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Blockchain, Bitcoin, Crypto assets, Initial Coin Offer workshop
This masterclass covers blockchain technology, including Bitcoin and Ethereum, as well as the valuation of crypto assets and the process of ICOs (Initial Coin Offerings). It highlights the rapid growth of cryptocurrencies, explains the underlying mechanics of blockchain, and discusses the evolving landscape of asset valuation and investment strategies. Additionally, it addresses regulatory perspectives on ICOs and the associated risks and benefits for investors.
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Blockchain, Bitcoin, Crypto assets, Initial Coin Offer workshop
- 1. Masterclass on Bitcoin, Ethereum& CryptoAssets Thiyagarajan M (Rajan) Belvadi Prahlad
- 2. ● Why blockchain& why now ? ● Module 1 - Blockchain, Bitcoin & Ethereum Basics ● Module 2 - Under the hood - Bitcoin, Ethereum ● Module 3 - Valuation for Crypto Assets ● Module 4 - ICO Agenda
- 3. Why should youcare about blockchain now ?
- 4. $100 in 2009in bitcoin will be $500 million in 2017 5-6X 7% of 1 cent (1/100 $) in 2009 to $5000 on Oct 15 2017 Fastest growth of anything known to humans As 20 Oct 2017
- 5. Google Search Trends- Bitcoin Bitcoin Rises from $30 to $230Gawker Article About Silk Road $10 to $30 Passes $1000 first time All time at $5000 China bans ICO exchanges https://trends.google.com/trends/explore?date=2009-01-01%202017-10-15&q=bitcoin
- 6. Ethereum is thenew Java $150b $30b All cryptocurrency Ethereum All India Internet Startups $60b All India B2B Software Startups Startups $8b In 10 yrs In 10 yrs In 4 yrs In 10 yrs
- 7. In 3rd Stage,hitting escape velocity Prototype Stage Sin Enterprise (Gambling, Black Markets) Legitimate Enterprise The Evolution of the Bitcoin Economy: Extracting and Analyzing the Network of Payment Relationships - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2808762
- 8. Module 1 -Blockchain, Bitcoin & Ethereum Basics
- 9. Understanding - Bhajan,Gita & Veda Level ‘BHAJAN’ LEVEL ‘GITA’ LEVEL ‘VEDA’ LEVEL ‘Repeatable Metaphors’ ‘First Principle Thinking’ ‘Simple Formula/ Mental Models’ F= ma
- 10. Level of understandingper user type Tech Legal Business Home User Miner Trader/Investor Entrepreneur Engineer F= maF= ma
- 11. Gold Trading Valuing Using Tools to Handle Miner Trader/Investor Core Engineer HomeUser Production Consumption Bit Entrepreneur Position in Value Chain Raw Material Alchemy/ Engineering Tools to Engineer
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- 16. Cryptographically Secure Linked to Internet Processstorage Unforgettable Global Database Blockchain
- 17. Bitcoin was thefirst blockchain SATOSHI NAKOMOTO WHITEPAPER 2009 2008 CRISIS 10000 BTC PIZZA WIKILEAKS MTGOX SILK ROAD
- 18. Under a condition IF THEN >35 YRS AGE
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- 20. Cryptographically Secure Linked to Internet Processstorage & code Unforgettable Global Computer Blockchain
- 21. MASTERCOIN WHITEPAPER 2013 18M CROWDSALE VITALIKBUTTERIN BETA RELEASE 2015 STABLE RELEASE PI DAY A programmable type blockchain is
- 22. Bitcoin & Ethereum UnforgettableGlobal Computer (Ethereum) Unforgettable Global Database (Bitcoin)
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- 24. Whats App Server Aregular App
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- 27. A smart contractis like a vending machine “If you put in $2.50, and press this button, you will get a Diet Coke.” Website is to HTML, Smartcontract is to DApp
- 28. Many many morethat use the blockchain concept
- 29. Module 2 -Under the hood F= ma
- 30. Bitcoin is analternate money system Identification Ledger Consensus of TXN + + Money & Banking System Digital Identity Distributed Ledger Distributed Consensus of TXN + + Cryptocurrency
- 31. Digital Identity Distributed Ledger DistributedConsensus of TXN Solve Double Spending Problem Use Digital Signature Public Key Cryptography Hash Functions Blocks Hash Functions Markle Trees Mining Proof of Work Nonce
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- 33. Double spending problem Apple1 Apple 2 Digital Picture Apple 1 Digital Picture Apple 2 A digital currency solution must solve double spending in addition to establishment of trust to be used widespread. One Each Two Each
- 34. Public key cryptographyused for establishing identity Example - RSA Source - https://www.slideshare.net/sangavisankar/cryptography-25681251
- 35. Hash function aprocess that create a fixed length output https://www.youtube.com/watch?v=qZ9q5eVotm0 Example SHA 256, MD5
- 36. Important things abouta Hash function output Input 1 Input 2 HASH Fixed length output Aribtrary length Input Collision Free HASH +Fixed length output Aribtrary length Input Possible in finite time 0000 HIding Puzzle Friendliness
- 37. Digital Signature PLAINTEXT MD Digital Signature(DS) DS PLAINTEXT Signing DSPLAINTEXT 1)Hash Verifying Hash 2) Private Key Encryption MD MD Public Key Decryption 4) Secure Channel 3) 5) 6) 7) Are they equal ?
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- 42. Proof of Work Another- https://www.youtube.com/watch?v=jXni0KDQNsc https://www.youtube.com/watch?v=fxjqKXCxWzk +? = 8 A guessing game
- 43. Proof of Workin Blockchain
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- 45. Putting it alltogether, Bitcoin in 5 mins https://www.youtube.com/watch?v=l9jOJk30eQs&t=65s
- 46. More In depth,Bitcoin in 22 mins https://www.youtube.com/watch?v=Lx9zgZCMqXE&t=956s
- 47. Exercise 1 ● Createan account blockchain.info ● Visit Blockchain.info ● Dissect transaction on blockchain ● Understand what a transaction composes of ● Visit bitaddress.org to generate a bitcoin address ● Understand the relation between public, private key and bitcoin address
- 48. Bitcoin node inthe network is client running bitcoin software Wallet originate transaction Full Node Super node receive transaction and create blocks in roundrobin Payment Processor Exchange Full node New Blocks Network backbone
- 49. Bitcoin Address -an entity that can own bitcoin, generated through private key Public Key Public Key Hash Bitcoin Address SHA256 RIGMED Base56
- 50. BItcoin Wallet A Bitcoinwallet is as simple as a single pairing of a Bitcoin address with its corresponding Bitcoin private key
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- 52. Blockchain ● Group oflockers in a public space ● Has a window that anyone can view ● Public key to put money ● Uses a wallet to keep track of all locker key Source - https://www.slideshare.net/opusconsulting/blockchain-technology-a-primer F= ma
- 53. Bitcoin - Technicaldefinition Bitcoin combines the idea of using computational puzzles to regulate the creation of new currency units with the idea of secure timestamping to record a ledger of transactions and prevent double spending
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- 55. From distributed databaseto distributed computer EthereumBitcoin
- 56. ● Two nodetype - Account & Contract ● Rent for using blockchain - Gas ○ Transaction originator pays ● Is it a turing complete machine ● Name of the currency is Ether ● Different hashing algorithm (Ethash) ● Network of Networks Other significant changes from Bitcoin
- 57. Exercise 2 ● DownloadEthereum Client (& MIST Browser) ● Create an account My Ether Wallet Ethereum
- 58. Ethereum client isa node in the blockchain Ethereum (Virtual Machine) Swarm (Local File Storage Whisper (Messaging) W A L L E T Account Contract BLOCKCHAIN MIST BROWSER
- 59. Web 2.0 Web 3.0 ClientServer Apps vs DApps
- 60. Web without anyserver
- 61. Solidity & Token- Quick Intro
- 62. Module 3 -CryptoAssets & Valuation
- 63. Crypto Assets There areabout 800 crypto assets so far and new ones coming every month
- 64. Should bitcoin bevalued like $ or gold or other other commodity ? If bitcoin does not serve the payment use case as anticipated, why is it trading at $6000 ?
- 65. Should an ICOtoken be valued like IPO stock or startup angel investment ?
- 66. Bitcoin like money,ICO like IPO is only a metaphor “Never confuse brains with a bull market” - Warren Buffett “All models are wrong, some are useful but some dangerous ” - NN Taleb “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.” - Mark Twain
- 67. Popular mental modelsbreak down F= ma “Never forget the six-foot tall man who drowned crossing the stream that was five feet deep on average.”- Charlie Munger Modern Portfolio Theory (Standard Deviation, Sharpe Ratio, Correlation) have several limitation already
- 68. Many mental modelsare creaky F= ma Source - Howard Marks, Oaktree Capital Volatility is not risk
- 69. What is value? Use Value, Exchange Value, Symbol Value, Store Value Marx Talks about
- 70. Value arises fromimagination of future Fear and Hunger
- 71. Money is storywith highest belief coefficient that help in survival against both fear and hunger in the future
- 72. Belief/trust on Nationstate as custodian of the money story is broken Alternates ? Gold, Distributed Consensus ?
- 73. “Bitcoin will bea store of value when everyone believes it is. The price is the current probability. Fundamental analysis is impossible. “ @naval
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- 75. Estimating / forecastingthe future
- 76. ”We have twoclasses of forecasters: Those who don’t know – and those who don’t know they don’t know. ” - Kenneth Galbraith
- 77. Startup valuations are80% story, 20% data Startrek Journey
- 78. Public company valuationsare 20% story, 80% data Everest
- 79. Innovation Accounting tracksjourney of a startup to well functioning company Uncertain & Non repeatable Value Probability distribution Unknown Certain & Repeated Value Probability distribution Known Idea/Startup Large Company Takes 7-11 year journey Pivots P/M fit Power law, 1 in 10,000 succeed
- 80. Valuation Intrinsic Valuation Relative Valuation Early StartupGrowth Startup Large Company Value using DCF (With adjusted rate of return) Value as ‘Options’ Value like DCF, (replaceCashflow with Growth rate) Use Comparables Uncertainty Risk DCF - Discounted Cash Flow Source - Aswath Damodaran
- 81. About Price (akaRelative Valuation) “Can’t estimate or predict the outcome of the collective based on individual action, markets are emergent” - NN Taleb “Markets can remain irrational longer than you can remain solvent” - John Maynard Keynes
- 82. Relative Valuation isarbitrage or pyramid scheme ? Idea/Startup Public Company 7-11 years P/M fit Angel Investors Venture Investors PE, Hedge Funds & Public market Traders Crypto Token ICO
- 83. ICOs possibly besttreated like angel investments
- 84. Error in yourmental model is my opportunity - Value investing Value is different from Price, Picking mispriced, Invest out of cycle
- 85. Arriving at anintrinsic value still need lot of assumptions For a given supply & velocity of token, what is the GDP (measured in $) of the use case need to be supported F= ma
- 86. MV = PQ F=ma M = size of the asset base, V = velocity of the asset , P = price of the digital resource being provisioned, Q = quantity of the digital resource being provisioned
- 87. INET Valuation, Examplefrom Chris Burniske https://docs.google.com/spreadsheets/d/1ng4vv3TUE0DoB12diyc8nRfZuAN13k3aR R30gmuKM2Y/edit#gid=1912132017 F= ma
- 88. New Markets inearly stage, must watch out for Speculation of Crowds , Bubbles, Ponzi Scheme & Scams, Cornering , Pumping & Dumping.
- 89. Exercise 3 Visit coinmarketcap.com Listthe price of one Ethereum based toke, bitoon based tokens and write their $ values.
- 90. Module 4 -ICO
- 91. ICO is likean IPO for early stage startups BLOCKCHAIN CROWD FUNDING IPO ADVANTAGES ICO
- 92. Initial coin offering(ICO) is an unregulated and controversial means of crowdfunding via use of cryptocurrency, which can be a source of capital for startup companies The coin (aka Token) in an ICO is a symbol of ownership interest in an enterprise—a digital stock certificate via Wikipedia
- 93. Ethereum Investor Trader BankExchange Central Exchange Startup 1 - Investor sends cryptocurrency gain a smart token 2 - Smart token records investor as token holder 3 - Company accompanies the cryptocurrency held in token CryptoToken 0xde0B295669a9FD93d5F28D9Ec85E40f4cb697BAe 0xd26114cd6EE289AccF82350c8d8487fedB8A0C07
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- 95. Comparison with otherfundraising methods ICO Equity Crowdfunding Reward Crowdfunding VC IPO Startup stage Prototype Prototype Prototype Prototype - Midstage Latestage Equity No Yes No Yes Yes Requirements White paper (optional) - Desired Amount - Project milestones - Team - Types of tokens - Exchange rates Education materials - Investment - Description - Types of securities - Investment limits Education materials - Project description - Marketing deck - Types of research Pitch Deck - Business model - Use of funds - Management Prospectus - Company - Description - Types of securities - Management - 3 year profitability Investors Blockchain Enthusiasts Angel Investors Early Adopters Limited Partners Public Period 3-4 months 1-3 months 1-3 months 3-12 months > 1 year Fundraising cost Low Medium Low High High Channel Online Online Online Offline Offline Liquidity Low-Medium Low Low Low Medium Investor Downside risks Fraud, Project Fails Bankrupt Project Fails Devalue, Bankrupt Price Drop
- 96. ICO > VC& ICO ~= Angel in Q3 2017
- 97. Pros and Consof getting involved in an ICO Pros ● Some people are getting rich. ● Transcends global boundaries ● Speed and cost of fund raising massive reduced down to 3-4 months Cons ● You may not be one of the people becoming rich ● Unregulated - Potential of fraud such as pyramid schemes, scams ● No straight forward way to pick winners ● Overfunding, capital inefficiency likelihood
- 98. Crypto token lookslike ‘securities(equity/share)’, feels like ‘securities’, quack like an ‘securities’ object. Is it securities and be regulated as such ?
- 100. Regulators can takeseveral approach ● Laissez - faire - Crack only on wrong projects ● Choke Liquidity - Control or crackdown the alternate assets digital exchange ● Fire & Brimstone - Declare all ICOs (Cryptotokens) illegal
- 101. Regulators of differentcountries Country Regulator Key points US SEC Application of the Howey Test (investment of money in a common enterprise with an expectation of profit predominantly from the effort of others) to ICOs to determine if a particular token should be classified as a security falling under securities law Singapore MAS No definitive regulation but have viewed cryptocurrencies with a light touch MAS has launched a tokenized version of the SGC via Project Ulsin Switzerland FINMA No regulation, cryptocurrency are treated as assets UK FCA ICO is treated as an investment with subjective interpretation China People Bank of China Issued a ban on ICO on Sep4. Concerns over fraud and pyramid schemes India RBI/SEBI Have been very conservative in past, (mobile payments, Fintech) Will soon announce Japan,Australia are favourable countries
- 102. Self Regulatory Framework Inabsence of regulatory framework the bitcoin and ethereum community has taken upon itself to explore self policing Difficulties for a regulator So much divergence for existing mental model & definition- securities Transcends geography and are funded by crypto which does not have a central backing Pseudoanonymous - While identity can be found but difficult Self Regulatory Framework SAFT - Simple Agreement of Future Tokens Based on SAFE (equity) an agreement for raising money for equity in return without having to issue debt note. SAFE is only offered to “accredited investors” Crowdfunding - Guidance on which digital assets are deemed securities whether firms selling it must register. Can use a regulatory sandbox Other mechanisms - Escrow Accounts (3rd party release based on milestone completion. Use KYC ; Setting up minimum investment amount
- 103. Entrepreneur How to doan ICO
- 104. Steps ICO IPO 1 Initiate Writea summary, announce to crypto community to gather interest and feedback HIre an investment banker to underwrite an IPO 2 Documentation Whitepaper and website Filings with SEC (US), SEBI(India) Registration statement Prospectus 3 Marketing PR Campaign Crypto Forums Slack Telegram Roadshow Pre Sale IPO Set Pricing 4 Sales Process Buyer send cryptocurrencies to a digital address; smart contracts issue tokens according to exchange ratio Allocate shares according to book building 5 Listing Tokens listed on a crypto exchange Shared listed on an exchange Fundraising in ICO is similar to IPO however raising tokens are faster and costs a fraction
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- 106. Sample Whitepaper Examples ofICO Whitepapers: - Ethereum - Tezos - Bancor - Basic Attention Token on Brave Browser
- 107. Solidity Sample Code Example:pCoin - pCoin.sol - pCoinCrowdsale.sol - DeployContract.sol - Readthedocs - Reading List - Solidity Tutorials
- 108. Home User How toInvest in an ICO Trader
- 109. What to dobefore investing in ICOs ? ● Browse an ICO list website like https://icobench.com/ or http://tokenfilings.com/ ● Create and operate your valuation process checklist (based on valuation lessons learnt before) ● Run your due diligence ● Acquire your cryptocurrencies & wallets
- 110. Where to trade ●Poloniex ● Kraken ● Token Market ● Airswap ● Coinbase
- 111. How to spota scam ICO ? ● Lack of Public team profiles ● Compromised or missing escrow ● No technical details in the whitepaper ● Unrealistic goal ● Missing code repository on Github ● Vague Promises ● Illegitimate affiliations ● Too good to be true Incentives
- 112. To know aboutour next session or corporate workshops, please write to Edu@theNextSpace.co