each server/node.

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No Central Authority: Byzantine Generals Problem/BGP21

Proof of Work / PoW

▸Solving BGP▸Required to construct a new block▸Find a hash value based on a criteria▸Mining

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Remove The Middleman23

Customized Transaction

▸Escrow transaction▸Hash-locked transaction▸Time-locked transaction

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ComparisonsE-money vs Cryptocurrency

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E-Money vs Cryptocurrency26

No Characteristics E-Money Cryptocurrency

5 Authentication Method ID card, password, PIN Digital signature

1 Medium Digital Digital

2 Transaction network Banks or Financial Institution Peer-to-peer

3 New money creation Government Miners

4 Validator Banks or Financial Institution Node and Miners

E-Money vs Cryptocurrency (2)27

No Characteristics E-Money Cryptocurrency

9 Collateral asset Fiat money N/A

6 Money Supply Government Consensus

7 Backer Government N/A

8 Exchange rate Currency market & Government Currency market

Summary: Centralized vs Decentralized28

CryptocurrencySecurity IssuesAttacks and Mitigation Strategies

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Cryptocurrency Exchange Hacks30

Private Keys Theft/Lost31

51% Attack

▸Controlling the majority of the consensus.

▸Mitigation: ▹Discourage such event ▹Evaluate consensus method

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Denial of Service

▸Flooding nodes with invalid requests.▸Flooding network with dust transactions.

▸Mitigation: ▹Drop requests, filtering▹Prioritize transactions.

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Sybil Attack

▸Several malicious nodes providing wrong information.

▸Mitigation: ▹Whitelist of trusted nodes.

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Selfish Mining

▸Not broadcasting a new block.▸Keep mining based on the block.▸After a certain length, the blocks are published.▸Double spending potential.

▸Mitigation?

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Private Key Theft

▸Stealing private keys.

▸Mitigation: ▹Shamir secret sharing ▹Multisignature▹Security hardening

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Conclusion

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Comparing Benefits: E-Money vs Cryptocurrency38

No Criteria E-Money Cryptocurrency

1 Consumer Protection V X

2 Well Regulated V X

3 Stable Value V X

4 Fast Settlement X V

5 Infeasible to tamper the data X V

6 Transaction Fee X V

Comparing Problems: E-Money vs Cryptocurrency39

No Criteria E-Money Cryptocurrency

1 Single Point of Failure V X

2 Consensus Problems X V

3 Privacy and Anonymity V V

Attack Vectors: E-Money vs Cryptocurrency40

No Criteria E-Money Cryptocurrency

1 Software Security V V

2 Network Security V V

3 Dishonest Authority V X

4 ID Theft, Secret Key Theft V V

NEXT: Government-issued Cryptocurrency?41

Blockchain on Other Areas?42

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https://kriptologi.com/buku

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THANKS!Any questions?You can find me at @kriptologi & dimaz@kriptologi.com