Class presented at the University of Sussex, April 2015

1. Bitcoin and cryptocurrencies
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2. Beware the hype
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3. ฿1 BTC = £161.51 GBP*
฿1 BTC = £151.09 GBP**
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*As of April 13 2015
**As of April 15 2015

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5. Money
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6. What is value?
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7. A brief history of value
Barter
Metal coins
Paper money
Gold standard
Credit instruments
Securities
Cryptocurrencies
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8. The gold
standard
• The currency is supported by
gold reserves.
• Look up “Fort Knox” in old
movies
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9. No gold standard
"You'd have a tough job
convincing me that the pound is
any more 'real' than World of
Warcraft gold. Where is your
starting point? The UK hasn't
had a gold standard for the past
three generations.”
Dave Birch, Consult Hyperion
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10. Bitcoin
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11. Cryptocurrencies
A cryptocurrency is a digital or virtual currency that uses
cryptography for security.
A cryptocurrency is difficult to counterfeit because of this security
feature.
A defining feature of a cryptocurrency is that it is not issued by any
central authority, rendering it theoretically immune to government
interference or manipulation.
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12. History of Bitcoin
Satoshi Nakamoto (an alias) wrote a paper and sent it to
cryptography mailing list in 2008.
The paper was a concept, it’s not sure who he or she is, and it’s
not sure if they intended it to go anywhere.
A conglomerate of developers turned the paper into an open
source client, and made it available in 2009.
First Bitcoins were mined that year, it didn’t take off until 2011.
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13. Timeline
2008: Satoshi Nakamoto publishes
paper
2008: bitcoin.org registered –
anonymously
2009: January 1st batch generated
("genesis block" or "block 0")
2009: October Exchange rate by New
Liberty Standard US$1 = 1309 bitcoins
2010: Public trading
2011: 1st hype cycle around Silk Road
2013: In Dec price reaches $1,242,
that same day gold was $1,240 per
ounce
2013: Mt Gox collapses, widespread
fraud alleged
2014: market capitalisation of Bitcoin
est. US$5.29b
2015: Crash, price stable
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14. What is Bitcoin?
Method for exchanging value
electronically.
Bitcoins are mined by a
computer program which
verifies all other transactions.
“value” arises from
computational power.
Only 21 million Bitcoins will
exist
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15. Difficulty goes up with time
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16. Some links
What is it?
https://youtu.be/Um63OQz3bjo
How to spend them
http://cnnmon.ie/1FGEcLF
https://youtu.be/vnm4xFC2xNo
Dogecoin
https://youtu.be/_KVZmS_UO5I
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17. 17

18. Getting hold of a Bitcoin
Mine it (no longer viable unless you have server farm).
Buy it from someone
You have to install an app on your phone or program on your
computer. This is a wallet.
The wallet has a unique address, and the BTC owner transfers the
value to your wallet.
You can now spend it (transfer it to other addresses).
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19. Transfer methods
QR Code
Link
Write the whole address
manually, e.g.
18Vm8AvDr9Bkvij6UfVR7Me
rCyrz3KS3h4
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20. My Bitcoin address
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21. Wallets
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22. The block chain
Online database.
Record of all BTC
transactions ever performed.
Completely public,
decentralised and
transparent.
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23. Anonymity
Bitcoin is supposed to be
anonymous.
All addresses are public, but
not tied to people.
Possessor of wallet is the
owner.
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24. Forks (alternate coins)
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25. But beware…
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26. Some problems with Bitcoin
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27. Some problems with Bitcoin
Hoarding
Deflation
Completely dependent on intermediaries
Unregulated markets attract fraudsters and hackers
Susceptible to hacking attacks
You lose it, it’s gone forever, no recourse, no appeals
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28. Compare to Credit Card
protection
Ss. 83 and 84 and 75 of the Consumer Credit Act 1974
You can claim against your credit card provider for
misrepresentation and/or breach of contract for orders over £100
“The debtor under a regulated consumer credit agreement shall
not be liable to the creditor for any loss arising from use of the
credit facility by another person not acting, or to be treated as
acting, as the debtor’s agent.”
You are only liable for up to £50 for misuse of credit token.
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31. 31

32. My Bitcoin address
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33. Legal considerations
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34. Bitcoin in popular culture
“Bitcoins last forever”
“They’re trading at $3 dollars!”
“Mr Bitcoin”
“Bitcoin is incorporated”
“Bitcoin is not a currency, it’s a
commodity”
“It only took 20 minutes to
stand in line at a bank”
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35. Legal tender
The concept of legal tender is often misunderstood.
Contrary to popular opinion, legal tender is not a means of
payment that must be accepted by the parties to a transaction,
but rather a legally defined means of payment that should not be
refused by a creditor in satisfaction of a debt.
Legal currency is just a legally accepted method of payment.
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36. Example
Scotland has only £1 Bank
of England notes as legal
tender (and coins).
All Scottish banks are
allowed to issue sterling
value.
This is not legal tender, it’s a
legal currency.
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37. Is it a payment system?
Bitcoin doesn’t fit well with
existing payment systems:
Two party systems: cash,
barter
Three party systems: Paypal,
escrow
Multi-party system: credit
cards, debit cards, cheques,
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38. Is it a currency?
Depends on how national law defines currency, and whether it
allows only one legal tender.
Some countries allow circulation of foreign currencies, or even
alternative currencies.
Some countries allow one legal tender, and several legal
currencies.
Question is who can create new value.
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39. US Law
In the United States, only the US Dollar is legal tender (31 U.S.C. §
5103).
Similarly, only the Mint and the Federal Reserve can produce coins and
currency, which are the only means of legal tender.
“Whoever, except as authorized by law, makes or utters or passes, or
attempts to utter or pass, any coins of gold or silver or other metal, or
alloys of metals, intended for use as current money, whether in the
resemblance of coins of the United States or of foreign countries, or of
original design, shall be fined under this title or imprisoned not more than
five years, or both.” 18 U.S.C. § 486
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40. Liberty Dollar
Currency issued by
company in Idaho supported
by gold and silver
certificates.
Libertarians flocked to use it.
Creator got charged and
convicted of issuing his own
currency.
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41. Is it electronic money?
Directive (2009/110/EC)
1. electronically, including magnetically, stored monetary value;
2. as represented by a claim on the issuer which is issued on
receipt of funds for the purpose of making payment transactions;
3. the transaction is an act, initiated by the payer or by the payee,
of placing, transferring or withdrawing funds, irrespective of any
underlying obligations between the payer and the payee;
4. which is accepted by a natural or legal person other than the
electronic money issuer.
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42. Is it a commodity?
“The term “commodity” means wheat, cotton, rice, corn, oats, barley, rye,
flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish
potatoes), wool, wool tops, fats and oils (including lard, tallow, cottonseed oil,
peanut oil, soybean oil, and all other fats and oils), cottonseed meal,
cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products,
and frozen concentrated orange juice, and all other goods and articles, except
onions (as provided by section 13–1 of this title) and motion picture box office
receipts (or any index, measure, value, or data related to such receipts), and all
services, rights, and interests (except motion picture box office receipts, or any
index, measure, value or data related to such receipts) in which contracts for
future delivery are presently or in the future dealt in.” 7 U.S. Code § 1a
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43. Is it a security?
Any tradable financial instrument of any kind.
"Any note, stock, treasury stock, bond, debenture, certificate of
interestor participation in any profit-sharing agreement or in any oil, gas,
or other mineral royalty or lease […]
debt (banknotes, IOUs)
equity (stock)
derivatives (futures and options)
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44. Need for regulation
Regardless of Bitcoin’s legality, there is a lot of money changing
hands.
Exchanges need to be regulated as financial institutions
Taking money, giving credit and keeping accounts is a highly
regulated endeavour in Europe (and elsewhere).
History of fraud and exchanges going bust.
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45. Regulation strategies
(1) ‘Virtual sovereigns’: virtual currency providers will serve as regulators by
enforcing the terms of their contracts with users to prevent cyber-fraud and
ensure proper behaviour.
(2) Prohibition: governments could try to prohibit the use of Bitcoin.
(3) Selective Prohibition: government minimise the real-world impact of virtual
currencies by banning the sale of real-world goods for virtual currency.
(4) ‘Real-World Assisted Virtual Currency Self-Governance’: governments
provide support for mechanisms whereby users of virtual currencies can agree
upon and enforce their own ‘community standards’ and rules of conduct.
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46. Will there be regulation?
No will to regulate at the
moment.
governments aiming to
ensure it is covered for tax
purposes.
Many central bank authorities
have issued warnings about
Bitcoin.
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47. European Parliament Briefing
2014
“Due to the anonymity embedded in the system Bitcoin has the
potential to be used for money laundering and tax evasion. However,
research so far shows this potential has not yet been taken up on a
significant scale.”
Wait and see approach.
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48. Some regulatory responses
China banned their banks paying new money to their exchanges,
stifling the market and severely reducing its implementation.
US authorities issued guidelines that BTC exchanges should
comply with money laundering regulations.
HMRC has detailed BTC status for tax purposes.
Authorities have expressed concern, and mostly adopted “wait
and see” strategy.
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49. Ethereum
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50. MtGox
Former Magic The Gathering card exchange outfit run by Mark
Karpeles, fugitive from French authorities.
At some point MtGox handled 90% of all BTC transactions
MtGox reported in February 2014 that it may have lost nearly
$500m (£300m) worth of BTC
Filed for bankruptcy protection in Japan and US
Karpeles refuses to attend hearings, should be in jail
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51. Silk Road
Launched in 2011 to sell drugs in the Dark Web using Tor browser.
Became one of the biggest drivers of Bitcoin price.
In 2013 the FBI arrested Ross Ulbricht, the maker of Silk Road,
during a sting operation.
In February 2015 Ulbricht was convicted of drug trafficking and
money laundering (amongst other charges)
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52. Best of luck with your essays!
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