Introduction to Bitcoin - SAMA

1 Introduction to BitcoinSaudi Arabian Monetary AgencyD e p u t y s h i p o f R e s e a r c h a n d I n t e r n a t i o n a l A f f a i r sS A M A Q UA R T E R LY W O R K S H O P, R I YA D HD e c e m b e r 2 1 , 2 0 1 41Dr. Hussain AbusaaqBitcoin in the News2 Source: What is Bitcoins? How do you get Bitcoins? Where do you store Bitcoins? Historic BitcoinEvents Is Bitcoin a Currency? BitcoinMarkets Implications for Central Banks3 What is Bitcoin ? BitcoinisaglobalPeer-to-Peercurrencythat isdesignedfortheInternet. Bitcoinhasamaximum21millionlimit. Thecurrencyisdivisibleby8decimalplaces. Bitcoinsolvesthedoublespendingproblem. is Bitcoin ?UnitsBTCB itcoin1 Bitcoin Bitcoin5 Source: BitcoinGeneral information, BulgakovDmitry, 2013 and Invented It?SatoshiNakamoto,January17th, Volunteerprogrammersworktopatchandimprov ethecodeovertime. Open-SourceandIt do you get Bitcoins? Mining ThesupplyofBitcoinsgrowsbytheprocesscall ed mining Bitcoins.

2 Miningistheprocessbywhichindividualssolv ingcomplicatedmathproblems. MiningMiningDifficulty Dependsonhowmucheffortisbeingputintomini ngacrossthenetwork. Bitcoinnetworkautomaticallyadjuststhedif ficultyoftheminingevery2016blocks,orroug hlyeverytwoweeks. Thus,ifmorecomputationalpowerisemployedi nmining, MiningMiningHardware Anyonewithaccesstotheinternetandsuitable hardwarecanparticipateinmining. Hardware:CPU>GPU>FPGA> Do you Store Bitcoins?Bitcoins are stored in what are called wallets Three different types of Paper Wallets or Offline Wallet Web-basedwalletsstoreyourprivatekeysonli ne. Consideredsafe,butstillsusceptibletonetw orkfailuresandhacking. Wallets orOffline Wallets (Desktopwallets) (Mobilewallets) Yourprivatekey(s)arestoredlocallyonyourh arddrive. Consideredsafe, Wallets Apaperwalletisadocumentthatcontainscopie softhepublicandprivatekeysthatmakeupawal let. Keysarenotstoreddigitallyanywhere,andare thereforenotsubjecttocyber-attacksorhard warefailures.

3 Theyarestillsusceptibletotheft, a web based wallet Awalletisarandomlygeneratedstringofnumbe rsandconsistsoftwoparts. PublicKey14 GabW85 FUMQy62 CMWLCToQLo81w7iXL2x PrivateKey15 Create a web based wallet (BlockChain)16 Source: advantages A major plus of the new crypto-currency is the very low cost for sending and receiving disadvantages Untraceable: Bitcoin is anonymous: there is no name that goes along with the Bitcoin disadvantages Hardtotrade,Stilltoonew,Can'tbuystuff. Toovolatile. ThereisnocentralbankforBitcoin(Bitcoinis notlegaltendernorisitbackedbyanygovernme ntoranyotherlegalentity).19 Historic Bitcoin Events18 Aug, 2008 Domain name " " Oct, 200803 Jan, 200912 Jan, 2009 Bitcoin design paper Block established. First Bitcoin transaction from Satoshi to Hal : Bitcoin Events05 Oct, 2009 ExchangeratespublishedbyNewLibertyStanda rd.$1=1, May, 201017 July, 201006 Nov, opens for business.

4 TheBitcoineconomypassedUS$ $ ,000 BTCfortwopizzasvaluedatabout$ : Bitcoin Events09 Feb, Mar, 201201 Oct, 201329 Nov, 2013 LinodeHacked,over46, Pirate Roberts (owner Silk Road) rate peaks at $1,242 on Aug, : Bitcoin Events05 Dec, 2013 Chinese government bans Financial Institutions from using Bitcoin . 24 Feb, 201417 Jul, 201418 Jul, York DFS releases proposed BitLicense .Dell accepts : MarketsBitcoin Exchange MarketsExchangeVolume %Volume Last , , , , < of Satoshi< < : BitcoinmarketsBitcoin MarketsUSD/ Bitcoin Weighted Price020040060080010001200 USDB itcoin Prices25 Source: MarketsBitcoin Market Capitalization02E+094E+096E+098E+091E+ + +10 USDTimeBitcoin Market Capitalization26 Source: MarketsTotal Bitcoins02000000400000060000008000000100 000001200000014000000160000001/3/20093/3 /20095/3/20097/3/20099/3/200911/3/20091/ 3/20103/3/20105/3/20107/3/20109/3/201011 /3/20101/3/20113/3/20115/3/20117/3/20119 /3/201111/3/20111/3/20123/3/20125/3/2012 7/3/20129/3/201211/3/20121/3/20133/3/201 35/3/20137/3/20139/3/201311/3/20131/3/20 143/3/20145/3/20147/3/20149/3/201411/3/2 014 BitcoinTimeTotal Bitcoin27 Source.

5 MarketsBitcoin Transaction Volume USD$0$100,000,000$200,000,000$300,000,00 0$400,000,000$500,000,000$600,000,000201 2-01-032012-04-032012-07-032012-10-03201 3-01-032013-04-032013-07-032013-10-03201 4-01-032014-04-032014-07-032014-10-03 USDTimeTransaction Volume USD28 Source: Bitcoin a Currency? most commonly identified properties of a successful currency are that it (if not universally) accepted as a medium of stable store of Sachs Global Investment Research: All About BitcoinWidely accepted as a medium of exchangeTo achieve this: It has to be generally protected by extensive regulation. They are usually recognized as legal tender. The government is generally obliged to accept them for tax payments. The central bank is almost always the sole Sachs Global Investment Research: All About BitcoinA stable store of value31 Source: Is Bitcoina Real Currency? An economic appraisal, David YermackPossible Implications for Central Banks System integrity and reputational risk32 Payment system oversight Financial stability Monetary policySource: Bank for international Settlements (BIS) Bitcoin : Case of the GCC NoExchangeMarkets.

6 Igothasexpandeditsservicestocountrieslik eSingapore,India,andnow,theUAE. : Case of the GCC LimitedbutRapidlyIncreasedAccessforBitco inTraderDescriptionPrice / BTCquick_btc(100+; 100%)Bank transfer Saudi SARhussamoo(0)Bank transfer Saudi SARanyousse(100+; 99%)Western SARfrenken00 (100+; 91%)Western SARkostasck(100+; 100%) (100+; 100%)Western :Kipochi, (indirectapproach):34 Source: Thank You35