JUNE 5, 2017

INTRODUCTIONS

1

• Digital Currency Group• Coin Center

• IDFPR and Blockchain Initiative• Silvergate Bank

• Chainalysis• Elliptic• Unocoin

WHY WE ARE HERE

1

• Digital currencies represent a $94 billion market –explosive growth (10x over past year)

• On average, 2-3 billion USD of digital currencies traded daily

• Significant structural challenges in market infrastructure leading to centralization and delays

• Institutional, corporate, and investor interest growing exponentially

WHY WE ARE HERE

1

• Need more banking partners to enable companies to:üAccess operating and transactional accounts

üEnable users to move from fiat to digital currencies more easily

üExtend digital currency infrastructure to accommodate growth

üBuild robust applications of top of the existing digital currency exchange infrastructure

WHY WE ARE HERE

1

• This isn’t just about digital currencies – digital assets and digital fiat are coming!

• We need much more coordination within both the existing digital currency exchange ecosystem and the companies bridging these currencies to the traditional financial system

• Opportunity to create new business partnerships and collaboration structures to fuel growth

DIGITAL ASSET INFRASTRUCTURE

Bank A Bank B

Payment CoPayment Co

Exchange ExchangeWallet Wallet

WalletWallet

Mining Network

Blockchain Protocol (Public or Private)

FIAT

DIGITALASSET

EXCHANGE

PROTOCOL

Compliance (KYC / AML)Audit & Tax

Security SecurityIdentityIdentity

USER LAYER

Digital Currency: Alice Sends Bob $5

Electronic Communication Network

Risk MonitoringReserve Monitoring

Liquidity and Working Capital ManagementCustodian Services

APPLICATION LAYER

Asset Issuance

Digital Asset: Bank A sends B CDS Contract

GOALS

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• Discuss key themes and trends in digital currency ecosystem

• Hear from banks and companies about current state of banking digital currencies

• Understand your perceptions of digital currencies and your concerns about banking companies touching digital currencies

• Identify how the group gathered here could work together to help more banks in the state engage with digital currencies and set an industry example

MORNING AGENDA

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• Coin Center | Intro to Bitcoin & Digital Assets• DCG | How Bitcoin is Being Used

• Silvergate & DCG | Current State of Bitcoin Banking• Coin Center | Overcoming Obstacles

• Discussion | What Keeps You from Banking Bitcoin

MORNING AGENDA

1

• Coin Center | Intro to Bitcoin & Digital Assets• DCG | How Bitcoin is Being Used• Silvergate & DCG | Current State of Bitcoin Banking• Coin Center | Overcoming Obstacles

• Discussion | What Keeps You from Banking Bitcoin

USE CASES FOR THIS TECHNOLOGY

DISTRIBUTED LEDGERSTORE OF VALUE PAYMENT RAIL

STORE OF VALUE

Digital currency can be an electronic store of value, especially in countries where local currencies are volatile or losing value

ATTRIBUTES

Limited Supply ü

Easy to Move ü

No Storage Cost ü

Durable ü

Highly Divisible ü

USE CASE

OTHER DIGITAL CURRENCIES

Over 600 digital currencies and many different types of blockchain technologies have been created for specific reasons

Currency Key Use Cases

• Store of value• Payment network• Distributed ledger

• Smart contracts• Programmable transactions• Distributed applications

• Real time settlement• Cross currency transactions• Transaction fees destroyed

Key Features

• Supply fixed at 21 million bitcoin• In existence since 2009• Public – anyone can access

• Supply not fixed, 1-2% inflation• In existence since 2014• Public – anyone can access

• Supply fixed at 100 billion XRP• In existence since 2013• Native asset for Ripple protocol

We believe in a future where many digital currencies and assets will serve many different purposes

10

• Holds ~1% of all bitcoin

• 834th largest out of 1909 ETFs

• 36th best performing out of 1909 ETFs

BITCOIN INVESTMENT TRUST

$0

$70

$140

9/25/13 3/25/14 9/25/14 3/25/15 9/25/15 3/25/16 9/25/16

Mill

ions

Assets Under Management

11

PAYMENT RAIL

Digital currencies can be used as a global payment rail, without exposing either the sender or receiver to the underlying asset

• Fast transaction times – 10 min• Low network fees• No banks or intermediaries needed

EXAMPLE: SENDING MONEY VIA BITCOIN NETWORK

Wallet

Bank Account

Bill Pay or Credits

P2P FX Teller

Payment Network

Agent

Payout Options

ON AND OFF RAMPS ARE CRITICAL

Bitcoin payment applications require a robust, integrated exchange ecosystem to create an open financial network

CROSS BORDER PAYMENTS VIA BITCOIN

Source: Proprietary Data from DCG Portfolio Company Analysis (Incl. BitPesa, Korbit, Veem, Wyre)

MONTHLY VOLUME CUMULATIVE VOLUME

$0

$25

$50

Jan-16 May-16 Sep-16 Jan-17

Milli

ons

$0

$175

$350

Jan-16 May-16 Sep-16 Jan-17

Milli

ons

Infrastructure (Protocols, Mining, Exchanges, Wallets, Processors)

Security, Trading, Institutional Tools

Identity & Compliance

2009 20152012 2013 2014

Early Experimentation

Currency

Payments 2.0

Asset Registry

Smart Contracts

Blockchain Application Ecosystem

EVOLUTION OF BLOCKCHAIN

USE CASES FOR THIS TECHNOLOGY

Digitizing Identity and

Assets

Distributed Ledger / Registry

Smart ContractsPayment Rail

Proof of Ownership for Digital Content

Decentralized Patient Records Management

Decentralized IoT

Digitization of Documents & Contracts and Proof of Ownership for Transfers

Enable Authenticity of a Review or Recommendation

Decentralized Prediction Market for Financial Markets, Politics, etc.

Escrow and Custodian Service

Provide Digital Identity that Protects Consumer Privacy

Improving Anti-Counterfeit Measures in Digital and Physical Assets

Digital Security Trading Ownership & Transfer

Decentralized Storage of Data Using A Network of Hardware

Decentralized Internet and Computing Resources

Smart Contract IT Portal Executing Order Fulfillment

Liquidating Rewards Points Across Platform

Blockchain Use Cases

Asset Class

CORE INFRASTRUCTURE

ENTERPRISE BLOCKCHAIN

PAYMENTS 2.0TRADING & TOOLS

BLOCKCHAIN REGISTRYIDENTITY & COMPLIANCE

YOURS

DCG PORTFOLIO BY THEME

CURRENT STATE OF BANKING

1

• Q&A with Ben Reynolds, Silvergate Bank

OVERCOMING OBSTACLES

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• Jerry Brito, Coin Center

• (flip to slides)

DISCUSSION

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• What questions or challenges keep you from banking bitcoin companies?

JUNE 5, 2017

AFTERNOON AGENDA

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• DCG | Educating Your Board on Bitcoin• Silvergate | Bitcoin Banking Practices

• Chainalysis | Monitoring Network Activity• IDFPR | Regulatory Perspective

• Discussion | Next Steps and Commitments

EDUCATION

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• 10 min

• To be covered by DCG

• How do you educate your team and your board?

PROCESS

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• 15 min

• To be covered by Silvergate

• Educating companies and providing a checklist of “minimum standards” and business processes, technology, and staff they should have in place

MONITORING ACTIVITY

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• 15 min

• To be covered by Chainalysis

• Working with blockchain network monitoring companies to conduct KYC / AML on this new asset class

REGULATORY PERSPECTIVE

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• 30 min

• To be covered by IDPFR

• Share the perspective of the state

NEXT STEPS

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• 60 min

• To be moderated by Cab / Jennifer / Meltem

• Outline key next steps to move project forward and solicit commitment. Set goal for the year to deliver “success story” to position IL banks as leaders in this space, and clearly outline how we’ll continue to collaborate and communicate with the group.