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Blockchain and Cryptocurrencies

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Blockchain and Cryptocurrencies

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An introductory presentation discussing the basics of technology behind blockchain, cryptocurrency mining, and an attempt to value a cryptocurrency. Further discussion on altcoins, and a preview on ICOs.

An introductory presentation discussing the basics of technology behind blockchain, cryptocurrency mining, and an attempt to value a cryptocurrency. Further discussion on altcoins, and a preview on ICOs.

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Blockchain and Cryptocurrencies

  1. 1. Blockchain & Cryptocurrencies NIMESH PATODI
  2. 2. • “We believe Bitcoin may be the most important technology of this decade.” -Andreessen Horowitz • “It's not a medium of exchange, it's a medium of trading, so I can't see any intrinsic value.” -Howard Marks • “Stay away from it. It's a mirage, basically.” -Warren Buffet • “I would not invest. I need to understand it better. I think there's a lot of merit behind it.” -Ray Dalio (2013) • “I think the algorithmic approach to controlling the money supply used by Bitcoin and other digital currencies being developed in Silicon Valley could go a long way to creating a sound store of value.” -Mathew Bishop, Editor, The Economist • “… a currency is a target of speculation as opposed to primarily a means of exchange, it does create some concerns for the user.” -Raghuram Rajan (2014)
  3. 3. What is a Distributed Ledger? • A distributed ledger (aka shared ledger) is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions. • There is no central administrator or centralised data storage. • Blockchain is a type of distributed ledger.
  4. 4. WHAT IS A BLOCKCHAIN?
  5. 5. What is a Blockchain? • A Blockchain is a continuous list of records, called blocks, a linked list that is built with hash pointers instead of pointers. • Each block contains typically a hash pointer as a link to a previous block, a timestamp and transaction data. • A use case for a block chain is a tamper-evident log.
  6. 6. What is in a Blockchain? • Blockchain is just another type of database for recording transactions. • Data in a Blockchain is stored in fixed structures called “blocks”. • The important parts of a block are: • Its header • Includes metadata, unique block reference number, timestamp, and a link to the previous block. • Its content • Transaction details, i.e., addresses of the parties involved and the amounts.
  7. 7. Graphic: Deloitte University Press. Source: American Banker How the Bitcoin Blockchain works.
  8. 8. Graphic: Deloitte University Press. Source: American Banker How the Bitcoin Blockchain works.
  9. 9. Elements common to all Blockchains • Digitally distributed across a computer network in almost real-time. • Uses many participants in the network to reach consensus. • Uses cryptography and digital signatures to prove identity. • Has mechanisms to make it hard(but not impossible) to change historical records. • Is time stamped. • Is programmable.
  10. 10. What is a Cryptocurrency? • A digital asset designed to work as a medium of exchange using cryptography to secure the transactions and, • to control the creation of additional units of the currency. • Ownership of a Bitcoin is nothing more than other nodes agreeing that a given party owns those bitcoins.
  11. 11. Differences between Fiat Currency & Cryptocurrency Cryptocurrency No intermediary Free float exchange rates Unregulated Untraceable Less Secure Not a Legal Tender Fiat Currency Backed by the Central Bank Possible Intervention of Central Bank Regulated Relatively traceable More Secure Legal Tender
  12. 12. What is Bitcoin mining? • Essentially the book-keeping service. • Miners keep the Blockchain consistent, complete and unalterable by repeatedly verifying and collecting transactions in a group called “block”. • Each block contains a cryptographic hash of the previous block, using the SHA-256 hashing algorithm, which links it to the previous block. • In order to be accepted by the rest of the network, a new block must contain a so-called proof-of-work. The proof- of-work requires miners to find a number called a nonce.
  13. 13. What is Bitcoin mining? • Only way to solve puzzle is to try nonces one by one and hope that one succeeds. • This proof is easy for any node in the network to verify, but extremely time-consuming to generate. • Every 2016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. • Mining rewards has two components: • Transaction Fees • Block Reward (Currently 12.5BTC/XBT per block)
  14. 14. Key Properties of Limited Supply Open Source Accountable Decentralized Censorship Resistant Push System Low Fee Borderless Trustless Pseudonymous Secure Programmable Nearly Instant Peer-to-peer Portable Scalable Designed Money
  15. 15. Weaknesses • Bitcoins are not widely accepted. • Wallets can be lost. • Highly volatile. • No Buyer Protection. • No Valuation Guarantee. • Internet Dependency. • Unregulated Exchanges.
  16. 16. Threats • Unknown Technical Flaws. • Wallet theft. • Sybil Attacks – Numerous copies of malicious nodes controlled by same adversary. • Denial of Service(DoS) Attacks. • Reverse Engineering transactions. • Government Regulation. • Energy Consumption.
  17. 17. Alternative Cryptocurrencies aka Altcoins
  18. 18. What are Altcoins? • Altcoins are the alternative cryptocurrencies launched after the success of Bitcoin. • They attempt to target any perceived limitations that Bitcoin has and come up with newer versions with competitive advantages. • Total market cap = $126.85 billions. • BTC at $58B+, ETH at $28B+, XRP at $6.8B+. (as on 12/8/17)
  19. 19. The Year of Hype - 2017 Coin (Ranked by MCap) Year to Date (YTD) returns (against $) Bitcoin (XBT) 259.9% Ethereum (ETH) 3597.8% Ripple (XRP) 685.4% Litecoin (LTC) 961.7% Neo (NEO) 7008.8% (against XBT) DigitalCash (DASH) 1717.4% Monero (XMR) 271.4% (as on 12/8/17)
  20. 20. (as on 12/8/17)
  21. 21. (as on 12/8/17)
  22. 22. Breaking Down Token Types Token Type Function Examples Traditional Asset Token To represent a traditional asset cryptographically USDT, DGD Usage Token To provide access to a digital service BTC, ETH, BAT Work Token To provide the right to contribute work to a decentralized organisation REP, MKR Hybrid (Usage + Work) To provide access to a digital service and the right to contribute work FIL, ETH(with Casper) Source: Tomaino N. https://thecontrol.co/on-token-value-e61b10b6175e
  23. 23. Primary driver of Altcoin value Token Network Effects
  24. 24. A fundamental approach Three main sources of value driving a currency’s price: • Production: High production cost. • Bitcoin is produced via a virtual “mining” process, takes exponentially more computing power each time a new cache is mined. It not only requires specialized hardware, but electricity to run and cool that hardware. • Scarcity: Bitcoin (and most other cryptocurrencies) are designed to have a fixed supply. • Utility: “Use - cases” • Golem – “AirBnB for your spare computing cycles.” • Steem – Get paid each time someone reads or likes your post. • SiaCoin - Decentralised private cloud service • Augur – Platform that rewards for correctly predicting future real-world events.
  25. 25. Ethereum • An open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. • “Ether” can be transferred between users and used to compensate participant nodes for computations performed. • Build new applications using “Smart Contracts” • Trustless Crowdsale of Tokens • Create a democratic autonomous organisation • Dubbed as Web3.0
  26. 26. Smart Contracts on Ethereum • Smart contract is just a phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. • When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. • Has features like no censorship, downtime, fraud or third party interference.
  27. 27. EtherOpt(https://etheropt.github.io/) is a decentralized options exchange built on Ethereum.
  28. 28. What are ICOs? • Analogous to an IPO, ICOs are means by which funds are raised for a new cryptocurrency venture through sale of coins instead of shares. • ICOs are unregulated, startups use this to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. • ICOs have now exceeded venture funding for blockchain projects. • Bancor raised $150 million. • Tezos raised $232 million. • Filecoin raised $200 million. (Pre-sale to Sequoia Capital, Andreessen Horowitz, etc.) • While, Tesla raised $226 million in their IPO.
  29. 29. REFERENCES • Rich and Famous people on Bitcoin. https://www.weusecoins.com/rich-famous-bitcoin/ • Bitcoin and Cryptocurrency Technologies, Arvind Narayan et al. 2016 (Princeton) • The Bitcoin Whitepaper: Nakamoto, Satoshi. Bitcoin: A peer to peer electronic cash system. (2008) • “Blockchain. Enigma. Paradox. Opportunity.” Deloitte University Press • Blockchain 101 – A Visual Demo. https://www.youtube.com/watch?v=_160oMzblY8 • K. Michael. Token Network Effects. https://medium.freecodecamp.org/token-network-effects-a-new- business-model-for-a-decentralized-web-6cde8b4e862 • Blockgeeks. https://blockgeeks.com/guides/what-is-ethereum/ • Understanding the ICO hype. https://medium.com/blockchannel/understanding-the-ethereum-ico- token-hype-429481278f45 • Cryptocompare. https://www.cryptocompare.com/ • Coinmarketcap. https://coinmarketcap.com/charts/

Hinweis der Redaktion

  • Accountable - The public ledger is transparent, all transactions are seen by everyone.
    Censorship Resistant - no one can censor, alter or block transactions that they disagree with.
    Push System – No third party involved, no security issues unlike credit cards.
    Programmable - Individual units of bitcoin can be programmed to transfer based on certain criteria being met.
    Scalable – Divisible down to 8 units.

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