bitcoin & blockchain overview - what you need to know - sean walsh

Silicon Valley InsightBitcoin & Blockchain Overview

November 2015

sean@redwoodcityventures.com - @SeanWalshBTC - www.linkedin.com/in/SeanWalsh

Sean M. WalshBackground:• Bitcoin/Blockchain Investments (e.g. - BlockC.co)

• China/US Business & Investment Partnerships

• Past Vice President at Bertram Capital ($1B PE firm in Silicon Valley)

• www.linkedin.com/in/SeanWalsh

Contact Information:• sean@RedwoodCityVentures.com

• Twitter: @SeanWalshBTC

• WeChat: BigWaveW

What Is Money?Store of Value vs. Medium of Exchange vs. Unit of Account:

The Six Characteristics of Money:1. Scarcity: limited, and predictable supply2. Durability: won’t decay3. Divisibility: easy to subdivide4. Recognizability: difficult to counterfeit 5. Fungibility: every unit is exchangeable6. Transportability: easy to move

They all boil down to trustworthiness of the money.

What is wrong with fiat money and system?1. Fiat money loses value quickly.

2. Fiancial Intermediation is effectively a tax on the productive economy.

3. Banking has grown more centralized over the past 50-years, and Financial Services profits have grown commensurately.

4. To wit, that tax has reached 7.2% of US GDP, from 3% in 1950 (over $1.2 Trillion per year), and over ⅓ of US corporate profits.

5. However, the WWW has granted much greater power to consumers.

6. Metcalf’s Law is relevant to, and beneficial for the lender/borrower network through more desirable matches (think Craigslist and Newspapers).

Transaction Cost of Traditional FinanceOne US example: Credit Card purchases…

1. Merchant pays 3% to accept credit card.

2. Merchant pays 100% of credit card chargebacks (which currently averages

5+% of revenue for online businesses).

3. Additional fraud expenses: card theft, identity theft, etc.

4. Annual US credit card purchases = over $1 Trillion

5. Total Cost of fraud to the system is almost 10%, per Lexis Nexis =

over $100 Billion/yr

Who ultimately pays this? Is there a more efficient way?

Over 1 Billion People - Internet but No Bank1. Today there are 6 Billion Cellphones in use (5 Billion are prepaid).

2. 2.6 Billion smartphone subscriptions

3. About 3.5 Billion people use the Internet.

4. Mobile industry predicts over 6 Billion smartphones by 2020.

5. There are about 2.3 Billion people with bank accounts.

6. Bank accounts are not expected to grow as fast as Internet connectivity and smartphone penetration.

CONCLUSION - Over 1 Billion people can join the developed world, by becoming their own bank (via new money systems like Bitcoin)

What is Bitcoin?1. Money without a traditional bank.

2. A new system for all 3 roles of money:

1. Unit of Account

2. Medium of Exchange

3. Store of Value

3. A global, peer-to-peer transaction network.

4. A shared, public, permissionless, immutable database.

5. A complete, public, global transaction ledger.

6. A programmable system for complex transactions.

7. The best form of “money” the world has ever seen.

The Blockchain

The Best Form Of Money In History:Scarcity: 14.5 million exist, 100,000 created monthly, rate cut in half every 4 years.

Durability: Stored and protected by 10s of thousands of Bitcoin servers around the world.

Divisibility: Can be split down to 1-billionth, a Satoshi

Recognizability: Sha256/Proof of Work/Merkle Tree system has proven uncrackable since 2009

Fungibility: All BTC are stored together (some concern about provenance)

Transportability: instant transfer to any point on the Internet

Elements of the Bitcoin System:

1. The Blockchain2. Bitcoin Nodes:

1. Transaction Propagation2. Propagation + Blockchain Construction

3. Blockchain Construction/Security Servers (Bitcoin Miners)4. Bitcoin Wallets: many kinds…

1. Hardware2. Software (local PC)3. Online Service4. Paper (it’s just private key storage)

5. Virtual Unit of Account, a “Bitcoin”

How Popular Is Bitcoin, 1/2?

1. BTC Outstanding - 14,800,000

2. Dead Coins - 4,000,000

3. Wallet Addresses - 70,000,000+

4. Wallets > 1BTC - 360,000

5. Transaction Volume - 150,000 per day, est

6. BTC Sent - 2,000,000 per day, est

How Popular Is Bitcoin, 2/2?

6. Notable Exchanges - 12

7. Exchange Volume - 750,000 per day, est

8. BTC on Deposit At Exchanges - 500,000 est

9. BTC Mining Revenue - 1.3M BTC / $375,000,000

10. Global Network Size - 450 Petahashes/Sec

Bitcoin Node Distribution

78% of active BTC nodes are in North America and Western Europe

Source: getaddr.bitnodes.io

Geographic Distribution88% of 2014 VC investment in BTC-related companies is flowing into North America and Europe

2014 VC Funding ($M) % of Total

North America $129.0 68%Europe $37.9 20%

Asia $18.6 10%Latin America $2.0 1%Middle East $1.5 1%

Total $188.9 100%

Source: CoinDesk

Bitcoin Mining Distribution

60%10%

15%15%

75% of the Bitcoin network processing power is in China, Russia, and Eastern Europe…

Sources: blockchain.info, CoinDesk, BlockC.co estimates

The Most Popular Bitcoin Use Cases

1. Store of Value / Price Speculation

2. Peer-to-Peer Payments / International Remittance

3. Purchases:

1. Ecommerce

2. Offline

3. Micropayments (ChangeTip, Streamium)

4. Multi-party Transactions

5. Purse.io (15% off everything on Amazon.com)

6. FoldApp (20% off at Starbucks)

Bitcoin As A Store Of Value, 1/3?

ArgentinianPeso

Notable Moments in Bitcoin1983-1998: David Chaum, Cryptographic “blinding formula”, DigiCash

1999-2005: Flooz, Beenz, e-Gold, regulatory crack-down and dot-com bust

1999: X.com becomes PayPal and abandons virtual currency aspirations .

2006: Anshe Chung becomes first millionaire from virtual property on Second Life.

2009: Mysterious figure “Satoshi Nakamoto” launches Bitcoin network, first transaction to Hal Finney.

2010: May 22 – Bitcoin Pizza Day, 10k paid for 2 Pizzas in Florida

2013: December - 5th Bitcoin price peak ($0.08, $1, $32, $266, $1,100)

2013: October – FBI seizes Silk Road

2014: February - Mt. Gox goes out of business

2015: Wall Street embraces Bitcoin/Blockchain

Wall Street A-Team Embraces BitcoinLawrence Summers - former US Secretary of the Treasury, Xapo Advisor, 21 Inc. board member

Blythe Masters - former Managing Director at JP Morgan, invented CDSs, ran $4B physical commodity business, now CEO of Digital Asset Holdings

Dee Hock - founder of Visa, Xapo Advisor

John Reed - former Chairman of NYSE, former CEO of Citigroup, Xapo Advisor

Vikram Pandit - former CEO of Citigroup, investor in Coinbase

James Robinson III - former CEO of American Express, Chain.com Board Member

Duncan Niederauer - former CEO of NYSE, President of ICE, Tera Exchange Advisory Director

Jeffrey Sprecher - Founder, Chairman, and CEO of ICE, Chairman of NYSE, Coinbase.com investor

Tom Jessop - Managing Director at Goldman Sachs, Circle.com investor

Arthur Levitt - former Chairman of the SEC, Bitpay.com Advisor

Sheila Bair - former Chairwoman of the FDIC, itBit Board Member

Bill Bradley - former New Jersey Senator, itBit Board Member

Robert Herz - former Chairman of FASB, itBit Board Member

Non-Bitcoin Use Cases For Blockchains

1. Namecoin: decentralized DNS

2. Property/Birth Records: recording transfers and births on Blockchain

3. Ethereum: scripting language atop Blockchain

4. BitUSD/Tether: cryptocurrency pegged to USD

5. Ripple: bank network money transfers

6. NXT: distributed asset market (equities, etc.)

7. MaidSafe/Storj: Decentralized HDD storage

8. BitCrystals: Spells of Genesis game currency

9. Financial Transaction Settlement: DAH, R3 CEV

10. Alt-Coins: numerous others, many with unique features, such as privacy

Most Successful Bitcoin/Blockchain Companies

Bitcoin Wallet: Coinbase, Blockchain.info, Xapo

Exchange, China: Huobi, BTCC, OK Coin

Exchange, USA: Bitfinex, Coinbase, itBit

Exchange, Europe: Bitstamp, Kraken

Mining Hardware: BitFury, Avalon, Bitmain, 21

Mining Datacenters: BlockC.co, BitBank, ??

Investors: A16Z, BoostVC, Pantera Capital, Grayscale

Other: Blockstream, R3CEV, Chain, BitPay, Ripple Labs, ShapeShift, ChangeTip

What Is Bitcoin’s “Killer App”?

1. Allowing unbanked to participate in digital economy?

2. Ecommerce, or IOT Micropayments?

3. International Remittances?

4. Gambling?

5. Wealth preservation?

6. Price Speculation?

7. Protection against inflation / currency crisis?

8. Circumventing regulatory obligations?

Notable Regulation - China1. In early 2014, Chinese government forbade Bitcoin exchanges from

transacting directly with banks.

2. This was effectively solved through the use of 3rd party money agents.

3. Chinese exchanges now claim that the banking restrictions have been lifted.

4. Open Question: what effect does/will the GFW (Great Firewall) have?

Notable Regulation - USA1. US JOBS Act

a. Title 4 threw open the doors to equity crowdfunding for non-accredited investors in Q2 2015.

2. New York BitLicense (late 2014)a. Seen by many as redundant, misguided, and an egotistical PR stunt

by the NY Superintendent of Financial Services.b. Has caused many Bitcoin companies to cease NY operations.c. First license issued 9/21/2015 to Circle.com.

3. California BitLicensea. Was also widely criticized as a destructive burden and political grab for

fame.b. Was shelved by CA Senator Mitchell on 9/9/2015

Sean M. WalshBackground:• Bitcoin/Blockchain Investments (e.g. - BlockC.co)

• China/US Business & Investment Partnerships

• Past Vice President at Bertram Capital ($1B PE firm in Silicon Valley)

• www.linkedin.com/in/SeanWalsh

Contact Information:• sean@RedwoodCityVentures.com

• Twitter: @SeanWalshBTC

• WeChat: BigWaveW

bitcoin & blockchain overview - what you need to know - sean walsh

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