fai spiccare le tue potenzialità · opinions ben bernanke: [the virtual currency] may hold...
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Fai spiccarele tue potenzialità
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Blockchain & … Bitcoin
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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://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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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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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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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.
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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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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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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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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
4. Regulatory Framework
5. Payments, Settlement, Exchanges, and Banking
6. Blockchain beyond bitcoin
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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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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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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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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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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
SHA-256(“Hello, world!1”) =
e9afc424b79e4f6ab42d99c81156d3a17228d6e1eef4139be78e948a9332a7d
8
……
SHA-256(“Hello, world!4249”) =
c004190b822f1669cac8dc37e761cb73652e7832fb814565702245cf26ebb9e
6
SHA-256(“Hello, world!4250”) =
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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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
4. Regulatory Framework
5. Payments, Settlement, Exchanges, and Banking
6. Blockchain beyond bitcoin
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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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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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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/qb14q102.pdf
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q3digitalcurrenciesbitcoin1.pdf
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q3digitalcurrenciesbitcoin2.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
4. Regulatory Framework
5. Payments, Settlement, Exchanges, and Banking
6. Blockchain beyond bitcoin
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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/
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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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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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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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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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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
4. Regulatory Framework
5. Payments, Settlement, Exchanges, andBanking
6. Blockchain beyond bitcoin
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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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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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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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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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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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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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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
4. Regulatory Framework
5. Payments, Settlement, Exchanges, and Banking
6. Blockchain beyond bitcoin
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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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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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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
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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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