Fai spiccare le tue potenzialità · Opinions Ben Bernanke: [the virtual currency] may hold long-term promise, particularly if theinnovations promote a faster, more secure and more

Fai spiccarele tue potenzialità

Blockchain & … Bitcoin

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Strategia e organizzazione aziendale

Outline

1. Introduction

2. Bitcoin Primer

3. About Money

4. Regulatory Framework

5. Payments, Settlement, Exchanges, and Banking

6. Blockchain beyond bitcoin

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What isBitcoin?

https://www.youtube.com/watch?v=Gc2en3nHxA4&hl=it&fs=1

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https://www.youtube.com/watch?v=Gc2en3nHxA4&hl=it&fs=1

https://bitcoin.org/en/

Decentralized digital currency

Not backed by any government ororganization

Instantaneous peer-to-peer transactions

No need for trusted third party

Cryptographic security

Low-cost banking for everybodyeverywhere

https://bitcoin.org/en/faq

http://www.coindesk.com/information/

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https://bitcoin.org/en/

https://bitcoin.org/en/faq

http://www.coindesk.com/information/

Opinions

Ben Bernanke: [the virtual currency] may hold long-term promise,

particularly if theinnovations promote a faster, more secure and more

efficient payment system.

Alan Greenspan: It’s a bubble. It has to have intrinsic value: you have to

really stretch your imagination to infer what the intrinsic value of Bitcoin is.

I haven’t been able to do it. Maybe somebody else can. I do not understand

where the backing of Bitcoin is comingfrom

http://qz.com/148399/ben-bernanke-bitcoin-may-hold-long-term-promise/

http://www.bloomberg.com/news/articles/2013-12-04/greenspan-says-bitcoin-a-bubble-without-intrinsic-currency-value

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Marc Andreessen: Bitcoin today is like Internet in 1994, weird and scary

No transaction costs

No amount limits

No intermediaries

No frozen funds

24/7, 365days

Social network enabled

Money for theInformation

Economy

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Investments Landscape

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A recent blockchaintransaction

https://blockchain.info/tx/8f1d3a8ef6b2d4a25d2f499279e01518b4770819ccbc39a765c4c326170c61b3

About $83M transacted with $0.04fee

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https://blockchain.info/tx/8f1d3a8ef6b2d4a25d2f499279e01518b4770819ccbc39a765c4c326170c61b3

BitcoinEconomy

http://bitcoincharts.com/charts/bitstampUSD#tgWzm1g10zm2g25zv

Total number of BTC is about14M

BTC Market Cap: about $3-14B (USD M0 is about$1,200B)

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http://bitcoincharts.com/charts/bitstampUSD#tgWzm1g10zm2g25zv

December 2013: China crackdown

People’s Bank of Chinacrackdown:

prohibits financial institutions from trading, underwriting, or

offering insurance in bitcoins or any other digital currency

Bitcoin is not to be considereda currency

owning bitcoins is not outlawed orprohibited

As of December 2013 BTC China was world's largest Bitcoin exchangeby

volume

Alibaba, China's top Internet retailer, stopped using bitcoins asof

January 19 2014.

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February 2014: Mt Gox bankruptcy

As of January 2014 Mt Gox was world's largest Bitcoin exchangeby

volume

In February 2014 it filed for bankruptcy protection from creditors

It announced that around 850,000 bitcoins belonging to customers and

the company were missing and likely stolen, an amount valued at more

than $450 million at thetime

Fraud or theft?

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SilkRoad

Online market, operated as a Tor hidden service

Online users were able tobuy illicit goodies using bitcoins, while browsing

it anonymously and securely without potential traffic monitoring

Launched in February2011

Shut down in October2013

Ross William Ulbricht, alleged to be the owner of Silk Road arrested inSan

Francisco

Many other black markets have filled in assuccessors

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Bitcoinresilience

Is there anything else in financialworld:

Just 7 years old

Without government or corporationbacking

That can lose its main (China)market

With fraud/theft at its main reference exchange (Mt Gox)

With such a bad reputation (SilkRoad)

That could be still alive andkicking?

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Bitcoin used by terrorists

Europol:

Despite thirdparty reporting suggesting the use of anonymous currencies

like Bitcoin by terrorists to finance their activities, this has not been

confirmed by law enforcement

https://www.europol.europa.eu/sites/default/files/publications/changes_in_modus_operandi_of_is_in_terrorist_attacks.

pdf

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https://www.europol.europa.eu/sites/default/files/publications/changes_in_modus_operandi_of_is_in_terrorist_attacks.pdf

https://www.europol.europa.eu/sites/default/files/publications/changes_in_modus_operandi_of_is_in_terrorist_attacks.pdf

Bitcoin used for Money Laundering

UK HMTreasury:

The money laundering risk associated with digital currencies is low,

though if the useof digital currencies was to become more prevalent in

the UK this risk could rise

https://www.gov.uk/government/news/government-publishes-anti-money-laundering-assessment-and-commits-to-

action-plan

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https://www.gov.uk/government/news/government-publishes-anti-money-laundering-assessment-and-commits-to-action-plan

https://www.gov.uk/government/news/government-publishes-anti-money-laundering-assessment-and-commits-to-action-plan

National risk assessment on money laudering

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Cryptolockers

CryptoLocker is a ransomware propagated via infected email

attachments and botnets; when activated, itencrypts files stored on

local and mounted networkdrives

The malware then displays a message which offers to decrypt thedata

if a bitcoin payment ismade

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Private Monies

A widely accepted medium of exchange orpayment

issued by a non-governmental body

without legal privileges

Private monies do not have to be generally acceptable; they merely

have to be widely accepted

Public demand for private currencies:

hold them in the expectation that they will not diminish in purchasing

power as state money has

conduct illegal activity

wish tobe part of a movement against increasing state control of economic

and personal behavior

just want better money

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Liberty Dollar:1998-2009

Private mint that issued gold and silver coins; also issuednotes

redeemable in preciousmetals

Periodically revalued against USD: the value ofthe latter fell over time

against precious metals

Specifically designed to function in parallel with and in competition to USD

Never marketed or represented as official UScurrency

Highly successful: it became the second most popular currency in the US

Its use declared a federal crime by the USgovernment

Its founders convicted for counterfeiting,fraud and conspiracy against the

United States

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E-gold:1996-2007

Digital payment system with gold as unit ofaccount

User accounts backed by gold reserves

By2005, e-gold had grown to be second only to PayPal in the online

payments industry: 1.2M accounts and $1.5Btransactions

Indicted in April 2007 by US law enforcementservices

Charges: unlicensed money-transmitting entity and a means of moving

the proceeds of illegalactivities

Never proven and even the judge expressed majordoubts

‘Offshore’ payment system rather than a money transmitter or bankas

defined under then-existing regulations, not least because gold was

not legally ‘money’

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Digital Transfer of Value

To securely (cryptographically) transfer value digitally has been possible

for decades

However ithad always required the creation of a centralized trusted

party to prevent doublespending

Bitcoin

does not require a central trustedparty

is designed to resist attacks of malicious agents, as long as theydo

not control networkmajority

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Precursors

Ecash, David Chaum, 1982 (blind signature)

Hashcash, Adam Back, 1997 (Proof-of-Work)

B-money, Wei Dau, 1988 (distributed database)

Bit gold, Nick Szabo, 1998 (distributed database, sequentialmoney

creation)

Anonymous Electronic Cash, Tomas Sander and Amnon Ta-Shma, 1999

(anonymity)

Reusable P-o-W, Hal Finney, 2004

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Theannouncement

From: Satoshi Nakamoto <satoshi <at> vistomail.com> Subject: Bitcoin P2P e-cash paperNewsgroups: gmane.comp.encryption.general

Date: 2008-10-31 18:10:00 GMT

I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party.

The paper is available at:

http://www.bitcoin.org/bitcoin.pdf

The main properties:

Double-spending is prevented with a peer-to-peer network. No mint or other trusted parties.Participants can be anonymous.New coins are made from Hashcash style proof-of-work.The proof-of-work for new coin generation also powers the

network to prevent double-spending.

Bitcoin: A Peer-to-Peer Electronic Cash System

Abstract. A purely peer-to-peer version of electronic cash […]

Satoshi Nakamoto

---------------------------------------

The Cryptography Mailing List

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http://www.bitcoin.org/bitcoin.pdf

Satoshi Nakamotohttp://mag.newsweek.com/2014/03/14/bitcoin-satoshi-nakamoto.html

Unknown identity: pseudonymous person orgroup?

Worked on Bitcoin since probably2007

Published the paper in 2008

Released the code in January2009

Stopped involvement mid-2010

Entrusted the project and a copy of the alert key to Gavin Andresen,

effectively his successor

He owns about 1M bitcoins, neverspent

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http://mag.newsweek.com/2014/03/14/bitcoin-satoshi-nakamoto.html

Nakamoto's political motivations

"Yes, [we will not find a solution to political problems in

cryptography,] but we can win a major battle in the arms race and

gain a new territory of freedom forseveral years. Governments are

good at cutting off the heads of a centrally controlled networks like

Napster, but pure P2P networks like Gnutella and Tor seem to be

holding their own."

"[Bitcoin is] very attractive to the libertarian viewpoint if we can

explain it properly. I'm better with code than with words though."

In the Bitcoin's transaction database, the first entry has a note by

Nakamoto: "The Times 03/Jan/2009 Chancellor on brink ofsecond

bailout for banks"

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Source Code License

Bitcoin was released under the MIT license, so it is:

open source; cryptographic software’s source code must be availableto

allows public inspection (absence of backdoor and security

vulnerabilities)

free software; the user the right to use, copy,modify, and redistribute

the software

Instead, proprietary software is often close source and itonly grants the

right to use

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Outline

1. Introduction

2. BitcoinPrimer

3. About Money




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Bitcoin: a currency and a protocol

Bitcoin: protocol, software, andcommunity

Bitcoins: units of thecurrency

bitcoins are sent usingBitcoin

Bitcoins are thefirst powerful protocol application: a digital

property created inside the Bitcoinprotocol

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Bitcoin the protocol

Distributed public ledger of transactions:

shared with peer-to-peer technology

allows to transfer a unique digitaltoken

the token can be exchanged, but notduplicated

keeps records of each and every transaction forever

It can replace any processing centralauthority

with decentralized peer-to-peer cryptographically secureequivalent

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The bitcoin currency

Not to be found anywhere, they only exist aspublic ledger

documented transactions

A bitcoin wallet is a public address

1FEz167JCVgBvhJBahpzmrsTNewhiwgWVG

It is mine; you

are REALLY

encouraged to

tip

the bitcoin public ledger (aka blockchain) certifies for everybody how

many bitcoins are associated to thewallethttp://blockexplorer.com/address/1FEz167JCVgBvhJBahpzmrsTNewhiwgWVG

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http://blockexplorer.com/address/1FEz167JCVgBvhJBahpzmrsTNewhiwgWVG

Bitcoin as ScripturalAsset

Bitcoins are scriptural assets, they only exist as validated transactions

Bitcoins are not liabilities

Bearer instruments

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Asymmetric Cryptography: Public/Private Key Pair

mathematically linked, perform opposite digital signaturefunctions:

private (secret) key used to generate the signature

public key used by anyone to verify thesignature

➢ The bitcoin wallet address is the publickey

➢ The private key allows spending from the wallet

Try at https://www.bitaddress.org

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https://www.bitaddress.org/

A bitcoin transaction: from public key to

publickey

Transaction: amount + receiver’s public key

The sender’s private key signs the transaction

With sender’s public key anyone can verify that:

The private key has been used, non-forged signature

Transaction has not been tampered ormodified

The amount is at sender’s public keydisposal

The transaction is published to the publicledger

Everybody knows that the receiver’s public key has receivedthe

transacted amount

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Bitcoin wallet security

Bitcoins are effectively owned by whoever can spend them

Securing a wallet: private key safe storage

PC client: Bitcoin Core, Armory,Electrum

Web client: greenaddress.it, blockchain.info

Cold storage: never exposed to Internet, storedaway

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Pseudonymity, Anonymity

Bitcoin is really pseudonymous, notanonymous:

The public key does not provide direct information about the private

key owner

All transactions are transparent to everybody’sinspection.

Perfect persistent public account history: the public ledgeris forever

https://blockchain.info/ http://blockexplorer.com/

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https://blockchain.info/

http://blockexplorer.com/

Bitcoin’s public ledger: the block chain

Transactions are bundled in blocks, sequentially chained, about

one block every 10minutes

The block chain is a history of transactions resilient to network

attackers

The cryptographic link between blocks requires large amount of

computing power, so the block chain cannot be altered without

huge resources

Computing power is measured in hash/s, hash being thebasic

operation needed for validation

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Network hashratehttps://blockchain.info/charts/hash-rate?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

Specialized non-generic hardware, with hashing capacity 13,000times

that of thecombined 500 largest supercomputers

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https://blockchain.info/charts/hash-rate?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address

Mining

Miners are the nodes of the network providing the computing power

for:

processing and validating transactions (avoiding doublespending)

securing the network

synchronizing the nodes

Miners compete to process a new block of transactions. Thewinner

provides a proof-of-work and is rewarded with the issue of new

bitcoins.

Seigniorage revenues subsidize the network, making transaction

almost free

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The Byzantine Generals' Problem

Communicate using messengers

There are traitors amongst them

Decide unanimously whether to attack

Success (i.e. fault tolerance) is achieved if theloyal generals can

agree on their strategy, whatever itmight be

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HashFunction

Any algorithm that maps data of arbitrary length to data of a fixed

length (called the hash value) in a non-invertibleway

Bitcoin uses the (Secure Hash Algorithm) SHA-256 algorithm that

generates a fixed size 256-bit (32-byte)output

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SHA-256(“Hello, world!”)

SHA-256(“Hello, world!”) =

315f5bdb76d078c43b8ac0064e4a0164612b1fce77c869345bfc94c75894edd

3

SHA-256(“Hello, world!0”) =

1312af178c253f84028d480a6adc1e25e81caa44c749ec81976192e2ec934c64


e9afc424b79e4f6ab42d99c81156d3a17228d6e1eef4139be78e948a9332a7d

8

……


c004190b822f1669cac8dc37e761cb73652e7832fb814565702245cf26ebb9e

6


0000c3af42fc31103f1fdc0151fa747ff87349a4714df7cc52ea464e12dcd4e

9

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Proof-of-Work

A new block is added with a mathematical proof-of-work basedon

SHA-256 hashing. Find a nonce for a given block suchthat:

SHA-256(previous block hash, transactions, nonce) <=target

The longer chain (actually the one with higher difficulty) is the

consensus

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Validation Process BlockGeneration

The proof-of-work difficulty is adapted to theoverall available computing

power to ensure an average of one block every ten minutes.

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ASICMining

Application-Specific Integrated Circuit

Designed and manufactured for a specificpurpose.

Introduced in 2013 for Bitcoinmining

Less power consumption, higher hashing power. Outpaced CPU and GPU

mining

$8M a Month Miner: DaveCarlson

http://www.coindesk.com/inside-north-americas-8m-bitcoin-mining-operation

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http://www.coindesk.com/inside-north-americas-8m-bitcoin-mining-operation

Openissues

the clustering of miningresources

10 minute for firstconfirmation

computer power wasted bymining

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Seigniorage Revenues Dissipation in Network

Security Costs

About $600M per year (minerremuneration)

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Bitcoin Monetary Rule

2009: 50BTC every 10 minutes

halving every 4Y

This is the only way new bitcoins arereleased

It is called mining because of its similarity with the progressive

scarcity of goldextraction

digital cash supply free of discretionaryintervention

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Inelastic Money Supply: Deterministic

Decreasing Rate

2029: issued

96.88% of all

BTC

2141: issued last

0.00000001 BTC

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Outline

1. Introduction

2. Bitcoin Primer

3. AboutMoney




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Money as social relationinstrument

Human beings are born into a gift economy

Enlarged relationship circle requires exchangeeconomy

Barter economy, coincidence of wants

Trade economy, money as medium of exchange

Bitcoin is money for the informationeconomy

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Friedrich August von Hayek -

Denationalisation of Money

history of coinage is an almost uninterrupted story of debasements;

history is largely a history of inflation engineered by governments for

their gain

why government monopoly of the provision of money is regarded as

indispensable? It deprived public of the opportunity todiscover and use

a better reliable money

Blessed will be the day when it will no longer be from the benevolenceof

the government that we expect good money but from the regard of the

banks for their own interest

A Free-Market Monetary System, Gold and Monetary Conference, New Orleans, Nov. 1977, https://mises.org/daily/3204

Hayek, F. A., Denationalisation of Money, The Institute ofEconomic Affairs,http://www.mises.org/books/denationalisation.pdf

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https://mises.org/daily/3204

http://www.mises.org/books/denationalisation.pdf

IMF’s SDR, F.Saccomanni

Special Drawing Rights are international reserve assets, created in 1969 to

supplement existing official reserves of member countries

SDRs address the lack of a non-national currency to be used as reserve

asset

F. Saccomanni: cryptocurrencies could be an effective monetary policy

instruments [...] we should pay more attention to the geniuses working on

them, try to understand what of interest they could teach us

https://it.finance.yahoo.com/notizie/saccomanni-non-bisogna-demonizzare-cripto-valute-172912255.html

http://www.ufficiostampa.rai.it/pdf/2014/2014-10-09/2014100928490498.pdf

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https://it.finance.yahoo.com/notizie/saccomanni-non-bisogna-demonizzare-cripto-valute-172912255.html

http://www.ufficiostampa.rai.it/pdf/2014/2014-10-09/2014100928490498.pdf

From gold standard to fiat money

Gold: the commodity moneystandard

resistance to corrosion andoxidation

high malleability

relative easiness of purity assessment

pleasant color

Gold purity certification

Representative money

Fractional receipt money

Fiat money and legal tender

War on cash and negatives interest rates

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Money Comparison

Medium of Exchange Store of Value Unit of Account

Live cattle

Diamonds

Gold

Fiat coins and notes

Cryptocurrency

swappable

fungible

portable

divisible

recognizable

resistant to counterfeiting

reliably saved,stored,

and retrieved

retain usefulnessover

time

non-perishable

low preservationcost

relative worth unitof

measure

stable value forstable

price comparison

supply must be limited

in someway

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Unit of Account-Money as valueyardstick

Money is the unit of account against which the value of every other

good is measured

The price system measures the value of goods relative tothe value

of money

Good money should provide stable prices to best perform itsrole

as unit of account

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The Monetary BitcoinProblem

Money is a good in itself: its value is governed by supply anddemand

The Bitcoin protocol has got rid of any central monetaryauthority

The bitcoin currency is lacking elastic supply

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q101.pdf


http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q3digitalcurrenciesbitcoin1.pdf


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HayekMoney

The cryptocurrency monetary standardof

elastic non-discretionary supply

regulated to achieve stableprices

with respect to a (commodity)price index

Ametrano, Ferdinando M. (2014)

Hayek Money: the Cryptocurrency Price StabilitySolution

http://ssrn.com/abstract=2425270

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Leverage Bitcoin As ReserveAsset

Bitcoin is the first and most successful instance of anintrinsically

scarce digital asset: it is digitalgold

When used as reserve asset, its qualities are magnified!

Its limits are lessened. No more needto:

scale to huge (cash + bank accounts + credit cards) number of

transactions

support economically inefficient micropayments

lower confirmation time

The Reserve Bank DAO

The Reserve Bank IPO: raise bitcoins, issue seigniorage share

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Bitcoin as (Digital) Gold in the History of

(Crypto)Money

GOLD

For centuries gold has been the most successful form ofmoney

Its adoption was not centrallyplanned

It has been surpassed by other kind of money without becoming

obsolete

BITCOIN

Bitcoin is the most successful form ofcryptocurrency

Its adoption has not been centrallyplanned

Itmight be surpassed by more advanced type of cryptocurrencies

without becomingobsolete

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Outline

1. Introduction

2. Bitcoin Primer

3. About Money




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Hard to regulate

Janet Yellen (Feb 2014 US Senate Banking Committee):

Bitcoin is a payment innovation that's taking place outside the banking

industry

It's not so easy to regulate Bitcoin because there's no central issueror

network operator. This is a decentralized, global [entity]

ECB (October 2012report):

governments and central banks would face serious difficulties if they

tried tocontrol or ban any virtual currency scheme

there is no server that could be shut down if the authorities deemed it

necessary

http://blogs.wsj.com/moneybeat/2014/02/27/yellen-on-bitcoin-fed-doesnt-have-authority-to-regulate-it-in-any-way/

http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdfRev. 0 del

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http://blogs.wsj.com/moneybeat/2014/02/27/yellen-on-bitcoin-fed-doesnt-have-authority-to-regulate-it-in-any-way/

http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf

EU Landscape: July 4, 2014 EBAopinion

Endorses the creation of governing authorities accountablefor

protocol and transaction ledgerintegrity

Until a comprehensive regulatory regime isdeveloped:

recommends that national supervisory authorities(*)

discourage [financial] institutions frombuying, holding, or

selling virtual currencies

allows financial institutions to maintain current account

relationship with businesses active in the field of virtual

currencies

http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

(*) http://www.bancaditalia.it/pubblicazioni/bollettino-vigilanza/2015-01/20150130_II15.pdf

http://uif.bancaditalia.it/normativa/norm-indicatori-anomalia/Comunicazione_UIF_su_VV.pdf

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http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

http://www.bancaditalia.it/pubblicazioni/bollettino-vigilanza/2015-01/20150130_II15.pdf

http://uif.bancaditalia.it/normativa/norm-indicatori-anomalia/Comunicazione_UIF_su_VV.pdf

USLandscape

July 1, 2014: first US Marshall BTCauction

30000BTC for north ofUSD19M

New York Department of Financial Services BitLicense

Regulatory Framework, widely regarded as possible framework

for other jurisdictions

August 2013: analysis begins

July 2014: first draft, 120 days commentperiod

February 2015: second draft, 30 days commentperiod

http://www.dfs.ny.gov/legal/regulations/revised_vc_regulation.pdf

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http://www.dfs.ny.gov/legal/regulations/revised_vc_regulation.pdf

Benjamin M. Lawsky - NY DFSsuperintendent

The challenge we face is to come up withappropriate guardrails that safeguard customer assets;

protect consumers from fraud andabuse;

root out money laundering and other illicitactivities; defend against hackers by emphasizing robust cyber security

not stifling beneficial innovation in a fledglingindustry

In an age of heightened consumer expectations for real-time,digital

payments, if banks fail toinnovate, they could face a real challenge

Enough is enough: four decades of slow-to-non-existent progress inthe

bank payments system seems like fair warning

Bipartisan Policy Center in Washington, DC. December 18th, 2014

http://www.dfs.ny.gov/about/speeches_testimony/sp1412181.htm

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http://www.dfs.ny.gov/about/speeches_testimony/sp1412181.htm

SEC and unregulated IPOs

ColoredCoins, Conterparty, Coinprism: technologies for creating

and exchanging digital assetshttp://coloredcoins.org/

http://counterparty.io/

https://www.coinprism.com/

The Security and Exchange Commission is conducting an inquiry

to determine if violation of federal securities laws have occurredhttp://www.scribd.com/doc/244670525/Letter-LA-Office

https://www.cryptocoinsnews.com/sec-sends-inquiry-letters-hundreds-bitcoin-companies-unregistered-securities/

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http://coloredcoins.org/

http://counterparty.io/

https://www.coinprism.com/

http://www.scribd.com/doc/244670525/Letter-LA-Office

https://www.cryptocoinsnews.com/sec-sends-inquiry-letters-hundreds-bitcoin-companies-unregistered-securities/

UKLandscape

BoE: The emergence of Bitcoin has shown that it is possible to transfervalue

securely without a trusted third party. The distributed ledger technology

may have considerable promise.

BoE: Digital currencies, combined with mobile technology, may reshape the

mechanisms for secure payments

Government: is committed to increasing banking competition

encouraging the creation of a world-leading environment for innovative

payments and financial technology

Government: is launching a research initiative for digital

currency technology funded with £10m

BBA: banks must accept they are part of the broader ecosystems customers

are constructing around themselves. However, their place in these

ecosystems is far from secure

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Outline

1. Introduction

2. Bitcoin Primer

3. About Money


5. Payments, Settlement, Exchanges, andBanking


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Merchants & PaymentProcessors

Sridhar Ramaswamy, head of Google Wallet

Weare working in the payments team to figure out how to

incorporate bitcoin into ourplanshttps://www.cryptocoinsnews.com/google-may-introduce-bitcoin-new-payment-system/

Amazon: granted patent for the use of digital currenciesas payment

on cloud platforms (Amazon WebServices)

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https://www.cryptocoinsnews.com/google-may-introduce-bitcoin-new-payment-system/

Companies Representing $180B in Annual Revenue Now Accept Bitcoin

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Massively Simplify Banking

I believe that blockchain technology will not only change the way we do

paymentsbut it will change the whole tradingand settlement topic. It has

potential to trigger “massive” simplification of banking processes and cost

structure. When somebody with a strong brand and security level

establishes it asa reliable service, then the whole industry will follow.

Oliver Bussmann, CIO of Swiss bankUBShttp://blogs.wsj.com/digits/2014/10/27/ubs-cio-blockchain-technology-can-massively-simplify-banking/

Major banks like JPMorgan Chase, Citibank and Bank of Americahave

established teams of experts focusing exclusively on digitalcurrency

Edmund Moy, former director of theUnited States Minthttp://www.coindesk.com/former-us-mint-director-save-bitcoin-regulators

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http://blogs.wsj.com/digits/2014/10/27/ubs-cio-blockchain-technology-can-massively-simplify-banking/

http://www.coindesk.com/former-us-mint-director-save-bitcoin-regulators

Bitcoin-like real-time settlement infrastructure

Free and instant exchange of any form of money or value, evenEUR or

USD, not just crypto-assets

Banks can offer their customers instant international moneytransfers,

and offer international settlement services to otherbanks

https:// ripple.com/

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https://ripple.com/

With Ripple, we can deliver a superior banking experience at a fraction

of the time andcost

Matthias Kröner,CEO

With Kraken (a California-based exchange) Fidor is launching abanking

platform for crypto-currencies

https://ripple.com/blog/fidor-bank-ag-the-first-bank-to-use-the-ripple-protocol/

https://www.cryptocurrency-bank.com/

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https://ripple.com/blog/fidor-bank-ag-the-first-bank-to-use-the-ripple-protocol/

https://www.cryptocurrency-bank.com/

San Francisco based USD/BTC exchange, wallets provider, and

merchant payment processor

$75m record-setting funding round in January 2015: to date it has

raised $106m

A host of notable investors:

BBVA

New York Stock Exchange

former Citigroup CEO Vikram Pandit

former Thomson Reuters CEO TomGlocer

USAAhttp://www.coindesk.com/coinbases-75-million-series-c/

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http://www.coindesk.com/coinbases-75-million-series-c/

April 2015: $50m fundinground:

Goldman Sachs

China-based IDG Capital Partners

Breyer Capital, General Catalyst, Accel

invest in companies that have the promise to transform global

markets through technical innovation

Tom Jessop, MD Goldman Sachs’ Principal Strategic Investments Group

hybrid fiat-digital currencymodel

benefits of digital currency even forUSDhttp://www.wsj.com/articles/goldman-a-lead-investor-in-funding-round-for-bitcoin-startup-circle-1430363042

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http://www.wsj.com/articles/goldman-a-lead-investor-in-funding-round-for-bitcoin-startup-circle-1430363042

The New York bitcoin exchange has closed $25m in SeriesA

fundraising

It has received a trust company charter from theNew York State

Department of Financial Services(NYDFS)

Customer funds denominated in US dollars will be held inFDIC-

insured accounts

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Utilizing the blockchain is a natural digital evolution for managing

physical securities, [this technology holds the potential to] benefit not

only our clients, but the broader global capital markets

NASDAQ Chief Executive RobertGreifeld

Pilot project: NASDAQ Private Market (pre-IPO trading among private

companies)

Bitcoin technology replaces the informal systems used for salesand

transfers of shares

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Nasdaq / Overstock

Nasdaq has debuted Linq, the first platform for asset tradingmanaged

digitally through the use of blockchaintechnology

SEC has approved Overstock.com S-3 Filing to Issue SharesUsing

Bitcoin Blockchain

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R3CEV andPTDLWG

R3CEV has launched the Distributed Ledger Working Group, pooling

together over 30 global banks to create financial standards for

blockchain technology

The Post Trade Digital Ledger Working Group includes exchanges,

banks, and regulators working on clearing and settlement application

of blockchaintechnology

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Blythe Masters, Digital Asset Holdings

Blythe Masters, the former JPMorgan Chase executive credited

with creating the modern credit default swap, is the CEO of Digital

Asset Holdings

DAH provides settlement and ledger services for financial assets

Masters has just declined the offer tolead the investment banking

division of Barclays

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Transaction, settlement, and clearing

The cash transaction is the only financial transaction that is

automatically settled andcleared

Financial transactions can be real time, but theirsettlement and

clearing is a convoluted legacy t+2 or t+3process

Blockchain transactions are settled and cleared as soon as the

transaction is validated

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Outline

1. Introduction

2. Bitcoin Primer

3. About Money




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Smart Properties and Contracts

Smart properties: digital token programmatically exchanged using

smart contracts

Smart contracts: math-based contracts with automatedsoftware

settlement, with no legal systems or human actionsrequired

Autonomous agents: software programs created for specifictasks,

able to make and receive payments usingBitcoin

Decentralized Autonomous Organizations(DAO)

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Proof of Existence

Block chain as time stamp authority

Put a hash value in the «comment» section of a(monetarily

negligible) transaction

Hash being a fixed length string that uniquely identify anarbitrary

length digital object (e.g. a txt or pdf file)

Existence of that digital object at the transaction time is proved on the

block chain

www.proofofexistence.com

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http://www.proofofexistence.com/

IBM - Internet ofThings

Samsung, IBM has been working on the Autonomous Decentralised

Peer-to-Peer Telemetry (ADEPT) platform for a decentralised

approach to the internet ofthings

Blockchain (transaction processingengine)

Telehash (JSON private messageprotocol)

Bittorrent (network connection)

http://www.computerweekly.com/news/2240238627/IBM-uses-Bitcoin-technology-to-build-internet-of-things-platform

https://gigaom.com/2014/09/09/check-out-ibms-proposal-for-an-internet-of-things-architecture-using-bitcoins-block-

chain-tech/

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http://www.computerweekly.com/news/2240238627/IBM-uses-Bitcoin-technology-to-build-internet-of-things-platform

https://gigaom.com/2014/09/09/check-out-ibms-proposal-for-an-internet-of-things-architecture-using-bitcoins-block-chain-tech/

https://gigaom.com/2014/09/09/check-out-ibms-proposal-for-an-internet-of-things-architecture-using-bitcoins-block-chain-tech/

No central authorities: examples

digital tokens for:

Car ownership (car sharing)

Stakeholder shares, IPOs

Voting rights (liquiddemocracy)

Distributed AutonomousOrganizations:

Gambling online (no fees, no taxes)

Health insurance (without companycosts)

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The problem with bitcoin

Uncensorable

Pseudonymous, can be obfuscated to anonymity

Unknown miners

Only 3 transaction per second (VISA is able to reach 60000tps)

In order to be uncensorable theblockchain is a very low

performance database

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Blockchain without bitcoin

No bitcoin (no assets available to rewardminers)

No miners, only permissionedvalidators

More transactions persecond

Permissioned distributed ledger!!

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Permissioned Distributed Ledger

Without the bitcoin asset the ledger only tracks liabilities and IOUs

With permissioned validators instead of permissionless minersthere

is not decentralization, only replication

Just use a replicated concurrent commit database!

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The Online Walled Garden

In the 90scorporate wanted to go online, but not in the wild

unregulated internet

Microsoft and AOL offered a walled garden experience

Permissioned ledger are the walled garden blockchain: bizarrenon-

sense proposal

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Sidechain

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Sidechain: the Future is Bright

Custom tailored Bitcoin codebase

Permissioned validators or mergemining

Bitcoin blockchain interoperability

Bitcoin asset + issued liabilities and IOUs

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Scalability

If bitcoin is digital gold does not need to scale to huge number of

transactions

The blockchain is a real time gross settlement system

Increasing block size is ineffective, it should be increased 20,000+to

scale up at VISAlevels

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Off-chain Scalability

Keep low value high volume transactionoff-chain

Lighting Network leverage micropayment channels andpayment

hubs

Compatible with bitcoin blockchain… and so also withsidechains:

interoperability

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Privacy vsTransparency

In a digital age whatever is transparent to regulatorsand

investigators is transparent for criminal too

Apple has refused to open a iPhone backdoor for FBI for thisreason

Cryptography backdoors are useless and nonsensical

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Bitcoin is a disruptive invention

Technology: endless possibility in replacing centralauthorities,

even beyond money

History of Money: the eve of possibly the best money ever devised

in humanhistory

Financial industry: payment systems and exchanges will neverbe

the same

Blockchain beyond bitcoin

Blockchain without bitcoinRev. 0 del

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Bibliography

Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System” (2008).

https://bitcoin.org/bitcoin.pdf

Ferdinando M. Ametrano, “Hayek Money: The Cryptocurrency Price Stability

Solution” (2014). Chapters 1, 2, and 3. http://ssrn.com/abstract=2425270

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https://bitcoin.org/bitcoin.pdf
