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Bitcoin: Fact

Bitcoin Fact. Fiction. Future.

Tiffany Wan, Max Hoblitzell

Virtual currencies such as Bitcoin could be the natural next stage in the evolution of money.

Introduction

Despite an explosion in media coverage, virtual currencies such as Bitcoin are misunderstood. Every day, news articles describe exchange meltdowns, price volatility, and government crackdowns. This concentrate on Bitcoin as a volatile and even renegade currency may be distracting governments and businesses from its potential long-term significance as a disruptive fresh money technology.

Bitcoin is more than just a fresh way to make purchases. It is a protocol for exchanging value over the Internet without an intermediary. Much has been written about the payment applications of Bitcoin, including remittances, micropayments, and donations. However, Bitcoin could soon disrupt other systems that rely on intermediaries, including transfer of property, execution of contracts, and identity management.

As the Bitcoin ecosystem evolves and use cases emerge, the public and private sectors will face fresh challenges, opportunities, and responsibilities. Government may detect fresh methods for executing its mission as a regulator and law enforcer, while corporations may build upon Bitcoin technology to create innovative products and services. In the future, Bitcoin may even revolutionize the way we conduct business and think about work. The sooner the public and private sectors understand the potential of this fresh technology, the better ready they will be to mitigate its challenges and realize the benefits of Bitcoin and other similar virtual currencies.

This report explains the technology underlying Bitcoin and other virtual currencies, identifies fresh applications, and probes the influence of potential future screenplays. If Bitcoin’s brief history is an indicator, the future of this technology will be an titillating rail.

Bitcoin overview

Bitcoin is best thought of as a natural next step in the evolution of money. Across history, many items have been used as a store of value and medium of exchange, such as cowrie shells, clay tablets, coins, and now paper money. Kicking off in the 18th century, nation-states increasingly used precious metals such as gold and silver to back their paper money, creating a monetary system called the gold standard. The gold standard required governments to hold enough precious metal reserves to support their currency. As the global economy became more elaborate in the 2nd half of the 20th century, most nations eventually moved away from the gold standard, creating fiat currencies built on laws and trust in government.

As our understanding of money as a store of value, medium of exchange, and unit of account has matured, so have the methods and modes for exchanging it. In this sense, the exchange of money has always been a function of the technology available. We moved from precious metal coins to paper money before inventing checks, then credit cards. Yet credit cards weren’t created for the Internet era. They’ve simply been adapted to meet the needs of consumers operating in a networked and digital world. With the consumer-accessible Internet now twenty years old, the question is not why a currency specifically designed for the Internet has emerged, but what took it so long.

Bitcoin is one of the very first currencies born on the Internet to be used in the real economy. It can be used to make purchases of goods like smartphones, hotel stays, pizza, and coffee. Other virtual currencies have since been created from the same open source code as Bitcoin, including Litecoin and Dogecoin, the virtual currency based on the Doge meme. One More are popping up every day. Some of these currencies aim to improve upon Bitcoin’s technical or operational difficulties, such as transaction speed and security. However, Bitcoin so far has sustained its first-mover advantage. It is the most popular and has the highest value in circulation. As of June Four, 2014, there are 12.85 million bitcoins in circulation with a total market capitalization of $8.Trio billion. Two

How does Bitcoin work?

Bitcoin is a protocol for exchanging value over the Internet without an intermediary (figure 1). It’s based on a public ledger system, known as the block chain, that uses cryptography to validate transactions. Bitcoin users build up access to their balance through a password known as a private key. Transactions are validated by a network of users called miners, who donate their computer power in exchange for the chance to build up extra bitcoins. There is a stationary supply of twenty one million bitcoins that will be little by little released over time at a publicly known rate. There is no monetary authority that creates bitcoins. The capped supply of twenty one million is known to all, and the rate of supply diminishes over time in a predictable way. As a store of value, this means that bitcoins are inherently deflationary. It also means that there is no government or central entity to make discretionary decisions about how much currency to create or attempt to defend it through monetary policy deeds. Three

In order to process a bitcoin-denominated transaction, Bitcoin verifies two facts addressed by current payment systems like PayPal or Visa. The very first is that when user A transfers a bitcoin to user B, user A has a bitcoin to spend (that is, prevention of counterfeiting). The 2nd is that when user A transfers a bitcoin to user B, user A is not attempting to transfer the same bitcoin to another user, user C, at the same time (that is, prevention of dual spending).

As Bitcoin matures, an ecosystem of companies is emerging to support consumers and retailers in storing, exchanging, and accepting bitcoins for goods and services:

  • Banks and wallets store bitcoins for users either online or on storage devices not connected to the Internet, known as “cold storage.”
  • Exchanges provide access to the Bitcoin protocol by exchanging traditional currencies for bitcoins and vice versa.
  • Payment processers support merchants in accepting bitcoins for goods and services.
  • Financial service providers support Bitcoin through insurance or Bitcoin-inspired financial instruments.

What are the qualities of Bitcoin as a technology system?

Bitcoin has three qualities that differentiate it from other currencies and payment systems.

Very first, Bitcoin is peer to peer, transferring value directly over the Internet through a decentralized network without an intermediary. Current payment systems, like credit cards and PayPal, require an intermediary to validate transactions; Bitcoin does not. As a result, Bitcoin has been referred to as “Internet cash,” as it can be exchanged from person to person much like paper currency today.

2nd, Bitcoin is open, yet securely authenticated. Traditional payment systems rely on the privacy of transaction information to maintain security. For example, the compromise of a credit card transaction can result in the release of valuable information that can be used to conduct future transactions. In comparison, Bitcoin relies on cryptography. As every transaction is validated with cryptography by the network of miners, Bitcoin functions because of its openness, not despite it.

Third, Bitcoin is self-propelling. Bitcoin uses its own product, bitcoins, to prize or “pay” miners who are providing the computing power that serves as the engine of the transaction verification system. As a result, the system does not require the same type of overhead that traditional payment systems might require. In this sense, Bitcoin functions because of those participating in the system.

These three aspects are part of what drives Bitcoin’s success, enabling a almost frictionless global payment system. However, these same factors have also created challenges.

Miners are individuals that provide the computing power for Bitcoin’s validation process in exchange for the chance to build up fresh bitcoins. Together, miners make up Bitcoin’s distributed network. Miners use their computing power to validate transactions by solving a cryptographic problem, called a hash function. By using their computing power for this work, miners are rewarded with bitcoins. This is how fresh bitcoins come in the money supply. Because the money supply is capped and the rate of supply diminishes over time, the difficulty of creating a block increases and the actual amount rewarded for each fresh block created decreases.

Mining has been the subject of significant media coverage, as an arms race has grown around hardware designed to perform very specialized computations to mine bitcoins. In the early days of Bitcoin, miners were mainly hobbyists using individual computers to solve relatively plain cryptographic problems. Now, miners are raising investor dollars to construct server farms optimized for bitcoin mining.

Bitcoin caveats: Speculation, regulation, and whatever

In order to achieve broader adoption as a currency, Bitcoin needs to address significant questions around volatility, regulatory uncertainty, exchange security, ease of use, and transaction volume.

Bitcoin speculators have driven significant price volatility, reducing Bitcoin’s utility as a medium of exchange. People may be reluctant to use Bitcoin to make large future commitments of value, or even buy a cup of coffee, when the price can switch by thirty percent overnight. Unless Bitcoin’s volatility lodges, it will be used less as a currency and more as a vehicle for speculation and “get rich quick” schemes, much like a penny stock.

The global regulatory environment around Bitcoin remains uncertain. Any news of fresh government scrutiny or rumors of a policy switch can significantly affect Bitcoin prices, reducing its stability as a currency. At the same time, businesses are unwilling to engage in the Bitcoin economy, while governments treat it as a fringe movement that is the purview of black-market operators and drug dealers, such as Silk Road. As governments begin to issue consistent guidance on Bitcoin, businesses may become more willing to accept it as a form of payment.

Security problems, punctuated by very publicized exchange meltdowns, may prevent mainstream usage of bitcoins as a currency. Many exchanges that have suffered—including Mt. Gox, which experienced the most legendary exchange collapse—were built on unstable platforms with little security, due to their having been created when bitcoin trading was petite and nascent. Mt. Gox was like a bank storing valuables in the lobby entrance. To mature, exchange security needs to be as strong as at traditional banks.

The requirements necessary to securely store bitcoins have created ease-of-use problems. Tho’ digital wallets have worked to solve some of these problems, best practices for storing bitcoins include locking flash drives in a bank vault. Truly? Mainstream consumers are unlikely to use Bitcoin until wallet services develop more user-friendly and secure storage mechanisms.

One of the very first major online retailers to accept bitcoins, Overstock.com, made more than $124,000 in bitcoin sales on January Ten, 2014, its very first day of accepting the currency.

Validating transactions requires significant electric current, bandwidth, and data storage. The resources required to support Bitcoin’s relatively puny volume of transactions are already being shoved to their thresholds. Presently, Bitcoin averages about 60,000 transactions per day. Four VisaNet, the electronic payment processing network used by Visa, treats more than one hundred fifty million transactions daily from Two.1 billion Visa cards and over two million ATMs. Five It can do this because it charges fees for the resources required to operate its servers. In order to support mainstream transaction volumes, the Bitcoin system for validating transactions will likely have to switch how it uses electro-stimulation, bandwidth, and data storage.

Despite these obstacles, mainstream merchants are beginning to explore Bitcoin. One of the very first major online retailers to accept bitcoins, Overstock.com, made more than $124,000 in bitcoin sales on January Ten, 2014, its very first day of accepting the currency. By March 2014, Overstock.com had topped $1 million in bitcoin purchases. The company has revised its bitcoin revenue projection for two thousand fourteen from an initial $Three to five million to $20 million. Six According to Overstock.com, Bitcoin’s popularity and its low fee structure drove fresh consumers to its marketplace. More large-scale merchants and mainstream actors in the global economy are following suit. SecondMarket, an online marketplace for buying and selling illiquid assets such as venture-backed private-company stock, is opening a Bitcoin trading platform for institutional investors.

Bitcoin: Beyond money

Bitcoin is more than a fresh currency. Bitcoin and other virtual currencies are creating a fresh architecture for exchanging information over the Internet that is peer to peer, open yet secure, and almost frictionless. Imagine how other systems that rely on intermediaries, such as property transfer, contract execution, and identity management, could be disrupted by a similarly open peer-to-peer system.

System of payment

Bitcoin reduces friction in payments. Presently, when an individual transfers funds, he or she must work with a third party. This intermediary, such as a credit card or payments company, often exacts high fees. For example, for remittances, there is an average fee of nine percent, with some banks charging an extra fee of up to five percent for turning the remittance into cash. Seven

Bitcoin permits for a direct payment to anyone, anywhere in the world, at any time (figure Two). With Bitcoin, an individual could transfer value to his or her cousin in India without paying a fee to a global money transmitter or a bank for the wire transfer. However most uses of Bitcoin to make payments will rely on third parties, like Coinbase, Bitcoin may permit these companies to charge lower fees than they do today. This could disrupt the global remittance market, valued at $514 billion in 2012, by providing a less expensive method for direct transfers globally. Eight Current providers may be compelled to lower fees or be substituted by entrants like BitPesa, a mobile payment application for Bitcoin in the developing world.

In the same way that Bitcoin lowers transaction costs for remittances, it could also lower transaction costs for everyday purchases of low-margin items. Today, if someone buys a donut with a credit card, the merchant pays an interchange fee to the credit card issuer. This interchange fee is usually a puny plane amount (10-20 cents) plus a percentage of 1-3 percent. Nine For a low-margin good like a donut, a 10- to 20-cent plane fee can treatment one hundred percent of the cost of goods. This interchange fee is often passed on to the customer. Using Bitcoin, the transaction fee could be lowered to as little as one percent. Ten This could ultimately evolve into a fresh payment system for credit card companies and banks.

Transfer of property

The Bitcoin protocol could simplify sophisticated asset transfers, revolutionizing the services that support this industry (figure Trio). Presently, the transfer of large assets requires significant time and resources. For example, in order to purchase a car from an individual seller, one has to engage a third party to transfer the title. Additionally, one has to use services to learn about the car’s accident and inspection history. And who doesn’t like to spend a Saturday at the Department of Motor Vehicles updating a car registration?

The block chain, Bitcoin’s public ledger, could switch all of this. Bitcoins can be qualified in such a way that they represent real-world assets. Bitcoin entrepreneurs at companies like Colored Coin are already working on ways to use puny portions of Bitcoin to denote physical property. A fraction of a Bitcoin would publicly identify who presently wields that property, and could include a record of both past ownership and other history about the property. When purchasing a car, one would be able to verify all accidents and inspections over the block chain and transfer the title on site. Similarly, real estate and financial instrument transactions could all be executed over Bitcoin or a similar protocol.

This could soon create efficiencies and reduce friction by permitting individuals to directly transfer property without the use of a broker, lawyer, or notary to sign off on the transfer.

Execution of contracts

Bitcoin could similarly be used to structure contracts, bringing fresh efficiency and transparency to the process (figure Four). Contracts are typically developed by lawyers on a case-by-case basis, with significant time and resources loyal to negotiation, development, and enforcement. Additionally, markets based on contracts, including certain financial derivatives markets, lack transparency, which complicates regulation.

Traditional contracts could be substituted by code that self-executes when a triggering event occurs. In a ordinary example, a financial instrument, like an option, could be developed and executed over the block chain. In addition to reducing legal fees, this could bring fresh transparency to financial markets, as regulators could use the public ledger to understand the market without forcing individual actors to expose their specific positions. It is possible that fresh crypto-currencies will emerge to serve these niche purposes.

Fresh ventures, like Ethereum, are creating these capabilities today. Ethereum is developing a network to serve as both the registry and escrow to execute the conditions of a contract automatically through rules that can be checked by others.

Identity management

Bitcoin’s cryptography and block chain could also convert identity management. Much of identity management, including passports, still operates on a paper-based system. These documents are frequently forged and stolen. Interpol’s database presently lists thirty nine million stolen travel documents. But what if there was a way to create a unique, verifiable key that was unlikely to forge?

A cryptographic network similar to but separate from Bitcoin could be used to verify individuals’ identities and monitor movement across borders (figure Five). When a person travels through a checkpoint at a border crossing, instead of showcasing and scanning a paper passport, he or she could present his or her Bitcoin key. A network privately maintained by the government, a contractor, or other entity could verify the key and register the entry into the ledger. This system, based on cryptography instead of paper documents, would at the same time increase mobility and security. If Bitcoin can be used for travel documents, it could also be used for other forms of identity management like social security numbers, tax identification numbers, or even driver’s licenses.

Property, contracts, and identity management are only a few examples of how a peer-to-peer, open, and frictionless system could switch business in the future. In order to achieve this broader adoption, Bitcoin will need to address significant questions around trust, ease of use, and operability. To date, the Bitcoin community has shown remarkable adaptability and it is already working to mitigate these problems. In the next decade, we can expect significant innovation around the Bitcoin network. Tho’ much of that will revolve around payments, particularly early on, the evolution of Bitcoin could take several diverging paths.

Extra use cases for Bitcoin in the payment space include:

Banking services in developing countries

Developing countries with suitable mobile phone infrastructure may be able to leapfrog the developed world in the maturation of mobile finance. As a form of electronic banking, Bitcoin could be an avenue for financial inclusion in emerging markets.

Micropayments

A micropayment is a very petite financial transaction that occurs online. Practical systems to permit for the transfer of $1 or less online with a credit card do not exist. Bitcoin could facilitate the direct payment to musicians for individual songs or the capability to “tip” individuals on Twitter, Reddit, or other social media platforms. It could also be used for newspapers and other content producers looking for fresh revenue models.

Future of Bitcoin

Many factors will influence Bitcoin’s evolution, including regulation, technological innovation, and economic conditions. Predicting the future of Bitcoin today resembles what it must have been like to attempt to comprehend the significance of the Internet in the 1990s. Some experts, such as Ray Kurzweil in his book The Age of Intelligent Machines, very first published in the late 1980s, got it spectacularly right. But others, like Paul Krugman, who in one thousand nine hundred ninety eight predicted that the Internet’s influence on the economy would be no greater than the fax machine’s, were dead wrong, however for understandable reasons. Eleven Timelines for the adoption and extension of fresh technologies are inherently unpredictable, primarily because their ultimate influence will be a result of how humans interact with them.

Bitcoin’s future can best be understood by considering four scripts that represent a range of possible outcomes.

“Life on the fringe”

“Investors flee Bitcoin as another exchange collapse sends bitcoin prices plummeting”

Bitcoin, the currency, never solves its trust and security problems, reinforcing price volatility and skepticism. It remains an arena for illegal activity and speculation. As a result, companies in the Bitcoin ecosystem are incapable to come in into mainstream commerce. Exchange collapses and sales of illicit goods and services proceed to occur. The majority of bitcoins are held by speculators, crowding out users who want to use the protocol to make legitimate purchases. Bitcoin and its imitators resemble penny stocks instead of a payment system. In brief, the concentrate on bitcoin’s obstacles as a currency prevent the benefits of the technology from being fully realized.

How you can tell if this screenplay is happening:

  • Another exchange meltdown, security breach, or operational failure occurs
  • Volatility proceeds to be ten to fifteen times higher than traditional assets such as gold 12
  • Bitcoin suffers a flash crash

Why this screenplay might not happen:

  • The Bitcoin community solves the trust and security problems related to bitcoin as currency
  • Bitcoin as technology overwhelms the reservations about bitcoin as currency by creating fresh offerings and markets

What government’s role could be:

  • Issue guidance and regulations on Bitcoin as a currency and as a technology, signaling that both aspects can be taken earnestly
  • Concentrate on enforcement for illicit activity, like money laundering
  • Create safeguards to protect mainstream consumers from being victimized by Bitcoin wallet and exchange scams

“CorporateCoin”

“Payment card companies rival to suggest low-fee Bitcoin-based payment options”

Payment and technology companies incorporate the Bitcoin protocol into their payment systems. These companies build proprietary payment platforms using cryptography for security and the block chain for transaction validation. Bitcoin moves to the back office and becomes invisible to the consumer in the same way that different Internet protocols are invisible to most web users. As a result, payments occur across the Bitcoin protocol, but consumers are not required to hold bitcoins. This drives down fees for payment cards and eliminates exchange risk. In brief, the Bitcoin protocol grows as a money technology, is adopted by mainstream institutions, and embarks to serve as the backbone of many Internet transactions.

How you can tell if this script is happening:

  • Services suggested by traditional payment solutions, like credit and fraud protection, are provided around Bitcoin
  • A fresh wallet technology is introduced in the form of a Bitcoin payment card

Why this screenplay might not happen:

  • Large payment companies lower fees to match Bitcoin without adopting its protocol
  • Corporations proceed to distrust open-source technology

What government’s role could be:

  • Enable companies to use Bitcoin as a payment mechanism through tax and financial crimes enforcement guidance
  • Encourage payment companies to use the Bitcoin protocol to suggest low-fee solutions for underbanked populations

“Satoshi for all”

“Regulators rescue Wall Street after block chain exposes fresh market risk”

Bitcoin becomes the protocol for all transfers of value, creating fresh visibility into financial markets and converting the services around these functions. Exchanges of value and information, such as property transfer, contract execution, and identity management, are all performed on the block chain. As a result, the services that support these functions are revolutionized. Professionals like traders and lawyers concentrate on writing code and maintaining the block chain. The process of regulation is switched as well. Regulators download the ledger for a market, such as commodities, every day. Bitcoin’s pseudonymity permits regulators to understand the risk of entire markets, while still maintaining the privacy of individual actors. The government creates the Block Chain Administration to oversee cryptographic exchanges and provide consumer protection. In brief, all transfers of value are executed in a peer-to-peer and open, yet secure way, reducing fees and enhancing transparency.

How you can tell if this screenplay is happening:

  • A lump of physical property is exchanged over the block chain
  • Financial instruments, such as options, are created and traded over the block chain
  • A Bitcoin-based central clearinghouse is launched

Why this screenplay might not happen:

  • Economic path dependence on current systems prevents such significant disruption
  • Stakeholder interests challenge adoption
  • A Bitcoin programming abilities gap expands as the request for programmers increases

What government’s role could be:

  • Provide consumer protection and education
  • Regulate block chain-based transfers, providing standardization, security, and enforcement

“New networks”

“Number of individuals working fifteen or more jobs reaches ten percent of US population”

Two key attributes of Bitcoin enable a transition to a fresh model of work and employment. Very first, Bitcoin’s utility in facilitating micropayments permits people to more lightly receive compensation for the many tasks they perform as part of a digital network. 2nd, and perhaps even more significant, is that Bitcoin is a self-propelling, decentralized, peer-to-peer network that permits its members to derive both income and utility from their participation. Today’s technology services, like email and social media networks, provide utility to users free of charge and generate income for owners. But as the telling goes, if you’re getting something for free, you aren’t the customer, you’re the product. In a Bitcoin world, users are both the customer and the product, because individuals participate in the Bitcoin network by both exchanging the currency and validating the transactions. Presently, at the average day job, a person may spend eight hours at her desk and be paid an income for that one role. In addition, he or she is tweeting, reading news articles, and checking out blogs, generating valuable data across the entire day. In the future, we could engage in these same activities and get paid for all of them as Bitcoin enables payment for the myriad activities individuals perform as part of a networked economy.

How you can tell if this script is happening:

  • Mainstream online media sites prize commenters for input
  • A public technology company accounts for user income on its 10-K

Why this script might not happen:

  • This is a major departure from our current employment model
  • Achieving this screenplay requires technological savvy on a larger scale than exists today

What government’s role could be:

  • Adjust definition of employment to include this fresh type of work
  • Refocus taxation and other policies to stimulate this fresh type of work
  • Tap into the fresh labor pool created by this employment model

These scripts lie within the area of the possible. Tho’ the very first script is closest to the status quo, current trends may indicate that the 2nd screenplay is possible in the near term, which may lay the groundwork for the seemingly more distant scripts. Certainly, some skeptics argue that Bitcoin will be the Esperanto of finance. Thirteen But, others are intrigued by Bitcoin’s potentially more revolutionary influence. As Kevin Kelly, co-founder of Wired, writes in his latest book Fresh Rules for the Fresh Economy, “The fine benefits reaped by the fresh economy in the coming decades will be due in large part to exploring and exploiting the power of decentralized and autonomous networks.” fourteen Bitcoin is an early example of this future.

Given the spectrum of possible scripts, the range of deeds available to governments and businesses is broad. Some foreign governments have attempted to ban Bitcoin by making the exchange of cash for bitcoins illegal. Others have taken a “wait and see” treatment, permitting the ecosystem around Bitcoin to develop while closely monitoring it. In the United States, government agencies have begun to issue taxation and other guidance, paving the way for entrepreneurs to create a fresh wave of Bitcoin-related companies and large corporations to engage in the Bitcoin economy.

Bitcoin is yet another example of how fresh technologies and trends can pop up seemingly out of nowhere, creating problems and opportunities for government as it sorts out how to react. Most governments chose a hands-off treatment to the Internet when it emerged in the 1980s. But the lessons of the Internet should be fair warning that these fresh technologies can come out of nowhere and switch everything. Bitcoin’s direct relevance to traditional government domains, such as currency and taxes, merits specific consideration. Given its broad potential influence on activities from contracts to identity management, agencies tasked with diverse operations, from financial markets oversight to border patrol, need to monitor Bitcoin’s evolution. Governments need to understand how Bitcoin will evolve in the brief term. But even more importantly, they need to explore how the concepts underlying this fresh technology could intersect with their mission in the future. Fifteen

Credits

Written by: Tiffany Wan, Max Hoblitzell

Acknowledgements

We are grateful to the many individuals who collective their time and expertise via the writing of this report. Carmen Medina served as the research sponsor for this project, providing us with insight, inspiration, and general “Yoda-ing.” This GovLab project and paper would not have been possible without her mentorship. Special thanks go to Shrupti Shah , GovLab director, and Bill Eggers , director of Deloitte Global public sector research, for advice via the writing process.

Several Deloitte colleagues provided invaluable feedback at all phases of our research. We would like to thank Brien Lorenze , Financial Advisory Services principal, who early on in the research process spotted promise and potential in this project. Thank you to Val Srinivas , head of research for Deloitte’s Center for Financial Services, and to his staff, Ryan Zagone and Dennis Dillon , for collaborating on this emerging topic. We greatly appreciate the advice and support of Deloitte’s Cryptocurrency Community of Practice, in particular Pierre Rochard . Thanks to Tiffany Fishman , Deloitte Services LP; Mark White , Global Consulting CTO; and Devon Halley , GovLab manager, for their wisdom and guidance. Hats off to Vetan Kapoor , former GovLab fellow, for his contributions to the project.

We would like to thank the individuals whose interviews informed our research, including Barry Silbert , CEO of SecondMarket; Miles Kimball , professor of economics and survey research at University of Michigan; Nick Tomaino and the team at Coinbase ; John Collins , senior staff at the Senate Committee on Homeland Security and Government Affairs; Rodolfo Gonzalez , associate at Foundation Capital; and the Ethereum team. We also want to extend a special thank you to Walter Frick , associate editor at Harvard Business Review, for providing the chance to contribute to Harvard Business Review’s blog and for speaking opportunities at Harvard University.

Lastly, we would like to thank our GovLab colleagues for creating a culture of innovation—a place that supported and shoved us to take an arousing rail with Bitcoin.

Bitcoin: Fact

Bitcoin Fact. Fiction. Future.

Tiffany Wan, Max Hoblitzell

Virtual currencies such as Bitcoin could be the natural next stage in the evolution of money.

Introduction

Despite an explosion in media coverage, virtual currencies such as Bitcoin are misunderstood. Every day, news articles describe exchange meltdowns, price volatility, and government crackdowns. This concentrate on Bitcoin as a volatile and even renegade currency may be distracting governments and businesses from its potential long-term significance as a disruptive fresh money technology.

Bitcoin is more than just a fresh way to make purchases. It is a protocol for exchanging value over the Internet without an intermediary. Much has been written about the payment applications of Bitcoin, including remittances, micropayments, and donations. However, Bitcoin could soon disrupt other systems that rely on intermediaries, including transfer of property, execution of contracts, and identity management.

As the Bitcoin ecosystem evolves and use cases emerge, the public and private sectors will face fresh challenges, opportunities, and responsibilities. Government may detect fresh methods for executing its mission as a regulator and law enforcer, while corporations may build upon Bitcoin technology to create innovative products and services. In the future, Bitcoin may even revolutionize the way we conduct business and think about work. The sooner the public and private sectors understand the potential of this fresh technology, the better ready they will be to mitigate its challenges and realize the benefits of Bitcoin and other similar virtual currencies.

This report explains the technology underlying Bitcoin and other virtual currencies, identifies fresh applications, and investigates the influence of potential future screenplays. If Bitcoin’s brief history is an indicator, the future of this technology will be an titillating rail.

Bitcoin overview

Bitcoin is best thought of as a natural next step in the evolution of money. Across history, many items have been used as a store of value and medium of exchange, such as cowrie shells, clay tablets, coins, and now paper money. Embarking in the 18th century, nation-states increasingly used precious metals such as gold and silver to back their paper money, creating a monetary system called the gold standard. The gold standard required governments to hold enough precious metal reserves to support their currency. As the global economy became more elaborate in the 2nd half of the 20th century, most nations eventually moved away from the gold standard, creating fiat currencies built on laws and trust in government.

As our understanding of money as a store of value, medium of exchange, and unit of account has matured, so have the methods and modes for exchanging it. In this sense, the exchange of money has always been a function of the technology available. We moved from precious metal coins to paper money before inventing checks, then credit cards. Yet credit cards weren’t created for the Internet era. They’ve simply been adapted to meet the needs of consumers operating in a networked and digital world. With the consumer-accessible Internet now twenty years old, the question is not why a currency specifically designed for the Internet has emerged, but what took it so long.

Bitcoin is one of the very first currencies born on the Internet to be used in the real economy. It can be used to make purchases of goods like smartphones, hotel stays, pizza, and coffee. Other virtual currencies have since been created from the same open source code as Bitcoin, including Litecoin and Dogecoin, the virtual currency based on the Doge meme. One More are popping up every day. Some of these currencies aim to improve upon Bitcoin’s technical or operational difficulties, such as transaction speed and security. However, Bitcoin so far has sustained its first-mover advantage. It is the most popular and has the highest value in circulation. As of June Four, 2014, there are 12.85 million bitcoins in circulation with a total market capitalization of $8.Trio billion. Two

How does Bitcoin work?

Bitcoin is a protocol for exchanging value over the Internet without an intermediary (figure 1). It’s based on a public ledger system, known as the block chain, that uses cryptography to validate transactions. Bitcoin users build up access to their balance through a password known as a private key. Transactions are validated by a network of users called miners, who donate their computer power in exchange for the chance to build up extra bitcoins. There is a immobile supply of twenty one million bitcoins that will be step by step released over time at a publicly known rate. There is no monetary authority that creates bitcoins. The capped supply of twenty one million is known to all, and the rate of supply diminishes over time in a predictable way. As a store of value, this means that bitcoins are inherently deflationary. It also means that there is no government or central entity to make discretionary decisions about how much currency to create or attempt to defend it through monetary policy deeds. Three

In order to process a bitcoin-denominated transaction, Bitcoin verifies two facts addressed by current payment systems like PayPal or Visa. The very first is that when user A transfers a bitcoin to user B, user A has a bitcoin to spend (that is, prevention of counterfeiting). The 2nd is that when user A transfers a bitcoin to user B, user A is not attempting to transfer the same bitcoin to another user, user C, at the same time (that is, prevention of dual spending).

As Bitcoin matures, an ecosystem of companies is emerging to support consumers and retailers in storing, exchanging, and accepting bitcoins for goods and services:

  • Banks and wallets store bitcoins for users either online or on storage devices not connected to the Internet, known as “cold storage.”
  • Exchanges provide access to the Bitcoin protocol by exchanging traditional currencies for bitcoins and vice versa.
  • Payment processers support merchants in accepting bitcoins for goods and services.
  • Financial service providers support Bitcoin through insurance or Bitcoin-inspired financial instruments.

What are the qualities of Bitcoin as a technology system?

Bitcoin has three qualities that differentiate it from other currencies and payment systems.

Very first, Bitcoin is peer to peer, transferring value directly over the Internet through a decentralized network without an intermediary. Current payment systems, like credit cards and PayPal, require an intermediary to validate transactions; Bitcoin does not. As a result, Bitcoin has been referred to as “Internet cash,” as it can be exchanged from person to person much like paper currency today.

2nd, Bitcoin is open, yet securely authenticated. Traditional payment systems rely on the privacy of transaction information to maintain security. For example, the compromise of a credit card transaction can result in the release of valuable information that can be used to conduct future transactions. In comparison, Bitcoin relies on cryptography. As every transaction is validated with cryptography by the network of miners, Bitcoin functions because of its openness, not despite it.

Third, Bitcoin is self-propelling. Bitcoin uses its own product, bitcoins, to prize or “pay” miners who are providing the computing power that serves as the engine of the transaction verification system. As a result, the system does not require the same type of overhead that traditional payment systems might require. In this sense, Bitcoin functions because of those participating in the system.

These three aspects are part of what drives Bitcoin’s success, enabling a almost frictionless global payment system. However, these same factors have also created challenges.

Miners are individuals that provide the computing power for Bitcoin’s validation process in exchange for the chance to build up fresh bitcoins. Together, miners make up Bitcoin’s distributed network. Miners use their computing power to validate transactions by solving a cryptographic problem, called a hash function. By using their computing power for this work, miners are rewarded with bitcoins. This is how fresh bitcoins come in the money supply. Because the money supply is capped and the rate of supply diminishes over time, the difficulty of creating a block increases and the actual amount rewarded for each fresh block created decreases.

Mining has been the subject of significant media coverage, as an arms race has grown around hardware designed to perform very specialized computations to mine bitcoins. In the early days of Bitcoin, miners were mainly hobbyists using private computers to solve relatively ordinary cryptographic problems. Now, miners are raising investor dollars to construct server farms optimized for bitcoin mining.

Bitcoin caveats: Speculation, regulation, and whatever

In order to achieve broader adoption as a currency, Bitcoin needs to address significant questions around volatility, regulatory uncertainty, exchange security, ease of use, and transaction volume.

Bitcoin speculators have driven significant price volatility, reducing Bitcoin’s utility as a medium of exchange. People may be reluctant to use Bitcoin to make large future commitments of value, or even buy a cup of coffee, when the price can switch by thirty percent overnight. Unless Bitcoin’s volatility lodges, it will be used less as a currency and more as a vehicle for speculation and “get rich quick” schemes, much like a penny stock.

The global regulatory environment around Bitcoin remains uncertain. Any news of fresh government scrutiny or rumors of a policy switch can significantly affect Bitcoin prices, reducing its stability as a currency. At the same time, businesses are unwilling to engage in the Bitcoin economy, while governments treat it as a fringe movement that is the purview of black-market operators and drug dealers, such as Silk Road. As governments begin to issue consistent guidance on Bitcoin, businesses may become more willing to accept it as a form of payment.

Security problems, punctuated by very publicized exchange meltdowns, may prevent mainstream usage of bitcoins as a currency. Many exchanges that have suffered—including Mt. Gox, which experienced the most well known exchange collapse—were built on unstable platforms with little security, due to their having been created when bitcoin trading was puny and nascent. Mt. Gox was like a bank storing valuables in the lobby entrance. To mature, exchange security needs to be as strong as at traditional banks.

The requirements necessary to securely store bitcoins have created ease-of-use problems. Tho’ digital wallets have worked to solve some of these problems, best practices for storing bitcoins include locking flash drives in a bank vault. Truly? Mainstream consumers are unlikely to use Bitcoin until wallet services develop more user-friendly and secure storage technics.

One of the very first major online retailers to accept bitcoins, Overstock.com, made more than $124,000 in bitcoin sales on January Ten, 2014, its very first day of accepting the currency.

Validating transactions requires significant electric current, bandwidth, and data storage. The resources required to support Bitcoin’s relatively puny volume of transactions are already being shoved to their thresholds. Presently, Bitcoin averages about 60,000 transactions per day. Four VisaNet, the electronic payment processing network used by Visa, treats more than one hundred fifty million transactions daily from Two.1 billion Visa cards and over two million ATMs. Five It can do this because it charges fees for the resources required to operate its servers. In order to support mainstream transaction volumes, the Bitcoin system for validating transactions will likely have to switch how it uses tens unit, bandwidth, and data storage.

Despite these obstacles, mainstream merchants are beginning to explore Bitcoin. One of the very first major online retailers to accept bitcoins, Overstock.com, made more than $124,000 in bitcoin sales on January Ten, 2014, its very first day of accepting the currency. By March 2014, Overstock.com had topped $1 million in bitcoin purchases. The company has revised its bitcoin revenue projection for two thousand fourteen from an initial $Trio to five million to $20 million. Six According to Overstock.com, Bitcoin’s popularity and its low fee structure drove fresh consumers to its marketplace. More large-scale merchants and mainstream actors in the global economy are following suit. SecondMarket, an online marketplace for buying and selling illiquid assets such as venture-backed private-company stock, is opening a Bitcoin trading platform for institutional investors.

Bitcoin: Beyond money

Bitcoin is more than a fresh currency. Bitcoin and other virtual currencies are creating a fresh architecture for exchanging information over the Internet that is peer to peer, open yet secure, and almost frictionless. Imagine how other systems that rely on intermediaries, such as property transfer, contract execution, and identity management, could be disrupted by a similarly open peer-to-peer system.

System of payment

Bitcoin reduces friction in payments. Presently, when an individual transfers funds, he or she must work with a third party. This intermediary, such as a credit card or payments company, often exacts high fees. For example, for remittances, there is an average fee of nine percent, with some banks charging an extra fee of up to five percent for turning the remittance into cash. Seven

Bitcoin permits for a direct payment to anyone, anywhere in the world, at any time (figure Two). With Bitcoin, an individual could transfer value to his or her cousin in India without paying a fee to a global money transmitter or a bank for the wire transfer. However most uses of Bitcoin to make payments will rely on third parties, like Coinbase, Bitcoin may permit these companies to charge lower fees than they do today. This could disrupt the global remittance market, valued at $514 billion in 2012, by providing a less expensive method for direct transfers globally. Eight Current providers may be compelled to lower fees or be substituted by entrants like BitPesa, a mobile payment application for Bitcoin in the developing world.

In the same way that Bitcoin lowers transaction costs for remittances, it could also lower transaction costs for everyday purchases of low-margin items. Today, if someone buys a donut with a credit card, the merchant pays an interchange fee to the credit card issuer. This interchange fee is usually a petite vapid amount (10-20 cents) plus a percentage of 1-3 percent. Nine For a low-margin good like a donut, a 10- to 20-cent plane fee can treatment one hundred percent of the cost of goods. This interchange fee is often passed on to the customer. Using Bitcoin, the transaction fee could be lowered to as little as one percent. Ten This could ultimately evolve into a fresh payment system for credit card companies and banks.

Transfer of property

The Bitcoin protocol could simplify elaborate asset transfers, revolutionizing the services that support this industry (figure Three). Presently, the transfer of large assets requires significant time and resources. For example, in order to purchase a car from an individual seller, one has to engage a third party to transfer the title. Additionally, one has to use services to learn about the car’s accident and inspection history. And who doesn’t like to spend a Saturday at the Department of Motor Vehicles updating a car registration?

The block chain, Bitcoin’s public ledger, could switch all of this. Bitcoins can be qualified in such a way that they represent real-world assets. Bitcoin entrepreneurs at companies like Colored Coin are already working on ways to use puny portions of Bitcoin to denote physical property. A fraction of a Bitcoin would publicly identify who presently wields that property, and could include a record of both past ownership and other history about the property. When purchasing a car, one would be able to verify all accidents and inspections over the block chain and transfer the title on site. Similarly, real estate and financial instrument transactions could all be executed over Bitcoin or a similar protocol.

This could soon create efficiencies and reduce friction by permitting individuals to directly transfer property without the use of a broker, lawyer, or notary to sign off on the transfer.

Execution of contracts

Bitcoin could similarly be used to structure contracts, bringing fresh efficiency and transparency to the process (figure Four). Contracts are typically developed by lawyers on a case-by-case basis, with significant time and resources loyal to negotiation, development, and enforcement. Additionally, markets based on contracts, including certain financial derivatives markets, lack transparency, which complicates regulation.

Traditional contracts could be substituted by code that self-executes when a triggering event occurs. In a ordinary example, a financial instrument, like an option, could be developed and executed over the block chain. In addition to reducing legal fees, this could bring fresh transparency to financial markets, as regulators could use the public ledger to understand the market without forcing individual actors to expose their specific positions. It is possible that fresh crypto-currencies will emerge to serve these niche purposes.

Fresh ventures, like Ethereum, are creating these capabilities today. Ethereum is developing a network to serve as both the registry and escrow to execute the conditions of a contract automatically through rules that can be checked by others.

Identity management

Bitcoin’s cryptography and block chain could also convert identity management. Much of identity management, including passports, still operates on a paper-based system. These documents are frequently forged and stolen. Interpol’s database presently lists thirty nine million stolen travel documents. But what if there was a way to create a unique, verifiable key that was unlikely to forge?

A cryptographic network similar to but separate from Bitcoin could be used to verify individuals’ identities and monitor movement across borders (figure Five). When a person travels through a checkpoint at a border crossing, instead of displaying and scanning a paper passport, he or she could present his or her Bitcoin key. A network privately maintained by the government, a contractor, or other entity could verify the key and register the entry into the ledger. This system, based on cryptography instead of paper documents, would at the same time increase mobility and security. If Bitcoin can be used for travel documents, it could also be used for other forms of identity management like social security numbers, tax identification numbers, or even driver’s licenses.

Property, contracts, and identity management are only a few examples of how a peer-to-peer, open, and frictionless system could switch business in the future. In order to achieve this broader adoption, Bitcoin will need to address significant questions around trust, ease of use, and operability. To date, the Bitcoin community has shown remarkable adaptability and it is already working to mitigate these problems. In the next decade, we can expect significant innovation around the Bitcoin network. However much of that will revolve around payments, particularly early on, the evolution of Bitcoin could take several diverging paths.

Extra use cases for Bitcoin in the payment space include:

Banking services in developing countries

Developing countries with suitable mobile phone infrastructure may be able to leapfrog the developed world in the maturation of mobile finance. As a form of electronic banking, Bitcoin could be an avenue for financial inclusion in emerging markets.

Micropayments

A micropayment is a very puny financial transaction that occurs online. Practical systems to permit for the transfer of $1 or less online with a credit card do not exist. Bitcoin could facilitate the direct payment to musicians for individual songs or the capability to “tip” individuals on Twitter, Reddit, or other social media platforms. It could also be used for newspapers and other content producers looking for fresh revenue models.

Future of Bitcoin

Many factors will influence Bitcoin’s evolution, including regulation, technological innovation, and economic conditions. Predicting the future of Bitcoin today resembles what it must have been like to attempt to comprehend the significance of the Internet in the 1990s. Some experts, such as Ray Kurzweil in his book The Age of Intelligent Machines, very first published in the late 1980s, got it spectacularly right. But others, like Paul Krugman, who in one thousand nine hundred ninety eight predicted that the Internet’s influence on the economy would be no greater than the fax machine’s, were dead wrong, however for understandable reasons. Eleven Timelines for the adoption and extension of fresh technologies are inherently unpredictable, primarily because their ultimate influence will be a result of how humans interact with them.

Bitcoin’s future can best be understood by considering four scripts that represent a range of possible outcomes.

“Life on the fringe”

“Investors flee Bitcoin as another exchange collapse sends bitcoin prices plummeting”

Bitcoin, the currency, never solves its trust and security problems, reinforcing price volatility and skepticism. It remains an arena for illegal activity and speculation. As a result, companies in the Bitcoin ecosystem are incapable to come in into mainstream commerce. Exchange collapses and sales of illicit goods and services proceed to occur. The majority of bitcoins are held by speculators, crowding out users who want to use the protocol to make legitimate purchases. Bitcoin and its imitators resemble penny stocks instead of a payment system. In brief, the concentrate on bitcoin’s obstacles as a currency prevent the benefits of the technology from being fully realized.

How you can tell if this script is happening:

  • Another exchange meltdown, security breach, or operational failure occurs
  • Volatility proceeds to be ten to fifteen times higher than traditional assets such as gold 12
  • Bitcoin suffers a flash crash

Why this script might not happen:

  • The Bitcoin community solves the trust and security problems related to bitcoin as currency
  • Bitcoin as technology overwhelms the reservations about bitcoin as currency by creating fresh offerings and markets

What government’s role could be:

  • Issue guidance and regulations on Bitcoin as a currency and as a technology, signaling that both aspects can be taken gravely
  • Concentrate on enforcement for illicit activity, like money laundering
  • Create safeguards to protect mainstream consumers from being victimized by Bitcoin wallet and exchange scams

“CorporateCoin”

“Payment card companies contest to suggest low-fee Bitcoin-based payment options”

Payment and technology companies incorporate the Bitcoin protocol into their payment systems. These companies build proprietary payment platforms using cryptography for security and the block chain for transaction validation. Bitcoin moves to the back office and becomes invisible to the consumer in the same way that different Internet protocols are invisible to most web users. As a result, payments occur across the Bitcoin protocol, but consumers are not required to hold bitcoins. This drives down fees for payment cards and eliminates exchange risk. In brief, the Bitcoin protocol grows as a money technology, is adopted by mainstream institutions, and embarks to serve as the backbone of many Internet transactions.

How you can tell if this script is happening:

  • Services suggested by traditional payment solutions, like credit and fraud protection, are provided around Bitcoin
  • A fresh wallet technology is introduced in the form of a Bitcoin payment card

Why this script might not happen:

  • Large payment companies lower fees to match Bitcoin without adopting its protocol
  • Corporations proceed to distrust open-source technology

What government’s role could be:

  • Enable companies to use Bitcoin as a payment mechanism through tax and financial crimes enforcement guidance
  • Encourage payment companies to use the Bitcoin protocol to suggest low-fee solutions for underbanked populations

“Satoshi for all”

“Regulators rescue Wall Street after block chain exposes fresh market risk”

Bitcoin becomes the protocol for all transfers of value, creating fresh visibility into financial markets and converting the services around these functions. Exchanges of value and information, such as property transfer, contract execution, and identity management, are all performed on the block chain. As a result, the services that support these functions are revolutionized. Professionals like traders and lawyers concentrate on writing code and maintaining the block chain. The process of regulation is switched as well. Regulators download the ledger for a market, such as commodities, every day. Bitcoin’s pseudonymity permits regulators to understand the risk of entire markets, while still maintaining the privacy of individual actors. The government creates the Block Chain Administration to oversee cryptographic exchanges and provide consumer protection. In brief, all transfers of value are executed in a peer-to-peer and open, yet secure way, reducing fees and enhancing transparency.

How you can tell if this screenplay is happening:

  • A chunk of physical property is exchanged over the block chain
  • Financial instruments, such as options, are created and traded over the block chain
  • A Bitcoin-based central clearinghouse is launched

Why this script might not happen:

  • Economic path dependence on current systems prevents such significant disruption
  • Stakeholder interests challenge adoption
  • A Bitcoin programming abilities gap expands as the request for programmers increases

What government’s role could be:

  • Provide consumer protection and education
  • Regulate block chain-based transfers, providing standardization, security, and enforcement

“New networks”

“Number of individuals working fifteen or more jobs reaches ten percent of US population”

Two key attributes of Bitcoin enable a transition to a fresh model of work and employment. Very first, Bitcoin’s utility in facilitating micropayments permits people to more lightly receive compensation for the many tasks they perform as part of a digital network. 2nd, and perhaps even more significant, is that Bitcoin is a self-propelling, decentralized, peer-to-peer network that permits its members to derive both income and utility from their participation. Today’s technology services, like email and social media networks, provide utility to users free of charge and generate income for owners. But as the telling goes, if you’re getting something for free, you aren’t the customer, you’re the product. In a Bitcoin world, users are both the customer and the product, because individuals participate in the Bitcoin network by both exchanging the currency and validating the transactions. Presently, at the average day job, a person may spend eight hours at her desk and be paid an income for that one role. In addition, he or she is tweeting, reading news articles, and checking out blogs, generating valuable data via the entire day. In the future, we could engage in these same activities and get paid for all of them as Bitcoin enables payment for the myriad activities individuals perform as part of a networked economy.

How you can tell if this screenplay is happening:

  • Mainstream online media sites prize commenters for input
  • A public technology company accounts for user income on its 10-K

Why this script might not happen:

  • This is a major departure from our current employment model
  • Achieving this script requires technological savvy on a larger scale than exists today

What government’s role could be:

  • Adjust definition of employment to include this fresh type of work
  • Refocus taxation and other policies to stimulate this fresh type of work
  • Tap into the fresh labor pool created by this employment model

These scripts lie within the area of the possible. Tho’ the very first screenplay is closest to the status quo, current trends may indicate that the 2nd screenplay is possible in the near term, which may lay the groundwork for the seemingly more distant scripts. Certainly, some skeptics argue that Bitcoin will be the Esperanto of finance. Thirteen But, others are intrigued by Bitcoin’s potentially more revolutionary influence. As Kevin Kelly, co-founder of Wired, writes in his latest book Fresh Rules for the Fresh Economy, “The fine benefits reaped by the fresh economy in the coming decades will be due in large part to exploring and exploiting the power of decentralized and autonomous networks.” fourteen Bitcoin is an early example of this future.

Given the spectrum of possible screenplays, the range of deeds available to governments and businesses is broad. Some foreign governments have attempted to ban Bitcoin by making the exchange of cash for bitcoins illegal. Others have taken a “wait and see” treatment, permitting the ecosystem around Bitcoin to develop while closely monitoring it. In the United States, government agencies have begun to issue taxation and other guidance, paving the way for entrepreneurs to create a fresh wave of Bitcoin-related companies and large corporations to engage in the Bitcoin economy.

Bitcoin is yet another example of how fresh technologies and trends can pop up seemingly out of nowhere, creating problems and opportunities for government as it sorts out how to react. Most governments chose a hands-off treatment to the Internet when it emerged in the 1980s. But the lessons of the Internet should be fair warning that these fresh technologies can come out of nowhere and switch everything. Bitcoin’s direct relevance to traditional government domains, such as currency and taxes, merits specific consideration. Given its broad potential influence on activities from contracts to identity management, agencies tasked with diverse operations, from financial markets oversight to border patrol, need to monitor Bitcoin’s evolution. Governments need to understand how Bitcoin will evolve in the brief term. But even more importantly, they need to explore how the concepts underlying this fresh technology could intersect with their mission in the future. Fifteen

Credits

Written by: Tiffany Wan, Max Hoblitzell

Acknowledgements

We are grateful to the many individuals who collective their time and expertise via the writing of this report. Carmen Medina served as the research sponsor for this project, providing us with insight, inspiration, and general “Yoda-ing.” This GovLab project and paper would not have been possible without her mentorship. Special thanks go to Shrupti Shah , GovLab director, and Bill Eggers , director of Deloitte Global public sector research, for advice across the writing process.

Several Deloitte colleagues provided invaluable feedback at all phases of our research. We would like to thank Brien Lorenze , Financial Advisory Services principal, who early on in the research process eyed promise and potential in this project. Thank you to Val Srinivas , head of research for Deloitte’s Center for Financial Services, and to his staff, Ryan Zagone and Dennis Dillon , for collaborating on this emerging topic. We greatly appreciate the advice and support of Deloitte’s Cryptocurrency Community of Practice, in particular Pierre Rochard . Thanks to Tiffany Fishman , Deloitte Services LP; Mark White , Global Consulting CTO; and Devon Halley , GovLab manager, for their wisdom and guidance. Hats off to Vetan Kapoor , former GovLab fellow, for his contributions to the project.

We would like to thank the individuals whose interviews informed our research, including Barry Silbert , CEO of SecondMarket; Miles Kimball , professor of economics and survey research at University of Michigan; Nick Tomaino and the team at Coinbase ; John Collins , senior staff at the Senate Committee on Homeland Security and Government Affairs; Rodolfo Gonzalez , associate at Foundation Capital; and the Ethereum team. We also want to extend a special thank you to Walter Frick , associate editor at Harvard Business Review, for providing the chance to contribute to Harvard Business Review’s blog and for speaking opportunities at Harvard University.

Lastly, we would like to thank our GovLab colleagues for creating a culture of innovation—a place that supported and shoved us to take an arousing rail with Bitcoin.

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