Bitcoin is coming…Presenter: Nelson M. Rosario

Date: 11/7/15

Defense Entrepreneur’s Forum 2015

Roadmap

• Introduction

• What is bitcoin?

• Three Things

• Bitcoin Mechanics

• So What?

• Current Legal Considerations

• Emerging Use Cases

Introduction

• Who am I?

• Who has heard of bitcoin?

• Who owns bitcoin?

Scan to connect on LinkedIn

What is bitcoin?

• “No one owns bitcoin.” — Satoshi Nakamoto (probably)

• Bitcoin is the world’s first open source public decentralized append only distributed ledger.

• Bitcoin is also used as a currency by many.

Bitcoin is Open Source

• The bitcoin code is open source and changes may be proposed by anyone

• You can fork the code from Github at the following address: https://github.com/bitcoin/bitcoin

• Advantage is that bitcoin changes are democratic

• Disadvantage is that bitcoin changes are democratic

Bitcoin is Public

• All bitcoin transactions are publicly viewable by anyone

• Companies exist that crawl the blockchain and allow people to view all the transactions

• Block Explorer is one such company: https://blockexplorer.com/

Bitcoin is Decentralized

• There is no central authority for bitcoin

• Bitcoin nodes are all over the world

• The network is sustained by miners

Bitcoin is Append Only

• You can only add blocks to the bitcoin blockchain

• You cannot go back and remove or change blocks without changing all the subsequent blocks

Bitcoin is a Distributed Ledger

• Bitcoin is a record of transactions

• Bitcoin functions like a ledger

Luca Pacioli, inventor of Double Entry Bookkeeping

Three Things, or Why You Should Care

• Comparisons to the Early Internet

• Investment in Bitcoin/Blockchain Companies

• Patent Filings That Mention Bitcoin

Comparisons to the Early Internet

• “A mysterious new technology emerges, seemingly out of nowhere, but actually the result of two decades of intense research and development by nearly anonymous researchers.”

• “Political idealists project visions of liberation and revolution onto it; establishment elites heap contempt and scorn on it.”

• “On the other hand, technologists – nerds – are transfixed by it. They see within it enormous potential and spend their nights and weekends tinkering with it.”

• “Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn’t more obvious from the start.”

• “What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014.” – Marc Andreessen in the NYT

• http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/?_r=1

Investment in Bitcoin/Blockchain Companies

A Note on Terminology

• Bitcoin v. bitcoin

• Bitcoin v. blockchain

• Lots of debate in the community as to whether you can separate bitcoin the currency from bitcoin the technology

Patent Filings That Mention Bitcoin

Patents by Filing Date

• 2010 – 1

• 2011 – 6

• 2012 – 14

• 2013 – 9

• 2014 – 28

• 2015 – 1

Patent Applications by Filing Date

• 2010 – 0

• 2011 – 13

• 2012 – 32

• 2013 – 93

• 2014 – 180

• 2015 – 67

Bitcoin Mechanics

• Balances

• Transactions

• Mining

Balances

• Bitcoin is typically held in wallets

• There are online services, mobile services, and offline services

• Wallets have an address and a public and private key pair

Transactions

• Transfer of value from one bitcoin address to another bitcoin address

• All transactions are broadcast to the network once initiated

Mining

• Validate transactions

• Supports the network

• Rewarded in bitcoins

So What?

Advantages

• Low transaction fees

• Transactions confirmed fast

• New economic models• Micro-tipping

• Remittances

• Autonomous payments

Disadvantages

• Can’t handle many transactions

• Pseudo-anonymous

• Not widely accepted

• No central counter party

Current Legal Considerations

• Biggest concern is anti-money laundering

• Bitcoin gains and losses need to be reported to IRS

• Not considered legal tender anywhere

Anti-Money Laundering Regime

• If a bitcoin business qualifies as a money service business they need to keep track of customer information for AML purposes

• Money Service Business is:• A dealer in foreign exchange

• A check casher

• An issuer or seller of travelers checks or money orders

• A seller or provider of prepaid access

• The United States Postal Service

• A money transmitter

• Required to register with FinCEN

FinCEN

• FinCEN issued guidance that bitcoin is a convertible virtual currency

• FinCEN issued guidance that bitcoin is a decentralized virtual currency for purposes of the Bank Secrecy Act

• As such if a company operates as an exchanger of bitcoin it must comply with the Bank Secrecy Act and establish an anti-money laundering regime

Emerging Use Cases

• Identity Verification for Refugees

• Diamond Verification on the Blockchain

• Smart Contracts

Identity Verification for Refugees

• The identity of refugees are being registered on a blockchain by Bitnation to help refugees to Europe prove who they are

• https://refugees.bitnation.co/

Registering Diamonds on the Blockchain

• There are currently more than 300,000 diamonds already registered with Everledger, and 800,000 more waiting to be registered. Every diamond has a unique ‘fingerprint’, consisting of 40 different parameters. Law enforcement and insurance data is maintained on a special private platform linked to the blockchain.

• http://www.coinfox.info/news/company/2606-everledger-registers-diamonds-in-the-blockchain

Smart Contracts

• Self-executing agreements stored on the blockchain

• Goodbye lawyers, accountants, and banks

• http://www.fastcolabs.com/3035723/app-economy/smart-contracts-could-be-cryptocurrencys-killer-app

Things We Did Not Talk About

• Security

• Privacy

• Scalability

• Adoptability

Questions?

Nelson M. RosarioAssociate AttorneyLempia Summerfield Katz LLCEmail: nmrculebra@gmail.comTwitter: @NelsonMRosarioBlog: https://medium.com/@nelsonmrosarioLinkedIn: www.linkedin.com/in/nelsonrosario