block chain a paradigm shift

Ramanan Jagannathan

November 2016

Blockchain – A Paradigm Shift

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Agenda

• Online Transactions

• Bitcoin and Blockchain

• Global Financial Industry and Blockchain

• Resources to Dig Deeper

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Agenda





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Issues with Online Transactions today…

Power is centralized

Incentive is largely lopsided

Security is still a big issue

Privacy is largely non-existent

IP rights are ambiguous

Inclusion is absent

Integrity is an add on

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Over years, people have been trying to solve this

problem

The Quest for crypto currency and distributed decentralized design methods continue with

projects in the areas of altcoins (namecoin, litecoin, etc), distributed ledgers (ethereum,

factom, hyperledger etc), meta-networks ( e.g. counterparty), currency platforms (Ripple,

cirlce etc.), micro channel platforms (Lightening network etc.) and many more...

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Agenda





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Bitcoin Overview

Bitcoin or bitcoin ? --- both valid, but not the same Bitcoin is an overloaded word

• Protocol – specifying how to construct and parse the blockchain, how transactions should be assembled, what is a valid

transaction …

• Network – Peer-Peer network to which nodes connect and exchange messages containing new blocks and transactions

• Currency – unit of the native currency of the Bitcoin network. Each bitcoin is divisible to 100,000,000 pieces called satoshis

• Open Source Project – The original open source Bitcoin core ( written in C++)

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What is a Blockchain ?

Blockchain is the technology that enables the existence of cryptocurrency

(among other things)

Bitcoin is the name of the best-known cryptocurrency, the one for which

blockchain technology was invented.

A cryptocurrency is a medium of exchange, such as the US dollar, but is

digital and uses encryption techniques to control the creation of monetary

units and to verify the transfer of funds.

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Blockchain Overview

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How Blockchain works

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Why is the idea of blockchain provocative ?

“BlockChain, as a

framework for Value

Transfer disintermediates

the intermediaries”

In other words, you don’t need an

intermediary to do a(ny) transaction

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Let us define Value

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How BlockChain designs out the issues we faced

Power is de-centralized

Incentive is largely lopsided reputation

based

Security is still a big issue PKI based

Privacy is largely non-existent decided by

user

IP rights are ambiguous made clearer

Inclusion is absent made possible by lower

transaction costs

Integrity is an add-on intrinsic

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Smart Contract

• Smart Contracts is defined as a piece code, able to self-verify their own conditions

using data & self-execute by releasing payment, while remaining tamper resistant.

• Smart contracts aim to provide security superior to traditional contract law and to

reduce other transaction costs associated with contracting.

• Smart contracts are not automatically legal contracts.

Characteristics

• Turning legal obligations into automated processes

• Guaranteeing a greater degree of security

• Decreasing reliance on trust

• Lowering transaction costs

• Self-verifying

• Self-executing

• Tamper resistant

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Types of Block Chain

• Public blockchains are open-source and everyone can be part of them. Anyone in the world can

explore the blockchain, send transactions or contracts, consult them and participate in the

consensus process – the process for determining what blocks get added to the chain and what the

current state is.

• Examples: Bitcoin, Ethereum

Public blockchains

• Consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a

consortium of 15 financial institutions, each of which operates a node and of which 10 must sign

every block in order for the block to be valid. The right to read the blockchain may be public, or

restricted to the participants.

• Example: R3

Consortium blockchains

• Write permissions are kept centralized to one organization. Read permissions may be public or

restricted to an arbitrary extent. Likely applications include database management, auditing, and

more that are internal to a single company, and so public readability may not be necessary in

many cases at all, though in other cases public auditability is desired.

• Examples: Eris Industries, Multichain

Private blockchains

https://bitcoin.org/

https://ethereumfoundation.org/

http://r3cev.com/

https://erisindustries.com/

http://www.multichain.com/

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Agenda





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Global Financial Industry and its shortcomings

It is built on decades old technology

It is at odds with Rapidly Advancing Technology

It is exclusive, leaving billions of people with no access to basic financial tools

It is centralized, exposing itself to data breaches, other attacks, or outright failure

It is monopolistic, reinforcing the status quo and stifling innovation

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Reasons why Blockchain Technology will disrupt

Blockchain enables Two parties who neither know each other or trust each

other to transact and do businessAttestation

On the blockchain, the network both clears and settles peer-to-peer value

transfers, and does it so continually so that the ledger is always up to dateCost

A bitcoin network in contrast takes an average of ten minutes to clear and

settle all transactions conducted during that periodSpeed

The Blockchain Technology mitigates several forms of financial riskRisk

The Blockchain Technology was designed to move bitcoins, and not other

financial assets. The technology is OpenSource and evolves due to

experimentation

Value

Innovation

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Why are we Talking about Blockchain ?

"If, so many incredibly smart people are working on this and

investing their time and energy, let alone the money that is

flowing into it, 'it's not something that we can all ignore.

However, the community of innovators need to understand

the complexity behind payments"

Ebru Pakcan, Head-Global Payments, citi

“The emerging Technology is fascinating and ING is not in

wait and watch mode but we are in see and do mode”

Mark Buitenhek

Global Head of Payments and Cash Management (PCM)

for ING

" I believe - and this is my personal view - that blockchain

technology will not only change the way we do payments but

it will change the whole trading and settlement topic....When

somebody with a strong brand and security level establishes

it as a reliable service, then the whole industry will follow.

That is my personal prediction."

Oliver Bussman, CIO UBS

“As we build more and more complex infrastructure the

whole maintenance and [impact for] changing regulations is

becoming extremely difficult for most of the banks. What is

being demonstrated here is the quite eye opening and

definitely something to look out for."

Gautam Jain, MD & Global Head-Client Access

• The Bank of England recognized the technology as 'significant innovation' that could have "far-reaching implications".

• New York State has released Bitcoin World's first license - BitLicense!

• Financial Conduct Authority (UK) is investigating ways in which the blockchain can be used in the formal financial

services industry

Source: WSJ, Banktech, American Banker, CoinDesk, BusinessInsider, Financial News, Twitter

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BFSI Sector foresees disruptive impact*

* Greenwich Associates 2015 study based on 58 respondents in America, Europe and Asia

Reviewing uses of Blockchain for adoption47%

Financial Institutions are implementing some applications for blockchain17%

Believe that blockchain will create disruption in financial Market94%

Familiar with the Blockchain startups and looking keenly into it56%

Want to use blockchain for reducing settlement risk and settlement time84%

Believe that blockchain can be used in OTC derivatives, apart from payments62%

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Potential to Provide Far-reaching benefits beyond

Payments

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Potential Areas of Application

http://bravenewcoin.com/news/moodys-new-report-identifies-25-top-blockchain-use-cases-from-a-list-of-120/

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Conclusions of the WEF ReportThe World Economic Forum's analysis has yielded six key findings

DLT has great potential to drive simplicity and efficiency though the establishment of

new financial services infrastructure and processes1

DLT is not a panacea; instead it should be viewed as one of the many technologiesthat will form the foundation of next generation financial services infrastructure

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Applications of DLT will differ by use case, each leveraging the technology in different

ways for a diverse range of benefits3

Digitial Identity is a critical enabler to broaden applications to new verticals: Digital Fiat

(legal tender), along with other emerging capabilities, has the ability to amplify benefits4

The most important DLT applications will require deep collaboration between incumbents,

innovators and regulators, adding complexity and delaying implementation5

New financial services infrastructure built on DLT will redraw processes and call into

question orthodoxies that are foundational to today's business models6

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Concerns Around Blockchain Implementation

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Blockchain Implementation in India

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Agenda





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Some Resources to Dig Deeper

Important Papers to Explore…

1. Bitcoin: A Peer-to-Peer Electronic Cash System

2. A Next Generation Smart Contract & Decentralized Application Platform (Vitalik Buterin, Ethereum’s

creator)

3. Enabling Blockchain Innovations with Pegged Sidechains (Blockstream team)

4. See “Simple Explanation of Bitcoin Sidechains for a less technical interpretation to the above paper.

5. Ethereum: A Secure Decentralized Generalized Transaction Ledger (Gavin Wood, Ethereum’s co-

founder) The Counterparty Platform (Counterparty)

https://bitcoin.org/bitcoin.pdf

https://www.ethereum.org/pdfs/EthereumWhitePaper.pdf

http://www.blockstream.com/sidechains.pdf

http://gendal.me/2014/10/26/a-simple-explanation-of-bitcoin-sidechains/

http://gavwood.com/Paper.pdf

http://counterparty.io/platform/

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Questions?