This is a presentation on the basics of bitcoin, some of the legal considerations surrounding bitcoin, and some of the opportunities presented by bitcoin.
2. Roadmap
• Introduction
• What is bitcoin?
• Three Things
• Bitcoin Mechanics
• So What?
• Current Legal Considerations
• Emerging Use Cases
3. Introduction
• Who am I?
• Who has heard of bitcoin?
• Who owns bitcoin?
Scan to connect on LinkedIn
4. 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.
5. 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
6. 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/
7. Bitcoin is Decentralized
• There is no central authority for
bitcoin
• Bitcoin nodes are all over the
world
• The network is sustained by
miners
8. 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
9. Bitcoin is a Distributed Ledger
• Bitcoin is a record of transactions
• Bitcoin functions like a ledger
Luca Pacioli, inventor of Double Entry Bookkeeping
10. Three Things, or Why You Should Care
• Comparisons to the Early Internet
• Investment in Bitcoin/Blockchain Companies
• Patent Filings That Mention Bitcoin
11. 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
13. 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
16. 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
17. Transactions
• Transfer of value from one bitcoin address to another bitcoin address
• All transactions are broadcast to the network once initiated
19. 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
20. Current Legal Considerations
• Biggest concern is anti-money laundering
• Bitcoin gains and losses need to be reported to IRS
• Not considered legal tender anywhere
21. 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
22. 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
23. Emerging Use Cases
• Identity Verification for Refugees
• Diamond Verification on the Blockchain
• Smart Contracts
24. 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/
25. 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
26. 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
27.
28. Things We Did Not Talk About
• Security
• Privacy
• Scalability
• Adoptability
29. Questions?
Nelson M. Rosario
Associate Attorney
Lempia Summerfield Katz LLC
Email: nmrculebra@gmail.com
Twitter: @NelsonMRosario
Blog: https://medium.com/@nelsonmrosario
LinkedIn: www.linkedin.com/in/nelsonrosario
nrosario@lsk-iplaw.com