Can Cryptocurrency Replace the US Dollar?

hello dallas fort worth b-sides my name is kenneth gears i work for very good security and i have some credibility with the audience i think because my grandfather was a police officer in houston for 44 years this talk is about cryptocurrency specifically about its strategic potential to change the world uh politically socially financially and in particular i want to ask a question that may be a key indicator in the future can cryptocurrency be a real currency and might it even replace the u.s dollar as the world's reserve currency so you've probably seen a chart like this it displays that in 2010 somebody could buy a pizza for 10 000 bitcoin what actually happened and today that same

bitcoin is worth 500 million dollars i mean i feel like i could buy the tyrell corporation right with that kind of roi so clearly some people are going to get very rich on bitcoin um and some people like you may choose to invest so at least what one of the things i want to leave you with is what what are some of the general security considerations to think about if you're going to invest in this technology so here we have some things in the news just from google news today right we have celebrity power uh a couple of quarterbacks right tom brady and aaron rodgers uh pushing uh cryptocurrency we have some political power uh rand paul el salvador kind of

weighing in on the uh the potential and even maybe setting some of the mechanisms in place for for uh cryptocurrency to be recognized by governments uh to become what's called legal tender we'll get to that shortly uh and community power this uh shiba inu coin which is uh currently number nine right in value on the list of cryptocurrencies shows that a group of people who just might agree or like a certain concept can actually um put faith in a certain cryptocurrency right uh for their their own community which is quite instructive and then finally squid game you know do we wind up with a situation in which we have a few winners and very many losers

so when we think about what is valuable and what's not um let's maybe go back to world war ii and and think about in a time of crisis right uh where do people go and what do people do and it turns out sometimes when civilization is seen to be quite fragile as in a time of crisis um you know assets get hoarded and stolen and moved really quickly so when you know germany's invading the other countries uh in uh in europe england and france got all of their gold together and and shipped them why they're to the united states or to africa in daring adventurous operations uh that are you know hollywood level right so

what makes something valuable is not always easy to understand some things historically like shells and salt that were bartered for goods and services you know they had a value because they were they involved a proof of work uh that they were found and extracted through manual labor gold is really interesting right so if you take the whole periodic table and you start taking away things on the periodic table that um that are poisonous uh radioactive corrosive uh too rare that sort of thing pretty much you wind up with gold and a few other things like silver but not many right so there's a reason why gold is so valuable in why governments hoard it and they keep it as a store of

value over time well thank goodness that we're not always at war after the war right the allied powers got together in new hampshire a place called breton woods and came up with a plan for the post-war world economy now the united states was the world's biggest military power also had the largest gold reserves in the world so they came up with a plan where the dollar would be backed by gold pegged to the price of gold uh in other countries uh their currencies would be pegged to the u.s dollar right so it was a system of dependencies i'm sure you're all familiar with uh that's reliable right in any case after the war the united

states dollar was crowned the world's reserve currency right so if you're in another country you had your currency but you had also had the u.s dollar in which you could trust as an anchor as hard currency and something that you could rely on was called a safe haven currency in case you had economic trouble yourself your faith was in uncle sam or in the united states to to provide an anchor for your economy

so at this point you might be saying well why the heck do we need money anyway right so let me just spend a couple of minutes on this topic money is considered to be a human construct based on economic consensus and social convention it's something that is used to exchange for other things like goods services and taxes over time there became a standardization in the size and the shape in the weight of currency so that it could be you know seen to be real and there's a concept of legal tender in which businesses are required to accept your money so you may not know this but in a in a coffee shop before they make your

coffee they don't have to accept your money after they make your coffee they do maybe not in texas you've got your own rules down there in any case in china we have seen metal coins as old as 3 000 years and paper money in china as old as 1 000 years good money as you can imagine you need to be able to rely on it right so it's scarce authentic durable portable uh and stable now digital currencies if they are to succeed they need to have some of these or all of these uh same traits right that have become part and parcel of what good money is now i'm sure this is coming in the

future because you know if you think about it most transactions uh in the world even in u.s dollars are simply uh digital transactions you don't you know more often than not you don't spend dollars anymore um you know but you go in and you you have a card and they hand your coffee and the two the two balances on uh ledgers are are one goes up and one goes down which we'll get to in a second

so money as you probably know equals power the united states has the largest gold reserves other countries put their trust in the united states and so they invest in dollars and thus the us uh more than half of the world's reserve currency uh is in u.s dollars now this gives the u.s incredible political benefit right as well uh the world benefits from stability relatively low inflation uh devaluation of the dollar a managed supply of dollars liquidity they can use the dollar gives them access to markets and trust that they might not otherwise have but the united states uh has some special privileges right being the world's uh banker really um so the united states can monetize

its debt to an extent that other countries can't because um we can print money uh and other countries can't right so we can run greater balance of payments deficits we can pursue policy objectives that other countries can't and this has been called quote the exorbitant privilege unquote right that some countries have been unhappy with the united states having such built-in advantages but this is the way it's been since world war ii right so one of the ways that this you can understand this is via the us military right so uh during the cold war and and beyond um the united states has provided a security umbrella to the world that we can afford right we have

the most assets so we have the biggest military budget uh of course in the past few weeks you may have been seeing in the news that this may be changing relative uh to the rise of china's military but you know that that is uh something uh that is for the future perhaps but speaking since world war ii um even then other nations wanted to change this right france in particular was not not happy with this um so the united states um also couldn't sustain this forever with things like the vietnam war the new deal by 1971 it was clear that the united states needed to make some changes uh right so the united states ended the

convertibility of the us dollar to gold we sort of broke the deal right we let the us dollar float uh it became a fiat currency no longer backed by gold and so this idea that was developed at bretton woods that the dollar would be pegged to gold and other countries would be pegged to the us dollar and thus by extension peg to gold no longer held right so that's why uh some you know big shot financial firms like goldman sachs in the past few years have warned that the united states may lose its coveted dollar world reserve currency status and that's what we're talking about today now let's talk about the three essential elements of money

that cryptocurrency coders are going to have to strive for investors are going to have to look for the first is medium of exchange this refers to something as an intermediary token of a certain value that can be used can be traded for goods services taxes and it's beyond barter right so um you may have oranges and i may have apples uh and we get by uh trading those for a while but eventually we want an intermediary token that represents a certain number of apples or oranges sometimes this can be hard to predict right as we said money is a societal and economic convention it's a construct i've been living the past couple of years in east africa and there was a

story there that really uh is fascinating it's uh people began to trade cell phone minutes as currency right go into the shop and say hey i want this i'm going to give you this many cell phone minutes and and that became easier to use sometimes than cash and this was so wildly popular over the years that it turned into a major multinational corporation called impesa so societal adoption is key and it goes back to some of those things we all learned in information security school usability functionality and security does it have a balance of those elements that users can believe in and users can leverage for their needs the second element we'll talk about is

unit of account so this is a stable measure costs prices profits performance all of these things we want to measure in units that we can understand so the value of the stable measure is not only for goods and services but as we get more sophisticated in terms of economics assets and liabilities so double entry bookkeeping is key right understanding modern finance and also cryptocurrency there's a credit side and a debit side that need to stay in balance and double entry bookkeeping was seen to be a powerful enough technology that it literally helped europe to emerge from the dark ages and forms really part of the heart of capitalism today so a ledger right this is key to

understanding both uh you know traditional finance and cryptocurrency a record of economic activity financial relationships uh that everybody can see right this is key to blockchain um it's older than writing for communication the very first writing we have seen on bones in africa was related to counting and look to be long distance counting relationships so a good ledger is immutable time stamped it shows ownership and it's accurate so modern uh payment systems typically are about amending ledgers so again when you go in for your morning coffee your ledger sinks and the coffee shops rises and some of this relates to the differences between cryptocurrencies like bitcoin and ethereum and bitcoin is more transaction-based and ethereum more

balanced or ledger-based

the third and final essential element of money is store of value so good money should be a durable asset that has stable demand over time and saved purchasing power right this counters the risk of inflation or devaluation uh united states dollar has achieved remarkable results uh in this category and that's why it's the was world's reserve currency store of value is a lot about risk management so many countries believe in the us dollar that they have officially adopted the us dollar as their currency official alongside their own to include cambodia ecuador lebanon somalia zimbabwe and others but this third and final element of money may be hard for cryptocurrency to achieve due to the volatility that we

have seen in the value the lack of central management of cryptocurrency uh is precisely what people like about it uh but it also may make it difficult for cryptocurrency to achieve uh the status of good money uh and of reserve currency level money so let's return to gold a little bit and compare how countries are trying to manage their economies relative to the dollar as well as other things and see where cryptocurrency might fit in so russia today has an antagonistic relationship with the united states and it makes it a good case study for us putin would like to de-dollarize the economy and lower russia's vulnerability to u.s sanctions currently it's the biggest uh state

buyer of gold and in january of this year gold surpassed the dollar uh in russia in terms of its holdings uh within russia so 23 percent of its reserves are in gold and 22 in dollars russia's cryptocurrency policy though should also be seen from the standpoint of of politics i think authoritarian governments are going to have their own concerns relative to cryptocurrency uh because it's a lot about giving power and freedom and independence to civilians and citizens and and dictatorships aren't typically about that right um telecommunications are used to to um to make money but also to surveil right and so giving up both of those things are not something that a dictator is going

to do easily um little things too like navalny had a lot of bitcoin donations after his arrest these kind of things may upset a government so so as in some um autocratic countries russia has um to some degree banned cryptocurrency prevented uh russian politicians from owning cryptocurrency stifled mining even while exploring you know um whether it can uh whether it can adopt these things um from a centralized standpoint but again that's sort of at odds with what people like about crypto um some of the allegations on the criminal side are that you know contract killers could accept sort of anonymous uh cryptocurrency deals revolutionaries like in january sixth uh were said to have received bitcoin

donations from abroad um the question of whether terrorists uh could use bitcoin for operations you know anonymously all of these things are going to concern law enforcement and counterintelligence and it's just one thing that cryptocurrency investors need to keep in mind governments like power they have something called this monopoly on the use of force within their territory whether it's a state or a province or a country and they're not going to give that up like lightly i worked for ncis for a dozen years law enforcement and and you know when you look at the world from a law enforcement lens you have you you think well i have to enforce laws within this jurisdiction and it's uh

it's just important for me to be able to do my job right and so uh so there's always a tension right between between citizen and state uh in russia some of the things uh that make uh the internet internet users wary have been russian domain names and cyrillic uh in um in urls they haven't wanted that a lot of young people because they they think that it's either going to be a a digital uh ussr in the same way uh russian state cryptocurrency may not be what russians want but we'll see but these case studies are really interesting to watch to see how politics and economics which are intimately tied of course um how it plays out uh in different

parts of the world

so cryptocurrency uh let's talk about you know historically you know 1974 we had ethernet and tcpip 1990 http 1996 ssl tls uh 2009 bitcoin you know these are all programmable transactions that are building on each other right and so any good scientist you've heard says you know i stand on the shoulders of giants um you know it's important to put things in perspective and to understand that you know we're taking one step after another uh toward the future so the challenge with um with cryptocurrency is how to verifiably move value across a decentralized network and so there's just certain engineering challenges right that need to be overcome we'd like to do it person to person

with no trusted intermediary is this possible we want to do it with no double spending we want to lower what's called in economics the cost of trust right so that you know you and i can trust each other on the web these are called the economics of verification some past cryptocurrencies have failed because one or another of these pieces was missing but with you know with bitcoin uh and blockchain we may have a consensus protocol right that with good cryptography proof of work a native currency and a reliable network of nodes uh which came about in 2008 via satoshi nakamoto in his paper bitcoin a p2p electronic cash system right um did we achieve this stuff

um some of the things that we built on that were foundational or that um satoshi built on um asymmetric cryptography hash functions for integrity and tamper resistance digital signatures for consent append only time stamps for the blocks and a distributed consensus algorithm right that one can believe in in theory these things could secure the entire internet with verifiable and immutable transactions and so what some promoters of bitcoin have said that this even solves uh age-old conundrums like the byzantine generals problem uh in which you have different units that just before an attack really can't communicate with each other because of you know they want the element of surprise but they have to trust each other right and so it's been

an age-old problem but if bitcoin and blockchain can even solve the byzantine generals problem well maybe maybe we're there the cool thing about bitcoin and blockchain is that we could move anything right it's a human network almost where you can move not only money but assets across the internet uh and after 2008 now we've got well over a thousand cryptocurrencies and initial coin offerings uh so the technology appears to be there for a lot of what we want and you can see the picture of shanghai here and china now is largely cashless as well as other advanced economies in 2019 over 80 of payments uh we're via uh tencent wechat pay or alibaba alipay they're buying much less gold uh than in

russia and so uh seemed to be more uh pushing toward cryptocurrency and blockchain uh president xi has called for investment in development in these technologies and soon in 2022 in the beijing winter olympics there will be a digital one test right uh but still we're talking about an autocracy that likes to maintain control right over um over china so there have been cryptocurrency curbs uh and a stifling of mining to some degree although most of bitcoin is actually mined in china right so so these countervailing winds uh are present uh you know in in certain places uh prominently um but if if china could develop decrypt develop a cryptocurrency uh that other countries would use right

uh that would then perhaps uh chip away at the united states advantage uh in terms of a reserve currency uh and then maybe other parts of the world uh would see china's cryptocurrency as something that would be more attractive than the us dollar to hold for a time of crisis or for a safe haven so a word on blockchain so for cryptocurrency you know it needs uh rails to ride on uh you know crypto is the digital asset uh but it's stored in a decentralized online ledger right that also has solid cryptography it's a transaction ledger that's public distributed and secure based on a consensus communications protocol block validation for bitcoin it manages the creation of

coins and verifies the transfer of coin ownership also invented by satoshi it has a technical input and output that are important to know a little bit about stuff like previous transaction id index signature unique output public key bitcoin address uh values uh that can be verified etc lock time it's an auditable database a list of records or blocks tied together with math and crypto time stamps append only uh that are tamper resistant uh the kind of thing where um it's a house of cards failure right you can't really break it otherwise uh the whole thing breaks um and of course the proof is in the pudding but over time of course uh enough people attacking it sort of yield uh faith

right in the technology

mining this is one of the really cool aspects uh that gives sort of a democratic uh feel uh to cryptocurrency uh you can mine it like gold there may be a limited number or a limited time 2140 or a certain number of coins that are possible to get and of course this will uh increase the attractiveness of owning one of these coins like bitcoin um but with mining you can you can verify uh you when you add a block to the ledger um it's math that's hard to solve but easy to verify so that's kind of cool the first person then to supply the hash value can get the credit but then other people can

can see right what happened and uh recognize that there is a new coin there is a new hash etc some of the political issues that go with this though for example electricity compute power the hash rate carbon footprint um these all cost time and money and effort and you've seen some of the big operations in iceland and china and elsewhere uh that yield uh bitcoin um such that you might need to participate in a mining pool now to to have an effective uh hope of uh mining bitcoin um but this has led to crime such as crypto jacking and ci cd abuse stuff like one of mine versus monero [Music] not only sort of at the criminal

individual level but the political ramifications at the national level so venezuela has thought to use you know bitcoin to counter hyperinflation um you know but if your country hasn't had good economics prior uh you know the best case of course is el salvador right now to look at uh you know uh you know can the power of volcanoes be used to mine bitcoin uh can bitcoin be used to uh stabilize an economy or to make it independent from world strictures uh and those are those are open questions really but if you look at north korea they're using a bitcoin certainly as well as other types of digital operations including cyber crime to uh skirt economic sanctions right and

so uh you can be sure that other nation states are going to then have a say including specifically at the european union might be a good place to watch the development of policy why because it involves sort of a consensus protocol among dozens of other countries right to determine uh what we should and shouldn't be doing in economics and politics so the benefits of cryptocurrency start at the user level right so at the individual level it gives me some freedom right some level of ownership with confidentiality with lower cost p to p it can be transnational there might be an roi in terms of investment i might find credit right a line of credit might be able to trade assets baseball

cards or something the societal impact is clear there's a financial inclusion not only for maybe an individual but for a small country like el salvador there's a dissemination of power right from the state to the individual which which again i'm in my opinion uh may slow the whole thing down rich investors are also very attracted by the market cap the spreads as well as you know introducing some level of risk uh management uh into their portfolio um they can see the returns uh but they might be manageable right if they if they keep it low and and keep it safe um i'm concerned though that only you know the really the security conscious or those who can afford uh to buy the

security uh may be better off in this space and we'll get to that soon but um you know the risk of of losing your your bitcoin is also quite real

so let's talk a little bit about political potential that the strategic level i spend a lot of time in estonia i'm very fond of the digital nation and e-government digital democracy um supporting the rule of law uh transparency via digital ids online voting um these are things that estonia is leading in and i even think that they're doing a good job exporting to the world uh ideas for promoting human rights anti-corruption um data reporting from from anywhere from little people interconnected uh by the uh by the internet um all of these things uh which are part and parcel of blockchain uh which is intimately tied to bitcoin are are really worth thinking about as we invest

and believe in in these technologies uh central banks via monetary policy they specifically want financial stability and they will monitor cryptocurrency use and growth and you know to some degree we're going to have to follow their guidelines to see if if it's a good investment right is part of our portfolio uh that we can grow it um cryptocurrency is mostly legal in the west but really all laws related to terrorism and money laundering and tax payment consumer protection investor protection they all have to be followed right and so so these are things uh as we look at the marketplace and as we think about investing uh are important uh right because again i think that bitcoin and and uh

blockchain as well as cryptocurrency in general have huge strategic potential right for the planet um you know but you have to watch the how how the the marketplace and how governments uh and organizations respond like in the us today it's okay to accept cryptocurrency payments but taxes have to be uh in u.s dollars right so uh you know but we've already seen you know things in nfl over the past week for example you know uh tom brady paying with bitcoin for football uh so things are going to change especially as celebrity power political power gets involved but it'll be fun to watch um let's move on to some security issues that need to be thought

about so if one were to make significant investment uh in cryptocurrency there's a lot to think about uh for an owner there is a learning curve there's a quick evolution in the technology that you'll have to keep up with um and then there's you know the general risk to your your wealth or your savings uh you know always to keep in mind um at the regulation national level um expect changes in insurance standards custodianship at the infrastructure level uh you have to think about the supply chain you're dependent on uh hacked exchanges for example uh software updates that may be opaque you know to your um you're under understanding governments may become uncomfortable with uh the computation and electricity

costs and mining um where it's done maybe human rights issues associated with that are you comfortable with market manipulation by nations or large holders whom you you do not know by by name there's a presumption of internet access so to some degree it seems like you're hostage to politics and you may say well it's always been that way and that's that's true um but if you think about the number of people who've lost access to their uh bitcoin you know um you know access to your hardware and access to your passwords is really key and then to say something is dependent on cyber security is again there's a myriad of problems uh to deal with you

know from hacking and malware phishing extortion uh cryptojacking at your you know at your company um so as though the legitimate use of cryptocurrency rises uh it's pretty simple math you you can expect that crime is likely to fall the percentage of high risk exchanges is currently falling there have been over the past year a number of executives arrested uh and then law enforcement is is keenly focused on this know your client problem uh which you know which entails some some challenges philosophically for cryptocurrency at the same time uh if law enforcement feels that it can see a little bit better kyc then you know then maybe your investments are safer indeed

so now let's talk about uh some security things that you can do um proactively and uh to prepare for uh protecting your investment um i would say you know in general you know three elements to think about are physical security cyber security and human security uh your private keys are your digital identity in the cryptocurrency market uh they allow you to trade cryptocurrency online if your private key is stolen a thief can commit cryptocurrency fraud uh so with your wallet there's a few different kinds a cold wallet or a hardware wallet has no internet connection per se is a good way to go paper wallet don't forget to laminate it so it doesn't get destroyed by moisture

if you have multiple wallets which you know diversification is always nice uh you know you've got multiple you know uh issues to think about for each don't forget to print and save your backup words right so that you don't lose access pki and digital signatures are important to get your mind around a key pair uh stems from a random number uh and many hacked wallets in the past really have had uh no good random number generation and so they didn't uh provide the level of security you know that that one would want so in general cyber security hygiene device security involves antivirus patching firewalls network security vpn no public wi-fi at the human level passwords are important you know

something that is hard to forget but easy to remember is a challenge make them unique use multi-factor authentication and always be aware of social engineering you know especially if you're rich um phishing adware email attachments links all of these things i worked for two and a half years a little while ago as a data scientist at a at a cyber security firm and and boy we really saw the avalanche of adware uh during that period and uh much of it i think was initial you know recon for more serious uh types of attacks so what's the verdict i think in the near term uh cryptocurrency is not about to replace the us dollar as reserve currency

but over the horizon anything is possible and in this day and age with you know modern communications and the internet uh change happens faster than ever um cryptocurrency clearly has unbelievable potential for both uh financial and uh political uh changes um it will be a catalyst and a challenge to the current system but it's going to have to overcome some performance issues scalability issues efficiency trust speed it's going to have to be interoperable with legacy systems um visa currently is pretty much real time and by comparison bitcoin is really slow um the sustainability issue at the political level um what about blood coins uh like blood diamonds um you know maybe people won't care maybe they will

uh digital digital things are have so much more potential because of the ability to for for um scale and speed um the things might be hard to predict um today the security risks are still fairly high and the payment system is slow but with credit cards it took about 15 to 20 years for laws to catch up with the issuance of credit cards things are hard to predict remember the cell phone minutes uh in kenya so four big areas to watch are code uh the marketplace um are people using the code uh laws uh and then norms you know ask your friends and and see what you think uh the central banks seek financial stability

they seek to invest uh or to protect the investing public and then financial firms you know watch what they do this is their business uh they're not so dumb it's their job and as they adopt and adapt uh you can feel more certain about about buying in and trust will grow around the world okay some parting advice bear in mind my disclaimer i'm an information security analyst i'm not a financial expert and so these are things i've found on the web that can that can help an investor to think three key elements of investment consistency emotional control and tax planning right these are just things that you've got to think about you know death and taxes

if you invest in cryptocurrency have a plan is your plan primarily wealth preservation or wealth creation right those are two big questions uh to ask yourself and that's goes to roi uh and when you think about a return on investment timing the market as i see uh the experts say historically has been considered to be mostly luck very hard to predict the future so be careful an example plan is to define what you mean by value what you mean by opportunity set goals calculate risk invest in security then make a small purchase right that's a small part of your portfolio uh monitor and evaluate it and start over right always think soberly about these things so you don't wind up

on the block with no uh portfolio at all there's no doubt there's a lot of money to be made in fintech there will be a lot of money to be made in cryptocurrency but you know as we've seen uh there have been quite a few losers um there's space to earn money uh but uh you should assume that buying into cryptocurrency is a high risk investment make it a small fraction of your net worth or your investment inputs and you can think of cc if you want to be more machiavellian as a binary investment uh decentralized global cryptocurrency is going to work or it's not right and that means that the value let's say a bit bitcoin

uh could be the most valuable asset in human history or it could drop to zero right and so sometimes when you buy into stocks they always say you know this could drop to zero be aware about that um in life they say it's unweird unwise to be a minimalist or a maximalist so you can think about that as well you know occupying some middle ground um and then you know when we see you know tom brady and elon musk uh promoting bitcoin uh you think about you know what would be a significant investment uh to them they can afford uh to lose their bitcoin can you or i uh and that's that's a whole other question

right so dallas fort worth besides thank you very much for your time my name's kenneth gears i work for very good security and i'm happy to take any questions uh on this topic thanks a lot and take care