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Banking on The Future of Blockchains

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This is the presentation I gave at the central bank of Malaysia on the 5th of September (2016) during the launch of the MDEC FinTech Academy. Lots of missing context (only available in person), but nonetheless worth sharing!

Published in: Technology

Banking on The Future of Blockchains

  1. 1. BANKING ON THE FUTURE (of blockchains) ! ! ! PRESENTED BY
  2. 2. SLIDE # BUT LET ME FIRST INTRODUCE NEUROWARE 2 Mark Smalley - CEO ! Living in Malaysia for the past 19 Years ! Building Web Applications for 15 Years ! Spent 10 Years Building Tech Communities ! Developing Blockchains Apps for 5 Years Ruben Tan - CTO ! Building Web Applications for 10 Years ! Active Community Evangelist & Presenter ! Early Developer at MyTeksi and OnApp ! Studying Distributed Consensus for 5 Years
  3. 3. SLIDE # EXPERIENCED INNOVATORS IN AN EARLY ECOSYSTEM 3 1st Malaysian Company to Graduate from 500 Startups in Silicon Valley 1st Company in Asia Providing Public Blockchain APIs & Developer Toolkits 1st in The World to Develop Non-Financial Blockchain Agnostic Protocols Helped Organize World’s 1st Bank-Backed Blockchain Hackathon (DBS) Over 15 Years of Collective Blockchain Development Experience
  4. 4. SLIDE # RECENTLY LAUNCHED CORTEX - WORLD’S 1ST BLOCKCHAIN O/S 4
  5. 5. A BRIEF HISTORY OF MODERN MONEY WHERE NO IDEA IS A NEW IDEA
  6. 6. SLIDE # IT ALL STARTS HERE - ON THE ISLAND OF YAP 6
  7. 7. SLIDE # SHOPPING WAS NOT EASY 7
  8. 8. SLIDE # SO THEY CREATED THE WORLD’S FIRST PUBLIC LEDGER 8
  9. 9. SLIDE # WHERE UPDATES REQUIRED GROUP CONSENSUS 9 Size wasn’t everything The history of each stone determined it’s individual value Conducting transactions quite literally involved a song & dance This required the majority of people from the village to be present !
  10. 10. SLIDE # BUT IT COULD NOT SCALE - THEY EVENTUALLY SWITCHED TO US$ 10
  11. 11. SLIDE # WHEN WE THINK OF THE US DOLLAR WE THINK OF REAL MONEY 11 0 2 4 6 8 US Reserve Global Real Estate Global Gold Trillion (US$)
  12. 12. SLIDE # AND THEN CAME DIGITAL CENTRALIZED ASSETS 12 0 17.5 35 52.5 70 US Reserve Real Estate Gold Stock Markets Trillion (US$)
  13. 13. SLIDE # AND WITH IT CAME THE RE-CREATION OF MONEY DEBT 13 0 175 350 525 700 Gold Stock Markets Global Debt Derivatives Trillion (US$)
  14. 14. SLIDE # IT ALL ENDS IN TEARS (512 US BANKS CLOSED SINCE 2008) 14 World War 2 US$3 Trillion All other US Wars Ever 2008 Bailout US$8.5 Trillion ! This really annoyed Satoshi Nakamoto
  15. 15. SLIDE # NOTHING LASTS FOREVER 15 Average lifespan of individual currencies is 27 years Every 30 or 40 years the reigning monetary system fails Over 3,800 fiat currencies worldwide have failed 15 of which happened in just the past 25 years
  16. 16. SLIDE # THE RECENT FAILURE OF FIAT 16 COUNTRY YEAR PROBLEM Angola 1991-1999 1 New Kwanza = 1,000,000,000 Belarus 1994-2002 50,000 = 100,000,000 2000 Rublei Bosnia 1993 Massive hyperinflation Ecuador 2000 Pegged to USD after 70-80% drop in its dollar Georgia 1995 1 new lari = 1,000,000 laris Krajina 1993 Country folded became part of Croatia Mexico 1993-1994 Defaulted in 1982 | 1 Nuevo Peso = 1,000 Old Pesos Poland 1990-1993 1 new Zloty = 10,000 old Zlotych Romania 2000-2005 1 new Leu = 10,000 old Lei Russia 1992-1994 100 Rubels = 1 US$ in 1991 | 30,000 Rubels = 1 US$ in 1999 Turkey 1990-2005 1 New Turkish Lira = 1,000,000 Old Lira Ukraine 1993-1995 1 Hryvnya =100,000 Karbovantsivi Zimbabwe 1999 – 2010 Ongoing mess
  17. 17. SLIDE # WHAT HAPPENS WHEN THE BANKS FAIL TO INNOVATE …? 17
  18. 18. SLIDE # WITHIN FIRST 12 MONTHS - 17 MILLION SUBSCRIBERS BY 2011 18 7% 5% 32% 9% 47% M-PESA BUS HAND OTHER BANK Market Share of Transfers (within first 12 months)
  19. 19. SLIDE # “ SOFTWARE IS EATING THE WORLD ” - Marc Andreessen 19 Uber is the world’s largest taxi company, but owns no cars AirBnB is the largest accommodation provider, but owns no real estate Facebook is the most popular media provider, but creates no content Alibaba is the most valuable retailer, but owns no inventory Bitcoin is the most valuable digital currency, but there are no coins
  20. 20. A TIP-TOE INTO BITCOIN MAGIC INTERNET MONEY
  21. 21. SLIDE # BITCOIN 21 VS BLOCKCHAINS
  22. 22. SLIDE # DOGECOIN 22 VS RIPPLE
  23. 23. SLIDE # ETHEREUM 23 VS PRIVATE CHAINS
  24. 24. SLIDE # WHAT’S THE DIFFERENCE BETWEEN PUBLIC & PRIVATE CHAINS? 24
  25. 25. SLIDE # WHAT ARE THE BENEFITS OF DISTRIBUTED PUBLIC LEDGERS? 25 They provide an immutable tamper-proof audit-trail of the truth Data can be easily shared and independently verified by third-parties Vastly increased security that is much less vulnerable to attack or outage Programmable contracts that can radically reduce human errors and costs “While Fintech Disrupts Banks, the Blockchains Disrupt Fintech"
  26. 26. SLIDE # INTERESTING BITCOIN BLOCKCHAIN FACTS TO REMEMBER 26 Bitcoin blockchain released in January 2009 by Satoshi Nakamoto We do not know who Satoshi is, or what their religion or political views are However, the bailout of 2008 was citied as primary catalyst for its creation US$13 per coin in 2013 (which is when we bought) - now US$540 per coin The Bitcoin network is currently processing over 200,000 daily transactions The network’s market capitalization is currently around US$7 billion 21 million maximum finite supply, decreasingly dispersed every 10 minutes But most importantly of all is the technology behind it…
  27. 27. SLIDE # BITCOIN AND BLOCKCHAINS HAVE NO NEW TECHNOLOGY 27 HASH - Theorized in the 1800s - Coined by IBM in the 1950s SHA - Encryption method first introduced by US Navy in 1993 P2P - Peer to peer protocol popularized by Napster in 1999
  28. 28. SLIDE # THE EVOLUTION OF EVERYTHING …? 28 CENTRALIZATION! DATABASE DECENTRALIZATION! THE CLOUD DISTRIBUTION! BLOCKCHAINS
  29. 29. SLIDE # THE EVOLUTION OF EVERYTHING …? 29 CENTRALIZATION! DATABASE DECENTRALIZATION! THE CLOUD DISTRIBUTION! BLOCKCHAINS
  30. 30. SLIDE # THE EVOLUTION OF EVERYTHING …? 30 CENTRALIZATION! DATABASE DECENTRALIZATION! THE CLOUD DISTRIBUTION! BLOCKCHAINS
  31. 31. SLIDE # THE EVOLUTION OF EVERYTHING …? 31 CENTRALIZATION! DATABASE DECENTRALIZATION! THE CLOUD DISTRIBUTION! BLOCKCHAINS
  32. 32. SLIDE # THE EVOLUTION OF EVERYTHING …? 32 CENTRALIZATION! DATABASE DECENTRALIZATION! THE CLOUD DISTRIBUTION! BLOCKCHAINS
  33. 33. SLIDE # THE EVOLUTION OF EVERYTHING …? 33 CENTRALIZATION! DATABASE DECENTRALIZATION! THE CLOUD DISTRIBUTION! BLOCKCHAINS
  34. 34. SLIDE # THE EVOLUTION OF EVERYTHING …? 34 CENTRALIZATION! DATABASE DECENTRALIZATION! THE CLOUD DISTRIBUTION! BLOCKCHAINS
  35. 35. SLIDE # BLOCKCHAINS ARE SIMPLY A NETWORK OF NODES 35 326 327 328 329 330 331 332 333 334 335 Each member of the network runs their own node and all nodes are equal The blockchain becomes more secure as more nodes join the network All transactions across the entire network are tracked by each node There are no actual coins - there is only a ledger of who owns what Cryptographic key-pairs represent accounts and passwords On the blockchain - no one knows you’re a fridge
  36. 36. SLIDE # EVERY ACCOUNT IS MERELY A SET OF KEYS 36
  37. 37. SLIDE # EACH “ADDRESS” REQUIRES A PRIVATE KEY TO ACCESS IT 37
  38. 38. SLIDE # SOME ADDRESSES EVEN REQUIRE MULTIPLE KEYS 38
  39. 39. SLIDE # WHAT’S IN A BITCOIN TRANSACTION? 39 326 327 328 329 330 331 332 333 334 335 Multiple unspent inputs are used in order to form the total value sent Cannot send proportions of inputs, must use all and send the change back Because a single transaction can send multiple values to multiple outputs Fees are based upon the total size (inputs and outputs) rather than value Paying these fees is done by forgetting to send some value to someone Transaction scripts can contain complex variables (multi-sig & timed locks)
  40. 40. SLIDE # ALICE CAN’T SEND WHAT SHE DOESN’T HAVE AND BOB WANTS 5 40 10 3 2 5 4 5 4 CHANGE MINUS FEE ALICE’S UNSPENT INPUTS BOB GETS 5 THE TX! SIGN OUTPUTS RELAY HEX TO NETWORK
  41. 41. SLIDE # PUTTING THE BLOCKS INTO THE BLOCKCHAINS 41 326 327 328 329 330 331 332 333 334 335 Transactions are batched into blocks every ten minutes (with Bitcoin) To reach consensus as to which node has the right to add the next block to the chain, miners compete in a race to solve cryptographic equations They then add a nonce (one use number) to the block and hash it If the hash has X number of zeros at the beginning it becomes a valid block Otherwise the miners increase the nonce and they hash the block again Solving these cryptographic equations is becoming increasingly difficult
  42. 42. SLIDE # THIS IS THE HASHING POWER OF THE NETWORK IN 2013 42
  43. 43. SLIDE # THE EVOLUTION OF MINING 43
  44. 44. SLIDE # MINING IS NOW A BILLION DOLLAR BUSINESS 44
  45. 45. SLIDE # THE EVOLUTION OF MINING 45
  46. 46. BITCOIN ISN’T EVERYTHING BILLIONS INVESTED IN BLOCKCHAINS
  47. 47. SLIDE # BANKS ARE MOVING FAST DUE TO ECOSYSTEM MATURITY 47 As of January 2016, more than 60 banks and leading financial institutions have made statements confirming that they are actively working on blockchain projects.
  48. 48. SLIDE # BITCOIN AS A PAYMENT METHOD 48
  49. 49. SLIDE # SOME OF THE INSTITUTIONS LEADING THE WAY 49 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 blockchain
 for settlements
  50. 50. SLIDE # STOCK EXCHANGES ARE QUICKLY CATCHING-ON TOO 50
  51. 51. SLIDE # KOREA ARE BUILDING PROTOTYPES TOO 51
  52. 52. SLIDE # HONG KONG WERE QUICK TO FOLLOW 52
  53. 53. SLIDE # JAPAN MAKING BIGGEST MOVES - LEGAL / ACCEPTED BY BANKS 53
  54. 54. SLIDE # IMITATION IS THE BEST FORM OF FLATTERY 54 1st Generation of Alt-Coins forked each other with minor tweaks Basic breakout alt-coin successes included Litecoin and Dogecoin Dash (previously known as DarkCoin) worth noting due to governance See the Malaysian-Based CoinGecko for a better list!
  55. 55. SLIDE # ETHEREUM TAKES THINGS ONE STEP FURTHER 55 Raised US$15 Million in crowd-funding when launching their Ether currency Aiming to be the first turing complete blockchain, they have almost achieved it Heavily supported by Microsoft & also being used by IBM for their IoT platform Recently raised US$150 Million in crowd-funding their own venture fund However, the more moving parts a system has - the more likely it is to break THE WORLD’S SUPER COMPUTER…?
  56. 56. SLIDE # SMART CONTRACTS ARE EVERYWHERE 56 Even Bitcoin utilizes basic smart contracts (with over 100 script functions) Smart contracts are snippets of code stored and executed by the network They can perform transactional based events if defined conditions are met
  57. 57. SLIDE # WHAT’S REALLY IN A TRANSACTION? 57
  58. 58. SLIDE # DECODING SCRIPT HEXES 58 80% of transactions are known as standard transactions
 — OP_DUP OP_HASH160 <pubKeyHash> OP_EQUALVERIFY OP_CHECKSIG
 Approximately 1% of transactions contain OP_Returns
 — OP_RETURN <hexedData> - can you find Gandhi?
 There are even a few hidden puzzles on the blockchain…
 
 OP_HASH256 6fe28c0ab6f1b372c1a6a246ae63f74f931e8365e15a089c68d6190000000000 OP_EQUAL
  59. 59. SLIDE # ETHEREUM TAKES THINGS ONE STEP FURTHER 59 contract MyToken { ! /* Public variables of the token */ string public standard = 'Token 0.1'; string public name; string public symbol; uint8 public decimals; uint256 public totalSupply; ! /* Allow interface to create tokens */ function MyToken( … ) ! /* Send coins */ function transfer( … ) ! /* Allow another contract to spend some tokens in your behalf */ function approveAndCall( … ) /* A contract attempts to get the coins */ function transferFrom( … ) }
  60. 60. SLIDE # CURRENCIES CAN BE MANY THINGS - EVEN VOTING RIGHTS 60 Symbol = % Decimals = 2 Name = Equity Contracts can also be linked, which allows governance contracts (DAOs) 
 to then be able to vote and control upon custom currency transfers…
  61. 61. THE BANKS OF THE FUTURE HAVE ZERO EMPLOYEES
  62. 62. SLIDE # BANKING ON THE FUTURE OF BLOCKCHAINS 62 With banks already KYC and AWL compliant, there are no entities more suited to be offering digital currency brokerage and key management With the advent of smart-contracts, banking becomes a sequence of code Regulation and compliance would be designed as part of the protocol If retail and commercial banking processes were 100% based upon blockchains, staffing requirements could be reduced by at least 90% Existing internal infrastructure can be replaced by distributed protocols 326 327 328 329 330 331 332 333 334 335
  63. 63. SLIDE # 2ND PLACE WINNER OF THE DBS BLOCKCHAIN HACKATHON 63
  64. 64. SLIDE # LAWMOWER - AUTO SAVINGS ACCOUNT 64
  65. 65. SLIDE # BITJAM - P2P LOANS VIA BITCOIN 65
  66. 66. SLIDE # BITPESA - REMITTANCE VIA BITCOIN 66
  67. 67. SLIDE # LAMASSU - THE MOST POPULAR BITCOIN ATM 67
  68. 68. SLIDE # BLOCKCHAINS CAN REPRESENT VARIOUS VALUES 68
  69. 69. SLIDE # OPEN BAZAAR - DISTRIBUTED AMAZON 69
  70. 70. SLIDE # LAZOOZ - DISTRIBUTED UBER 70
  71. 71. FIN-TECH NOT EVERYTHING TIME TO TALK ABOUT US ! (again)
  72. 72. SLIDE # INTRODUCING THE BLOCKCHAIN EMBASSY OF ASIA 72
  73. 73. SLIDE # MALAYSIA BOLEH - http://BCE.asia 73
  74. 74. SLIDE # TO SUMMARIZE 74 The next IT revolution is already underway and finance is only its first target Although the future of Bitcoin is uncertain - blockchains are here to stay Distributed ledger technology will continue growing at an increasing pace Like databases, there is no blockchain suitable for every use-case
 Remember to keep a blockchain-agnostic view when developing solutions Don’t forget that whatever is controlling the private keys owns the money
  75. 75. SLIDE # THAT’S WHY WE DEVELOP BLOCKCHAIN AGNOSTIC PROTOCOLS 75 DISTRIBUTED STRUCTURED DATA DECENTRALIZED ID AND AUTHENTICATION KEY LOGISTICS & BROADCASTING
  76. 76. SLIDE # WORLD’S FIRST DATABASE INTERFACE FOR MULTIPLE CHAINS 76
  77. 77. SLIDE # EASILY CUSTOMISED THROUGH MODULAR THEMES AND PLUGINS 77 Kyri - Co-Founder & Director! of Licensed ECF Platform “For ECF to flourish, there must be a deep depository of trust and transparency that is frictionless & inclusive. Neuroware’s tech enables us to provide all that and more!”
  78. 78. SLIDE # CORTEX SOLVES PROBLEMS FACED BY EVERY FIN-TECH PLAYER 78 Reconciling Multiple Central Ledgers Vs Auto-Audited Distributed Ledgers? Batch Processing CSVs every 24 Hours Vs Really Real-Time Settlement?
  79. 79. SLIDE # OUR PRODUCTS & SERVICES COME HIGHLY RECOMMENDED 79 “Having finally seen Cortex in action, I can safely say these guys have something truly special on their hands, my only disagreement is that they should be based in Singapore!” Anson Zeal - CEO! Bitcoin Remittance Company “Neuroware have been our ‘go to’ guys with respect to blockchains and critical in raising the understanding of distributed ledgers for our senior leadership teams and partners” “Neuroware have consistently been our key consultants with regards to blockchain technology. Their participation provided us with use cases that weren’t first obvious” Amran Hassan! Head of Innovation Max Tiong! Head of FinTech
  80. 80. THANK YOU NOW IS THE TIME TO QUESTION THINGS ! ! ! ! ! ! LEARN MORE ABOUT ! ! ! ! ! http://neuroware.io

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