ECOM6013 Topic 8 Blockchain and Cybercurrency

ECOM6013 E-Commerce Technologies

Topic 8 Blockchain and Cybercurrency

Form of Money

• Token money
  • Physical token
  • Value is lost without the token
  • No intermediary is required for spending
  • Requires faith in the issuer (a government or a bank)
• Notationary money
  • Notation/entry in a ledger, passbook, or database
  • Can’t be lost
  • Requires an intermediary
  • Requires faith in the maintainer of the ledger
• Hybrid money
  • Requires both a token and a ledger account
  • Can be lost
  • Requires an intermediary
  • Requires faith in the issuer
• Virtual money
  • No token/ledger
  • Can be lost
  • No intermediary required
  • No issuer, no government backing
• Digital money
  • String of bytes (data) stored on a device
  • Value is lost/stolen when devices fail/invaded
• Cybercurrency
  • Bitcoin is the most influential one
  • Based on blockchain

Bitcoin

• Designed for the “online society”
• An important example application of Blockchain
• Relationship with national currencies
  • Decentralized and independent of national currencies
  • Easily convertible to national currencies
• Excellent application Scenarios
  • Anonymous transactions
  • E-Commerce

Land Deeds - A Blockchain Analogy

• A “chain of title” (a sequence of deeds leading from the original owner to the present owner)
• Deeds are recorded in the Land Registry
• Ownership is established by searching the Registry
• The Land Registry is ledger holder
• Double-selling is prevented by timestamps
• If the Registry is altered, ownership can be lost

5 elements of Bitcoin

• Currency
  • Send units of value
  • Convertible
  • Divisible
• Commodity
  • Scarcity stores wealth
  • Market fluctuates with speculation
• Brand
  • Marketing message
  • Commodity and sharing knowledge
• Protocol
  • Decentralized trust
  • Distributed ledger
• Technology
  • Blockchain

How to Get Bitcoin

• Sell something
• Salary (some companies)
• Bitcoin exchange
• Mining
  • No more than 21 million BTCs
  • Divisible into units as small as 1/100 millionth of a BTC

Bitcoin and Encryption Technologies

• Hash functions
• Public-private key (asymmetric) encryption
• Digital signatures
• All of these technologies are mature and trusted

Bitcoin Characteristics

• No physical object (not a character string)
  • “Bitcoin” - protocol
  • “bitcoin” - value
• A chain of digitally signed transaction records leading from the original owner to the current owner
• Transaction records
  • Hashes
  • Addresses
• No Bitcoin registry
• No central authority
• Broadcast to everyone
  • Everyone can verify the Bitcoin blockchain

Bitcoin Protocol

• Invented in 2008 by Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System
• Publicly available, Open source software
• Everyone can obtain and run a Bitcoin client

Bitcoin addresses

• An elliptic curve public key
  • 25-44 characters for users
• Send Bitcoins
  • Receiving address (public)
  • Amount
• Receive Bitcoins
  • Receiving address (public)
• Addresses are not directly registered to users

Possible Vulnerabilities

• No way to reverse a transaction without the payee’s cooperation
• Software bugs
• Bank robbery by hackers
• Malware attacks against wallets
• Government attempts to control
• Competing digital currencies easy to make (fork)
  • Auroracoin
  • Dogecoin
  • Namecoin
  • Primecoin
  • …

Challenges for Bitcoin

• Scalability
• Time to solve a block (security concerns in algorithms)
• Energy consumption
• Meaningless and highly inefficient

Possible Future of Bitcoin/Virtual Currencies (Social)

• For the world’s unbanked
• For small businesses, freelancers and startups
• Inevitable development of “money”
• Distributed trust

Possible Future of Bitcoin/Virtual Currencies (Economic/Political)

• A future with digital currencies and decentralized stores
• National adoption of decentralized currencies may bring political transparency and economic neutrality
• Developing nations seeking to curb corruption and break free of economic dependence on other countries could see potential in these technologies
• Central Bank Digital Currency (CBDC)

Retail Money Key Attributes

Different Degrees of Responsibilities for the Central Bank