Download Why I Changed My Mind About Bitcoin

Why I Changed My Mind About
Bitcoin
December 12, 2015
Purpose
Discuss how the evolution of Bitcoin could
disrupt the financial system, creating some
investment opportunities along the way
Disclaimer
I have no expertise in Bitcoin or any other digital
currency. This presentation is for educational
purposes and should not be construed as
specific investment advice.
Content
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Definition of Bitcoin
Current state of the bitcoin economy
How to acquire and store bitcoins
How they are used today
Why I changed my mind about Bitcoin
Primary risks
How to become a Bitcoin Billionaire
What is Bitcoin?
• Bitcoin is digital money used for secure and instant transfer
of value anywhere in the world
• The Bitcoin network is an open network managed by its
users – not controlled by any company or government
• Bitcoin is an improvement on existing payment methods
which were not designed for the internet era
• introduced in 2008 by the pseudonymous developer
Satoshi Nakamoto (Craig Stephen Wright?)
Big B and little b
• Bitcoin is both a global transaction network (Bitcoin
with a capital “B”) and a digital currency (bitcoins with
a lowercase “b”) used for secure and instant transfer of
value
• In simple terms, it is a big public spreadsheet with
some passwords and a way to keep it from being
hacked
• First purely digital asset, allowing value to be sent like
sending an email, without requiring permission or
involvement of any other institution
The Public Ledger
• when bitcoins are transferred over the network, the
transaction is recorded in a public ledger known as the
“blockchain”
• copies distributed over many servers globally
• security key or password required to control the
bitcoins that the ledger says you own
• all transactions are permanently stored and the
complete history is viewable by everyone
How are bitcoins created?
• bitcoins are generated through a process known as mining
• mining process involves solving a complex mathematical
equation in order to generate a unique digital signature
• generated at fixed intervals according to a mathematical
algorithm (currently 25 / 10 min.)
• total number of bitcoins capped at 21 million by the year
2140
How do people get bitcoins?
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mining
purchase from an exchange, e.g., Coinbase
accept bitcoin as payment
buy directly from another individual
Where can you store them?
• online wallet or vault
• local wallet on your phone, PC or network
drive
• usb drive or print it and store it in your
safe/safe deposit box
Where are they used today?
• Online purchases at many small and large
merchants
• Brick and mortar: home furnishings, yachts
• International business payments
• Person-to-person payments
• Pay contractors and salaries
• Donations: United Way
Some Widely-known Merchants
Exponential Growth Opportunity:
Internet of Money
• revolutionary financial innovation enabled by
the blockchain ledger
• decentralized, trustless – no single entity or
server in control
• very low transaction fees
• open source software – 75% already rewritten since release
Glaring Opportunity
Remittance market exceeds $1T annually
Innovation Driven by VC and Top Technologists
• Highly respected technology venture capital
investors and top technology entrepreneurs
• Large financial institutions (NYSE, NDQ, GS,
etc)
• $140M 2013, $340M 2014, ~$1B 2015
• > 30,000 programmers on Bitcoin-related
projects
• Expect (hope?) a killer app within 12-18
months that will drive global adoption
Innovation focus
• Making bitcoin easy to use
• Creating the middleware for easy connection
to the financial world
• Replacements for existing financial
applications
• New applications not possible in today’s
financial system
Innovation Examples
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Making it as easy to use as Visa, MC, etc
Issue and trade securities, pay dividends
Host complex financial prods: derivatives, swaps
Record real property titles
Store encrypted medical records
Micropayments: single article, one time views,
avoid ads
• Back-office efficiencies: internal flows of funds
• Smart Contracts
Simplified Valuation Approaches
Money supply vs GDP: Nepal $18B  $857/btc
or Vermont $31B  $1476/btc
Payment company: Western Union moves
$200M valued at 10.9B  $519/btc
Store of value: Gold $7T x 5%  $16,666/btc
Wedbush Securities Valuation
Estimate
Is Bitcoin Safe?
• Bitcoin’s core protocol has been vetted by thousands of
top security researchers
• Using bitcoin is similar to using other private
applications on the internet, such as email or online
banking
• You access your bitcoin with a password in order to
ensure only you have access to your money
• Therefore it is critical to protect your password
Security breeches?
• inadequate wallet security
• attacks on websites that use bitcoins
• no attacks on blockchains that led to stolen
money
• no heists from exploiting the protocol
• no thefts due to holes with the original Bitcoin
client
Primary Risks
• Adoption stagnates, does not achieve
significant market size
• Better digital currency
• Regulations too strict
How to become a Bitcoin
Billionaire
• Own bitcoins directly
• Bitcoin Trust, ETF
• Venture capital
• Short Western Union
Closing Thoughts to Ponder
• GS: 33 percent of millennials don’t expect to have a bank
account in 5 years
• 2.5B people don’t have bank accounts today, and 4B people
without credit cards
• How are they going to get their financial and banking services?
• With Bitcoin, you can be your own bank
• If you can put software on someone’s phone that replaces
banking functions, that is a big deal
• Doesn’t matter if you were born in the first world or the third
world
• Provides financial independence to people without someone
dictating what they can and can’t do
Questions
Supplemental
Bitcoin Transaction
Acquire and Transfer via Exchange