Cryptocurrencies: The digital financial revolution
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This seminar discussed cryptocurrencies and the digital financial revolution. It began with a brief history of money and the development of digital currencies like Bitcoin. Bitcoin was created in 2008 as a digital currency using blockchain technology with no central authority. The blockchain acts as a distributed public ledger that records all transactions in an immutable manner. Anyone can own bitcoins and transfer them to others through the blockchain network. While initially used on the dark web, cryptocurrencies have grown into a big business and some see them becoming a global payment rail. However, issues around scalability, energy use, and regulation still need to be addressed as this new technology develops.
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Cryptocurrencies: The digital financial revolution
- 1. Seminar Series 2017 Cryptocurrencies The Digital Financial Revolution Rafael Sarres de Almeida The views expressed in this presentation are my own and not necessarily those of my employers
- 2. The Rai Stones (~1200A.D.) 04/10/2017 2 Source: Wikimedia Commons
- 3. The German Mark (1923) 04/10/2017 3 Source: Palauenc05 - Own work, Public Domain, Wikimedia Commons
- 4. Valuable paper • In general: • Utility + Scarcity = Value! • Psychological value • Digital scarcity? 04/10/2017 4
- 5. After all, what is money? • Store of value • Unit of account • Medium of exchange 04/10/2017 5Source: wondergressive.com
- 6. Digital money is not new 04/10/2017 6 • We rely on intermediaries with internal ledgers • Banks • Credit card companies • Technology companies
- 7. Digital money is not new 04/10/2017 7 • But intermediaries can: • Exclude • Censor • Commit fraud • A single cross-border transfer: • Four or more financial institutions • High delay, friction and fees Source: World Bank
- 8. Cryptoanarchy 04/10/2017 8 • The Declaration of the Independence of Cyberspace • A new kind of digital money was needed • Anonymous • Anarchic • Censorship resistant • Free as the internet
- 9. What if Rai Stones could be digitized… 04/10/2017 9 • Anyone could own a stone • Public ledger: Diffuse ownership information • No intermediaries • Stones mined only by hard work • Avoid inflation
- 10. And there came Bitcoin 04/10/2017 10 • 2008 • “Bitcoin: A Peer-to-Peer Electronic Cash System”, Satoshi Nakamoto • A worldwide “Rai Stone” • cryptocurrency • No central authority
- 11. Diffuse ownership information 04/10/2017 11 • Distributed public ledger • Blockchain • Anyone can download a copy • Exchanged peer-to-peer • Stores all ownership information • Updated regularly with new transactions • Well-known update rules
- 12. Anyone can own bitcoins 04/10/2017 12 • Addresses derive from public keys • Asymmetric key pairs are generated locally • Pseudonymous ownership
- 13. Owners can transfer bitcoins 04/10/2017 13 • Bitcoins are transferred between accounts • Received bitcoins can only be transferred using the corresponding private key • Signed transactions are broadcast to peers
- 14. “Sculpted” only by hard work 04/10/2017 14 • Transactions are grouped into blocks by “miners” • Write access control • crypto puzzle Source: Coindesk
- 15. Consensus 04/10/2017 15 • All blocks are verified • Reward: Miner honest behavior incentive • Any inconsistency invalidates the block • Accepted block “chained” to previous • Immutability • One set of rules, one shared history
- 16. The Blockchain 04/10/2017 16Illustration: extremetech.com
- 17. Born as underground money… 04/10/2017 17 • Currency of the dark web • Drugs • Illegal services • Exchanged for fiduciary money
- 18. …became big business 04/10/2017 18 • Exchange infrastructure was built
- 19. …became big business 04/10/2017 19 • 800+ new cryptocurrencies launched
- 20. A Global Payment Rail 04/10/2017 20 • Mobile • Private • Borderless • Fraud resistant • Censorship resistant • Irreversible • Programmable Source: World Bank Blog
- 21. Just the beginning 04/10/2017 21 Source: Blockchain Embassy Asia
- 22. As a new technology… 04/10/2017 22 Refugee aid Lower remittance costs Money Laundering Terrorist financing Not scalable yet Power consumption
- 23. The regulator task 04/10/2017 23 • Equilibrium between • Encouraging disruptive innovation • Mitigating unacceptable risks • Regulators must evolve from systemic risk managers to responsible innovation gateways
- 24. Remember… 04/10/2017 24 The first car:
- 25. Remember… 04/10/2017 25 The first browser:
- 26. Remember… 04/10/2017 26 The first blockchain: The Digital Financial Revolution