This is a deck which talks about blockchain(s) and their use cases, It is based off of some o the best thought in the space and looks at why banking and financial services will be changed.

1. Unbundling Of Financial Services:
The Blockchain(s) Revolution

2. Special Thanks To Many Smart People Whose Work
Made This Easy To Compile and Helped My Thinking
• Alex Batlin @AlexBatlin
• Richard Gendal Brown @gendal
• Jake Carter @jakecart
• Jack Gavigan @JackGavigan
• Gideon Greenspan @gidgreen
• Ron Quaranta @ronqman
• Meher Roy @MeherRoy
• Robert Sams @codedlogic
• Chris Skinner @chris_skinner
• Michael Smolenski @mikesmolenski
• Tim Swanson @ofnumbers
• Mark Vigors @Mark_Vigors

3. Definition from MultiChain
• “If two transactions attempt to spend the
same output, then only one of those
transactions will ultimately be accepted. A
blockchain acts as a unified mechanism to
detect and prevent these conflicts across the
network.”

4. Bitcoin Blockchain

5. Definition cont’d
• “The blockchain is structured as a series of
linked blocks, in which each block contains a
set of transactions that don’t conflict with
each other or with previous blocks, starting
from the first block created in 2009.”
• Designed to stop Sybil attacks through
“mining”.
• Blocks created by solving algorithms.

6. Definition cont’d
• Incentivized by “block reward”. This is 25
bitcoins, but will halve in 2016.
• It halves every 210,000 blocks.
• Consensus generated through Proof of Work.

8. Replicated, Shared Ledger
• Shared: Because multiple entities can read or
write to the ledger simultaneously with
precedence of transaction maintained across
all nodes.
• Replicated: because every processing node
has a complete and synchronised copy, rather
than relying on a powerful central entity

10. Permissioned vs Permissionless
Ledgers

11. Permissionless Ledgers
• No central authorization is required for a new participant
to utilize the ledger.
• Censorship resistant
• Something that you can own outright and transfer to
anybody else without permission
• Censorship-resistant digital bearer asset
• Implies an open, neutral platform that could be a driver
of permissionless innovation.
• Innovation and experimentation in digital value transfers.
• Blocks can be reorganized.

12. Permissioned Ledgers
• Access to the transaction scheme is governed and controlled
either by the existing participants or a central authority.
• Industry Level Systems of Record
• Technologies that allow multiple firms to run a private, shared
ledger of some sort.
• Mutualise the cost of running and securing a single logical
ledger, copied across your firms so you each have your own
copy and so aren’t reliant on a powerful central entity for
access
• Move from each firm having its own systems of record to
having systems of record at the level of the industry
• Blocks not reversible.

13. Why do this?
• If we all agree that this shared ledger is
authoritative for records(e.g. who owes what to
whom )
• Then could we not also use the ledger to execute
shared code ie smart contracts
• That models the terms of a contract between
parties? e.g. delivery rebates
• That is inter-firm business logic? e.g identity
management – address updates

16. Different Types of Ledgers

19. What are the characteristics of a
distributed ledger?

20. Distributed
Ledger
Independent
permissioned
blockchain
Distributed
virtual
machine
(Turing-
complete)
Smart
contracts
govern off-
chain assets
Network
achieves
settlement
finality

21. Permissioned
blockchain
Legally
accountable
validators
Settlement
finality
(irreversible)
Suitable for off-
chain assets
(securities, fiat,
titles)

22. Sidechains & The Lightning
Network

23. Sidechains
• An innovation proposed and developed by the
startup Blockstream
• The creation of new blockchains “pegged” to
Bitcoin, so that value can be transferred
between them.
• Idea: many permissionless ledgers each with
its own rules, protocols and features all
underpinned by Bitcoin.

24. Sidechain Elements
• Confidential Transactions
• Segregated witnesses- removes transaction
malleability.
• New opcodes- makes whole new forms of
transactions possible.
• Basic Asset Issuance- clients can issue their
own assets: stocks, bonds, vouchers, coupons.

25. The Lightning Network
• Allegedly move bitcoin transactions off the blockchain, w/o
sacrificing security/verifiability
• Allows for creation of “micropayment channels” across which
multiple bitcoin payments can be performed securely “off
chain”
• Except for the initial transaction that starts channel
• No counterparty risk: if dubious, channel can be closed and
transaction kicked up to blockchain; settled there.
• In channel payments are instant, unlike current situation.
• Can route payments across paths, secure trusted
intermediaries.
• Could scale bitcoin transactions to billions per day

26. Problems with Sidechains and
Lightning Network
• Both options would require a fork of the existing
bitcoin protocol.
• The code of a specific coin can be upgraded and
altered to help the coin flourish.
• These changes must be made very carefully to keep
new coins compatible with older coins.
• Applications accessing and altering blockchain must
all be able to read and write the data correctly and
consistently.

28. Smart Contracts
What are they

29. Definitions

30. A smart contract
• Is a simple rules engine; cryptographically
assured business logic that has the ability to
execute actions based on triggers and move
value.

31. Cryptographic signing of transactions

34. Problem with current contracts
• Parties each independently write computer
programs to model the terms:
– Negotiated discounts, rebates and price models.
– They do this due to lack of trust

35. Threats to incumbents
• Displaced by a new generation of low cost
technology
• Built in technology supersedes existing
auditing & reconciliation processes
• Trade matching, and reporting become
obsolete.
• RTGS, Deferred net settlement &
Correspondent banking become irrelevant.

36. How do Blockchains alter the
payment process?
Enablement

37. Blockchains Enable
• Bilateral settlement: Eliminates
intermediaries, midpoint failure, delays, lifting
fees
• Real-time funding: Minimizes exchange
spreads, credit risk, collateral costs

38. Benefits
• Real-time payments (real-time availability of
funds)
• Comprehensive transaction traceability and
reporting
• Additional reconciliation information
• Lower costs and fees

39. T + 0: This a Big Deal

40. Opportunities
• Improve the infrastructure for interbank
payments
• Banks largely rely on intermediaries
(clearinghouses, correspondents) to settle
payments
• As a result, banks incur material costs and
risks that can be prohibitively expensive –
especially for cross-border and real-time
payments.

41. Increasing Pressure on Banks and
Financial Services
From Customers & Regulators

42. Customers
• Demanding real time payments
• Lower fees
• More transparency
• Better digital experiences (seamless)

43. Regulators
• Stricter liquidity requirements
• More consumer disclosures
• Cost of regulation forcing them to leave core
businesses

44. Challenges for the banks
• Getting banks to adopt new technologies and infrastructure
and offer to their customers
• Central, proprietary systems adds complexity and costs to
banks.
• A lot of different systems that don’t interoperate w/ each
other.
• Disintermediation from their customers transactional
business.
• Loss of fee revenue due to move to alternate payment
providers or need to reduce/eliminate fees from existing
payments products to remain competitive.

45. Banking Challenges cont’d
• In the payments space, the biggest challenges financial institutions
face is the high cost to change and innovate.
• Banks are highly risk adverse development and deployment
processes are impediments to agility.
• This is exacerbated further by regulator defined system availability
targets.
• They have built in payments infrastructure over the years with one
department over high value transactions, another for ACH, another
for international, and yet another for handling cards.
• Within FI’s, different organizations have their own budgets and their
own IT. Massive inefficiencies, old systems that don’t operate in real
time.

46. Banking Challenges cont’d
• Legacy infrastructure.
• FI’s move money from one account to another,
with their own rules.
• Cost of infrastructure = cost of transactions.
• Account to account transfers are centralized,
passing through clearing infrastructure and
into a settlement infrastructure.
• Enormously expensive and slow.

47. Conclusions
• Convergence of payments (wire payments,
checks, cards, transfers) all diff. payment types
moving from one account to another using
diff. systems and processes. Converge to real-
time payments.

48. Reduction of Costs
Bye Bye Backoffice

50. Conclusions: The Internet of
Money
Meher Roy Ties It Up Nicely

51. Internet of Money
Source: An architecture for IoM – by Meher Roy

52. Internet of Money
• Value becomes very fluid, converting from one form to another and
transmitted in seconds at virtually no expense.
• Integration of all assets, for all people and all geographies
– Fiat money
– Shares, bonds, derivatives
– Property titles
– Airline miles
• Through cryptographic transactions:
– Smart contracts
– Smart property
– Decentralised exchange of securities
– Machine to machine transactions
– Permissionless innovation

53. Benefits of IoM
Benefit Description
Speed of transfer ~10N increase in global transfer of assets
(currencies, equities, derivatives, land titles..)
Settlement Risk All settlement risk becomes virtually mitigated.
Transparency Full history of transactions can be made
available.
Audit and Regulatory Universal record of truth. All transactions are
permanent and unchangeable.
Big data analytics Deep transaction metadata means customers
will be better selected for new products.
Liquidity Decentralization creates new pools of global
liquidity
New Markets New methods of arbitration through digital
smart contracts.

54. The Real Lesson of the Internet of
Money
• There is a massive benefit to interconnected
ledgers rather than one global ledger.
• Each ledger network becomes more easily
manageable:
• Especially upgrades
• Ledgers operating within national boundaries to
comply with local legislation.
• Legal enforcement of malicious actors.

56. So Why Blockchains?

57. Blockchains Can
• Pass & process transactions very frequently;
heading to T + 0.
• Bitcoin 10 minutes, Ripple 5 seconds.
• Double spend is eliminated
• Contains a script which identifies custom logic
describing how it should be validated (smart
contracts)

58. Blockchains Can cont’d
• “Sharing of the commons” more than 2
entities involved.
• Peer to peer distributed ledgers.
• Reduce transaction fees dramatically.
• Increase transparency enormously.

59. Real Time Settlement of Assets is
Becoming a Reality

60. Contact Me
• Email: george.samman@gmail.com
• Twitter: @sammantic