Virtual Currencies William Voorhees; MFA, CAMS, C.F.E. Financial - - PowerPoint PPT Presentation

Virtual Currencies

William Voorhees; MFA, CAMS, C.F.E.

Financial Intelligence Unit Manager BB&T

4/20/2018 1

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Ripped from the Headlines!

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• The Internet is very good at transferring information,

but very poor at protecting it.

• Centralized databases represent a single point of

failure.

• Blockchains were developed to protect information in

a trustless system.

• Digital currency represents incentives for decentralized

computers to maintain the Blockchain.

Different than other kinds of value transfer

Centralized Systems

• Account-based online payment systems
• Controlled by a single administrating authority
• Allow users to store value, transfer funds, receive

payments from others

• Can deal in fiat or virtual currency
• Account for the vast majority of

virtual currency transactions

Decentralized Virtual Currency:

Bitcoin

• Decentralized, peer-to-peer

network-based cryptocurrency

• Anyone can download the free, open source

software

• No central issuing authority, monitoring, or
• versight

Digital Currencies/Real Purchases

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What is Bitcoin?

Protocol

• /n/
• a

set

• f

rules and regulations that determine how data is transmitted in telecommunications and computer networking

Bitcoin is a protocol released in January 2009 that uses bits to create consensus among entries in a distributed ledger. In practical effect 'bitcoins' are purely digital 'objects' that are intrinsically limited in amount under mathematical law.

Origin

• Whitepaper by Satoshi

Nakamoto

• Bitcoin: A Peer-to-Peer

Electronic Cash System

• November 1, 2008:

Published on The Cryptography Mailing list at metzdowd.com

What do the rules enforce?

• A protocol that allows for a triple-entry bookkeeping system utilizing a

distributed peer-to-peer network

• It is comprised of the world's largest computing network - larger than the

500 largest supercomputers combined.

• Ledger entries can be altered by anyone with the 'private key‘
• Fundamental theorem of cryptography: Anything that can be done with a

central authority can be done without one.

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Distributed Network

Blockchain Defined

• Blockchain is a cloud based database shared

by every participant in a given system

• Blockchain consists of blocks that hold time-

stamped batches of valid transactions

• Each block includes the hash of the prior

block, linking the blocks together

• The linked blocks form a chain, with each

additional block reinforcing those before it

• Think of it as a peer-to-peer ledger

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Server launches application Customer scans Server’s invoice Customer sends payment instructions Server gets receipt

Sample “Real-World” Bitcoin Transaction Path

Credit: BitPay

How Blockchain Works

Transactions are not valid until added to the Chain. Tampering is immediately evident. The Blockchain is regarded as safe as everyone in the network has a copy.

Public Transaction Ledger

• All transactions are

published to a public transaction ledger, called the blockchain

• Linking real-world

identities back to wallet addresses can be difficult

How is BTC initially obtained?

• In person transactions

(https://localbitcoins.com)

– App-based payments – Physical representations (coins, checks, etc)

• Exchanges (Coinbase, Bitpay) -

registered MSBs

• Buying/Selling a product for Bitcoin
• Mining (participating in the

validation process)

• Cypto Currency ATMs: locations

(http://coinatmradar.com/)

• Online “Faucets”

Exchangers

• VC Exchangers: third-party entities that exchange

cash, virtual currency, and/or other forms of real money for other forms of the aforementioned currencies

• Individuals typically use exchangers to deposit and

withdraw money from VC accounts

• Accept a wide array of payments, including cash,

wires, credit cards, and other VC

Peer to Peer: Moving Value Without an Intermediary

YES

• Cash
• Precious metals and stones
• Virtual currency

NO

• Real estate
• Banking
• Credit cards
• Money transfer businesses
• Stored value cards

VC Exchangers

2010 > 2018 Bitcoin Price

2017 > 2018 Bitcoin Price

FinCEN March 18, 2013 Guidance

• March 18, 2013, Application
• f FinCEN’s Regulations to

Persons Administering, Exchanging, or Using Virtual Currencies

• Interpretive guidance to

clarify the applicability of the regulations implementing the BSA to persons creating,

• btaining, distributing,

exchanging, accepting, or transmitting virtual currencies

Suspicious Activity Reports

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LocalBitcoins.com

4/20/2018 28

4/20/2018 29

Examples of Recent Investigations

4/20/2018 30

Additional Resources

• Bitcoin Educational Resources:

http://www.forbes.com/sites/jonmatonis/2013/05/13/6-new-bitcoin-educational- resources/

• Bitcoin Education Project (Udemy):

https://www.udemy.com/bitcoin-or-how-i-learned-to-stop-worrying-and-love- crypto/

• Bitcoin Primer for Policymakers:

http://mercatus.org/sites/default/files/Brito_BitcoinPrimer_embargoed.pdf

• Bitcoin Wiki: https://en.bitcoin.it/wiki/Main_Page
• Cato Unbound-The Private Digital Economy:

https://www.cato-unbound.org/issues/july-2013/private-digital-economy

• CoinDesk: http://www.coindesk.com/
• Contrarian Compliance: http://contrariancompliance.com/
• Let’s Talk Bitcoin: http://letstalkbitcoin.com/
• Khan Academy Bitcoin Series:

https://www.khanacademy.org/economics-finance-domain/core-finance/money- and-banking/bitcoin/v/bitcoin-what-is-it

• We Use Coins: https://www.weusecoins.com/en/

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