Bitcoin, Payment Security, and Consumer Protection

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so it's wonderful to be in Australia I
came here and it's my first time in
Melbourne I was looking forward to
meeting Australians turns out half of
Melbourne is Greeks go so I guess I'll
have better chance in Sydney he'll meet
some Australians there or maybe you are
all Australians and then yeah he's great
- I was very surprised there's a lot of
this is probably one of the most
multicultural cities I've ever been to
it's a really a fantastic city and if
you have the kind of weather you had
yesterday most of the time I can see the
appeal of living here so you can just
leave me under the illusion that that's
the kind of weather you have all of the
time that's good
all right so first of all how many
people here are familiar with Bitcoin
mostly insiders how many of you have
Bitcoin okay and how many of you have
not heard much about Bitcoin until today
okay just just a few people who are new
to this space so I'm not going to I'm
not going to do an introductory
presentation to Bitcoin since the vast
majority of the audience is familiar
with Bitcoin and I thought I was going
to talk about some of interesting topics
around this first of all I recently
heard that Australia is considering
taxing Bitcoin as an intangible asset
with sales tax is that true and I -
actually in class yeah and so I'm
careful guys
has this already happened I think it's
very unlikely to happen except that's
what we've been caught okay so that is a
monumentally stupid idea as you can that
was my diplomatic way of speaking to
politicians it's it's as monumentally
stupid as it would have been in 1994 to
classify the internet as a fax machine
service and put it under the control of
the telecom companies or to classify it
as a CB radio a fancy CB radio and ask
every user of the Internet to pass a
Morse code exam and get an operator's
license and those things didn't happen
because at the time the regulator's took
a wait-and-see approach and decided to
let the technology itself flourish for a
while before trying to apply any
regulations it's a good idea because the
truth is that very few people really
understand what bitcoin is exactly and
how it works and I don't mean very few
politicians I mean very few people in
general really really really understand
Bitcoin I wouldn't count myself as one
of them
I understand parts of Bitcoin but I
don't think I can predict where this
thing is going I don't think I can
predict even a fraction of the types of
applications that are likely to be built
on a Bitcoin none of us know this is
uncharted territory
the reason it's uncharted territory is
because nothing like Bitcoin has ever
happened before I don't say that you
know just as a extreme statements I I
think it's absolutely true the idea of a
trusted decentralized network that
allows an individual anywhere in the
world to transmit value or establish
ownership over digital assets and
transmit that in a matter of seconds
anywhere in the world transparently
safely almost instantaneously and for
less than a third of a penny that
has never happened before and we don't
know what uses that will be put to yet I
can think of a thousand different
interesting uses but we don't really
know it fundamentally changes some of
the core assumptions of how money works
and the thing is that while we conceive
of money as this universal thing
in fact we experience it as many
different aspects of money there's fast
money
there's slow money there's money that
works best in small increments and money
the works best in large increments I
have some money that's printed on metal
coins in my pocket and that is fantastic
money to use to pay a parking meter if I
try and go buy a Porsche with that form
of money I will need a wheelbarrow and
most likely they will look at me funny
at the Porsche dealership right or if I
try to buy a house with that form of
money if I try to pay for the parking
meter with a check or a bearer
certificate bonds I will be looked at
funny by the parking attendants and when
I try to get on the tram here
apparently I need a Mickey card
and I don't know what a Mickey cart is
my or my key card and how to get it and
how to charge it and I certainly don't
know if I can use it for anything else
what I'm getting at is that we don't
experience money as a universal protocol
we experience money as a series of
fragmented networks very very fragmented
networks and there's a parallel to this
before the Internet age
telecommunications was like this if you
wanted to send a long-distance message
you'd write it down on paper and use the
postal service if you wanted to transmit
video you'd use a broadband connection
to a satellite and bounce it off there
if you wanted to transmit text rapidly
you'd use a telegram or telex if you
wanted to transmit an image you'd use a
fax machine if you wanted to transmit
video well you couldn't really you could
put it on a VHS tape and then mail it
somewhere so every type of content had a
different network and those networks
were segregated by speed and convenience
and cost and time to destination and all
of these restrictions and the internet
brought all of these things together it
brought all of these things together and
allowed us to use a single network
regardless of the type of message we
were sending and use it for fast and
slow for small and large for cheap and
expensive right and that was really an
interesting thing because it suddenly
changed the way we used information it
didn't just make it more convenient it
didn't just make it more accessible it
fundamentally changed the way we used
information things that we would only do
sparsely we could do now continuously
things that were too expensive to do
we're now cheap things that were too far
to reach became close we're about to do
that with money Bitcoin does that to
money in the financial environment there
are literally hundreds of different
networks there is Swift the Society for
worldwide interbank fund transfer and
you've never used Swift unless you're a
broker
you've never used Swift a swift terminal
is something a bank has and they use it
to send 25 million dollar wire transfers
to another bank somewhere else in the
world right so that's the big payment
only bank to bank Network
there's visa and you can use that if
you're a merchant you can receive on it
and it's a consumer to business network
but it only works really above five
dollars approximately it doesn't work
for less than five dollars and there's
an upper limit really on what you can
send so if you want to send twenty five
million dollars to review you can't
really do that and you can use checks
and you can use ACH clearinghouse the
way we call it in the States which is
checking account Clearinghouse for
transactions between individuals
I don't know how easily you can send
money from individual to individual here
if you want to say pay your rent in the
United States most people write a check
because that's the most convenient way
to do it they take money from a digital
bank account they write on a piece of
paper they put this paper into a
terrestrial mail transport system where
it takes three days to arrive at their
landlord their landlord takes this piece
of paper presents it to the bank which
in itself is complicated the bank then
types something into a computer and then
the money is transferred and then it
sits there for three to five business
days this is in 2014 in the most
prosperous country in the world and this
is no less than insanity right now I
don't know if it's easier for you guys
here in the UK it's somewhat easier to
send money between two individuals in a
bank it's probably a bit easier for you
but if you want to send money from here
to New Zealand even though it's not that
far I bet things would suddenly get a
lot more complicated and you might have
to revert to some kind of paper-based
instruments or you might have to pay
some third party intermediary like
Western unions $35 for the privilege of
moving money across the
Oshin as if they have to physically
carry sacks of gold whereas in fact what
they're doing in the back end is no
different than an email we live in a
world where banking is horribly
fragmented where finances we experience
it is broken the experience for a
consumer is different from that from a
business the experience for a small
amount is different from a big amount if
you want to send money fast you can only
send small amounts you want to send
large amounts and fast you can't do that
unless you pay a lot of money and it
gets really really complicated as soon
as you try to send money across borders
and then there's Bitcoin a single
network that can transmit anything from
micro transactions meaning you can send
a thousandth of a penny two Giga
transactions meaning you can send a
hundred billion dollars and the fee you
will pay is the same exactly the same a
third of a penny maybe and the time it
will take to transmit is the same five
seconds later it's going to be visible
across the entire global network you'll
get clearance in ten minutes and it
doesn't care about borders and it
doesn't care about who the recipient is
and it doesn't care if the recipient is
a consumer or a business it doesn't care
at the sender is a consumer or business
if the device you're using to send it is
a desktop to mobile or not it doesn't
care if you took the keys off of paper
wallets or if you typed a pin into a
wallet or if you use your desktop
computer Bitcoin bridges all of those
things and provides for the first time
something that's never happened before
which is a unified protocol for
transmitting value if you think about
Bitcoin that way it is as big a
revolution in the affairs of Finance
tcp/ip was in communication it provides
a single unified transmission protocol
that spans any amount any destination
and gives you a flat playing field that
anyone can connect to
now to call that an intangible asset and
stick GST on it is if you really
understand exactly what that is is
hubris at the very least short-sighted
probably and grossly idiotic most likely
we don't know where this network is
going but what we do know is that it has
opened the possibility for creating
hundreds thousands of applications that
we could never envision and even the
most wild aynd optimists and visionaries
amongst us really don't know where this
is going I was on the internet in 1989
at the time it took days to send an
email across the internet you had to
have UNIX command-line skills it used an
email protocol called uucp
store-and-forward which was as clunky as
it sounds and you know if you ask me
then what will people be able to do with
this network I could imagine
instantaneous email I could imagine
online shopping eventually as a far
possibility I certainly couldn't imagine
Facebook or Twitter and I most certainly
could not imagine Bitcoin could pop out
of this Internet experience but it did
and today we look at Bitcoin as a
protocol and we have one app it's a
killer app it's currency and it's a
currency with our governments and banks
and it's something unique that's never
been built before but it's just the
first app and we have no idea what other
apps will be created you know I maybe
one day you'll be able to use Bitcoin
instead of a Mickey or my key card maybe
you'll be able to use the same payments
network to pay for your tram your
parking meter your Wi-Fi and your hotel
room instead of having to juggle five
different payment systems
I found the experience of visiting
Australia quite funny because as an
American I come here bearing 20th
century technology I have a credit card
with no chip which apparently is an
alien artifact from a previous century
as far as most Australians are concerned
because they'll take my card and don't
wave it over a reader and nothing
happens it reminds me of this episode of
I think it was Star Trek where they they
go back in time and then lands on the
planet and they go into a computer store
and one of the Star Trek crew picks up a
mouse and goes computer and yeah that's
my experience with my card and every
time I have to explain no this is an
old-style
swipe and sign they're like wow swipe
and sound fine yeah I'm like a time
traveller to the future it's amazing
that doesn't stop us however from
sending our president here to tell you
how to manage your Great Barrier Reef it
takes a certain level of audacity to go
to another country be completely
oblivious about the fact that we have
inferior technology in the big scheme of
things and then tell all the people how
to run their business but we think to be
pretty good at that so my experience
with credit cards here has been rather
revealing because even within the world
of credit cards you see these vast
differences and every time I travel the
same problem keeps happening to me I
called every single one of my banks and
I've told them in every different way
that I can that I travel a lot so I try
to explain to them that if you see my
credit card pop up in Southeast Asia on
Monday in Australia on Tuesday and in
Kuala Lumpur on Wednesday and Paris the
next day that is normal behavior for me
so do whatever you will need to do to
your fraud management
algorithms that is my normal and so
every time I go traveling I swipe my
card and then I'll see on my email that
I got a missed call on my u.s. phone
number from visa fraud prevention
services asking me to verify that this
was indeed the charge maids on my
account and if I don't respond to that
message in three days my card gets shut
down so now I'm traveling the world with
a piece of plastic that is literally
worthless and no matter how many times
I've tried to explain this there are
notes on my account that say don't shut
down this card this is normal behavior
they can't get their head around the
possibility that someone would travel to
different countries and interact with
foreigners so so my credit cards are
broken but if you think about it credit
cards are broken by design and most of
us don't really think about how broken
credit cards are so let's go back and
look at credit cards with a clear eyes
and examine all the ways in which they
are broken
first of all credit card technology was
invented in the 50s
this technology started just after the
Second World War in 1950 I believe the
first card was a Diners Club Card and
this was essentially a plastic version
of a traveler's check that had your name
on it and a member number which at the
time was a four-digit number and so this
technology has now been extended into
our current always connected Internet
enabled global multipolar world but it
hasn't fundamentally changed and that's
why it's failing it's failing at every
level because credit cards are broken by
design the most fundamental way in which
a credit card is broken is the fact that
every time I buy something with a
merchant what I'm giving them
is the credentials to draw money from my
accounts so I'm giving them the secret
keys to every merchant I interact with
and the more you use your card the more
you give your secret keys to every
merchant they then store them and builds
giant databases with 50 or 60 million of
the secret access codes to everybody's
credit accounts and then they act with
surprise and shock and dismay when a
hacker comes along and steals all 60
million credit cards out of their super
secret database and there are two types
of companies in this world there are
companies that have failed to protect
their databases of credit cards and have
been hacked and there are companies that
will fail to protect their databases and
get hacked in the future no one can stop
this from happening if you put
everybody's access credentials in a
single database it will get stolen
simple as that people will always find a
way
credit cards are broken by design
because every time you do a credit card
transaction what you're doing is you're
opening a channel that allows that
merchant or anyone who gets that
information to do a pull request to pull
from your accounts the credit cards are
also broken by design in another very
fundamental way which is that the credit
card information doesn't stand alone it
is connected to your identity and in
order to execute a transaction you have
to provide your identifying information
you have to provide a name you have to
provide an address you have to provide
additional information in many cases and
in many countries it's not uncommon to
also provide a tax number or date of
birth for almost every online commerce
credit card transaction so what that
means is that now you're not just
exposing the credentials that can pull
from your account you're also exponents
of your identity elements that when
enough of them are collected you are now
a victim of identity theft
and so credit cards expose you both too
fast and identity theft every time you
use them it's really difficult to see
the comparison for people who don't
understand Bitcoin and to understand
that Bitcoin transactions have no
identity on them by design and that that
is not a problem that is a feature and
that when you execute a Bitcoin
transaction the transaction itself gives
the specific amount of value to the
merchants and nothing else and by having
that transaction they can't go back and
charge your account again they can't
pull money from your account again
because you pushed a specific value to
them that's what you signed for you
can't Forge that signature so Bitcoin
doesn't expose you too fast and it
doesn't expose you to identity theft
which means that when you operate with
Bitcoin all of the rules of the game
change if you've ever tried to build a
merchant solution and an ecommerce
solution or you've tried to take credit
cards you'll notice that you have to do
a lot of work to keep those cards secure
the moment you touch credit cards every
system that touches them has to be
secured firewall decrypted audited
monitored etc and Bitcoin systems don't
have to do that I can add a Bitcoin
payment system on my website and every
transaction I received with Bitcoin I
don't have to encrypt it it doesn't have
to come over an encrypted connection I
can sort it in a database it doesn't
have to be encrypted doesn't have to be
monitored if you go in there and you
steal all of that information
you've managed to create a somewhat
smaller replica of what's already on the
blockchain so what did you achieve
nothing you just got a small subset of
Bitcoin transactions you can look them
up on the Box shake you don't need to
break into my website to get them I can
transmit those over an unencrypted
medium what this means is that you can
do an incredible amount of innovation
with Bitcoin that you couldn't do before
because you can leave the network open
to access and you can make the
e-commerce channels completely open for
example there's a company in the US that
is using
chirp to do Bitcoin transactions and
chirp is a protocol using sound so
essentially your phone sings a little
tune almost like an old-style modem in a
frequency you can't quite hear it's kind
of like a buzzing sound and a microphone
in the merchants store picks up that
sounds and gets the Bitcoin anybody else
can pick up that sound too but it
doesn't matter because Bitcoin
transactions are not sensitive so you
can transmit them in the open you can
write them on a poster you can transmit
them over all unencrypted Wi-Fi over
unencrypted Bluetooth low-energy you can
use chirp you can use NFC you can
basically broadcast these transactions
any way you like you don't need to
encrypt them you don't need to protect
them that fundamentally changes the way
we do payments networks because all of
that security goes away but the most
important thing the Bitcoin does in that
context is it provides consumer
protection Bitcoin is consumer
protection by design because it doesn't
force you to reveal your identity and it
doesn't expose your account credentials
to merchants now this seems hard to
understand because a lot of regulators
want to regulate Bitcoin for the safety
of the consumer and quite honestly the
consumer is doing pretty fine with
Bitcoin we're safe know Bitcoin
merchants is going to get hacked and
have 60 million Bitcoin account stolen
right consumer safety on Bitcoin comes
from the design of the protocol and from
two fundamental concepts one you remain
firmly in control of your money at all
times and two you don't reveal anything
sensitive when you do a transaction
those two things together make it the
most secure payment network we've ever
built if you want to hack 60 million
Bitcoin accounts you have to hack 60
million devices there's no one place
where all these keys are stored
and if if you want to protect consumers
the best way to do that is to leave them
firm firmly in control of their own
money now a lot of the regulators and we
are seeing this in Australia too but we
certainly seen it in the u.s. believe
that the best way to protect consumers
is to add identity information to our
very transaction and then have every
Bitcoin transaction have every user
identify themselves and then provide
that identifying information both to the
virgin's and to intermediaries
regulators auditors merchant processing
companies so what they're saying is take
your private identifying information and
give it to the very same intermediaries
who have been losing your private
identity information for the last decade
that is not consumer protection what
that is is incumbent protection what
that does is it protects banks from
competition it makes Bitcoin lose some
of its most powerful features so that it
is no longer a competitive threat for
the bank's so when you hear politicians
here in Australia or anywhere in the
world talk about regulating Bitcoin we
have to ask ourselves what are we trying
to achieve are they trying to achieve
consumer protection or are they trying
to achieve incumbent protection because
if they're trying to achieve consumer
protection then they would encourage
individual control over money that
Bitcoin already offers by design in fact
they would encourage Bitcoin because
Bitcoin is the most exciting disruptive
innovation that is likely to inject
competition into the banking industry
the desperately desperately needs
competition and if you create
competition in the banking industry that
is good for consumers so in the context
of the regulations around GST in this
country I think it's important to
realize that regulations like that are
not just short-sighted
not just missing the point about what
bitcoin is but they serve to hamper a
new exciting innovation that has the
very real possibility of competing
against banks and disrupting their
environment and giving them some
competition that they desperately need
and by doing regulation in that way
Australians are not making Bitcoin slow
down what they're doing is making
Bitcoin move out right and you see here
these centers which are popping out all
over the world and are creating startups
and opportunity a few months ago in the
summer we did a jobs fair in California
and for everybody who graduated after
2008 we had to explain what a jobs fair
is the idea that companies would have
jobs and come to a single place to find
candidates seemed ridiculous because
that's not the world's most graduates
after 2000 I grew up in the truth is
that the Bitcoin industry is generating
thousands of jobs already tens of
thousands in the US and I would guess
it's already generated thousands of jobs
here in Australia these Bitcoin centers
the innovation the excitement the
startups the hundreds of programmers
learning how to use these currencies to
invent new financial services and new
products and to create things that are
easier to use for consumers and make
Bitcoin easier to use these are the
beginning of a multi-billion dollar
economy and that's just serving
Australians once you put into the mix
the possibility of serving up to 2
billion unbanked people who live in in
regional terms of stone's throw away in
Indonesia in Malaysia in other parts of
Southeast Asia Australia really has the
possibility of being a hub for banking
innovation across this entire region
and so from that perspective I think
it's important to realize that bitcoin
is not some things that should be
regulated without at least some
consideration for the possibility so I
talked a bit about the idea of bitcoin
being much more than we can anticipate
at the moment an open network which
combines the characteristics of slow
money on fast money it can do small
transactions and large transactions it
transcends borders it's open to
innovation and all of those
characteristics make it a very exciting
space I'm very excited to be in the
space I think there are a lot of young
people who see this as an opportunity to
develop a career and I hope as I'm
seeing here that Australia is one of the
places that really is able to take
advantage of Bitcoin and create a
booming new industry
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