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Cryptoassets and Blockchain Tech

In the ‘Ville

Tim Totten

TimTotten.com

@N4GN

​

Presented at Tech Tuesday

2018-01-30

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Disclaimers

  • This is not investment advice!
  • Opinions are my own and do not reflect the views of my employer or any other organization
  • As with any new technology . . .
    • There are lots of scams out there (Onecoin, BitClub, BitConnect, cloud miners, bogus ICOs, etc.)
    • There are lots of new risks and attack vectors
    • Be careful!
  • I am an advisor and/or investor in many of the projects mentioned here

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Framing the Discussion

  • Assumptions:
    • Most of you have at least heard about Bitcoin, cryptocurrencies, blockchain technologies
    • Some of you have some experience in the space
  • There is barely enough time here to scratch the surface
  • There are some things I can’t talk about (pesky NDAs)
  • Goal: give a broad overview of the space and connect you with some good local resources to go deeper on your own

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Testing Our Assumptions

  • How many of you . . .
    • have at least heard of Bitcoin, and have some vague idea what it is?
    • own Bitcoin, Ethereum, or some other cryptoasset?
    • have actually used a cryptocurrency to purchase a product or service?
    • have some understanding of how crypto works (blockchains, consensus algorithms, mining, etc.)?
    • have never heard of any of this stuff before tonight?

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Bonafides

I’m a Long-time User

  • I’ve been active in Bitcoin and crypto since late 2012
  • 5+ years is a long time in this space
  • Bitcoin was invented in 2008 and launched in 2009

I Went to School

  • I recently graduated from MIT’s Fintech Future Commerce program
  • Instructors included many of the top experts in the crypto space

I’m Even Certified!

  • In addition to my MIT certificate, I also passed the CryptoCurrency Certification Consortium (C4) exam
  • Now I’m a Certified Bitcoin Professional (CBP ID 1b8fc3)

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Defining Terms

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Adapted from Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond (Burniske, Tatar)

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So . . . What is Bitcoin?

  • Bitcoin is the original cryptoasset, the original cryptocurrency and the original blockchain
  • Digital cash? Digital gold? Digital real estate?
  • Is an automobile just a mechanical horse?
  • Is e-mail just a better fax machine?
  • Bitcoin is peer-to-peer (P2P) and decentralized
    • No Bitcoin company
    • No Bitcoin CEO
    • No single server farm or central point to attack

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The Bitcoin Blockchain

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The Directed Acyclic Graph (DAG)

Visualization of the IOTA Tangle, where each transaction validates two previous transactions:

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What are the Properties of a (Good) Blockchain?

  • Immutability
  • Shared, distributed consensus (a “distributed ledger”)
  • Censorship resistance
  • Time sequencing
  • Transparent
  • Some big challenges still exist:
    • Speed
    • Scalability
    • Privacy

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Open vs. Private Blockchains

  • Open (“public”) blockchains
    • Think Internet
    • Open source software
    • Permissionless
    • Anyone can operate a node
    • Maximum immunity from attack
    • Maximum censorship resistance
    • Tricky governance issues
  • Private (“permissioned”) blockchains
    • Think intranet
    • Corporate and industry cooperative use cases
    • Only authorized participants
    • Faster
    • Weaker immutability and censorship resistance (improved with anchors into open blockchains)
    • Used car salesmen

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What is Money Anyway?

  • It’s not a question most of us have seriously considered
  • For many generations, we’ve all just accepted the “fact” that money is whatever the government says it is (fiat currency)
  • Historically, this was not the case
  • Thought experiment--what does the world look like when there’s a separation of money and state?

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Important Properties of Money

  • The big three:
    • A store of value
    • A medium of exchange
    • A unit of account
  • Also:
    • Durable
    • Not easily counterfeited
    • Fungible
    • Uniform
    • Easily divisible
    • Easily transportable
    • Of limited supply

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Money is Just the First Application!

  • Crypto/blockchain tech today is like e-mail in 1993
    • Not very user-friendly for non-geeks
    • Still has major issues (e.g., scaling) and rough edges
    • In 1993, people valued the Internet in terms of how many fax machines it might one day replace; no one could imagine Amazon or Facebook
  • We already have immutable blockchain-based birth certificates, land title registries, college degrees, etc.
  • What blockchain services will we have in a few years?

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The Louisville Crypto/Blockchain Scene

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Louisville Bitcoin Meetup

  • Meets twice a month
    • First Sunday night, typically at DiOrio’s or some other bar/restaurant
    • Third Wednesday night, typically at The Park
  • Broad interest across the crypto space
  • Presentations, discussion panels, debates, social time, Q&A, general plotting to take over the world
  • Typically 40-50 attendees
  • https://meetup.com/Louisville-Bitcoin-Meetup/

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Louisville Blockchain Meetup

  • Typically meets on the fourth Wednesday of each month at TEK Systems
  • Usually 30+ attendees, many with an app dev background
  • Focused on current and potential use cases and business opportunities surrounding blockchain tech
  • https://meetup.com/Louisville-Blockchain/

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Lexington Blockchain Meetup

  • Meets roughly once a month, but no set schedule
  • Next meetup is tomorrow night at Base 110 - a review of the North American Bitcoin Conference from Miami earlier this month
  • Broad coverage of the entire crypto/blockchain space
  • https://meetup.com/Lexington-Blockchain/

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CCG Investors Meetup

  • Hosted by the Crypto Consulting Group
  • Meets weekly on Sundays at 3:00 at CCG’s offices (9900 Corporate Campus Drive, Suite 3000)
  • Great market analysis from professional traders and crypto analysts
  • $20 ticket
  • https://meetup.com/BGCtradersclub/

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Cointucky.com

  • https://cointucky.com/
  • Yes, it’s a corny name. But it’s memorable!
  • Just a place with links to all the meetups I’ve already mentioned, along with some related resources
  • Cointucky Slack is a good place for discussions between meetups:
    • Use web form at Cointucky.com to request invitation
    • https://cointucky.slack.com/

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Crypto Consulting Group (CCG)

  • Formerly Bluegrass Crypto
  • Group workshops (Bitcoin 100, Bitcoin 101, etc.)
  • CCG Investors Club
  • One-on-one consultations
  • Mining solutions
  • Much more to come!
  • https://gowithccg.com/
  • Sponsors the CCG Slack workgroup: https://gowithccg.slack.com/

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Shane Hadden

  • Organizer of Lexington Blockchain Meetup
  • Lawyer with 10 years on Wall Street
  • Teaches Financial Innovation at UK
  • CBP, Chartered Financial Analyst
  • Manages The Currency Report (https://globalcurrencyreport.com/)
  • Manages The Global Currency Fund
  • CEO of Provide Community (https://providecommunity.com, ICO coming soon)

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Bluegrass Bitcoin

  • Run by Patrick Ulrich out of Lexington
  • Operator of the first Bitcoin Teller Machines (BTMs) in Kentucky (now also supporting Litecoin)
  • Louisville’s first (and only) BTM is near Fern Valley and I-65 at Cuts Barbershop, 2801 Packerland Way
  • http://bluegrassbitcoin.com/

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Silica:NEXUS Convergence

  • Andrew Prell, CEO, lives here in Louisville
  • Building a cross-screen, cross-reality virtual universe
  • Integration of AR/VR from mobile phones to PCs to gaming consoles, all the way up to commercial flight simulators and amusement park rides
  • Just started a crowdfunding campaign
  • ICO in late March (pre-ICO available now to accredited investors)
  • http://silicanexus.com/

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For More Information

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Thank You!

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Backup Slides

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How Does One Acquire Bitcoin?

  • Pretty much just like you acquire any other currency!
  • Earn bitcoin (including mining)
  • Sell something in exchange for bitcoin
  • Exchange other currencies for bitcoin

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The First Rule of Bitcoin

  • Whoever controls the private key owns the bitcoin!
  • If you lose the private key, and don’t have a backup, you’ve lost your bitcoin
  • If someone gets your private key, they can take your bitcoin
  • If you keep your bitcoin on an exchange, or a hosted service like Coinbase, that service controls your private keys--how much do you trust them?

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What’s Wrong with Credit Cards, PayPal, Venmo?

  • Credit card charge-back period can be 90 days!
  • Bitcoin can have 99% confidence in a few seconds, 99.99+% confidence in ~10 minutes
  • With CC, you give merchant the keys to the kingdom!
  • Pull vs. push
  • CC costs add net 5-10% cost to the price of nearly everything we buy (direct 3-4%, fraud 2-6%)!
  • Cards are often fraud locked
  • Companies can be forced to block payments

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How are Cryptocurrencies Regulated?

  • Crypto fans like to say things like “Bitcoin is regulated by math, not governments”
  • Governments around the world have been struggling with this question
  • There is no central person to arrest; no company to sue
  • Realistically, only the on/off ramps can be regulated by governments--where cryptocurrencies are converted to/from government-controlled currencies

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How is Bitcoin Taxed?

  • Initial IRS guidance is that bitcoin should be treated as property; other countries have taken different approaches
  • The bad news--this means every time you buy something with bitcoin, you are generating a capital gain or capital loss for tax purposes
  • The good news--donating bitcoin to charitable organizations can have great tax benefits!
  • Everyone expects the IRS rules to change

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Is Bitcoin Anonymous?

  • Today, bitcoin is pseudonymous, not anonymous
  • Transactions are not directly associated with individuals, but rather public bitcoin addresses
  • But if one transaction on the blockchain can be linked to an individual, it’s possible that others can also be linked
  • Many people working to make bitcoin fully anonymous
  • Thought experiment--what are the social implications of fully anonymous digital currencies outside government control?

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What About Alternatives to Bitcoin?

  • There are now well over 1000 “altcoins”
  • Most are worthless or nearly worthless (e.g., HamCoin)
  • Some altcoins do bring interesting features or benefits:
    • Ethereum
    • Monero
    • Dash
    • Zcash
  • ShapeShift is a great place to convert quickly between cryptocurrencies

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What Wallet Should I Use?

  • Mobile wallets for daily use
    • Analogous to the leather wallet in your back pocket
    • You don’t want to store your entire net worth there!
    • On Android, I like Mycelium; on iOS, I prefer Copay
  • PC-based wallets for Windows, Mac, Linux
  • Web-based wallets like blockchain.info can be an option
  • Hardware wallets are increasingly popular
    • Trezor
    • Ledger

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What is the Safest Way to Store Bitcoin?

  • My personal choice--paper wallets
    • Can be encrypted with a secret passphrase
    • Can be photocopied and kept in multiple locations
    • Beware of water damage, ink fading, etc.
    • Do your research and practice with small amounts!
  • Multi-signature wallets are a good alternative if you have a trusted family member, business partner, etc.
  • Hardware wallets are OK if you can secure the backup
  • Maybe even consider brain wallets--just be careful!

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What About Physical Bitcoin?

  • The physical coins you see in news stories are really just a fancy paper wallet with less security
    • The private key is hidden under a tamper-evident seal
    • No guarantees that the amount actually stored matches the denomination of the coin
    • No guarantee that someone doesn’t have the private key
  • Consider Opendime for completely offline transfers, gifts, etc.

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Save Big With Bitcoin!

  • Several merchants offer nice discounts for bitcoin
  • Buy anything on Amazon through Purse.io and get a huge discount by paying with bitcoin
    • I’ve gotten between a 24-28% discount on everything I’ve bought over the last couple years
    • Please use my referral link at TimTotten.com to get a free bonus
  • Lots of opportunities like Fold for gift certificate discounts

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The Bitcoin Block Size Debate

  • Really comes down to what we want Bitcoin to be:
    • Digital gold/real estate (store of value)?
    • Digital cash (payment system, including micropayments)?
  • Claims from both sides about threats to the decentralization of Bitcoin
  • On 01 August, 2017, Bitcoin Cash forked from the original Bitcoin, so the marketplace will have a chance to decide