Bitcoin Yesterday, Today and Tomorrow. History of Money.

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Bitcoin & The Blockchain
RRE Ventures

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 Blockchain: A Public, Synchronized Global Ledger Of All Executed
Transactions, Where Records Are Verified And Permanently On Display
 Copies Of The Entire Blockchain Already Exist On Millions Of Computers Worldwide.
Anyone Can Download A Copy At Any Time
 Bitcoin (Capital B): A Protocol, Some Software, And A Broad
Community That Define A Peer-To-Peer Digital Payment Network
 bitcoin (Lowercase b): A Digital Unit Of Currency
 Bitcoin’s ‘First App’
 Nearly 200 Alternative Currencies Right Now, But bitcoin’s Current Market Cap {$US
5.1 Billion +/-} Many Times Greater Than All Others Combined
Some Definitions…
Confidential – RRE Ventures

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Who Invented Bitcoin?
 Most Trace Bitcoin Protocol To Satoshi Nakamoto’s 2008 White Paper
 Bitcore Went Live In 2009; First bitcoins Issued
 Bitcoin As We Know It Today Is Directly Derived From This Work
 The Identity Of Satoshi Nakamoto Remains A Mystery
 Earlier Work On Cryptocurrencies Includes mid-1990’s Companies
DigiCash (David Chaum/Nick Szabo), CyberCash (Bill Melton), First
Virtual (Lee Stein), E-gold (Doug Jackson), Others
 The Network Is Decentralized And Open-Source, Though ‘Curated’
By The Bitcoin Foundation (Gavin Andresen) And Several Others
 As With The Internet, Many Thousands Of People Are Building
Services And Applications On Top – Growing Very Fast

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Bitcoin Ecosystem
 Academics
 Engineers
 Entrepreneurs
 Investors
 Traders
 Consumers
 Merchants
 Economists
 Politicians
 Regulators
 Writers
Confidential – RRE Ventures
Software
Transactions
Economy
Community
Protocol
# of ppl
Everyone
Politicians, Writers,
Speculators
Miners, Processors,
Wallets, Sec, 2.0, Etc.
Engineers, Academics
Exchanges, Merchants,
Consumers, Regulators

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So What Is Bitcoin?
 In Short: Bitcoin Lets You Send Money Over The Internet (Almost) Free
 A New Currency
 More Precisely, A Cryptocurrency {Trust Based On Math, Not People}
 Not Physical Coins, But Digital Character Strings
 Like Your Bank Account #, But Longer
 Globally Synchronized Accounting Ledger
 Cryptographically Secure
 More Traceable Than Cash, Fraud-Resistant, Anti-Fragile
 Anti-Inflationary, Predictable Money Supply
 21 Million bitcoin Cap; 13.3 Million Exist Today
 No Authority Or Group Can ‘Print’ More
 Decentralized - No Central Control Or Authority
 Transfers Financial 'Sovereignty' To The Individual
 So-Called ‘Separation Of Money & State’
 But, Ultimately Will Be Subject To Some Regulation/Oversight
My Bitcoin Address:
1PXr3FCWw5EaddXAk4y2V
HNqyT6yqeEs5z
This…
Not This…
Confidential – RRE Ventures

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Useful Features
 Transactions Are Fast, Borderless, Free Of Middlemen, And Irreversible
 No Limits On Amounts, Big Or Small (e.g. Micro-Transactions)
 Users Can Transfer Any Amount, Anytime, Anywhere, With Anyone…
 Via Computer, Cell Phone, QR Code, Paper, Etc.
 Consensus-Based Protocol Verifies Ownership (What ‘Miners’ Do)
 A Degree Of Anonymity (Really Pseudonymity; Most Transactions
Traceable)
 Cannot Be Debased. When You Can Print New Money, This Happens:
Confidential – RRE Ventures

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So Why Is This Interesting?
 Because In Today’s World… Commerce Requires Trust
 Establishing Trust Has Led To High-Cost, Authorization-Based
Economies Around the Globe
 Rules Out Doing Business In Many Spots Due To Risk – Real Or Perceived
 Fraud, Charge-backs, Mediation, Dispute Resolution… Together
Greatly Increase Transaction Costs
 5% Or More All-In, Not Just 2-3%
 But… What If You Could Replace The Need To Establish ‘Trust’
With Cryptographic Proof {i.e. Math}...
 Eliminate The Need For ‘Trusted’ Intermediaries….
 (Governments, Banks, Credit Card Companies, Escrow Agencies, Etc.)
 Reduce Costs By >10x While Opening Up Global Markets To Much
Wider Audiences of Consumers And Businesses?
 Including The Unbanked, Those Trapped In Deflating Currencies, Etc.
Confidential – RRE Ventures

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 Forever Intertwined With The Internet Of Information & Entertainment
 Experiencing The Rise Of The Internet Of Things Now (IoT)
 Bitcoin Is About Building What I Call The Internet of Value (IoV)
 Like All Massive Network Inflection Points, It Will Be Highly Disruptive
 Will Our Grandkids Pay For Everything With Bitcoin?
 Hard To Imagine Paper Money Dominant In 2030
 Digital Currencies And The Blockchain Are Here To Stay—Bitcoin Itself
Could Be Eclipsed (Litecoin? Ripple? 2.0 Versions like Ether? Sovereigns?)
 Many Previously Not Possible Uses For The Blockchain Beyond Money:
Smart Contracts Digital Media / Copyrights
Patents Ownership Titles
Trading Reporting / Audit
Passing Fad, Or Important Breakthrough?
Confidential – RRE Ventures

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How Big Can This Get?
$514 Billion Annual Remittance Market $4.5 Trillion Cash Market
$1 Trillion Annual E-Commerce Market $7 Trillion Gold Market
$2 Trillion Annual Electronic Payments $16.7 Trillion Offshore Deposit Market
$2.3 Trillion Hedge Fund Market $? Others
 Bitcoin’s Value Could Also Go To Zero
 If It Does, The Cryptographic Rails Of Bitcoin Will Still Completely Disrupt The
Settlement, Clearance, Custody, Processing, Banking And Other Businesses
Constraining Value Exchange Today
 What The Internet Has Brought To Publishers, Media, Advertising &
Many Others, Digital Currency Will Bring To All Things Financial
Confidential – RRE Ventures
Source: Tuur Demeester

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 By Definition It Is Not A Ponzi Scheme. Bitcoin’s Value Not Dependent
On Adoption By An Ever-increasing Number Of New Investors
 It Is True The Value Of The Network Increases Exponentially w/ Increased Participation
 Bitcoin’s Value May Be Considered A Bubble, But That Is Neither
Inherently Bad Nor Illegal. Also Not Atypical For New Stores Of Value
 Bad Actors Will Do Things They Shouldn’t. As With The Internet,
Television, Physical Currencies, Credit Cards, Bank Loans And
Everything Else. A Minority Will Always Use Tech For Nefarious Ends
 Your Money Can Be Lost Or Stolen. Increasingly Unlikely, And Also True
With Cash, Credit Cards, Gold, Diamonds – Any Store Of Value
 Bitcoin Has The Benefit Of Being Traceable To A Higher Degree
 Private Insurance (A Few Basis Points) Beginning To Mitigate Loss Risk
Concerns, Both Real And Imagined
Confidential – RRE Ventures

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 Bitcoin Does Rely On Remembering Passwords
 Not Misplacing Their Wallet If Offline (Like $)
 Can Keep Online Wallet, But Potentially Exposed (Mt.Gox)
 Who Holds Your Crypto-Keys? Multi-Sig?
 Chargebacks vs Consumer Rights
 Not Government-Backed (Private-Sector Insurance)
 But… Merchants Do Not Need Most Personal Data
 Removes Target Problem; Much Less Identify Theft / Fraud
 The Blockchain Provides Transaction Certainty & Permanent Records
Is It Safe?
Confidential – RRE Ventures

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 Mining Is The Process In Which New Transactions (Additions
To The Public Ledger) Are Verified, And New bitcoins Are
Introduced Into The System
 Miners Compete And Are Paid In New-Issue bitcoins By
Solving Difficult Computational Problems
 First Miner To Solve Adds A Block To The Chain, Earns bitcoins
 “Proof Of Work” Solves Double-Spending Problem (Equivalent To The
Byzantine General’s Problem)
 Miners Are Rapidly Becoming Large Organizations, Deploying Millions $ In
Hardware And Software
Mining = Vet Transactions, Blockchain Integrity
Confidential – RRE Ventures

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 Miners Combine Code Used to Describe New Transactions,
Information About Past Transactions, Data About Their Own
Identity, And A Random Number, And Run It Through The SHA-
256 Hash Function
 This Produces A 64-Digit Hexadecimal Number
 (e.g.: 22123fe3423336672d698bb19592e1fbdaa58971899c160f9f554f0d19aaebd1)
 Goal Is To Try Random Numbers Until Output Has The Correct
Number Of Leading Zeros
 (e.g.: 00000000000077ab111b814716097abfd05f83a207b47eb4529bbd4f54e111e0)
The Math Problem
Confidential – RRE Ventures

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So How Did We Get Here?

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What Is Money?
 Money Is Conventionally Defined As Three Things:
1. Medium Of Exchange – An Intermediary Instrument Accepted In Lieu Of Barter
2. Unit Of Account – A Measurement For Defining, Recording And Comparing Value
3. Store Of Value – Allows {Predictable} Transfer Of Value From The Present To The Future
 It Also Helps If It Is Durable, Fungible and Divisible
 bitcoin Is All Of The Above, Though At Present Not Very Good As A SoV (Price Volatility)
 Of The 83+ Currencies Around Today, Many Are Price Unstable (e.g. Argentinian Peso)
Confidential – RRE Ventures

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2000 Years Money
 Ancient Times: Grain, Cattle, Sheep, Salt, Shells, Etc. (Barter)
 Middle Ages: Metal Coins In West; Chinese Paper Notes (IOU’s)
 1661 – Sweden: Banknotes Appear
 1694 - Bank Of England (Private): Fractional Banking; Fiat Money
 Then, Two Banks Created In The US To Pay War Debts….
 1791 - 1st Bank Of US (Private): De Facto Fed; Issued Paper Notes
(High Inflation, Speculation, Dozens Of New Bank Charters, Credit Boom)
 1817 – 2nd Bank of US: A New Fed, Money & Credit Expansion, Followed
By The Panic Of 1819 (Overextension-Led Depression)
 1836 – 1900 State Banks Issue 30k Varieties of Notes (Alt-Notes )
Confidential – RRE Ventures

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2000 Years Cont'd…
 1913 – To Reduce Various Boom/Bust Panics (e.g. 1893; 1907), Federal Reserve
Act: 12 Feds Print Money & Set Rates
 1933 – Executive Order 6102: Forbade “Hoarding of Gold”. Outlawed Possession
Of Gold Money So The Fed Could Exceed 40% Reserve Requirement
 1944 – Bretton Woods: Required 44 Nations Peg Currency Exchange Rates To The
US Dollar (Which Was Itself Pegged To Gold)
 1950 – Diner’s Club Creates First Charge Card, Competing With Store Cards.
Revolving (Credit) Cards Come From BofA In 1958
 1971 – Nixon Shock: US Terminates Gold Standard; Dollar Value Plunges By
One-Third Over Following Decade
Confidential – RRE Ventures
Excellent Article On Origins
Of Money Here {By Nick Szabo}:
http://bit.ly/1vlrccp

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Historical World Reserve Currency Status
 Is US Hegemony As Reserve Currency A Forever Thing?
(The average fiat currency lasts 27 years; he average global reserve lasts 100 years)
 What Is The Next Reserve Currency? Is It Digital?
Confidential – RRE Ventures
You Are Here

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That’s The Past
-------
Here’s The Present

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 Overstock.com: $10 Million In Transactions To Date
 Major Processors (e.g. BitPay, Coinbase, Others) Serve Over 90k
Merchants; Growing Rapidly
 You Can Also Make Political Contributions, Donate To
Charities, Tip People, Gamble, Etc.
Retailers Starting To Accept Bitcoin
Confidential – RRE Ventures

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Where Are The VC’s?
 Conglomerates 18%
 Wallets 17%
 Exchanges 17%
 Financial Services 16%
 Payment Processing 15%
 Mining 13%
 Other 4%
 About $270 Million Invested Thus Far in 2014; Six Major Areas
 Triple Amount In 2013, But Still Small Given The Stakes; Could Triple Again
 Globally Maybe A Dozen Firms Make Up Half Or More
Confidential – RRE Ventures
Source: Coindesk/jdrive
21E6

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Regulatory Environment
 Under Evaluation In The US, Most Notably By NYS DFS Superintendent
Ben Lawsky. Comment Period Ends 10/14
 Current Draft Unworkable; Steps On Other Agency Toes (e.g. FINCEN, FBI)
 Texas Greenlighted. Florida & Georgia Similar. California Leaning Fav. Others Watching
 Europe A Mixed Bag. England Favorable, Isle Of Man, Jersey And Others
Quite Favorable. Norway, Some Others Less So. LatAm Mixed
 China Has Banned Bank Participation Within It’s Borders (HK
Exceptions). Singapore & Japan Advanced And Favorable
Confidential – RRE Ventures

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Total bitcoin In Circulation: 13.3 Million
Current Market Cap: $5.1 Billion
Value Of 1 bitcoin: $380
Avg. Transactions Per Day: 67,000 +/-
Number Of Wallets: 5.8 Million
Transaction Confirmation Time: 7 Minutes
Current Snapshot
Confidential – RRE Ventures
X
X

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 Many Reasons Why Price Decline Continues
 Mining Costs Approaching $350/Coin; Miner Economics Tough; Selling
 Chinese Trade RMB For bitcoin Fee Free On Chinese Exchanges, Dump As US$ To Get
Around Currency Controls & Diversify (> Half Of Daily BTC Activity)
 Many (Most?) Large Blocks Trade Off-Chain
 Lot’s Of Hodlers; Few Spenders
 Overhang Of Unsettled Political And Regulatory Debates
 Commodities In General Hammered
 Margin Calls Have Not Helped
 General Public Still Looking For Visceral Use Case
 Still Too Hard To Obtain, Manage
Price
Confidential – RRE Ventures
 Despite
 Merchant Acceptance Accelerating
 Major Brands Across Retail & Financial Services Engaging (Dell, Paypal, FDC, Soon xxx)
 Consumer Awareness Growing, Attitudes Turning From Negative To Neutral
 Neither ApplePay Or Alibaba Mattered, And Long-Term Both Are Positive For Bitcoin
 Government/Regulatory Activity Has Generally Legitimized Bitcoin To Date
 Note: FINCEN Poised To Announce Action Against A Major Soon)
 Banks Beginning To Warm Up (e.g. Fidor, CBW, Cross River)
 Non-US Currencies Falling (i.e. $ Dollar Strengthening) A Positive For Bitcoin
 Went 10x Twice in 2013; Still Up Substantially

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Appendix