BitCoin:An implementation of Digital Cash

Fan Jin

4047 8963

Current Payment System• Token-based system

1. Paper cash

2. Stamp

3. Gift card• Account-based system

1. Credit card

2. Paypal

3. Bank account

Problems of current payment system

Cash:

Easy to carry and transact, untraceable...

Lose, stolen…

Electronic payment system:

Reduces the risk to lose, stolen

Losing privacy, traceable…

Current financial system is controlled by government, may lead to inflation...

Digital CashIntroduced by Chaum in 1982

Features:• security• privacy• transferability • off-line payment • divisibility

Problems:

Double spending

BitCoin

• Account• Transaction• Block

Designed by Satoshi Nakamoto in 2008

BitCoin

Account

• 19MrhxNSDyMRQ8NXn8BR9kLmntQMEQofNc• Public key & Private key• Wallet file

How it works:

Transactions• Payer’s account ID• Payee’s account ID• Amount• Payer’s signature• Payee’s public key• Hash of previous transaction

How it works

Blocks:• Hash of previous block• Transactions happened in

last ten minutes• A nonce

How does BitCoin solve double spending problem

Technical bottleneck:

• Space: huge disk space will be required for chain of blocks

• SHA256: safe for now• Anonymity: Can be analysed by some interested

party

Problems of BitCoin:

Problem of BitCoinFinancial problem: Cause deflation

Equation of Exchange

P * Q = M * V• M, is the total nominal amount of money in circulation on average in an economy.• V, the velocity of money, that is the average frequency with which a unit of money is

spent.• P, is the price level.• Q, is an index of real expenditures (on newly produced goods and services).

When M * V keeps same or increase in a fixed speed

the price of goods and services (P) is inversely proportional to the amount of goods and services in market

Market price of BitCoinhttp://blockchain.info/charts/market-price

What’s happening now:

Cameron and Tyler Winklevoss, the twins best known for their role in the early days of Facebook, believe the online currency bitcoin is "digital gold."

A story about success

What’s happening now:

Homeless, Unemployed, and Surviving on Bitcoins

http://www.wired.com/wiredenterprise/2013/09/bitcoin-homeless/

A sad story…

Future work for BitCoin

1. Solve technical bottleneck

2. Combine BitCoin with economic activities