Bitcoin

http://www.flickr.com/photos/31119160@N06/8007585111/

Vesa Linja-aho T-76.5753 Law in Network Society

About me
Vesa Linja-aho, M. Sc. in electrical and electronics
engineering.
Professional background:
7 years at Aalto university (research and teaching)
1 year in Computerworld Finland magazine (editor)
3 years at Metropolia, senior lecturer

Electronics and electric safety

Accounting and economics
Open educational resources
Everything new

http://www.google.com/#q=vesa+linja-aho

Bitcoin = open source cryptocurrency

Bitcoin = distributed accounting system
No central authority -> does not depend on
trust to single or couple of institutions.
Like cash, but for the internet
1 bitcoin = 50 euros (20th of Mar 2013).
Created by pseudonym Satoshi Nakamoto
Based on a peer-to-peer network of computers
running the bitcoin software.
The transactions are verified by proof-of-work
system of computers running a mining software.

Pros
No unpredictable inflation by printing more
money by political decision.
Transactions travel instantly
Send money in seconds to anyone with internet
access with zero transaction costs.
Highly anonymous, in certain conditions
Every transaction is public, though!
If you memorize your private key, the only way to
steal your bitcoins (even for the authorities) is to
torture you (or spy or hack your computer).
Easy to use
You can choose the tool (usability / security)
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Cons
Bitcoin is rather new and its still in marginal use
-> high volatility.
BTC money supply:
500,000,000
EUR money supply: 5,000,000,000,000
Its currency for the internet take down the
internet, and you cannot use bitcoins.
Perhaps not suitable for any countrys offi cial
currency.
Lose your private key -> lose your bitcoins.
No means to cancel the transaction!

Someones pro is someones con!

Stupid arguments against bitcoin

People buy guns and drugs with it!
But it proves it works!
And people use plain cash for the same.
Early adopters benefit too much
Is it really a problem?
Bitcoin has actually no value
Same applies to euros and dollars.
They only have value because people believe
they have value.

Good or at least considerable arguments

against bitcoin
The value is unstable.
There might be a bubble!
Bitcoin can be replaced with a similar product.
The government can shut it down.
Or at least try to, by making it illegal to use
bitcoins.
The slowness of transaction verification (about 10
minutes per block).
The scalability: the current version can not handle
the transactions if everyone in the world used
bitcoins.
MtGox handles most of the trade -> raid it -> ?

Is there a bubble?
Media attention will inspire people to buy
bitcoins
Media attention will inspire companies to accept
bitcoins (and vice versa)
The price of bitcoins rise -> media attention
The circle is ready.
As long as the price rises together with the use
of bitcoin, there is (probably) no bubble.
I emphasize the word probably. The circulation
speed of bitcoin is low if compared to regular
money.
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How it works
Every account consists of the public key (=
bitcoin address) and the private key.
Anyone who knows your public key, can send
you bitcoins.
To spend bitcoins, you have to know the private
key.
The transaction is broadcasted to the bitcoin
network.
The miners confirm the transactions

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The addresses
An example of a bitcoin address:
14nRKoXJAUpKYYbzw6Yrqh9gW2p26zerpW
2 160 (about 10 48 )possible addresses
The corresponding private key:
5HuEupX3DNFJ7UypjFtXDTm4BVuAwZtAgYf94
sMALPyakgafVnU
256 bits
About 10 77 possible private keys

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Confirmations
In the process called mining, all transactions are
collected in a block. A new block is mined in
about every 10 minutes.
For small payments or with payments with
trusted peer, 0 confirmations is usually ok.
For large amounts, 6 confirmations is considered
safe.

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Double spend elimination

Because bitcoin has no central authority, one of
the main security problems is eliminating a
double spend fraud (wherein the same money is
spent twice).
The main innovation in bitcoin is the blockchain.
Each full node (= computer running the bitcoin
program) in the network has a copy of all mined
blocks.
Disrupting the system would need enormous
computing power.

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Anonymity
Understand how bitcoin works
Every transaction from address to address is
public.
How much and when = public, who owns the
address = not public (can be analyzed, though).
Create a new address for every transaction
Use mixing services
The larger the transactions, the easier it is to
carry out traffi c analysis

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Who accepts bitcoins?

Namecheap
Wordpress
Many nonprofits accept bitcoin donations
Archive.org
Bitpay (= simple interface for merchants)
Bitspend.net (order anything with bitcoins)

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Legal stuf
In Finland, the Board of Accounting recognizes
bitcoin:
treated like stocks
or if selling and buying bitcoins is the core
business of the company, they are put in the
current assets.
Its completely legal to use bitcoins as money (as
it is legal to use potatoes or gold as money)
Anti-terrorism and money laundering law: selling
bitcoins for > 15 000 -> ask for ID.

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Bitcoin and taxes

I asked the tax authorities about bitcoin: 'we
have a group of experts working on it.
Currently, VAT 24% is imposed on selling
bitcoins.
Exchanging bitcoins for a customer is VAT 0%
That is, the dealer buys the bitcoins for the
customer.

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Bitcoin and taxes?

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Worth reading
http://www.reddit.com/r/Bitcoin
http://bitcoin.it/
https://
blockchain.info/tx/8b555a4399797c7840338
63dda38abef7b8adcaf6748e9519dcb175fb1d04
ee0
http://krugman.blogs.nytimes.com/2011/09/07/g
olden-cyberfetters
/
https://
twitter.com/carsonj/status/314382483468713
984
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Tools for beginners (and everyone)

http://easywallet.org
http://blockchain.info/
https://www.bitaddress.org/

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