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Cryptocurrencies 101 v5 public

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Cryptocurrencies 101 v5 public

  1. 1. Cryptocurrencies 101 v4 Brett Colbert @brett_colbert
  2. 2. Two main types of blockchains Public “tokenized” Private or Permissioned Hyperledger R3 Corda Gem Quorum Cryptocurrencies are used to ensure TRUST and serve as a reward mechanism for block miners
  3. 3. What exactly is the blockchain? • A decentralized, trusted public ledger of all transactions • Characteristics – Decentralized - nodes on the network manage and maintain the blockchain – Trusted - distributed verification using math - immutable = unchanging over time so fundamentally irreversible – Public - anyone can see the block, the transactions and – Pseudononymous - kinda anonymous for the user – Programmable - smart contracts Block x Block x+1 Block x+3Block x+2 transactions transactions transactions transactions Cryptocurrencies are used to ensure TRUST and serve as a reward mechanism for block miners
  4. 4. Decentralized Trust - What is Bitcoin Mining? … Miners are trying to figure out the hash of the next Block. They all start with the same info. Miners repeatedly hash the current block header only changing one parameter each time, until the resulting hash matches a specific target. Why is it hard to figure out the next Block header hash? 1) The hash cannot be determined in advance 2) No pattern can be created to determine the hash Mining is the activity associated with figuring out the next Block! It’s basically a puzzle that must be solved. Why would someone want to figure out the next Block? Because they get rewarded a certain number of Bitcoins! Currently the reward is 12.5 Bitcoins. ??????
  5. 5. Both bitcoin blockchain and ethereum blockchain DEPEND on a reward mechanism to function Bitcoin is integral to the bitcoin blockchain - it’s a critical piece that incents miners to mine. Ether/Ethereum is integral to the ethereum blockchain - it’s a critical piece that incents miners to mine.
  6. 6. History of currencies (1000BC to 500BC) Standardized metal objects stamped with a standard value -- were the Chinese bronze spade money, c. 475-221 BC Chinese shell money, 1000 BC..The shell most widely used worldwide as currency was the shell of Cypraea moneta, the money cowry. Coins as currency were manufactured in China, India and Turkey between 700 and 500 BC.
  7. 7. History of currencies (800AD to 1862) Foreign currency exchange 1700 - England and Holland Paper currency 800 AD 1816 Gold as a benchmark of value in England 1862 United States issues first paper currency
  8. 8. History of currencies (1950 to current) 1955 US introduces first paper checks as currency 1950 the first US credit card 1958 AmEx introduces their first credit card https://www.currencyfair.com/cf- content/uploads/2014/07/History-of-Currency-Exchange_1.jpg 2008 Satoshi Nakamoto introduces cryptocurrency based on blockchain
  9. 9. https://howmuch.net/articles/worlds -money-in-perspective Bitcoin has increased from $41B to $231 B market cap currently
  10. 10. Why the recent explosion in cryptocurrencies? 2 fairly recent events increased attention • Satoshi Nakamoto’s White Paper - https://bitcoin.org/bitcoin.pdf - published October 31, 2008 • No one knows who Satoshi is • Satoshi Nakamoto is a pseudonym, possibly a name made up from SAmsung, TOSHIba, NAKAmichi, MOTOrola • Bitcoin blockchain was born 2008 • Vitalik Buterin launches Ethereum blockchain July 2015 • Improved the programmability of the blockchain - Turing complete • Many startups are being built on top of Ethereum • Dapps = distributed apps Ethereum’s blockchain primarily stores contractual transactions https://www.youtube.com/watch?v=WSN5BaCzsbo Biitcoin’s blockchain primarily stores financial transactions
  11. 11. Both bitcoin blockchain and ethereum blockchain DEPEND on a reward mechanism to function Bitcoin is integral to the bitcoin blockchain - it’s a critical piece that incents miners to mine. Ether/Ethereum is integral to the ethereum blockchain - it’s a critical piece that incents miners to mine.
  12. 12. “The currency is in the service of the protocol” -- Vitalik Buterin
  13. 13. … and there are TONS of other cryptocurrencies https://www.worldcoinindex.com/ 1187 cryptocurrencies currently tracked on worldcoinindex.com
  14. 14. Where did many of these cryptocurrencies come from?
  15. 15. The original bitcoin blockchain gave birth to many of the other cryptocurrencies
  16. 16. Example of forks used to ‘create’ new cryptocurrencies…
  17. 17. Some forked off the original bitcoin blockchain https://steemit.com/bitcoin/ @hugobro/what-is-this- bitcoin-hard-fork-all-about
  18. 18. Some cryptocurrencies are built on Ethereum… ~385 currently
  19. 19. Why Ethereum-based coins? Ethereum enables smart contracts. Smart contracts can use used to raise money for startups, called an ICO, or Initial Coin Offering. https://blockgeeks.com/guides/ico-basics/
  20. 20. What is an Initial Coin Offering (ICO)? Leveraging smart contracts to fund an idea... “An ICO is a fundraising tool that trades future cryptocoins in exchange for cryptocurrencies of immediate, liquid value. You give the ICO bitcoin or ethereum, and you get some of Billy’s New Super Great Coin.”
  21. 21. ICOs created on top of Ethereum blockchain Startups have raised $3 Billion through digital coin sales
  22. 22. Ethereum, ARK, Cardano, NEO Smart Contract “platforms” ● Ethereum - the original programmable smart contract platform; first mover advantage; 2nd generation ● NEO - focusing on smart economy ● ARK - focusing on smart bridges and blockchain interoperability ● Cardano (ADA) - focusing on academically peer-reviewed open source code
  23. 23. As people realized the tremendous potential of blockchain, the respective tokens gained value (eg bitcoin and ethereum). This has caused investment and speculation. Anyone can download the open source blockchain code and create their own coin. What happened here???? Why the explosion in cryptocurrencies?
  24. 24. Say what? Anyone can create a cryptocurrency? YES!
  25. 25. Investment and speculation in cryptocurrency is a personal choice - completely separate from opinions on blockchain. Possible personas... Blockchain Cryptocurrencies I believe in blockchain but I would never invest in cryptocurrencies. I believe in blockchain and I also invest in cryptocurrencies. I think blockchain is a fad and I would never invest in cryptocurrencies. I think blockchain is a fad but I’m investing in cryptocurrencies.
  26. 26. Socio-Economic Forces Increasing Adoption of Cryptocurrencies Inflation, Lack of Access, Digital Wallets http://www.paymentscardsandmobil e.com/mobile-wallets-global- growth-continues/
  27. 27. Venezula - High Inflation The president of Venezula unvelieved a new 100,000 bolivar note in November, 2017. The note has a value of $2.50 on the black market. Venezuelans, on average, are only allowed to withdraw about 10k to 20k bolivares a day. 20k bolivars are currently worth 50 cents. IMF sees inflation in Venezula soaring to 2200% by 2017. Venezuelans are turning to bitcoin as an appreciating store of wealth/currency.
  28. 28. How are people buying/selling these cryptocurrencies? Cryptocurrency Exchanges www.kraken.com www.coinbase.com www.bittrex.com www.poloniex.com ...
  29. 29. Sure, but these cryptocurrencies can’t be that popular... right? 11/28/2017
  30. 30. Amazing Recently Coinbase’s mobile app was the #1 app on Apple’s AppStore
  31. 31. Who actually works on bitcoin? And for free???? URL: bitcoin.team
  32. 32. Who are the developers on the other coins? New code? Do your research! Sometimes very very few.
  33. 33. Cryptos are Volatile!
  34. 34. However, bitcoin is still small relative to gold, stock market...
  35. 35. Brett’s Favorite Bitcoin & Cryptocurrency Tools • https://tradeblock.com/bitcoin • http://bitcointicker.co/# • https://coinmarketcap.com/ • https://bitinfocharts.com/ • https://www.tradingview.com/ • https://www.gdax.com/trade/BTC-USD
  36. 36. Key Projects to Watch - Upcoming New Capabilities @ColdcardWallet @OPENDIME v4 @lightning @joinmarket @TREZOR v2 @SegwitOrg @SamouraiWallet iOS @ln_zap #MimbleWimble
  37. 37. Evaluating cryptocurrencies ● How large is the active development team? ● What is the idea behind the coin? ● What problem is being solved? ● Who is the executive team? ● Is the solution being used? Are there customers?
  38. 38. Bitcoin, Ethereum, Litecoin, Bcash - Hashrates
  39. 39. Comparing bitcoin, litecoin and ethereum... Usage Financial transactions Smart Contracts Fast Transactions - “buy coffee” Market Cap $184 billion $44 billion Total coins 21 million unlimited (currently 96 M) Blockchain based Yes Yes Yes - forked from bitcoin Mining Approach SHA-256 (Compute intensive) ethash → PoS Scrypt (memory intensive) Block Interval 10 minutes 12-15 seconds 2.5 minutes
  40. 40. What possible advantages do cryptocurrencies have? ● Lower transactional cost compared to other financial solutions such as credit cards which currently have a national average APR of about 15% ● Less expensive than other online payment solutions which have rates such as 2.9% + $.30 per transaction ● With other types of currencies, there are often additional transaction costs to send money between people in different countries ● Converting non-digital currencies from one currency type to another often carries a transaction fee (eg – converting US dollar to Euro or Euro to GBP) ● International payments on non-digital currencies often have a significant delay (sometimes a few days) to send money overseas ● Some emerging countries don’t have a banking system or easy access to a bank or financial institution (eg Kenya, Uruguay, Panama) … but people have cell phones! ● Merchants pay a fee of between 2% and 3% for some credit card transactions ● “Wiring money home” in some cases costs upwards of 10% of the amount transferred ● Banks can fail – remember the 2007/2008 global financial crisis
  41. 41. Artifacts as Wealth - Storage of Wealth
  42. 42. The Trust Model for both Bitcoin and Ethereum rely on mining - miners mine because there is a reward Blockchain uses hash (SHA-256), Merkle trees and a decentralized set of nodes to manage Trust. This is referred to as the Proof of Work. In the case of bitcoin, the reward for solving the puzzle is 12.5 bitcoin (currently ~$10,000 each).
  43. 43. bitcoin = verification reward for the blockchain - reward cuts in half approx every 4 years This is referred to as the “halving” Nov 28, 2012
  44. 44. http://fortune.com/2017/11/25/lost-bitcoins/ “Just as gold bars are lost at sea or $100 bills can burn, bitcoins can disappear from the Internet forever. When all 21 million bitcoins are mined by the year 2040, the actual amount available to trade or spend will be significantly lower.”
  45. 45. Bitcoin’s standing in global currencies
  46. 46. Interest in Understanding Bitcoin is Growing
  47. 47. Will Bitcoin Go Mainstream? 12/4/2017
  48. 48. Bitcoin’s Market Cap Exceeds Visa
  49. 49. Key Messages ● Certain crytocurrencies such as bitcoin and ethereum underpin the reward mechanism for bitcoin blockchain and ethereum blockchain ● Some people see cryptocurrencies as an investment vehicle ● Many cryptocurrencies exist! ● Cryptocurrencies exist because of lack of access to financial institutions for 2B people ● Cryptocurrencies exist because of socio-econonic reasons such as high currency inflation rates ● The interest in cryptocurrencies is growing at an exponential rate