banking on blockchains

BANKING ON THE BLOCKCHAINS

PRESENTED BY

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RUBEN TAN

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Co-Founder & CTO of Neuroware

Technologist at heart

Involved in distributed startups more than 5 years

Community-Creator & Technology Evangelist Ruben [email protected]

mailto:[email protected]

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NEUROWARE QUICK FACTS

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1st Malaysian company to graduate from 500 Startups in Silicon Valley

1st company in Asia to provide public blockchain APIs and toolkits

1st startup to develop non-financial, blockchain-agnostic solutions

Helped the world’s 1st bank-backed Blockchain Hackathon in Singapore

Now working with Securities Exchange of Malaysia and Bank Negara

Planning to be first company in Asia to issue equity on blockchains

BlockchainsA layman’s introduction

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BLOCKCHAINS - WHERE TO START?

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New Bandwagon?Silver Bullet?

Snake oil?

The Answer to Everything?

Death of banking?

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BITCOIN vs BLOCKCHAINS

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Bitcoin Blockchain

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DOGECOIN vs BLOCKCHAINS

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Dogecoin Blockchain

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ETHEREUM vs BLOCKCHAINS

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Ethereum Blockchain

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A network of nodes each containing a copy of the database

Nodes uses a consensus protocol to agree on what is true in the database

Data is append-only / immutable, meaning once written into the database, it cannot be removed, or tampered with

Malicious activities are curtailed by its verification mechanism, preventing attacks like double spending

HOW DOES BLOCKCHAINS WORK?

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Dissecting BitcoinUnderstanding its internals

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Bitcoin is the first digital currency that works

Traded at USD 13 in 2013, now USD 445 in 2016

Released by “Satoshi Nakamoto” in January 2009

Market capitalisation currently at USD 7 billion

Bitcoin’s blockchain is the first public blockchain

Uses Proof-of-work + Longest chain consensus model

Source code is open source - understanding how bitcoin works does not mean you can attack it in any way

BITCOIN - BLOCKCHAIN AS DIGITAL CURRENCY

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BITCOIN BLOCKCHAIN OVERVIEW

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A bitcoin blockchain is made from a chain of blocks

Each block has a hash as their ID

Each block contains the hash of the previous block

This creates a “chain”, or in computing terms, a linked list

Block 1 id: 001

prev hash: 000

Block 2 id: 002

prev hash: 001

Block 3 id: 003

prev hash: 002

Block 4 id: 004

prev hash: 003

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A block contains a list of Transactions

… and some misc. meta-data

First Transaction is a Block Reward

Originally 50 bitcoins

Now 25 bitcoins

Soon halving to 12.5 bitcoins

INSIDE A BLOCK

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Block

Transaction 001

Transaction 002

Transaction 003

Transaction 004

Transaction 005

Transaction 006

…

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Each transaction contains inputs and outputs

1 or more Inputs

Which previous output’s coins to spend

Verification details (signature)

1 or more Outputs

Which address to pay coins to

Contract to fulfil in order to receive coins

INSIDE A TRANSACTION

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Transaction

Input - 10 coins

Input - 2 coins

Output - 5 coins

Output - 3 coins

Output - 2 coins

Output - 1 coin

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Outputs describe x amount of coins paid to an address

“Address” is essentially a key; if you have the key, you can unlock the output and redeem the coins

Outputs can contain complex scripts - paving the pay for smart contracts

REDEEMING OUTPUTS

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AND EACH “ADDRESS” REQUIRES A PRIVATE KEY TO ACCESS IT

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TRANSACTION FEES

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Transaction

Input - 10 coins

Input - 2 coins

Output - 5 coins

Output - 3 coins

Output - 2 coins

Output - 1 coin

11 coins

12 coins

1 coin as transaction fee

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BITCOIN MINING

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Block 2 id: 002

prev hash: 001

Block 3 id: 003

prev hash: 002

Block 4 id: 004

prev hash: 003

Block 5 id: 005

prev hash: 004

MinerCreates a new block

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Each node races to solve a mathematical puzzle called proof-of-work

First to solve the puzzle gets to add a new block to the chain

Once new block is added, miner collects block reward

Possible that 2 nodes will solve the puzzle at the same time, creating a race condition and a fork in the chain

Forks are resolved through the longest chain protocol

Proof-of-work + longest chain = bitcoin consensus model

BITCOIN MINING

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Every transaction records:

How many bitcoins were created as block reward

How many bitcoins were transferred from address A to address B - inputs to outputs

Great ledger because once a block is added, it cannot be removed or changed

Attacking the network is extremely costly: electricity cost easily cost more

BITCOIN AS A LEDGER

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Ledger is public and anybody can view it

Anybody can start a node and mine bitcoins

Anybody who owns a node has the entire ledger

Owning a node doesn’t mean you can tamper with it

Owning a node doesn’t mean you can attack the network

Owning a node doesn’t mean you can mine malicious blocks

BITCOIN AS A LEDGER

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Beyond BitcoinOpening pandora’s box

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BLOCKCHAINS AS DISTRIBUTED LEDGERS

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Immutable, tamper-proof audit-trail

Data easily shared and verified, forced transaction through protocol

Vastly increased security, less vulnerable to attack or outage

Programmable contracts that can radically reduce human errors and costs

“While Fintech Disrupts Banks, the Blockchains Disrupt Fintech"

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Smart contracts that are immutable removes the need for a trusted intermediary to facilitate any form of lending

Both peers agree on a contract, and trust the blockchain to execute the contract once both sides fulfil their side of obligations

Possible implementations:

Executing wills

Escrow for digital goods trade

SMART CONTRACTS

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Since data stored on the blockchain is immutable, ownership information can be stored on the blockchain

Example implementations

Property ownership

Car ownership

Commodities ownership (gold, silver, etc)

Creative products ownership (art, music, etc)

OWNERSHIP DATA

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Combines smart contract with ownership data to:

Play music on specific devices, embed contract into music file

Play games on specific machines, embed contract into game files

Operate software on specific machines, can expand to enterprises and tie into their user database and authentication systems

And more?

Government services tied into smart contracts based on biometric data

BLOCKCHAINS AND DIGITAL PRODUCTS

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Current LandscapeFinance industry and blockchain technology

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BANKS ARE MOVING FASTER THAN USUAL

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As of January 2016, more than 60 banks and leading financial institutions have made statements confirming that they are actively working on blockchain projects.

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SOME OF THE INSTITUTIONS LEADING THE WAY

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multiple blockchains for cross-boarder payments and loyalty

Exploring KYC and AML via the blockchains

Patented a blockchain based wire transfer system

Blockchain based loyalty platform

Blockchain based remittance platform

Blockchain based trade finance platform

Custom blockchainfor settlements

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HONG KONG

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‘Government will encourage the industry and relevant organisations to explore the application of “Blockchain”

technology in the financial services industry, with a view to developing its potential to reduce suspicious transactions and

bring down transaction costs.’

63rd paragraph, 2016 Hong Kong Budget Plan

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ZUG, SWITZERLAND

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The city of Zug, Switzerland, has announced it will pilot a bitcoin payments project that will allow local citizens to pay for

public services using digital currency.

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SINGAPORE

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There are other technologies, like blockchains, which is used for bitcoin, but can also be used for many other applications

like real-time gross settlement, or trade finance verification. So our banks and our regulators must keep up to date and up to

scratch with these developments

UOB 80th anniversary dinner, Prime Minister Lee

ChallengesRoadblocks of blockchain startups

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FINTECH ZOO

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Bitcoin has a bad reputation, and tainted the perception of its underlying technology (aka blockchains)

Bitcoin, the biggest blockchain, limits itself to 7 tps (vs. VISA at 2,000 tps, max at 56,000 tps)

Non-bitcoin blockchains face technical challenges related to consensus model

Outside of bitcoin, no standardisation on what blockchains should be or what protocols blockchains should have at a minimum

Regulators are often overwhelmed by the speed at which blockchains are developing, let alone understand what they are

BLOCKCHAIN CHALLENGES

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Industries may be forced to experience a paradigm shift once automation is enabled by blockchains

Security models are unknown for now, most blockchains are not battle tested

Most blockchains are at experimental and prototypal stage, not suitable for mass deployment yet

Difficulty in justifying ROI to senior management, who holds the keys to funding necessary for blockchain development

There is a divide between industry experts and blockchain engineers

BLOCKCHAIN CHALLENGES

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Thought ExperimentA possible “utopia”?

Private Company

Gov. Tax Dept.

Central Bank

Write/Mining Permission

Decode & read Transactions

Propose Transactions

Private Company

Gov. Tax Dept.

Central Bank

Relays Transactions

Mines blockchain

Taxation via Smart Contracts




Private Company

Gov. Tax Dept.

Central Bank

Law Enforcement/

Anti-corruption

Relays Transactions

Mines blockchain


Monitors Transactions




Private Company

Gov. Tax Dept.

Central Bank

Law Enforcement/

Anti-corruption

Foreign Company

Relays Transactions

Mines blockchain


Monitors Transactions

Transacts via an exchange




THANK YOU NOW IS THE TIME FOR QUESTIONS

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