Bitcoin http www flickr comphotos31119160N 068007585111 Vesa Linjaaho

Bitcoin http: //www. flickr. com/photos/31119160@N 06/8007585111/ Vesa Linja-aho — T - 7 6. 5 7 5 3 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 2

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 (20 th 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 p r o o f - o f work system of computers running a mining software. 3

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! I f 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) 4

Cons Bitcoin is rather new and its still in marginal use - > high volatility. BTC money supply: 500, 000 € EUR money supply: 5, 000, 000 € It’s currency for the internet – take down the internet, and you cannot use bitcoins. Perhaps not suitable for any country’s official currency. Lose your private key - > lose your bitcoins. No means to cancel the transaction! 5

Someone’s pro is someone’s con! 6

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. 7

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. Mt. Gox handles most of the trade - > raid it - > ? 8

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 i f compared to regular money. 9

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 10

The addresses An example of a bitcoin address: 14 n. RKo. XJAUp. KYYbzw 6 Yrqh 9 g. W 2 p 26 zerp. W 2 1 6 0 (about 10 4 8 )possible addresses The corresponding private key: 5 Hu. Eup. X 3 DNFJ 7 Uypj. Ft. XDTm 4 BVu. Aw. Zt. Ag. Y f 94 s. MALPyakgaf. Vn. U 2 5 6 bits About 10 7 7 possible private keys 11

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. 12

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. 13

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 traffic analysis 14

Who accepts bitcoins? Namecheap Wordpress Many nonprofits accept bitcoin donations Archive. org Bitpay (= simple interface for merchants) Bitspend. net (order anything with bitcoins) 15

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Legal stuff 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 0 0 0 € - > ask for ID. 17

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. 18

Bitcoin and taxes? 19

Worth reading http: //www. reddit. com/r/Bitcoin http: //bitcoin. it/ https: //blockchain. info/tx/8 b 555 a 4399797 c 78 4033863 dda 38 abef 7 b 8 adcaf 6748 e 9519 dcb 1 75 fb 1 d 04 ee 0 http: //krugman. blogs. nytimes. com/2011/09/07 /golden-cyberfetters/ https: //twitter. com/carsonj/status/314382483 468713984 20

Tools for beginners (and everyone) http: //easywallet. org http: //blockchain. info/ https: //www. bitaddress. org/ 21