Digital Payments and Cryptocurrencies - this presentation was given on Dec 3rd in Madrid to top execs at Santander Bank and Barrabes Group.

1. C RY P T O C U R R E N C Y
PA Y M E N T S , O P P O R T U N I T I E S , A N D C H A L L E N G E S
D E C E M B E R 3 , 2 0 1 5
G L O B A L D I G I TA L I N N O VAT I O N

2. 1 . E V O L U T I O N O F PA Y M E N T S
2 . W H A T I S C RY P T O C U R R E N C Y
3 . W H A T I S B I T C O I N
4 . H O W D O E S I T W O R K
5 . B I T C O I N T R A N S A C T I O N S & M I N I N G
6 . W H E R E I S I T U S E D
7 . H O W I S B I T C O I N S E C U R E ?
8 . B I T C O I N A S A C U R R E N C Y
9 . R E M I T TA N C E S / M O N E Y T R A N S F E R S
1 0 . B I T C O I N A S A N I D E O L O G Y
1 1 . B I T C O I N A S A P L A T F O R M
1 2 . U S E C A S E S
1 3 . E M E R G I N G T R E N D S
1 4 . W H A T T O L O O K F O R
1 5 . C O N C L U S I O N
Q U E S T I O N S
T O P I C S

3. G O A L S
B Y T H E E N D O F T H I S P R E S E N TA T I O N , Y O U W I L L U N D E R S TA N D :
- W H A T I S C RY P T O C U R R E N C Y
- W H A T I S B I T C O I N A N D H O W I T W O R K S
- W H A T ’ S D R I V I N G I T
- W H A T A R E T H E I M P L I C A T I O N S O F T H I S T E C H N O L O G Y
- W H A T A R E T H E C H A L L E N G E S
- A N D W H A T A R E T H E F U T U R E O P P O R T U N I T I E S

4. S P E A K E R B I O
Lisa Cheng
- 7 years in Enterprise Software
- Started taking an interest in Bitcoin after seeing it transacted on the
Deep Web
- Has been getting paid in Bitcoin since 2013
- Director and Founder of Vanbex, a strategic consulting firm
specializing in Bitcoin
- Consulted for and worked with over 15 different Bitcoin companies
and counting

5. T H E I N T E R N E T
1 9 8 4 - E L E C T R O N I C M A I L I S L A U N C H E D I N U S A N D C A N A D A
1 9 8 1 - I B M C R E A T E S F I R S T P E R S O N A L C O M P U T E R
1 9 9 0 - T I M B E R N E R S L E E C R E A T E S W O R L D W I D E W E B
1 9 9 5 - U S N A T I O N A L S C I E N C E F O U N D A T I O N R E M O V E S S T R I C T
P R O H I B I T I O N O F C O M M E R C I A L E N T E R P R I S E O N T H E
I N T E R N E T
1 9 9 9 - N A P S T E R D R I V E S M I L L I O N S O F P E O P L E T O WA R D S
D E C E N T R A L I Z E D P E E R T O P E E R I N T E R A C T I O N

6. D I G I TA L PAY M E N T S
1 9 5 0 - C R E D I T C A R D S A R E I N T R O D U C E D
1 9 6 8 - F I R S T P L A T F O R M F O R E X C H A N G I N G E L E C T R O N I C D A TA
C R E A T E D C A L L E D E L E C T R O N I C D A TA I N T E R C H A N G E ( E D I )
1 9 7 5 - A T M S
1 9 7 9 - E L E C T R O N I C PA Y M E N T T E R M I N A L S ( E F T P O S )
L A T E 1 9 8 0 ’ S - M I C R O P R O C E S S O R WA S I N S TA L L E D
S U C C E S S F U L LY I N T H E P L A S T I C C R E D I T C A R D
1 9 9 3 - E C A S H I S C R E A T E D B Y D A V I D C H A U M
1 9 9 5 - F I R S T E L E C T R O N I C ‘ WA L L E T ’ A N D C R E A T I O N O F
S TA N D A R D S F O R M I C R O P R O C E S S O R C A R D S . U S F E D E R A L
R E S E R V E S A Y S 9 0 % O F A L L U S T R A N S A C T I O N S A R E A L R E A D Y
E L E C T R O N I C .

7. T E C H N O L O G Y PA R A L L E L S
Digital Payments: (established first, band-aid security later)
Protocol: first protocol for secure electronic transactions (SET) created in 1996. It was
a set of security protocols that made it ‘safe’ to send credit card transaction data
over open networks (the internet) - has since been replaced by 3D Secure
Wallet: in 2000, an association of the 12 largest manufacturers of smart cards, special
software, and credit associations announced creation of the first universal electronic
wallet giving users the option to transfer their information securely and accurately
Cryptocurrency: (designed using security)
Protocol: Bitcoin is essentially a cryptographic protocol making it very difficult to
fake or manipulate transaction data
Wallet: Enables transactions in Cryptocurrency by tracking transactions and verifying
user credentials without revealing any personal information
http://blog.e-money.com/780/
http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/

8. B E G I N N I N G O F C RY P T O C U R R E N C Y
1 9 9 6 - E G O L D
1 9 9 7 - A D A M B A C K I N V E N T S H A S H C A S H
1 9 9 8 - W E I D A I I N V E N T S B - M O N E Y
- N I C K S Z A B O I N V E N T S B I T G O L D
2 0 0 8 - S A T O S H I N A K A M O T O P U B L I S H E S B I T C O I N W H I T E PA P E R
2 0 0 9 - F I R S T B I T C O I N T R A N S A C T I O N

9. W H AT I S C RY P T O C U R R E N C Y ?
• CRYPTO = CRYPTOGRAPHY
• process of encrypting information for security, authentication, and /
or verification
• CRYPTO-CURRENCY= Digital Currency created using encryption
techniques to regulate the supply and transfer of assets in the system
• replaces the functions normally preformed by a central bank
• operates independently / semi - autonomously
• Presently, there are over 32 different cryptocurrencies each with a
market cap over $1 million

12. W H AT I S B I T C O I N ?
• peer to peer
• digital value transfer
• pseudo anonymous
• not accessible by www
• no counterfeit possible
• irreversible transactions
• no intermediary

13. H O W D O E S I T W O R K ?
• Completely digital - no tangible form
• No names or identifiable information is used
• This address was created for this presentation:
1SANgPeUsmBBxQUPE85YDZrFHX3195LA8
• Bitcoin addresses are the only way to send and receive
• All transactions are recorded and public
• Transactions are recorded on a global ledger - the Blockchain
• New transactions need to be approved by the Bitcoin network to
be recorded on the Blockchain

14. W H AT P O W E R S B I T C O I N ?
• The Bitcoin network is made up of a network of nodes (nodes are
personal/commercial computers running a full version of the
bitcoin software with a full copy of the blockchain)
• Nodes validate transactions and more nodes add to the security
of Bitcoin
• Every time a node accepts a new transaction and relays it to other
nodes, the transaction is sent through the Bitcoin network and
forms blocks
• These blocks of transactions form a long historical chain which is
known as the Blockchain

15. M A P O F B I T C O I N N O D E S

16. T H E B L O C K C H A I N
• Performs traditional functions of a Central Bank/Issuing Authority
by providing serial numbers, keeping track of who has money,
and verifying that transactions are legitimate
• This process of a transaction being added to a block, and the
block being added to the Blockchain which is confirmed by other
nodes in the network is called a Confirmation
• Only those transactions that are added to a block and receive
confirmations, appear publicly on the Blockchain
• The only information publicly viewable/recorded on the
Blockchain: Bitcoin addresses and transaction values.
• Essentially a distributed ledger of historical transactions

17. L AT E S T B I T C O I N B L O C K S

18. B I T C O I N T R A N S A C T I O N S
• The average time for a new block is 10 minutes
• This is also the time it takes for 1 Confirmation
• Bitcoin companies/exchanges/services will often
require 3 - 4 confirmations before the funds are
recognized in the account
• Attaching a fee to the Bitcoin transaction gives it
priority, the higher the fee the greater the priority

19. E X P L O R I N G B I T C O I N T R A N S A C T I O N S

20. H O W A R E N E W B I T C O I N S C R E AT E D ?
• The Bitcoin network is programmed to have a max
number of Bitcoins that will ever be created (21 million)
• The Bitcoin network awards newly minted Bitcoins to
special nodes known as Bitcoin Miners
• Bitcoin miners look for new transactions and bundle
these into a block
• Bitcoin miners compete against each other to solve a
block

21. B I T C O I N M I N I N G
Bitcoin mining is a reward process known as proof of work
1. Miners bundle new transactions into blocks
2. Then the latest block number in the blockchain is used to link it to the
blockchain
3. Miners then use a trial and error calculation to complete the link and
add their block to the Blockchain
4. This process requires a growing amount of time and resources (hashing
power) to solve the number, when discovered this constitutes proof of
work.
5. The current reward for creating a new block is 25 BTC, halving every 4
years.

22. I N V E S T M E N T S I N T O
B I T C O I N M I N I N G
H A R D WA R E C O M PA N I E S :
Bitfury: $60 Million
KnC Miner: $29 Million

23. H O W A R E B I T C O I N S U S E D ?
• Bitcoins are sent and received by Bitcoin addresses
• Bitcoins can be sent in whole amounts or smaller units
• Bitcoin can break down into 8 decimal places
• The smallest unit is called a satoshi 0.00000001BTC
• Bitcoin addresses are made of scrambled letters and numbers
• 1SANgPeUsmBBxQUPE85YDZrFHX3195LA8
• A bitcoin address is created by two digital signatures using a type of
cryptography known as ECDSA (Elliptic Curve Digital Signature
Algorithm)

24. H O W I S B I T C O I N S E C U R E ?
• Bitcoin addresses are secure because of ECDSA (Elliptic
Curve Digital Signature Algorithm)
• ECDSA is a type of cryptography used as a security
signature verification in systems like iOS, iMessage,
iCloud.
• Involves a public key (for public view) and a private key
(acts like a secret password)
• Security of the Bitcoin address depends on how difficult
it is to determine the private key from the public key

25. H O W I S T H E B L O C K C H A I N S E C U R E ?
• The Bitcoin Blockchain is secure because of SHA-256 (Secure
Hash Algorithm)
• SHA-256 is a type of cryptography used to secure PGP,
website certificates, web servers, and browsers.
• Involves comparing results of mathematical operations, the
difficulty of generating the same result from two different
starting numbers determines the security of SHA 256 (should
be almost impossible to achieve hence it is considered very
secure)
• This process of SHA 256 is used in Proof of Work to create
the Blockchain

26. W H Y D O E S B I T C O I N W O R K ?
• There is only one official version of the Blockchain and
this version is shared by all the nodes and Bitcoin miners
• When the majority of nodes have the same version of
blocks this is known as consensus
• All nodes maintain consensus by keeping the same
version of the Blockchain
• The Bitcoin network only accepts the longest chain of
blocks as the official Blockchain

27. H O W I S B I T C O I N S T O R E D ?
• Bitcoins are kept in a wallet
• Wallets can be located on a computer, server, mobile phone,
and/or accessed through a hosted website.
• A wallet can be unlocked with a password, and can be
recovered if lost
• Recovering a wallet also recovers the Bitcoins held in the
wallet
• A wallet contains all the private and public keys for each
bitcoin address owned by a user

28. B I T C O I N U S E R S , WA L L E T S , A N D T H E
B L O C K C H A I N

29. W H AT C A N S O M E O N E D O W I T H B T C
• Bitcoin as a currency
• Bitcoin as an ideology
• Bitcoin as a platform

30. B I T C O I N A S A C U R R E N C Y
Estimated Transaction Volume (USD)
$180,599,926.73 USD

31. B I T C O I N P R I C E
• Set by the free market
• No central authority to govern/oversee system
• The Bitcoin price differs between Bitcoin exchanges -
order books all have a different Bid/Ask price
• Bitcoin is exchanged today for USD, EUR, Yen, Peso, etc.
• The Bitcoin price fluctuates with most changes
historically caused by user demand and announcements

32. B I T C O I N P R I C E C H A R T

33. B I T C O I N T R A D I N G
• 24 hour market, 7 days a week
• Majority of Bitcoin trading communities located in US and China
• 14,899,900 BTC - Available supply
• In 2014, Bitcoin jumped from $2 to $266 between Feb - April
• Bitcoin exchanges operate in US, China, HK, Singapore, UK,
Mexico, Spain, France, etc.
• There are over 14 major Bitcoin Exchanges - all with different
order books, bid/ask prices

34. W H E R E C A N B I T C O I N B E U S E D ?
• WordPress in November 2012
• OKCupid in April 2013
• TigerDirect
• Overstock.com in January 2014
• Expedia in June 2014
• Newegg and Dell in July 2014
• Microsoft in December 2014
Major Bitcoin
Merchant Processors:

36. E X E C U T I V E D E C I S I O N
U S E R R E Q U E S T S
O R
D E C I S I O N T O A C C E P T B I T C O I N

37. PAY M E N T S
M A R K E T P L A C E C H A R I T Y
L I F E S T Y L E T R AV E L
E L E C T R O N I C S / T E C H N O L O G Y

38. B I T C O I N F O R G L O B A L T R A N S F E R S
• Growing interest among Bitcoin supporters and new
adopters to leverage Bitcoin technology for
remittances
• Serve the Unbanked
• Instant, Global, Frictionless Transfers
• Free/Cheap/Fast compared to existing providers
• WesternUnion, MoneyGram, Ria

41. B I T C O I N R E M I T TA N C E
C O M PA N I E S
• Abra
• Aircoinz – (Argentina)
• Align Commerce
• Beam Remit – (Ghana)
• Bit2Me
• Bitex.la
• BitPesa – (Kenya)
• BitSpark.io
• Bitx.co
• ButterCoin
• Circle
• Coin Batch – (Mexico)
• CoinJar
• CoinPip
• Coins.ph – (Philippines)
• HelloBit
• Igot
• Moneero
• Palarin – (Philippines)
• PayFast (Payment Processor)
• Rebit.ph – (Philippines)
• Romit (formerly Robocoin)
• Satoshi Tango – (Argentina)
• TransferB
• Volabit
• WorldRemit
• Zed by ZipZap
http://themoneywiki.com/wiki/alternative-currency-rebittance-bitcoin-remittance

42. C H A L L E N G E S T O B T C R E M I T TA N C E
1) Lack of specifics on how they will achieve target
markets
2) Lack of foreseeable way to make money with such
targeting*
3) Banking networks that service remittance providers are
increasingly deciding not to serve aspiring entrants**
4) AML and Compliance costs could outweigh
remittance volume
*https://www.saveonsend.com/blog/bitcoin-money-transfer/
** http://www.coindesk.com/why-the-future-of-bitcoin-remittance-businesses-isnt-certain/

43. R E G U L AT O RY E N V I R O N M E N T

44. R E G U L AT I O N S H A P E S B I T C O I N
• Regulatory situation in a country determines the type of
Bitcoin companies and services emerging from that area
• US, Canada, Europe, South America: Bitcoin Exchanges,
Bitcoin Payments, Bitcoin services - operate legally
• Africa, South East Asia: Remittances
• China: All Bitcoin mining hardware is manufactured here
• Singapore, HK: Bitcoin exchanges operate legally

45. S O C I O - E C O N O M I C E N V I R O N M E N T
S H A P E S B I T C O I N
• Bitcoin is seen as a movement driven by ideological
groups:
• Libertarians
• Anarchists
• Sharing Economy
• P2P
• Decentralization

46. B E Y O N D T H E C U R R E N C Y
The Blockchain has been getting attention recently from major banks
and institutions:
See R3: https://en.wikipedia.org/wiki/R3_(company)
Have integrated
Bitcoin into customer
facing tools:
Research and development of blockchain usage:

47. B L O C K C H A I N W I T H O U T B I T C O I N
• The technology that powers Bitcoin is a platform.
• The Blockchain provides:
• No centralized costs
• Adaptable data management
• Blockchain allows scripting systems (programs)
• Built in data trails
• Auditable and Permanent
• Data Governance
• Information input and access is heavily controlled
• Tamper proof

48. T E C H N O L O G Y D I S R U P T I O N
• The Blockchain demonstrates distributed consensus
• New type of networking infrastructure capable of
replacing the traditional server
• Bitcoin demonstrates the possibility of self-governing
technology
• Pseudo anonymous nature of Bitcoin transactions
demonstrates that market participants do not need to
know each other to transact confidently

49. WAY S T O P L AY W I T H T H E B L O C K C H A I N
• Create a sub currency
• Embed data
• Time stamp events
• Multi-signature transactions (co-signers)
• Distributed Contracts
• Record keeping of external documents
• Encrypting a document and embedding the hash into a
transaction
• Microtransaction tipping and games

50. B L O C K C H A I N P L AT F O R M S
• Ethereum - distributed computing/Smart Contract logic
• Factom - notarization permissioned ledger
• Ripple - settlement and clearing permissioned ledger
• Colored Coins - asset creation on Bitcoin
• Tendermint - consensus engine
• Credits - volume based permissioned ledger

51. U S E C A S E S T O R I E S
• Land titles
• Identity Management
• Decentralized Gaming
• Decentralized Applications
• Supply chain
• Data storage

52. C H A L L E N G E S T O B L O C K C H A I N
C O M PA N I E S
• Monetization
• Demand
• Adoption
• Replacing traditional systems
• Integrating with existing systems
• Developing the business case

53. E M E R G I N G T R E N D S
• Turnkey Blockchain providers
• Financial assets on the Blockchain
• Interbank transfers on the Blockchain
• Hybrid Blockchain / Traditional Server software
• Blockchain as a database
• Diversity of industries using the Blockchain
• Gaming, Media, Insurance, Finance,

54. W H AT S H O U L D I N S T I T U T I O N S C A R E
A B O U T R E G A R D I N G B I T C O I N ?
• According to a Report by McKinsey & Co - up to 40 % of the revenue
and 60% of the profits in the global retail banking industry will be at
risk due to peer to peer lending, cloud based payments, and
blockchain technologies*
• Demographics of Bitcoin users (millennials, early adopters, young
people, tech savvy, the next workforce)
• Bitcoin Transaction fees are scalable and up to the user = cost of
transacting is on the sender
• Transparency of the Blockchain = transparent business practices
• Efficiency of Bitcoin transactions = faster delivery, happier customers
*http://www.chicagotribune.com/news/sns-wp-blm-botin-b35b1eea-92b9-11e5-a2d6-f57908580b1f-20151128-story.html

55. WAT C H F O R
• Block size debate
• Block reward halving
• Side chains
• Changing government regulation towards Bitcoin
• New financial instruments being created on the
Blockchain opening up new markets previously not
possible and changing human behavior*
*http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/

56. C O N C L U S I O N
• Bitcoin and other cryptocurrencies essentially solve the
problem of how to securely transact in a digital world
increasingly burdened by consumer fraud and cyber crime
• ensuring people can’t steal or impersonate one
another, reverse a transaction, or alter transactions
• Would caution against using Bitcoin as a reserve currency
or investment
• Bitcoin is ideal for transactions, and people still have to
pay bills in Fiat

57. T H A N K Y O U
Q U E S T I O N S
F O R Q U E S T I O N S O R F E E D B A C K , P L E A S E F E E L F R E E T O C O N TA C T
L I S A @ VA N B E X . C O M