international payments possibilities in bitcoin
TRANSCRIPT
Banking and Bitcoin: Understanding the Ecosystem
Claire IngramStockholm School of
Economics
I’ve used Swedish companies as examples, where possible, although can’t claim to have represented all possible companies.
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Bitcoin Protocol released in 2008 by “Satoshi Nakamoto” in a paper on The Cryptography Mailing list
Underlying technology called “the Blockchain”
Released the first version of the bitcoin software client in 2009
Disappeared in 2010
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The Problem: Centralisation
Weakness of the trust based model: Non-reversible transactions are not really
possible, The cost of mediation increases transaction costs, Small, casual transactions consequently
expensive, With the possibility of reversal, the need for trust
spreads.
Fraud is accepted as unavoidable.
These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments using IT without a trusted party.
https://bitcoin.org/bitcoin.pdf
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The Solution: P2P & Distributed An electronic payment system based on
cryptographic proof instead of trust,
Allowing any two willing parties to transact directly with each other without the need for a trusted third party,
Transactions that are computationally impractical to reverse would protect sellers from fraud,
Routine escrow mechanisms could easily be implemented to protect buyers,
Peer-to-peer distributed timestamp server to generate computational proof of the order of transactions,
Secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.
https://bitcoin.org/bitcoin.pdf
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Blockchain and Mining
Screenclip : How Bitcoin Works under the hood, by “Curious Inventor”
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Buying Bitcoins
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What’s it being used for?
Anecdotally, people on ”the dark ’net”, including Silk Road
Increasingly for mainstream transactions
As well as investment/speculation
And for fun, of course
“Cash on the internet”
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Who’s using it?
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Speculation and Volatility
Price volatility
Insert graph here
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Rejection of Centralisation
Developed Open Source
Distrust of Laws and authorities
Libertarian, so opposed to various Taxes, intermediaries
Consensus-driven
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Libertarian roots, going commercial Definite underlying
libertarian tendencies
Price spikes when money seized in Cyprus in 2013 (said to be demand spikes)
Emphasis on decentralisation as a trust mechanism
Extra-legal
Many entrepreneurs are more commercially pragmatic though
Emphasis on decentralisation for efficiency
Compliance with regulations (as far as possible)
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Regulations
US:
Bitlicence in NY State (closed for comments in Oct 2014)
IRS treats it as ”property” (so Capital Gains Tax)
Some states consider Bitcoin a good (so VAT/Moms)
Europe:
Sweden referred question of VAT (Moms) to European Court of Justice in Summer 2014
Banned for Transactions:
China, Russia, Vietnam….
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Where are they stored?
In a ”Wallet”
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Important Wallet Security Features Two-Factor Authentication
Shared Validation vs Distributed Validation
Hot vs Cold Wallet
Type of Device
Access from Tor network?
Disclosure to Third Parties?
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But also Vendor Transparency AML and KYC Features...
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Possible problems
“Liability of newness”
Volatility
Libertarian vs commercial interests□ Transparency requirements?
□ Anonymity?
Trust in general
Security
Consumer protection?
Cross-border transactions?
Dispute resolution mechanisms
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Involvement of Banks so far
Mostly limited (sometimes even sceptical)
Fidor bank in Germany working together with at least two exchanges
Handles fiat currencies while exchanges hold Bitcoins
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Sweden ahead of the Curve
Swedes as ”early adopters”
Strong IT (entrepreneur and industry) community
Skatteverket actively engaging with community
Sweden (Skatteverket) referred question of VAT (Moms) to European Court of Justice in Summer 2014
First in EU to have formal experience dealing with stolen Bitcoins, according to Ekobrottsmyndigheten
Subsequently auctioned them off
ALSO have a person specifically responsible for Bitcoin at Ekobrottsmyndigheten
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Still trust in Swedish banks...
MedieAkademin, 2014
2004 2009 2010 2011 2012 20130
10
20
30
40
50
60
70
80
24.6
32
25.4
41.539
33.7
75.4
68
74.6
58.561
66.3
No Trust Trust
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Unique context in Sweden
(For better or worse) banking system not as expensive for consumers here
Consumers less distrustful of banks here
Consumers already used to necessary security features
Possibility to leverage this ”trusted position”
Also possibility to interface with existing services – few ”unbanked” in Sweden
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Possibilities for Banks
Clearing House for Bitcoin/cryptocurrency transactions
Speculation / Investment
Holding Partner for Fiat Currencies
Develop own wallets – interface with existing services
Currency sales / Exchange
Using underlying technology to improve internal efficiency
Customer service(s)
TRUST
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Wave of other currencies based on similar principles
□ Dogecoin
□ Litecoin
□ Stellar
□ Ripple
Use of protocol for a number of other purposes
□ Storj.io
□ Coloured Coins
□ Ethereum
ProtocolCurrency
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