Cryptocurrency Intro

Crypto: short for cryptography, the science of secure and safe communication (on the internet). Techniques in this field developed over the last 30 years have been combined in a new way to allow bitcoin.

Currency: money, a method of exchanging value. Cryptocurrency has real value due to it’s inability to counterfeit, easy to store, easy to send, strong security properties, and capability for payment rules (such as 2 of 3 spend rules). Any two people on the planet can send each other these currencies at any time for almost free.

Cryptocurrencty has now been with us for 10 years now. The original coin, bitcoin, has been running openly and on the internet for 10 years without interruption, failure, outages, and without being broken or hacked... a remarkable achievement.

Why is this important, and different?

Cryptocurrency is a fundamental breakthrough in computer science. Bitcoin, the first cryptocurrency released, provided the proof of concept and the first implementation of the ‘invention’ of cryptocurrency. The system makes use of a concept called 'blockchain', along with many other innovations in combination, such incentivising the consensus (a blockchain concept alone is not enough). At a high level, it solves consensus on the internet for transferring value without any central authority, i.e no bank, no national currencies or exchanges, or intermediatories. The system treats everyone on the internet as equals, and assumes people are bad, and people act in self interest. Overall, this allows anyone to transact in bitcoin securely and cheaply on the internet with no third parties, no permission, and no account sign up. Just download a free open-source 'wallet' and start, even on any smartphone. This was before impossible, as all transactions are currently processed by banks or intermediatories to banks like paypal.

Bitcoin is a new currency. It is not just another online token. It is nothing like paypal, credit cards, starbucks money, faebook pay, or alipay. None of these represent any shift in technology. These are just ways to pay existing currency through existing banks and controlling companies using existing national currencies. Bitcoin requires no bank, no other currency, no company, no website, no link to the banking sector, and the currency is issued by the bitcoin network itself. Bitcoin is a worldwide currency, issued by nobody, controlled by nobody.

Bitcoin is a worldwide clearing and payment network. The network is something we have never seen before. It is run by nobody, runs without supervision, runs worldwide, and is considered extremely secure. Everyone running the software in aggregate provides the security, the more people the more secure. Anybody can join and leave at any time, by simply running the small, free, open source software project. Nobody can stop it, change it, control it. Anyone can pay anyone, but goes much further, allowing business and legal contracts and payments to be done without lawyers or paper contracts or manual processing. It is famously called ‘programmable money’, or ‘the internet of money’. This term implies it goes much further than just being money or a payment network, it can process rules and contracts and more.

Bitcoin is secure. Double spending is not possible, altering amounts is not possible, and nobody can spend someone elses money. Existing ways to pay on the internet are not secure, and mostly involve giving credit card details on a website, that the business must safely handle, that can be trusted to run a charge once. As one could expect in a system like this, 1 in 1200 credit card transactions are fraud. 0.04% of active accounts are fraud. Massive breaches of credit card data are regular, eg 40m accounts from adobe in one breach, 45m from tjx, 40m from target, 56m from home depot, etc. There is $20b in fraud each year and growing. Fraud detection is big business. Other tokens or gift cards on the internet are managed by companied, only as secure as the company governance and corporate security.

Cryptocurrency allows new possibilities in the global economy. It allows

• two people to exchange money over their phones
• Fast and cheap international payments and remittances
• completely secure payments to someone in anywhere in the world who may not have access to any banking
• allows paying any amounts from fractions of cents to billion dollars in the same way with negligible fees and settlement times
• allows any website to accept payment without any need to use paypal or creditcard processors or payment or bank integration
• allows automatically executing business contracts that can move funds completely securely with any legal or business rules, such as inheritance, rent, company formation and dissolution.

You could think the following concepts are now funny, archaic concepts:

• needing a bank account
• only able to use a bank only on business days, 9 to 5, and not holidays
• needing a parent, or waiting until 18, to open a bank account
• waiting 3 business days for a transfer
• waiting 7–10 business days for an international transfer
• having all bank and credit card activity tracked and sold to advertising agencies
• having credit card fraud and identity theft part of the parcel of using credit cards and banks
• bank seizures, freezes, or losses due to vast array of reasons, allowing authoritarian rulers to completely control a persons finances
• bank runs, or lost deposits, due to banking or governrment financial mismanagement
• inflation eroding bank balances due to national central bank policies and mismanagement

Crypocurrency can be seen as restoring the inaliable and fundamental human right of being free and able to own and barter and trade without a middleman.

For commerce on the internet, it is a natural fit. The current model for internet commerce requires businesses to pay for costly third parties, hook into payment gateways to handle credit card payments, pay bank fees and credit card fees (around 30c +2% of of every transaction), implement difficult payment checkout systems, handle and store complete payment details including personal data, credit card details and billing addresses. As expected, credit card fraud is rife, personal details are for sale all over the web from hackers, and the cost off commerce is high. It also excludes many small businesses and many business from operating internationally, both due to cost, and people being unbanked in developing countries (consumers and businesses). The new model allows anyone on the planet to put up a simple webpage, and provide a bitcoin address for payment on checkout. This requires nothing except simple website and the bitcoin client. Customers do not need to do anything except pay from their phone or pc using bitcoin (such as scan a QR code amd send), no payment information, billing information, or fraud rejections. The cost is cents, the payment is immediate, and typically stores wait 30 minutes for a secure settlement on the blockchain.

For funding new business and companies, it is a natural fit. Venture capital replaced bank funding in silicon valley, since loans and collateral were not suitable for the tech industry. This model allowed an explosion of growth out of private investors. Cryptocurrency, and tokens, being a far more secure and equitable system of investing, allowing anyone in the world to invest with no entry barrier, will revolutionize and replace the venture capital industry.

Down the road, smart contracts will start to replace a vast array of business and legal agreements, being able to be cut out the middle man and securely enforce and implement any business and legal contracts, especially involving money.

A vast array of other uses are already in place and growing, from securing and auditing supply chains, to secure property rights management, to signing and verifying documents.

History — the privacy centric background

Cryptocurrency is one of the most defining moments of the movement to create private internet money, one of the most difficult challenges in computer science. It has been a goal and mission for over 20 years from privacy advocates. A system was described and released in 2009, known as Bitcoin, which ushered in the concept of cryptocurrency and blockchains. Money could be both minted by the network, and transactions could be securely processed by the network. It is a complete system, with no central authority to own, run it, or control it.

It starts in the late 1980s, with the ‘cypherpunks’, a group of anarchist, libertarian, anti-government minded people connecting over the internet. The thinking aligns closely with the computer science field of cryptography, and the ability for regular people to use it to secure messages.

In 1988, Timothy May led a gathering of ‘physical’ cyperpunks in silicon valley, and wrote the ‘The Crypto Anarchist Manifesto’. It states

• Computer technology is on the verge of providing the ability for individuals and groups to communicate and interact with each other in a totally anonymous manner.
• These developments will alter completely the nature of government regulation, the ability to tax and control economic interactions, the ability to keep information secret, and will even alter the nature of trust and reputation.
• The focus has until now been on academic conferences in Europe and the U.S., conferences monitored closely by the National Security Agency.
• The State will of course try to slow or halt the spread of this technology, citing national security concerns, use of the technology by drug dealers and tax evaders, and fears of societal disintegration.

The movement is also defined by the 1993 paper ‘A Cypherpunk’s Manifesto’ by Eric Hughes at Berkeley at the time. Berkeley was always a hotbed of social movements. It describes the central tenant of the cypherpunk movement is privacy:

• privacy is not secrecy
• privacy requires encryption
• privacy requres anonymous transactions on the internet (like cash)
• privacy is a right, not granted (by governments, corporations, or anyone)

And the call to action to the cypherpunks:

• defend privacy with cryptography, with anonymous mail forwarding systems, with digital signatures, and with electronic money.
• write code (no-one will do it for you)
• deplore regulations on cryptography

The cypherpunks use cryptography as a toolset. While the government continually tried to ban general use of cryptography, and tried to enforce low quality encryption (that could be broken into by the government), the privacy movement pushed back. People like Dan Bernstein sued and won legal cases against the government. The code of cryptography became free and available to everyone. Still to this day the government fights againt privacy, seen in cases against apple to unlock phones.

The development of the bitcoin concept drew on prior work from:

— David Chaum, with ecash protocols

— Adam Back developed hashcash

— Wei Dai’s b-money

— Nick Szabo’s bit gold

— Hal Finney developed re-usable proof of work (RPOW)

Bitcoin — the creation (the genesis) and growth

Bitcoin tehnology is the basis for all other cryptocurrency. It is patent free and open source software. The breakthrough and invention was released anonymously online via a whitepaper and an implementation, called bitcoin. Nobody know who is behind the creator’s online alias ‘satoshi nakamoto’. Being free and open source, now you see thousands of similar currencies.

On 18 August 2008, the domain name bitcoin.org was registered.

On 31 October 2008, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list.

Note that using a pseudonym, ‘satoshi nakamoto’, is not that strange in the cipherpunk community, and is common for privacy minded individuals to follow the practice of not using real names and identities on the internet. While it might be a redflag to some people, it is actually show of stength and skill that the creator can remain private online, something increasingly difficult.

In January 2009, the bitcoin network came into existence with the release of the first open source bitcoin client and the issuance of the first bitcoins,with Satoshi Nakamoto mining the first block of bitcoins ever (known as the genesis block), which had a reward of 50 bitcoins.

The first block contained text linking it to it’s anti establishment roots, mocking the existing financial system and the mess it was in: ‘The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.’

In March 2010, online user “SmokeTooMuch” auctioned 10,000 bitcoin (BTC) for $50 (cumulatively), but no buyer was found. The idea and currency was still being used by so few people, confined to people interested in cryptography, and still being understood. The value in the beginning was tied more to the electricity it costs to produce new coins, which in the beginning was also negligible.

On 22 May 2010, a famous transaction of 10,000 BTC was used to indirectly purchase two pizzas delivered by Papa John’s. This put the first rough initial value on coins.

In July 2010, over five days, the price grew 900%, rising from $0.008 to $0.08 for 1 bitcoin. Note that as more people joined, more people also competed to ‘mine’ or create new bitcoins, causing the electricity used to generate coins to go up, and hence the price or value of coins.

In April 2011, Nakamoto communicated with a bitcoin contributor, saying that he had “moved on to other things”. He no longer participated in the project, and was not heard from again. The project is now maintened by a group of developers. The code is still open source, and anyway can watch or participate in the development.

8 July 2011, the first bubble in price occureed, rising from $1 to $31, the back to $2. Bubbles and crashes have been occurring regulalary over the lifetime of bitcoin. To people new to the space, it is crazy. But large holders of bitcoin can influence prices by selling or buying, and internet frenzies can drive up prices.

How does it have value? it is real?

Many people wonder how bitcoin has value, and think it could just dissappear. But bitcoin has very good properties for being money. Not only that, the technology can be used for a vast array of powerful use cases, and will be used for things not yet thought of.

• It is scarce, coin supply is fixed per the network rules. Bitcoins are created roughly every 10 minutes, in blocks. This is called a block reward. The block reward reduces over time, until it is eventually zero, and all bitcoins are created. The creates a fixed inflation rate and also a hard limit (of 21 million).
• It is trusted as being secure. This is a complex problem, but such an elegant solution. The software has lived on the internet for 10 years, has been reviewed extensively by experts, and has failed to be broken.
• It it easily stored, securely and cheaply. You own your coins. You can create a wallet with no account, no permission, on a phone, tablet, pc or special hardware devices called hardware wallets. Your wallet can be protected by various means, the simplest being on your own devices with password and existing built in device protections (providing physical protection). Although research the best ways for you, it might involve purchasing a hardware wallet for $40 if you are storing more than small amounts.
• It is easily exchanged worldwide, fast and cheap
• It can do things no other money can do, such as live on the internet, paticipate in smart contracts, require 2/3 signers to spend, etc

It is not going away, and has large and growing industrial scale infrastructure and companies behind it. Running the network is incentivised by receiving rewards, both new coins and transaction fees. The computing power running the network far exceeds any supercomputing or even nation state capabilites, and there is a large industry of chip fabrication and businesses. New datacenters are built solely fot bitcoin, such as a 65m 84,000 sqft facility in virginia. New hardware is being developed for bitcoin, including from companies like IBM, AMD, and Nvidia.

You may have heard of kickstarter, but maybe not of 'the dao', at the time the largest fundraising project ever done completely in crytocurrency at 170m from over 10,000 people (anonymously). Over $3.5 billion was raised by initial coin offerings (ICOs) in 2017. Filecoin and tezos raised over $200m each. Over 50 raised more than $20m each. Crytocurrencies might be quickly eclipsing traditional venture capital, and have great benefits over venture capital and traditional crowdsourcing like kickstarter, particularly that anyone can participate, and own value in the venture.

The Coins

Bitcoin

The original. Other coins are based on the same concepts.

Litecoin

In 2011, inspired by bitcoin, charlie lee created litecoin, a clone of bitcoin with tweaks. 2 years later it had a 1b market cap.

Etherium

Proposed in 2013 by vitalik buterin, crowd funded, and went live in 2015. The system provides a,more powerful scripting language than bitcoin, making it the platform of choice for ‘smart contracts’

Ripple

Ripple (xrp) is a company using the same ideas to implement international remittance and currency conversion. It works closely with banks. It is the third largest cryptocurrency by marketcap, and chris larson, charlirman and cofounder tops the forbes crytocurrency rich list with a net worth of around 8b.

Bitcoin Cash

Diagreements in the future of bitcoin and in the proposed changes let a group to ‘fork’ bitcoin into a new currency, called bitcoin cash. A ‘fork’ takes the currency at some date, and spawns a.new one with different rules. The two are not compatible. It is very similar to bitcoin, bit with some tweaks mainly designed to have very low transaction fees.

The People

Here are some people you might hear when you read about the space, or might want to read about, or listen to.

Satoshi Nakamoto

Authored the whitepaper, and released the first version of the implementation, the bitcoin software. Mined the first block of bitcoins ever (known as the genesis block), which had a reward of 50 bitcoins. Nakamoto is estimated to have mined 1 million bitcoins. This ‘person’ has gone from the internet, no longer posting, and nobody has heard from this name. Start you introduction by reading the whitepaper that started it all.

Hal Finney

Receiver of the first bitcoin transaction was programmer Hal Finney. Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world’s first bitcoin transaction. Hal has passed away.

Gavin Andresen

Before disappearing from any involvement in bitcoin, Nakamoto handed over the reins to developer Gavin Andresen, who then became the bitcoin lead developer. He also founded the Bitcoin Foundation in 2012, and an early bitcoin 'faucet' allowing people to get some bitcoin for free. He no longer contributes to the code.

Roger Ver

Roger is nicknamed 'Bitcoin Jesus’, an early enthusiest who has a great fortune, invests in many bitcoin startups, and constantly promotes bitcoin, and now bitcoin cash. He has invested in bitinstant, blockchain.info, ripple, bitpay, kraken. He created bitcoinstore.com, and owns bitcoin.com.

Andreas Antonopolous

A well known speaker and evangalist for bitcoin. In 2012 he quit his job to become a consultant and speaker in the bitcoin space. In 2014 he addressed the Canadian Senate. In 2016 he released the book ‘mastering bitcoin’. Catch his many talks on youtube. See https://antonopoulos.com.

Charlie Lee

The creator of litecoin, the 5th largest currency by marketcap. He was also director of engineering at coinbase.com for a few years.

Vitalik Buterin

Cofounder of bitcoin magazine, then cofounder of Etherium, the 2nd largest cryptocurrency by market cap. In 2012, Vitalik won a bronze medal in the International Olympiad in Informatics, in 2014 he recieved a Theil Fellowship for 100k to leave university and focus on etherium full time. He is one if the most respected in the space.

Tyler Winklevoss

The Winklevoss twins were well known for their part in facebook, suing and winning 65m from mark zuckerberg. See the movie ‘the social network’. The twins also competed in rowing in the 2008 beijing olympics. They are now focused on the bitcoin space, amd claim to hold 1% of all bitcoin, and they run the gemeni exchange in the US. They attempted to create a bitcoin backed security for trading however it was not approved by the SEC. They often speak at cryptocurrency conferences.

Laura shin

A forbes journalist covering cryptocurrency, who recently left forbes to focus solely on independently covering crytocurrency. She has two very good podcasts, http://unchainedpodcast.co and http://unconfirmedpodcast.com

Just do it, how to transact in bitcoin

Getting Bitcoin:

In a growing list of countries, Coinbase.com is an simple to use exchange. In February 2013 the bitcoin-based payment processor Coinbase reported selling US$1 million worth of bitcoins in a single month at over $22 per bitcoin. In January 2015 Coinbase raised 75 million USD as part of a Series C funding round. It now has more trading accounts that major financial trading firms like Charles Schwab! If available in your country, create an account here to purchase bitcoin, etherium, bitcoin cash, or litecoin, and is simple to use.

Localbitcoins.com: you can buy amd sell with cash deposits to banks, or just meet someone at macdonalds to give cash and get some bitcoin.

Australian exchanges include coinjar.com.au, or coinspot.com.au, btcmarkets.com.au. International exchanges can be used by wiring money to them, such as bitfinex.com in canada, bitstamp.net in europe.

It is generally recommended (unless day trading) to buy coins and then tranfer them to your own wallet for safe keeping. Exchanges can go out of business or lose their coins with hacks or internal theft.

It is worth just getting some spending cash onto your phone wallet. This simple step will allow you to learn the steps of how to get some bitcoin, how a phone wallet looks like, how to backup your wallet, and how it is sent and received. Just send it between friends, to settle differences after a night out. This will put you ahead of most people in understanding it, and preparing yourself for the future. Have fun!