1. Bitcoin will Bite the Dust Kevin Dowd and Martin Hutchinson 32 nd Annual Cato Monetary Conference Washington DC November 6 2014

2. How Bitcoin Works Payment system based on distributed trust Bitcoin miners compete to validate transactions blocks Miners rewarded with new bitcoins and fees Competition between miners ensures integrity of system 2

3. Bitcoin’s Value Proposition Decentralized trust – Maintains integrity of system, prevents double-spend attacks etc. – No need to trust any one party to keep promises No single point of failure Potential for anonymous transactions Incentive-compatibility Tamper-proof Bitcoin protocol operates as a Bitcoin ‘constitution’ – Prevents over-issue of bitcoins etc. 3

4. Fundamental Contradiction of the Bitcoin System The system requires competitive mining to maintain its integrity BUT the Bitcoin mining industry has the structure of a natural monopoly These are incompatible Therefore Bitcoin is unsustainable Therefore Bitcoin must collapse 4

5. Collapse of Bitcoin’s Value Proposition No more decentralized trust – System depends on big pool(s) not to abuse their power – Back to the old trust model – Takeover of system by large player(s) A single point of failure No more anonymous transactions Large player(s) can corrupt Bitcoin protocol 5

6. Snapshot from Ghash.IO’s Homepage 6

7. Ghash 7

8. Implications Collapse of its value proposition is fatal Nothing to shore up confidence in the system Will produce a run on Bitcoin, collapse in price, abandonment of system Not if but when … and probably soon Our advice? Get out now 8