I have been presenting blockchain and bitcoin to several companies and audiences in the past 2 years (mostly financial companies). I started taking notes of their questions as it allows me to reconstruct their thought process while they discover and familiarize themselves with the concepts. These slides have been prepared for investment fund based in Luxembourg. I worked with the Head of Market Research to make the presentation tailored to their needs. Although we tried not to abuse simplifications, we had to gloss over many details and use analogies. The team was particularly interested in the ecosystems and applications. Here are the questions I could write down or remember, in their order. Hopefully they will help someone giving similar presentations to similar audiences. + Where is actually the blockchain? + Do I need all the blocks? + How big is it? If the data keeps adding one day it would take *hours* to download + In a peer to peer network how are people discovered? + Are there people checking all the blocks to verify the transactions? Could i do it? + Why do miners would want to do work to validate transactions? + Could I mine myself? How? + Why am i not mining if i can make 12.5 btc? + When does the blockchain ends? + What does prevent people from using bitcoin for illegal activities? + How could governemnts block it? How can it be shutdown + How can transactions be traced? Is it anonymous? + Where is the mempool? + What prevents everyone to do his own coin? + Where does it start? What happens if Satoshi sells its coins? + How was the 21M coins cap decided? Who decided it? Can it be changed? + Does the protocol evolve? who modifies it? what happens if some people don't want the modification. + If second layers protocols arrive (Lighting) would miners still be required? + What is difficulty and why 10minutes per block? Who decides how difficulty is updated? Based on what? + Can i do my ICO? How is it done?. + Is it legal? How is the crypto business legally recognised. + Which countries are more open to blockchain + How will governements tax it? * Credits to Alex Fishers for the PPT template

1. BLOCKCHAIN
AND BITCOIN
BASICS
Michele Pace, PhD
Connect with me: Michele Pace

2. OUR AGENDA
1. Introduction
to
Blockchain
2. Introduction
to
Bitcoin
3. Introduction
to Smart
contracts

3. 1.
BLOCKCHAIN
INTRODUCTION

4. FIRST, WHY
DO WE CARE ABOUT
BLOCKCHAIN?
Because it is a breakthrough technology revolutionizing the way
we exchange value
It allows transactions without trust in intermediaries, where
consensus matters, not authority
Opened the door to the concept of programmable money,
revolutionised fund raising

5. BLOCKCHAIN 1.0
Digital
currencies
BLOCKCHAIN
(R)EVOLUTION
“I do not need a
bank to send
you money”
BLOCKCHAIN 2.0
Programmable
money
BLOCKCHAIN 3.0
The birth of DApps
It seems
far-fetched,
but it is
happening
We are in this phase
“We can create
currencies with
different properties
than Bitcoin”
*Your self-driving car driving around people where you are
not using it, your idle computer performing calculations,
your unused disk space rented out, your web browser
paying for your attention, real assets tokenized and made
available on the blockchain …
“We can put on the
blockchain more than
just transactions…”
“... contracts can be enforced by
computer programs so we can build
distributed, transparent and
incentivized applications”

6. It is a special kind of distributed database. That is, data
logically put together and stored.
The data is organized in a series of blocks
The blocks are replicated and kept in synch over a P2P
network
Let’s start
with
general
terms, we
will expand
them in a
minute
Block
#998
Block
#999
Block
#1000
Block #1001
Data #2
Data #1
WHAT IS BLOCKCHAIN?

7. CENTRALISED DECENTRALISED DISTRIBUTED
WHAT DOES IT MEAN THAT THE
DATABASE IS DISTRIBUTED
Data maintained
in a single location
Data maintained in
multiple locations
Data replicated in
every node

8. CLIENT-SERVER PEER TO PEER
WHAT DOES IT MEAN PEER-TO-PEER
You must contact a server You can contact any “node”
Ex. A BANK, A WEBSITE BITCOIN
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💻

9. Let’s use an analogy.
Blocks in a blockchain “are like” pages in a book.
Everyone can read the book
Everyone playing by the rules can write the next page
of the book.
Everyone can have a copy of the book.
The book tells a (never-ending) story
WHAT DOES IT MEAN
DATA IN BLOCKS
Block #1001
Data #2
Data #1 ~~

10. CONTINUING WITH THE ANALOGY
The blocks (the pages) can hold information about
transactions, as in Bitcoin, or about countless other
things, such as:
Block #1001
Data #2
Data #1 ~~
▸ Ownership,
▸ Contracts,
▸ Votes,
▸ Identities …
▸ Status of computer programs…

11. WHAT DOES IT MEAN REPLICATED
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Every node has a copy of the blockchain
This is a
simplification
some nodes
don’t need a
full copy of
the
Blockchain

12. WHY BLOCKCHAIN IS NOT AS A
CONVENTIONAL DATABASE
▸ It is distributed (not owned by a company or a
person, it is replicated on thousands of computers)
▸ Everyone can read it and check that data is valid
▸ All the nodes have to agree on which information is
added
▸ No need of trusting a central authority
▸ Impossible to modify the past

13. HOW IS IT BUILT
The Blockchain is built on two pillars:
Peer-to-peer
Cryptography
Blockchain
More on this
later▸ Cryptography is the glue that keeps it togheter.
Used to make sure transactions can’t be duplicated or
falsified
▸ Peer-to-Peer to allow replication of information, so
that participants can leave/join the network as they
want, to avoid a central authority.

14. A WORD OF CAUTION
The concept of Blockchain is already evolving.
The Tangle for instance, is a (directed a-cyclical) graph
We will focus on the “classic” Bitcoin Blockchain

15. 2. THE
BITCOIN
BLOCKCHAIN

16. LET’S LOOK AT IT NOW
https://blockchain.info/new-transactions

17. A BRIEF HISTORY OF
BLOCKCHAIN
▸ 1980s: Digicash David Chaum
▸ 1997: Hashcash Adam Back Introduces proof-of-work
▸ 1998: B-money Wei Dai Public keys as pseudonyms
▸ 2001: BitGold Nick Szabo Decentralized digital currency
▸ 2008: Bitcoin “Satoshi Nakamoto”
▸ 2011: Litecoin, first “altcoin” released
▸ 2014: Ethereum whitepaper released/crowdsale
▸ 2017: ICO Phenomenon

18. HOW DOES IT WORK
As we said, the Blockchain is built on two pillars
Peer-to-peer
Cryptography
Blockchain
▸ Cryptography
▸ Peer-to-Peer computing
Let’s look at them.

19. THE CONCEPT OF PUBLIC-KEY
ENCRYPTION
Bob wants to
send a private
message to
Alice over a
public
channelALICE PRIVATE KEY
ALICE PUBLIC KEY
BOB ALICE

20. THE CONCEPT OF PUBLIC-KEY
ENCRYPTION
Bob uses Alice
public key to
encrypt the
message
ALICE PRIVATE KEY
ALICE PUBLIC KEY

21. THE CONCEPT OF PUBLIC-KEY
ENCRYPTION
Alice uses her
private key to
decrypt Bob’s
messageALICE PRIVATE KEY

22. NOW BITCOIN
Keep in
mind that I
am
simplifying
Block
#998
Block
#999
Block
#1000
New Block
Data #2
Transaction from XYZ to ...
BOB SIGNS HIS MESSAGE
WITH HIS PRIVATE KEY
The Blockchain has validated all the blocks up to #1000
This block will have to be validated before being
added to the Blockchain!
…
Signature

23. BOB’s TRANSACTION REACHES THE
MINERS
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💻
💻
💻 💻
A miner is
a node
validating
the blocks

24. CONSENSUS PROTOCOL:
PROOF OF WORK
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💻
💻 💻
Nodes in the network start to work on “validating” the
transactions
Blocks are validated by solving a difficult mathematical
problem
The first miner
to solve a hard
math problem
creates the
next block
and is
rewarded

25. CONSENSUS PROTOCOL:
PROOF OF WORK
The first miner to solve the problem adds the next block to
the blockchain and it is rewarded
The first miner
to solve a hard
math problem
creates the
next block
and is
rewarded
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SOLVED!!!

26. CONSENSUS PROTOCOL:
PROOF OF WORK
The first Miner
to solve a hard
math problem
creates the
next block
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💻
💻 💻
SOLVED!!!
Block
#998
Block
#999
Block
#1000
Block #1001
Data #2
Transaction from XYZ to ...
Only now the
block is added
to the blockchain!

27. LET’S RECAP
1. Transactions between accounts are constantly
distributed among nodes.
2. A miner takes a set of transactions and put them in a
block
3. Then it tries to validate their block (to get paid)
4. Once he finds the solution of a mathematical problem
it shares it with other nodes.
5. Other nodes check that the block is correct thus
reaching consensus
6. The Block is accepted as the next one on the blockchain

28. 3.
INTRODUCTION
TO SMART
CONTRACTS

29. “... contracts can be enforced by
computer programs so we can build
distributed, transparent and
incentivized applications”
BLOCKCHAIN 3.0
BLOCKCHAIN 1.0
Digital
currencies
*Your self-driving car driving around people where you are
not using it, your idle computer performing calculations,
your unused disk space rented out, your web browser
paying for your attention, real assets tokenized and made
available on the blockchain …
“I do not need a
bank to send
you money”
BLOCKCHAIN 2.0
Programmable
money
BLOCKCHAIN 3.0
The birth of DApps
“We can put on the
blockchain more than
just transactions…”
“We can create
currencies with
different properties
than Bitcoin”

30. REMEMBER BITCOIN
TRANSACTIONS
Let’s remove
some
simplifications
BOB SIGNS HIS MESSAGE
WITH HIS PRIVATE KEY
Signature

31. REMEMBER BITCOIN
TRANSACTIONS
Let’s remove
some
simplifications
BOB SIGNS HIS MESSAGE
WITH HIS PRIVATE KEY
If private key
unlocks account
XYZ then
transaction is valid
Transactions actually contain tiny computer programs!

32. EXTENDING BITCOIN
Bitcoin contains a tiny programming language…
Sure enough, people started experimenting:
• What if I want to make a transaction that unlocks only one
week from now?
• What if I want to make a transaction that unlocks if two
keys are used at the same time? What if three keys?
• What if I want to make a transaction that unlocks
behaving like a lottery? Can I do it with Bitcoin?

33. TOWARDS SMART
CONTRACTS EXAMPLE 1
Example. You want to create a safety measure for your
Bitcoin. You want a digital contract specifying that:
1. You can withdraw max 1% per day
2. A custodian can withdraw max 1% per day but you can stop
the custodian transactions
3. Only you and the custodian toghether can withdraw any
amount
CustodianClient

34. TOWARDS SMART
CONTRACTS EXAMPLE 2
Example. You want to create a lottery application on the
Blockchain. The “contract” could say:
Pays the lottery contract
Pays the lottery contract
Pays the lottery contract

35. TOWARDS SMART
CONTRACTS
We discussed conceptual examples of smart contracts:
• They are stored on the blockchain
• Everyone can read their code
• Trust the contract code, not the company
• Very low costs structure
(play the lottery only if the contract is fair)
(No trust in a “lottery company” required)

36. SMART CONTRACTS
Instead of storing transactions on the blockchain, we can
store computer programs!
💻
💻
💻
💻 💻
Block
#998
Block
#999
Block
#1000
Block #1001
Data #2
Computer code
Smart
contracts is a
large topic

37. ICO: INITIAL COIN OFFERING
An ICO is a fundraising tool used by startups (and scammers)
working on blockchain projects.
An ICO allows to exchange Bitcoin or Ethereum (liquid
and established cryptocurrencies) against tokens issued
by the blockchain startup to finance its project.
Gives Bitcoin, ETH, etc
Receives “Tokens”
Gets Bitcoin to fund the project
Investor Startup founder

38. ICO: INITIAL COIN OFFERING
An ICO model as it is now is probably not going to last:
• Investors have little to no control over the project after
having committed money
• Aggressive marketing practices and outright scams
pollute the environment.
Given the flexibility of smart contracts, almost certainly
ICOs will evolve towards multi-stage funding mechanisms
allowing investor to withdraw their contribution should the
team not deliver or keep their promises.

39. ICO EXAMPLE
Let’s go to coinmarketcap.com and select tokens
• Company: The startup which
issued the token
• Platform: on which platform
the token was issued
• Current token price
• Market Cap: Token price
times the number of tokens
created

40. Blockchain 3.0 is arguably the phase we are going through
right now
Instead of delving into the technicalities of DApps let’s take
a look at the ecosystem
BLOCKCHAIN 3.0

41. 4.
SOME
APPLICATIONS

42. Identity
Management

43. Identity management
Problem to solve:
• uPort, Evernym and Tradle platforms for all sorts of identity related
attributes.
• Hypr, Uniquid and Civic identify you biometrically.
• Shocard does both, for banks and airlines.
• Bitnation and Borderless issue virtual passports to their virtual
countries.
Having just one place where our identity is stored,
globally accessible, no need to duplicate identity
checks

44. Real Estate
Problem to solve:
• BenBen, Midasium and Ubitquity plans on using blockchain to track
ownership of real estate.
• Deloitte, Rotterdam and CIC are putting lease agreements on the
blockchain to make the process faster and easier.
• Epigraph aims at building on-chain civic registers.
• Factom’s aims at improving mortgage document management
The real estate opportunity has it’s own conference organization, IBREA.
Tokenize real assets to increase liquidity

45. INTERNET OF
THINGS

46. Internet-of-things
IoT will potentially develop into a 20+ billion connected devices and a $1.9
trillion economy by 2020.
Micropayments between connected devices will be a new layer in the economy.
Problem to solve:
Manage the transactions between IoT devices
Examples: Car paying parking, phone buying credit, computers buying updates, phone calling a taxi, truck paying for highways, a mail that pays
for the internet connection required to send itself, fridge buying electricity from the neighbour’s solar panel, electrical equipment buying energy
from the cheapest offerer..

47. File storage
Instead of uploading your data onto some company’s servers…
Why not splitting, encrypting, and distributing your files across a
decentralized network.
You hold the keys, you own your data. No outside company can access or
delete your files.
You pay what you use.
Problem to solve:
Decentralize data storage

48. IPFS
Large project aiming at replacing
foundational internet protocols.
Anybody with available storage
can join in and become a FileCoin
storage provider.
Providers become “miners” of
FileCoin and gain influence in the
network with the amount of
storage they provide to their
users.
FileCoin tokens are used to create
a storage marketplace: Users will
pay for the service with FileCoins.

49. Content creation & Social Media
Content creation is the core activity on the web.
Social media platforms try to reward users
Steemit is a blogging platform with it's own token called STEEM
distributed to content creators and curators daily as rewards, based on
community voting.
Vevue: answer video requests pinned in your area and earn tokens.
Problem to solve:
New models for rewarding content creators

50. Lending
Blockchain assets represent a good form of collateral
Blockchain lending platform are designed for intuitive loan
management.
Members can collateralize their blockchain assets, manage
repayments and monitor activity in one easy to use application.
Problem to solve:
Decentralize and increase opportunities in peer-to-peer lending

51. Blockchain
Games

52. Legal services
Problem to solve:
• Otonomos proposes to incorporate companies through the blockchain.
• Mystake aims at managing employee stock option programs
Streamline notarial services

53. Democracy and governance
Problem to solve:
The fraud-resistance and verifiability make the blockchain perfect for
voting systems.
• Followmyvote uses it for government electoral voting.
• Projects like Dash, Digix and Tezos have their governance on-chain.
• Boardroom and Colony let you govern your own organization on the
blockchain.
Make governments and institutions more transparent

54. Money management

55. New entrants
• Polychain Capital Fund: $102.2 million
• Pantera ICO Fund LP: a $100 million ICO-only fund
• Arrington XRP Capital: $50million cryptocurrency hedge fund
• Galaxy Investment Partners (Novogratz): $500 million fund
• Blocktower Capital: $140 million

56. Money management
Main areas of disruption: intermediaries and cost structures
Client
Asset management company + cost structure…
Brokerage firms + cost structure …
Exchange + cost structure …
Even for passive investment strategies actual cost structures are often
hard to justify…

57. Money management
Likely areas of disruption…
• Stock exchanges progressively move trading on the blockchain
• Investment strategies coded into smart contracts
• Clients start demanding exposure to crypto assets
• Risk Management and Hedging for crypto assets develops
• Fiscal/legal frameworks for crypto assets develop possibly challenging
existing ones
• Cost of managing crypto funds reduced, competition increases

58. Thank you!