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Blockchain &
Cryptocurrencies
NIMESH PATODI
• “We believe Bitcoin may be the most important technology of this decade.”
-Andreessen Horowitz
• “It's not a medium of exchange, it's a medium of trading, so I can't see any intrinsic value.”
-Howard Marks
• “Stay away from it. It's a mirage, basically.”
-Warren Buffet
• “I would not invest. I need to understand it better. I think there's a lot of merit behind it.”
-Ray Dalio (2013)
• “I think the algorithmic approach to controlling the money supply used by Bitcoin and
other digital currencies being developed in Silicon Valley could go a long way to creating
a sound store of value.”
-Mathew Bishop, Editor, The Economist
• “… a currency is a target of speculation as opposed to primarily a means of exchange, it does
create some concerns for the user.”
-Raghuram Rajan (2014)
What is a Distributed Ledger?
• A distributed ledger (aka shared ledger) is a
consensus of replicated, shared, and synchronized
digital data geographically spread across multiple
sites, countries, or institutions.
• There is no central administrator or
centralised data storage.
• Blockchain is a type of distributed ledger.
WHAT IS A
BLOCKCHAIN?
What is a Blockchain?
• A Blockchain is a continuous list of records,
called blocks, a linked list that is built with
hash pointers instead of pointers.
• Each block contains typically a hash pointer as a
link to a previous block, a timestamp and
transaction data.
• A use case for a block chain is a tamper-evident
log.
What is in a Blockchain?
• Blockchain is just another type of database for
recording transactions.
• Data in a Blockchain is stored in fixed structures
called “blocks”.
• The important parts of a block are:
• Its header
• Includes metadata, unique block reference number, timestamp, and
a link to the previous block.
• Its content
• Transaction details, i.e., addresses of the parties involved and
the amounts.
Graphic: Deloitte University Press. Source: American Banker
How the Bitcoin Blockchain works.
Graphic: Deloitte University Press. Source: American Banker
How the Bitcoin Blockchain works.
Elements common to all Blockchains
• Digitally distributed across a computer network in
almost real-time.
• Uses many participants in the network to reach
consensus.
• Uses cryptography and digital signatures to prove
identity.
• Has mechanisms to make it hard(but not impossible) to
change historical records.
• Is time stamped.
• Is programmable.
What is a Cryptocurrency?
• A digital asset designed to work as a medium of
exchange using cryptography to secure the
transactions and,
• to control the creation of additional units of the
currency.
• Ownership of a Bitcoin is nothing more than other
nodes agreeing that a given party owns those
bitcoins.
Differences between Fiat Currency & Cryptocurrency
Cryptocurrency
No intermediary
Free float exchange rates
Unregulated
Untraceable
Less Secure
Not a Legal Tender
Fiat Currency
Backed by the Central Bank
Possible Intervention of Central Bank
Regulated
Relatively traceable
More Secure
Legal Tender
What is Bitcoin mining?
• Essentially the book-keeping service.
• Miners keep the Blockchain consistent, complete and
unalterable by repeatedly verifying and collecting
transactions in a group called “block”.
• Each block contains a cryptographic hash of the previous
block, using the SHA-256 hashing algorithm, which links it
to the previous block.
• In order to be accepted by the rest of the network, a new
block must contain a so-called proof-of-work. The proof-
of-work requires miners to find a number called a nonce.
What is Bitcoin mining?
• Only way to solve puzzle is to try nonces one by one and
hope that one succeeds.
• This proof is easy for any node in the network to verify,
but extremely time-consuming to generate.
• Every 2016 blocks (approximately 14 days at roughly 10 min
per block), the difficulty target is adjusted based on the
network's recent performance, with the aim of keeping the
average time between new blocks at ten minutes.
• Mining rewards has two components:
• Transaction Fees
• Block Reward (Currently 12.5BTC/XBT per block)
Key
Properties
of
Limited Supply
Open Source
Accountable
Decentralized
Censorship Resistant
Push System
Low Fee
Borderless
Trustless
Pseudonymous
Secure
Programmable
Nearly Instant
Peer-to-peer
Portable
Scalable
Designed Money
Weaknesses
• Bitcoins are not widely accepted.
• Wallets can be lost.
• Highly volatile.
• No Buyer Protection.
• No Valuation Guarantee.
• Internet Dependency.
• Unregulated Exchanges.
Threats
• Unknown Technical Flaws.
• Wallet theft.
• Sybil Attacks – Numerous copies of malicious nodes
controlled by same adversary.
• Denial of Service(DoS) Attacks.
• Reverse Engineering transactions.
• Government Regulation.
• Energy Consumption.
Alternative
Cryptocurrencies
aka Altcoins
What are Altcoins?
• Altcoins are the alternative cryptocurrencies
launched after the success of Bitcoin.
• They attempt to target any perceived limitations
that Bitcoin has and come up with newer versions
with competitive advantages.
• Total market cap = $126.85 billions.
• BTC at $58B+, ETH at $28B+, XRP at $6.8B+. (as on 12/8/17)
The Year of Hype - 2017
Coin (Ranked by MCap) Year to Date (YTD) returns
(against $)
Bitcoin (XBT) 259.9%
Ethereum (ETH) 3597.8%
Ripple (XRP) 685.4%
Litecoin (LTC) 961.7%
Neo (NEO) 7008.8% (against XBT)
DigitalCash (DASH) 1717.4%
Monero (XMR) 271.4%
(as on 12/8/17)
(as on 12/8/17)
(as on 12/8/17)
Breaking Down Token Types
Token Type Function Examples
Traditional Asset Token To represent a traditional
asset cryptographically
USDT, DGD
Usage Token To provide access to a
digital service
BTC, ETH, BAT
Work Token To provide the right to
contribute work to a
decentralized organisation
REP, MKR
Hybrid (Usage + Work) To provide access to a
digital service and the
right to contribute work
FIL, ETH(with
Casper)
Source: Tomaino N. https://thecontrol.co/on-token-value-e61b10b6175e
Primary driver of Altcoin value
Token Network Effects
A fundamental approach
Three main sources of value driving a currency’s price:
• Production: High production cost.
• Bitcoin is produced via a virtual “mining” process, takes
exponentially more computing power each time a new cache is
mined. It not only requires specialized hardware, but
electricity to run and cool that hardware.
• Scarcity: Bitcoin (and most other cryptocurrencies)
are designed to have a fixed supply.
• Utility: “Use - cases”
• Golem – “AirBnB for your spare computing cycles.”
• Steem – Get paid each time someone reads or likes your post.
• SiaCoin - Decentralised private cloud service
• Augur – Platform that rewards for correctly predicting future
real-world events.
Ethereum
• An open software platform based on blockchain
technology that enables developers to build and
deploy decentralized applications.
• “Ether” can be transferred between users and used
to compensate participant nodes for computations
performed.
• Build new applications using “Smart Contracts”
• Trustless Crowdsale of Tokens
• Create a democratic autonomous organisation
• Dubbed as Web3.0
Smart Contracts on Ethereum
• Smart contract is just a phrase used to describe
computer code that can facilitate the exchange of
money, content, property, shares, or anything of
value.
• When running on the blockchain a smart contract
becomes like a self-operating computer program
that automatically executes when specific
conditions are met.
• Has features like no censorship, downtime, fraud
or third party interference.
EtherOpt(https://etheropt.github.io/) is a decentralized options exchange built on Ethereum.
What are ICOs?
• Analogous to an IPO, ICOs are means by which funds are
raised for a new cryptocurrency venture through sale of
coins instead of shares.
• ICOs are unregulated, startups use this to bypass the
rigorous and regulated capital-raising process required by
venture capitalists or banks.
• ICOs have now exceeded venture funding for blockchain
projects.
• Bancor raised $150 million.
• Tezos raised $232 million.
• Filecoin raised $200 million. (Pre-sale to Sequoia Capital,
Andreessen Horowitz, etc.)
• While, Tesla raised $226 million in their IPO.
REFERENCES
• Rich and Famous people on Bitcoin. https://www.weusecoins.com/rich-famous-bitcoin/
• Bitcoin and Cryptocurrency Technologies, Arvind Narayan et al. 2016 (Princeton)
• The Bitcoin Whitepaper: Nakamoto, Satoshi. Bitcoin: A peer to peer electronic cash system. (2008)
• “Blockchain. Enigma. Paradox. Opportunity.” Deloitte University Press
• Blockchain 101 – A Visual Demo. https://www.youtube.com/watch?v=_160oMzblY8
• K. Michael. Token Network Effects. https://medium.freecodecamp.org/token-network-effects-a-new-
business-model-for-a-decentralized-web-6cde8b4e862
• Blockgeeks. https://blockgeeks.com/guides/what-is-ethereum/
• Understanding the ICO hype. https://medium.com/blockchannel/understanding-the-ethereum-ico-
token-hype-429481278f45
• Cryptocompare. https://www.cryptocompare.com/
• Coinmarketcap. https://coinmarketcap.com/charts/

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Blockchain and Cryptocurrencies

  • 2. • “We believe Bitcoin may be the most important technology of this decade.” -Andreessen Horowitz • “It's not a medium of exchange, it's a medium of trading, so I can't see any intrinsic value.” -Howard Marks • “Stay away from it. It's a mirage, basically.” -Warren Buffet • “I would not invest. I need to understand it better. I think there's a lot of merit behind it.” -Ray Dalio (2013) • “I think the algorithmic approach to controlling the money supply used by Bitcoin and other digital currencies being developed in Silicon Valley could go a long way to creating a sound store of value.” -Mathew Bishop, Editor, The Economist • “… a currency is a target of speculation as opposed to primarily a means of exchange, it does create some concerns for the user.” -Raghuram Rajan (2014)
  • 3. What is a Distributed Ledger? • A distributed ledger (aka shared ledger) is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions. • There is no central administrator or centralised data storage. • Blockchain is a type of distributed ledger.
  • 5. What is a Blockchain? • A Blockchain is a continuous list of records, called blocks, a linked list that is built with hash pointers instead of pointers. • Each block contains typically a hash pointer as a link to a previous block, a timestamp and transaction data. • A use case for a block chain is a tamper-evident log.
  • 6. What is in a Blockchain? • Blockchain is just another type of database for recording transactions. • Data in a Blockchain is stored in fixed structures called “blocks”. • The important parts of a block are: • Its header • Includes metadata, unique block reference number, timestamp, and a link to the previous block. • Its content • Transaction details, i.e., addresses of the parties involved and the amounts.
  • 7. Graphic: Deloitte University Press. Source: American Banker How the Bitcoin Blockchain works.
  • 8. Graphic: Deloitte University Press. Source: American Banker How the Bitcoin Blockchain works.
  • 9. Elements common to all Blockchains • Digitally distributed across a computer network in almost real-time. • Uses many participants in the network to reach consensus. • Uses cryptography and digital signatures to prove identity. • Has mechanisms to make it hard(but not impossible) to change historical records. • Is time stamped. • Is programmable.
  • 10. What is a Cryptocurrency? • A digital asset designed to work as a medium of exchange using cryptography to secure the transactions and, • to control the creation of additional units of the currency. • Ownership of a Bitcoin is nothing more than other nodes agreeing that a given party owns those bitcoins.
  • 11. Differences between Fiat Currency & Cryptocurrency Cryptocurrency No intermediary Free float exchange rates Unregulated Untraceable Less Secure Not a Legal Tender Fiat Currency Backed by the Central Bank Possible Intervention of Central Bank Regulated Relatively traceable More Secure Legal Tender
  • 12. What is Bitcoin mining? • Essentially the book-keeping service. • Miners keep the Blockchain consistent, complete and unalterable by repeatedly verifying and collecting transactions in a group called “block”. • Each block contains a cryptographic hash of the previous block, using the SHA-256 hashing algorithm, which links it to the previous block. • In order to be accepted by the rest of the network, a new block must contain a so-called proof-of-work. The proof- of-work requires miners to find a number called a nonce.
  • 13. What is Bitcoin mining? • Only way to solve puzzle is to try nonces one by one and hope that one succeeds. • This proof is easy for any node in the network to verify, but extremely time-consuming to generate. • Every 2016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. • Mining rewards has two components: • Transaction Fees • Block Reward (Currently 12.5BTC/XBT per block)
  • 14. Key Properties of Limited Supply Open Source Accountable Decentralized Censorship Resistant Push System Low Fee Borderless Trustless Pseudonymous Secure Programmable Nearly Instant Peer-to-peer Portable Scalable Designed Money
  • 15. Weaknesses • Bitcoins are not widely accepted. • Wallets can be lost. • Highly volatile. • No Buyer Protection. • No Valuation Guarantee. • Internet Dependency. • Unregulated Exchanges.
  • 16. Threats • Unknown Technical Flaws. • Wallet theft. • Sybil Attacks – Numerous copies of malicious nodes controlled by same adversary. • Denial of Service(DoS) Attacks. • Reverse Engineering transactions. • Government Regulation. • Energy Consumption.
  • 18. What are Altcoins? • Altcoins are the alternative cryptocurrencies launched after the success of Bitcoin. • They attempt to target any perceived limitations that Bitcoin has and come up with newer versions with competitive advantages. • Total market cap = $126.85 billions. • BTC at $58B+, ETH at $28B+, XRP at $6.8B+. (as on 12/8/17)
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  • 21. The Year of Hype - 2017 Coin (Ranked by MCap) Year to Date (YTD) returns (against $) Bitcoin (XBT) 259.9% Ethereum (ETH) 3597.8% Ripple (XRP) 685.4% Litecoin (LTC) 961.7% Neo (NEO) 7008.8% (against XBT) DigitalCash (DASH) 1717.4% Monero (XMR) 271.4% (as on 12/8/17)
  • 24. Breaking Down Token Types Token Type Function Examples Traditional Asset Token To represent a traditional asset cryptographically USDT, DGD Usage Token To provide access to a digital service BTC, ETH, BAT Work Token To provide the right to contribute work to a decentralized organisation REP, MKR Hybrid (Usage + Work) To provide access to a digital service and the right to contribute work FIL, ETH(with Casper) Source: Tomaino N. https://thecontrol.co/on-token-value-e61b10b6175e
  • 25. Primary driver of Altcoin value Token Network Effects
  • 26. A fundamental approach Three main sources of value driving a currency’s price: • Production: High production cost. • Bitcoin is produced via a virtual “mining” process, takes exponentially more computing power each time a new cache is mined. It not only requires specialized hardware, but electricity to run and cool that hardware. • Scarcity: Bitcoin (and most other cryptocurrencies) are designed to have a fixed supply. • Utility: “Use - cases” • Golem – “AirBnB for your spare computing cycles.” • Steem – Get paid each time someone reads or likes your post. • SiaCoin - Decentralised private cloud service • Augur – Platform that rewards for correctly predicting future real-world events.
  • 27. Ethereum • An open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. • “Ether” can be transferred between users and used to compensate participant nodes for computations performed. • Build new applications using “Smart Contracts” • Trustless Crowdsale of Tokens • Create a democratic autonomous organisation • Dubbed as Web3.0
  • 28. Smart Contracts on Ethereum • Smart contract is just a phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. • When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. • Has features like no censorship, downtime, fraud or third party interference.
  • 29. EtherOpt(https://etheropt.github.io/) is a decentralized options exchange built on Ethereum.
  • 30. What are ICOs? • Analogous to an IPO, ICOs are means by which funds are raised for a new cryptocurrency venture through sale of coins instead of shares. • ICOs are unregulated, startups use this to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. • ICOs have now exceeded venture funding for blockchain projects. • Bancor raised $150 million. • Tezos raised $232 million. • Filecoin raised $200 million. (Pre-sale to Sequoia Capital, Andreessen Horowitz, etc.) • While, Tesla raised $226 million in their IPO.
  • 31. REFERENCES • Rich and Famous people on Bitcoin. https://www.weusecoins.com/rich-famous-bitcoin/ • Bitcoin and Cryptocurrency Technologies, Arvind Narayan et al. 2016 (Princeton) • The Bitcoin Whitepaper: Nakamoto, Satoshi. Bitcoin: A peer to peer electronic cash system. (2008) • “Blockchain. Enigma. Paradox. Opportunity.” Deloitte University Press • Blockchain 101 – A Visual Demo. https://www.youtube.com/watch?v=_160oMzblY8 • K. Michael. Token Network Effects. https://medium.freecodecamp.org/token-network-effects-a-new- business-model-for-a-decentralized-web-6cde8b4e862 • Blockgeeks. https://blockgeeks.com/guides/what-is-ethereum/ • Understanding the ICO hype. https://medium.com/blockchannel/understanding-the-ethereum-ico- token-hype-429481278f45 • Cryptocompare. https://www.cryptocompare.com/ • Coinmarketcap. https://coinmarketcap.com/charts/

Editor's Notes

  1. Accountable - The public ledger is transparent, all transactions are seen by everyone. Censorship Resistant - no one can censor, alter or block transactions that they disagree with. Push System – No third party involved, no security issues unlike credit cards. Programmable - Individual units of bitcoin can be programmed to transfer based on certain criteria being met. Scalable – Divisible down to 8 units.