Diese Präsentation wurde erfolgreich gemeldet.
Die SlideShare-Präsentation wird heruntergeladen. ×

Blockchain Fundamentals - Day 2 - Bitcoin & the role of money (new style)

Anzeige
Anzeige
Anzeige
Anzeige
Anzeige
Anzeige
Anzeige
Anzeige
Anzeige
Anzeige
Anzeige
Anzeige
Wird geladen in …3
×

Hier ansehen

1 von 47 Anzeige

Weitere Verwandte Inhalte

Diashows für Sie (19)

Ähnlich wie Blockchain Fundamentals - Day 2 - Bitcoin & the role of money (new style) (20)

Anzeige

Aktuellste (20)

Blockchain Fundamentals - Day 2 - Bitcoin & the role of money (new style)

  1. 1. BLOCKCHAIN FUNDAMENTALS BITCOIN & THE ROLE OF MONEY IN SOCIETY Chhay Lin Lim
  2. 2. RECAP 01Testing your Blockchain knowledge so far, using Kahoot.it Blockchain warming up 02Our expectations of the course and a general outline Course outline and administration 03Creating a basic understanding of Blockchain Film: The Bitcoin Gospel (part 1) 04The four perspectives of Blockchain, that we will cover: • Technical • Philosophical • Economic • Business Introduction to Blockchain 05Working towards a final presentation of your fictional startup Creating your fictional startup
  3. 3. How most people define Blockchain Centralized networks vs Blockchain Blockchain • Centralized • Single point of failure (SPOF) • 3rd Party (middleman) • Decentralized • No SPOF • No middleman • Peer-2-peer • 100% transparent • Immutable • Cryptographically secure • Open source
  4. 4. Napster Why did Napster, Kazaa, Limewire etc. fail? Central Index Server 1a: computer A makes connection with CIS. 1b: computer A searches for Michael Jackson – Billie Jean. 1c: CIS tells that computer B possesses the song. 2a: computer A makes direct connection with B. 2b: computer A downloads from B. A B 1. It was partly peer-2-peer 2. Napster was partly centralized (Central Index Server) 3. If you shut down the CIS, you shut down Napster Yes, but we can win a major battle in the arms race and a new territory of freedom for several years. Governments are good at cutting of heads of a centrally controlled like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own. - Satoshi Nakamoto 07 Nov 2008
  5. 5. Agenda 01We take a look at the main school of economic thought that has greatly influenced Bitcoin, and discuss the role of money in society The Role of Money in Society 02Viewing the second and final part of The Bitcoin Gospel Film: The Bitcoin Gospel (part 2) 03To understand the role of miners, hash cryptography, and what makes Blockchain secure Introduction to Proof-of-Work 04Using Chrome, MetaMask, and the Ethereum testnet Practicum: create your own Cryptocurrency 05Working towards a final presentation of your fictional startup Creating your fictional startup 06Wrap up of today’s workshop Wrap up
  6. 6. Main Schools of Economic Thought Marxism Keynesianism Austrian School of Economics Chicago School of Economics Karl Marx - Das Kapital (1867) “Value comes from labour” J.M Keynes – The General Theory … (1936) More government expenditures and lower interest rates as private consumptieto stimulate the economy Y = C + I + G + (X – M) Carl Menger (1873) “Value is subjective” The marginal revolution Mises Economic calculation (1920) Hayek – Denationalization of Money (1976) Rothbard (libertarian anarchist) Cryptoanarchism (‘80) Milton Friedman We must have a Central Bank to regulate the money supply (changed opinion at end of life) David Friedman (libertarian anarchist) Patri Friedman (libertarian anarchist)
  7. 7. Satoshi’s main discontentments 1. Central Banking 2. Fractional Reserve Banking The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold your money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible. - Satoshi Nakamoto, 11 February, 2009 Satoshi on Monetary problems
  8. 8. Central Banking 1. Central Banking 2. Fractional Reserve Banking Central Banking Central Bank functions 1. Monetary policy: set interest rates 2. Issue money 3. Lender of last resort to government 4. Lender of last resort to commercial banks 5. Ensure stability of banking system
  9. 9. Profit InterestInterest Government Banking system European Central Bank Bonds Bonds Money Reserves Money Creation through the purchase of government bonds Central Banking
  10. 10. Reasons for Quantitative Easing Central Banking 1. Lower interest rates, because an expansion of the money supply lowers the price of short-term money. 2. More loans, because lower interest rates make it attractive for consumers and companies to take out new loans. 3. More spending, because lower interest rates make it less attractive to leave money in a savings account. 4. Less short-term unemployment, because the loans give companies more capital. In addition, they can achieve more sales through increased consumer spending. All this stimulates companies to hire more employees. 5. More short-term confidence in the economy, as it is driven by more investment and more spending.
  11. 11. Murray Rothbard on Central Banking (part 1) If taxation is permanently short of the style of expenditures desired by the State, how can it make up the difference? By getting control of the money supply, or, to put it bluntly, by counterfeiting. On the market economy, we can only obtain good money by selling a good or service in exchange for gold, or by receiving a gift; the only other way to get money is to engage in the costly process of digging gold out of the ground. The counterfeiter, on the other hand, is a thief who attempts to profit by forgery, e.g., by painting a piece of brass to look like a gold coin. … By diluting the value of each ounce or dollar of genuine money, the counterfeiter’s theft is more sinister and more truly subversive than that of the highwayman; for he robs everyone in society, and the robbery is stealthy and hidden, so that the cause-and-effect relation is camouflaged. … But in that case, what are we to say when the government seizes control of the money supply, abolishes gold as money, and establishes its own printed tickets as the only money? In other words, what are we to say when the government becomes the legalized, monopoly counterfeiter? Central Banking
  12. 12. Murray Rothbard on Central Banking (part 2) New money injected into the economy has an inevitable ripple effect; early receivers of the new money spend more and bid up prices, while later receivers or those on fixed incomes find the prices of the goods they must buy unaccountably rising, while their own incomes lag behind or remain the same. Monetary inflation, in other words, not only raises prices and destroys the value of the currency unit; it also acts as a giant system of expropriation of the late receivers by the counterfeiters themselves and by the other early receivers. Monetary expansion is a massive scheme of hidden redistribution. … Monetary expansion then becomes a giant scheme of hidden taxation, the tax falling on fixed income groups, on those groups remote from government spending and subsidy, and on thrifty savers who are naive enough and trusting enough to hold on to their money, to have faith in the value of the currency. Spending and going into debt are encouraged; thrift and hard work discouraged and penalized. Not only that: the groups that benefit are the special interest groups who are politically close to the government and can exert pressure to have the new money spent on them so that their incomes can rise faster than the price inflation. Central Banking
  13. 13. Murray Rothbard’s books on Money and Banking
  14. 14. Fractional Reserve Banking 1. Central Banking 2. Fractional Reserve Banking Fractional Reserve Banking
  15. 15. Fractional Reserve Banking Fractional Reserve Banking Deposit number Amount deposited Loaned Reserves 1 €100.00 €98.00 €2.00 2 98.00 96.04 1.96 3 96.04 94.12 1.92 4 94.12 92.24 1.88 5 92.24 90.40 1.84 … … … … 291 0.26 0.25 0.01 Total: €4,985.93 €4,885.93 €99.75
  16. 16. Full Reserve Banking as alternative Full Reserve Banking Friedrich Hayek argued in "Choice in Currency” (1976) for free market competition in the money issuance industry. The idea behind the privatization of money production is that there is more competition among the different currencies and that private money producers are stimulated to produce good money. Under the free banking system, interest rates are not determined by a central bank or government, but by a natural demand for and supply of available money. Under free banking: 1. Citizens have freedom of choice, because there are no legally required means of payment. 2. Citizens have the freedom to establish financial institutions without state permission. 3. Citizens have the freedom to offer financial services. 4. Citizens have the freedom to issue their own currencies.
  17. 17. Free Banking as alternative Free Banking Friedrich Hayek argued in "Choice in Currency” (1976) for free market competition in the money issuance industry. The idea behind the privatization of money production is that there is more competition among the different currencies and that private money producers are stimulated to produce good money. Under the free banking system, interest rates are not determined by a central bank or government, but by a natural demand for and supply of available money. Under free banking: 1. Citizens have freedom of choice, because there are no legally required means of payment. 2. Citizens have the freedom to establish financial institutions without state permission. 3. Citizens have the freedom to offer financial services. 4. Citizens have the freedom to issue their own currencies.
  18. 18. The best the state can do with respect to money is to provide a framework of legal rules within which the people can develop the monetary institutions that best suit them… if we could prevent governments from meddling with money, we would do better than any government has ever done in this regard. And private enterprise would probably have done better than the best they have ever done. - Friedrich Hayek, 1976 Free Banking as alternative Free Banking I don’t believe we shall ever have a good money again before we take the thing out of the hands of government. We can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop. - Friedrich Hayek, 1984
  19. 19. Cantillon Effect: monetary policy creates inequality CantillonNew money is not dispersed equally into the economy. This monetary expansion is comparable to putting honey in a cup of tea. It will first clump in the middle of the cup before spreading out. Those who receive the money first, benefit most from money creation.
  20. 20. Austrian School and Bitcoin: a summary Austrians and BitcoinAustrian School of Economics Bitcoin 1. Money is not an invention of the state. Bitcoin originated in the free market. 2. People should be free to issue their own means of payment without permission. In addition to Bitcoin, people can issue their own cryptocurrencies. The decentralized nature of blockchain makes cryptocurrencies difficult to regulate. 3. Money production should be subject to free market competition. Bitcoin breaks the government monopoly on money production. Bitcoin is again introducing free banking and is an alternative to national currency. 4. Central bank must be abolished. The best way to fight national currencies is to provide an alternative that can compete. Bitcoin has the ambition to become the new money system. 5. Citizens should have freedom of choice. The Bitcoin community does not force you to use Bitcoin. Participating in Bitcoin is entirely voluntary. 6. Low inflation is good and leads to more price stability. Inflation for Bitcoin is pre-programmed in the protocol. There is a halving of inflation every four years. The first four years of Bitcoin, a miner who created a valid block still received 50 BTC. Four years later, that was cut in to 25 BTC. After that, it halved to 12.5 BTC. The previous halving took place in May 2020.
  21. 21. Other important questions regarding Money General questions on Money 1. What is money? 2. Why do we use money? 3. What happens if we eliminate the use of money? 4. Is money the root of all evil? 5. Why does Bitcoin have value? 6. Is Bitcoin money? 7. Can we really decrease wars by taking away government monopoly over money?
  22. 22. What is Money: Mises’ Regression Theorem General questions on Money
  23. 23. Why do we use Money: Double Coincidence of Wants General questions on Money1. Barter is inefficient: a laborious and time-consuming process 2. Double coincidence of wants is a requirement for an efficient barter system 3. Money serves as an accepted medium of exchange
  24. 24. What happens if we eliminate money or prices? General questions on Money Ludwig von Mises answers this question in Economic Calculation in the Socialist Commonwealth (1920): • Knowledge of prices is essential to direct available resources rationally • Without a price system, no one knows what is in demand and what to produce • If entrepreneurs cannot calculate profits and losses, we will have systematic misallocation of resources What economic calculation requires is a monetary system whose functioning is not sabotaged by government interference. The endeavors to expand the quantity of money in circulation in order to increase the government’s capacity to spend or in order to bring about a temporary lowering of the rate of interest disintegrate all currency matters and derange economic calculation. The first aim of monetary policy must be to prevent governments from embarking upon inflation and from creating conditions which encourage credit expansion on the part of banks. - Ludwig von Mises, 1949
  25. 25. Is Money the root of all Evil? General questions on Money
  26. 26. Why does Bitcoin have value? General questions on Money Labour theory of value vs Theory of subjective value Labour theory of value • The value of a commodity depends on the amount of labour involved in its production • It’s not so clear that both people involved in an exchange benefit Subjective theory of value • The value of a commodity is subjective and differs according to personal needs and situations • In exchange, people will give up what they value less in return for what they value more, which is why both sides can gain from an exchange • Leads to the marginal revolution in economics
  27. 27. Is Bitcoin money? Bitcoin & Money
  28. 28. Can Bitcoin lead to a more peaceful world? Money & Control
  29. 29. Agenda 01We take a look at the economic school of thought that has greatly influenced Bitcoin, and discuss the role of money in society The Role of Money in Society 02Viewing the second and final part of The Bitcoin Gospel Film: The Bitcoin Gospel (part 2) 03To understand the role of miners, hash cryptography, and what makes Blockchain secure Introduction to Proof-of-Work 04Using Chrome, MetaMask, and the Ethereum testnet Practicum: create your own Cryptocurrency 05Working towards a final presentation of your fictional startup Creating your fictional startup 06Wrap up of today’s workshop Wrap up
  30. 30. Agenda 01We take a look at the economic school of thought that has greatly influenced Bitcoin, and discuss the role of money in society The Role of Money in Society 02Viewing the second and final part of The Bitcoin Gospel Film: The Bitcoin Gospel (part 2) 03To understand the role of miners, hash cryptography, and what makes Blockchain secure Introduction to Proof-of-Work 04Using Chrome, MetaMask, and the Ethereum testnet Practicum: create your own Cryptocurrency 05Working towards a final presentation of your fictional startup Creating your fictional startup 06Wrap up of today’s workshop Wrap up
  31. 31. How a Bitcoin transaction works BLOCK #X1. Users initiate transaction in the network 2. Miners choose transactions with the highest fees and add them to a block 3. Miners compete in solving a cryptographic puzzle Mempool Tx1 Tx2 Tx3 Tx... Tx1 Tx3 Tx... BLOCK- CHAIN 4. Miner that has solved the puzzle first, can add the block to Blockchain
  32. 32. Proof-of- Work demo Blockchain Demo Block #1 Nonce: 212046 Transaction data: Jim -> 100 BTC -> Jane Previous hash: 000000000000000000000000000 000000000000000000000000000 0000000000 Block header hash: 000058ab9df5d209cdddbbd1d12 9c4d157a9b77c0ee76bacd6dcf67 47235fb8d Block #2 Nonce: 152618 Transaction data: Jane -> 25 BTC -> John Previous hash: 000058ab9df5d209cdddbbd1d12 9c4d157a9b77c0ee76bacd6dcf6 747235fb8d Block header hash: 0000ffcf3ff55ee1ce507f89cd252e 678c1d3eab002320fe4fe784137f 4715d9 Timestamp Timestamp
  33. 33. Consensus Mechanism: Proof-of-Work • Concept first presented in 1993 by Cynthia Dwork and Moni Naor in “Pricing via Processing or Combatting Junk Mail” • Implemented by Adam Back in HashCash (1997) • Within a PoW Blockchain, your chance of creating a block is dependent on your computing power • Requires high energy consumption Proof-of- Work
  34. 34. What is Hash Cryptography? • A way to make plaintext unintelligible through mathematical algorithms • Bitcoin makes use of SHA-256 (Secure Hash Algorithm) • 64 characters long • Each character is a hexadecimal (0, 1, 2, 3, 4, 5, 6, 7, 8, 9, a, b, c, d, e, f) • Each character is 4 bits. The hash is hence 64 * 4 = 256 bits long Hash Conditions for a reliable hash algorithm 1. It is deterministic. 2. Reverse engineering of an output is not possible. 3. Converting data into a hash is done quickly. 4. Changing input escalates into a radical change in output. 5. Chances of conflicts are virtually impossible.
  35. 35. Proof-of- Work summary Things you can explain now 1. What is hash cryptography? 2. What is the role of the Nonce (number used once)? 3. What do miners do, and why are they important for the Bitcoin network? 4. What is that cryptographic puzzle that miners try to solve? 5. How are blocks cryptographically linked for security?
  36. 36. Agenda 01We take a look at the economic school of thought that has greatly influenced Bitcoin, and discuss the role of money in society The Role of Money in Society 02Viewing the second and final part of The Bitcoin Gospel Film: The Bitcoin Gospel (part 2) 03To understand the role of miners, hash cryptography, and what makes Blockchain secure Introduction to Proof-of-Work 04Using Chrome, MetaMask, and the Ethereum testnet Practicum: create your own Cryptocurrency 05Working towards a final presentation of your fictional startup Creating your fictional startup 06Wrap up of today’s workshop Wrap up
  37. 37. Your own Crypto Creating your own coin (30-40 minutes) 1. Install an Ethereum wallet with MetaMask 2. Create, in pairs, your own crypto token with Remix (development environment) 3. Use the Ethereum test net (Rinkeby) 4. For the creation of your own token on Ethereum, you have to use “gas” (ether) 5. Check out Discord for the instruction manual
  38. 38. Agenda 01We take a look at the economic school of thought that has greatly influenced Bitcoin, and discuss the role of money in society The Role of Money in Society 02Viewing the second and final part of The Bitcoin Gospel Film: The Bitcoin Gospel (part 2) 03To understand the role of miners, hash cryptography, and what makes Blockchain secure Introduction to Proof-of-Work 04Using Chrome, MetaMask, and the Ethereum testnet Practicum: create your own Cryptocurrency 05Working towards a final presentation of your fictional startup Creating your fictional startup 06Wrap up of today’s workshop Wrap up
  39. 39. Your own Crypto Your own fictional Startup 1. You work in pairs 2. You have created your own coins 3. Every couple receives ESS coins from me (sent to your mutual Ethereum address) 4. Friday: first presentations of your startup website • Pitch your startup • Your peers use their ESS coins to invest in your startup • If you receive ESS coins from your peers, send them back your own coins 5. Couple with the most ESS coins at the end of the course, wins a prize: €20 in BCH
  40. 40. Agenda 01We take a look at the economic school of thought that has greatly influenced Bitcoin, and discuss the role of money in society The Role of Money in Society 02Viewing the second and final part of The Bitcoin Gospel Film: The Bitcoin Gospel (part 2) 03To understand the role of miners, hash cryptography, and what makes Blockchain secure Introduction to Proof-of-Work 04Using Chrome, MetaMask, and the Ethereum testnet Practicum: create your own Cryptocurrency 05Working towards a final presentation of your fictional startup Creating your fictional startup 06Wrap up of today’s workshop Wrap up
  41. 41. THANK YOUBLOCKCHAIN FUNDAMENTALS: BITCOIN & THE ROLE OF MONEY IN SOCIETY

×