4 minute read time.
A sell-out crowd of 180 members and guests packed out the Turing Lecture Theatre at Savoy Place for the second IET Central London Evening Lecture of 2018 to learn and be entertained by Dai Davis, the renowned lawyer and engineer. 


Plus ça change, plus c'est la même chose... Bitcoin and other virtual, digital currencies are a hot topic and the new "Big Thing"; but what's really new? Dai set out in his lively, enthusiastic, interactive and knowledgeable style to explain it to us.

 


Important note: These are the author's personal recollections and interpretations, which are likely to suffer from errors and selectivity. There is no endorsement from the IET or the speaker.




We started with a definition of money: nice and simple - it serves as a medium of exchange, is accepted without question and  serves as a common standard of value. Why are we equally happy with swapping £10 for two £5 notes, or with Scottish bank notes? It's all a matter of trust. Whatever we use, even stones, doesn't matter as long as the community has mutual trust. 

Who do we trust with our notes? It's the government (via the Bank of England). There's no longer gold backing up our currency and it can be devalued by printing more, although the value depends on the demand for it. 


There have been a number of previous attempts at digital currency: Egold - a digital gold currency around 1996, effectively a Ponzi scheme; Beenz and Flooz loyalty rewards programmes around 1998 (Nectar points are similar but not transferable); 

Second Life: Massive multi-player online role-playing game using Linden dollars (just a licence and not redeemable) which have been stable, as Linden controls the supply (similar to a government). This is OK as long as everyone has confidence in it.

There are other new methods, such as Paypal, mobile phones etc which are popular, using standard currencies. 


So, what is Bitcoin? It started with a paper by 'Satoshi Nakamoto' in 2008 (short but full of complex maths and clever economics) followed by open source software in 2009. Anyone can create their own currency - currently there are hundreds. In the real world, some pubs will accept bitcoin, or very small fractions of one. Somehow the system needs to be able to trace that it has been spent. Bitcoin mining is the process of recording the transaction and getting rewarded for it. The data consists of cryptographic pairs of prime numbers: one public, the other private. The result is a cryptographically stored ledger and provable transactions. All users share the ledger in a peer to peer network. No single entity has control, as no one can have over 50% of the ledger. There is a finite limit of ~21 million bitcoin.


Banks and governments hate Bitcoin as it cuts out the middle man, they can't control it and they lose the tax on foreign transactions. Australia outlawed bitcoin exchanges, closing 13 out of 17 but the other 4 moved overseas. Governments have their heads in the sand - they don't know what to do. They can physically count real money and take the tax on transactions; Bitcoin is less traceable - the US Feds are the only ones who had enough money and were able to shut down Silk Road on the dark web. Bitcoin is technically unlawful but only Iceland have declared it illegal. Some Venezuelan people use it to transfer assets out of the country. In reality, the market capitalisation of the top 10 crypto currencies is still very small. Bitcoin is around $142,626,618,870 with $6bn traded daily - very volatile. 


What about Bitcoin insecurity? 

People tend to record their bitcoin numbers on their computer, on paper, or given to someone else to hold it (which is the weakest point; "banks" have been hacked). We can use Wallets to store our credentials; also external exchanges of which 45% fail, so why would we use them? A personal wallet can be lost if the device is lost; phones are very insecure, especially Android phones - too many different versions to control and fix by patches. It's not difficult to write malware to hit enough wallets. A safer way to store it safely is a device that looks like a real coin but has a public / private key on it (of course, we have to trust the maker of the coin that it is secret and genuine). The latest scam is for others to use our own PC's to mine bitcoin, with or without our permission.


There are other currencies, some aiming to address long-term issues: Litecoin has technical advantages; Peer coin gives power efficiency; Namecoin is censorship resistant. 

Virtual currencies are being used in ICO's (Initial Coin Offerings) to invest in new companies. 


What does the future hold? 

There is an inherent problem with static security - we can't go back and fix it, if there is a breach in future. Quantum computing could crack the crytography, although newer currencies may be protected. Despite all that, there will always be a demand for it. Can be traced, so it's really not great for criminals, even if it is partially obfuscated. 


Sadly, there was not time for Q&A. We must have a follow up soon on applications of blockchain technology (in the real world).


Many thanks to our speaker for informing us so vivaciously, to Antonis Phasouliotis for coordinating the event and to the IET & Savoy Place staff for their exceptional support.


The slides are available at: http://bit.ly/2peGDXA