Understanding Bitcoin, Blockchain, Cryptocurrencies, ICOs
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Bitcoin, Blockchain, Cryptocurrencies, ICOs QASH ICO Affiliate link: https://accounts.qryptos.com/sign-up?affiliate=9GFQ2xHF5550
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Understanding Bitcoin, Blockchain, Cryptocurrencies, ICOs
- 2. Who is this for? • Have no clue what Bitcoin/Blockchain/Cryptocurrencies/ICOs are • Have heard a little but inquisitive to know more to make an investment decision • Already invested in Bitcoin because of the hype but want to dive deeper to make a bigger investment and/or diversify 2
- 3. Agenda • Why money? • What is money? • Money Systems • Bitcoin Characteristics • Bitcoin Price & Valuation • Bitcoin Investment Arguments • Other Cryptocurrencies/Tokens • ICOs 3
- 5. Why do we have money? • Money came into existence to make barter more efficient – scales up exchange • Sharing and reciprocation becomes difficult to mange as communities grow - to scale up social obligations • Created by the government to levy taxes and scale up their power (war, acquire more tax payers, more demand for currency…) 5
- 6. What is Money? • A medium of exchange • Widely accepted • Interchangeable • Divisible • Transportable • Transferable • Hard to counterfeit • Store of Value • Stable value 6
- 7. Why did cryptocurrencies come into existence and what they do? • Disillusionment with the financial system after 2008 crisis • Cryptocurrencies like Bitcoin created a system for exchanging digital money without the need for banks • System rules written in software and open source – owned by no one entity 7
- 9. Simple Centralized Money System • Alice tells bank she wants to send money to Bob • Bank verifies Alice authorized it and checks her funds • Bank adds transaction to its proprietary ledger • Trust in bank essential • People worry about • Ledger tamper • Freezing of accounts • High transaction fees 9 Source: What are cryptocurrencies, Rasheed Sabar
- 10. Simple Decentralized Money System • No bank – replaced by community hall • No proprietary bank ledger – replaced by public community ledger • Transaction announced to entire community • Transaction validated by majority of community members • Designated person adds transaction to community ledger • Process managed by community and not a single authority • But, • How to keep ledger secure? • Verification is better shouldered by dedicated workers than entire community • No privacy – everyone can see everyone else’s balances 10 Source: What are cryptocurrencies, Rasheed Sabar
- 11. Decentralized & Distributed Money System • Everyone maintains own personal copy of ledger – must be synchronized with others based on certain rules (no single point of failure as several ledgers would have to be tampered) • Community members do not verify transactions – they employ validators who get paid for the job in the community’s currency [validators can be audited by community and ledger is still open, so not like bank] • System is now digital [no community hall for people to get together] – transactions now between randomized emails (public addresses, not actual identities) that each member can access with their own secret password, so their balances remain private 11 Source: What are cryptocurrencies, Rasheed Sabar
- 12. Secure Decentralized & Distributed • Instead of randomly choosing validator, choose one that solves a cryptographic puzzle fastest • Solving puzzles use computer resources and electricity and not as simple as ‘manufacturing’ the longest ledger • Tampering with a ledger requires more resources than other validators combined 12 Source: What are cryptocurrencies, Rasheed Sabar
- 13. Bitcoin Money System • The last slide represents how Bitcoin works very closely! • In the Bitcoin world, • Validators are called Miners • Community Ledger is called the public Blockchain • Blocks of transactions are chained together via hash functions to create the blockchain i.e. each block contains condensed version of the previous one until the first block, making ‘ledger tampering’ almost impossible • Validators are rewarded via issuance of new bitcoins as opposed to transaction fees • Bitcoin supply will plateau to 21M coins by 2040 (16.55M currently) – the puzzles get more difficult to resolve and the rewards get smaller 13
- 14. Bitcoin Characteristics 14 Source: Introduction to Bitcoin and Cryptocurrencies, Michel Rauchs
- 16. Bitcoin Price and Valuation 16
- 17. Top 10 Cryptocurrencies by Market Cap Source: Coinmarketcap.com 17 • Cryptocurrencies serve different purposes and can differ by • Features – transaction speed, privacy • ‘Monetary Policy’ – supply and issuance rates, tamper resistance mechanics • Governance structures – developers- miners-users (Btc), developers-miners- users-stakeholders (Dash), Single Person (Ethereum)
- 18. Top Coins 18
- 19. Bitcoin Adoption – Early Days Bitcoin is 9 years old: First BTC Whitepaper was released on 31 Oct 2008 19
- 20. History of Bitcoin Price Impacting Events • +Nework Effect • -Failure of latest Fork • +Plan to launch bitcoin futures • +Regulation of 11 Exchanges in JP • +Goldman Sachs CEO and IMF neutral to Bitcoin • -JP Morgan calls Bitcoin fraud • -China bans BTC exchanges and ICOs • +Fidelity supports Bitcoin tracking in client portfolios • +North Korea – US Tension • +Yuan’s fall in Jan • +Brexit • + Trump elected • + Steam accepts Bitcoin 20 62: Bitcoin price breaks $1K first time in 3 years 63: SEC denies Winklevos ETF 64: SEC denies second ETF 65: JP declares BTC as legal tender 66: Bitcoin splits into BTC and BCH
- 21. High Level Framework for Valuing Bitcoin This was the prediction in 2013. Even #1 has not happened till now and Bitcoin is expected to be valued $10K by end of 2017 21
- 22. Other Valuation Methods DEMAND •Use as a means for payment in financial transaction •Use as an instrument for speculation •Use as a store of value SUPPLY 22 Source: Seeking Alpha
- 23. Is Bitcoin a Bubble? 23
- 24. How to detect Bitcoin bubbles? • Analogous to PE ratio for stocks – high ratio means overvalued or high growth stock • NVT Ratio – Price per bitcoin/money flowing through network (like company earnings) or network value/transaction value • NVT between 40-90 for BTC implies no bubble • Similar concept can be applied Ethereum where network value is correlated to daily transaction but its NVT needs more time to settle into a long term range for bubble detection 24 Source: Woobull.com
- 26. Bitcoin It has no fundamental value • Provides no interest payments, no claim on profits or dividends • No ownership of factories or other hard assets • Purely speculative • Positive price-value feedback loop • Collective self-interest and cryptography (neither does fiat nor gold) • Utility exists in countries with no trust in banks and local currency, high inflation rates or capital controls, well-off refugees who need to flee and transfer wealth 26 Source: What are cryptocurrencies, Rasheed Sabar
- 27. Govt. will crack down on it • Used by drug dealers, tax evaders, extortionists and dark web users • Evade capital controls • If terrorists start financing their operations in bitcoin? • Ban difficult to impose due to its distributed and de-central nature; no place; just needs one miner to continue • Govt. can certainly make it difficult to buy bitcoin but buyers will move to friendlier countries or move to in-person black markets • Bitcoin futures approved and ETF approval more likely; JP legalized it; over time buyers may need to give up some privacy to prevent demand from criminals 27 Source: What are cryptocurrencies, Rasheed Sabar
- 28. Central Banks Will Issue their Own Cryptocurrencies • Central bank issued cryptocurrencies (CBC) will crowd out Bitcoin – China, Singapore, IMF urging central banks to consider it • Just a different implementation of fiat bringing several advantages – instant taxation, real-time risk monitoring and cross border payments • But, still not DECENTRALIZED; not stateless or unaffected by inflationary monetary policy; CBC and Bitcoin likely to co-exist and latter benefit from legitimization of cryptocurrencies and fuel demand • Possibility of countries/central banks building reserves of Bitcoin like Russia and China do with gold to reduce USD reserves 28 Source: What are cryptocurrencies, Rasheed Sabar
- 29. Safety, Privacy, Miner concentration risk • Bitcoin funds have been hacked • Bitcoin addresses are open to public and could be traced back to actual identities • Over 70% mining power comes from China • Blockchain has never been hacked; only private company exchanges or wallets have been; safe list of these companies has now emerged • Other services and cryptocurrencies for more privacy; Bitcoin level of privacy works for majority of users • Concentration is a risk but unlikely given the resources required for mining; bitcoin ecosystem technology is evolving with technology improvements 29 Source: What are cryptocurrencies, Rasheed Sabar
- 30. Crowded Trade • In the news daily; price gone up too quickly and so downside risk • Shorting bitcoin not easy; futures markets arriving and so price will drop • Bitcoin ownership is low - ~10M users when there could be more demand from 100s of millions from high inflation/capital control countries, 2B unbanked and 500M millenials • Futures and ETFs not launched yet – would be buyers kept out • Low correlation (10% with stock, 0% with gold) with tradional assets – will drive demand for diversifying portfolios 30 Source: What are cryptocurrencies, Rasheed Sabar
- 31. Will Bitcoin Cash Pass BTC in adoption and value? 31 Source: Forbes
- 32. Bitcoin Investment Arguments - Summary • Cryptocurrencies can protect against high-inflation and capital controls. • They get more secure and more developed as prices go up via price- value feedback loops. • Central banks may legitimize them by issuing their own cryptocurrencies • And they may prove themselves as safe-havens in the next crisis 32
- 33. Which Bitcoin Exchange to use? • Depends on your location • Currencies supported • Trading Fees • Deposit and withdrawal fees • Deposit methods supported • Deposit/Withdrawal times • Verification Requirements 33
- 35. Terminology 35
- 36. Initial Coin Offerings (ICOs) • An unregulated means of crowdfunding via use of cryptocurrency, which can be a source of capital for startup companies • In an ICO a percentage of the newly issued cryptocurrency is sold to investors in exchange for legal tender or other cryptocurrencies such as Ether/Bitcoin. 36 Source: Investopedia, Digital Ventures
- 38. ICO Process vs IPO 38 Source: Digital Ventures
- 39. Comparison of Fund Raising Methods 39 Source: Digital Ventures
- 40. Typical Token Use Cases 40 Source: Digital Ventures
- 41. Top Tokens 41
- 42. QASH ICO looks promising… 42 Sign up via: https://accounts.qryptos.com/sign-up?affiliate=9GFQ2xHF5550
- 43. Appendix 43
Notes de l'éditeur
- The baker has extra bread and wants meat. Hoping to trade bread for meat, he goes to the butcher. But what if the butcher doesn't want bread? Then there is no exchange, lacking a \coincidence of wants".
- 0. At the end of each day, community members gather in person at the town hall to conduct transactions 1. [ANNOUNCE] When someone wants to pay coins to someone else, she stands up and announces the transaction to everyone at the town hall. One person speaks at a time. 2. [CHECK] When a transaction is announced, everyone at the town hall checks if the transaction is valid by Verifying that the payer authorized it Verifying vs the community ledger that the payer has enough funds 3. [APPEND] The process for adding the transaction to the community ledger is as follows: If the transaction is validated by a majority of community members, then a designated person { Appends the transaction to the community ledger
- 1. [ANNOUNCE] When someone wants to pay coins to someone else, she broadcasts the transaction to the community over the internet. Anyone can broadcast a transaction at any time Transactions contain public addresses rather than actual identities Due to physical realities of internet lines, broadcasts are not heard by everyone in the same order 2. [CHECK] Validators pick an unconrmed transaction that they've heard about and check validity by Verifying that the payer authorized it (by checking its digital signature7) Verifying vs their copy of the community ledger that the payer has enough funds to cover the transaction 3. [APPEND] The process for adding to the community ledger is as follows: Every 10 minutes, the network randomly selects a validator (V2) and that validator: { Appends his veried transaction to his copy of the community ledger, and { Broadcasts his updated community ledger to other validators Other validators conrm that: { V2's ledger is valid, and { V2's ledger is longer than their own ledger (the \longest ledger policy") If conrmed, then validators update their ledger copy to match V2's and V2 receives .01 coins
- 1. [ANNOUNCE] When someone wants to pay coins to someone else, she broadcasts the transaction to the community over the internet. Anyone can broadcast a transaction at any time Transactions contain pseudonyms rather than actual identities Due to physical realities of internet lines, broadcasts are not heard by everyone in the same order 2. [CHECK] Validators pick an unconrmed transaction that they've heard about and check validity by Verifying that the payer authorized it (by checking the digital signature) Verifying vs their copy of the community ledger that the payer has enough funds to cover the transaction Then they begin work on a cryptographic puzzle 3. [APPEND] The process for adding to the community ledger is as follows: When a validator (V3) solves his cryptographic puzzle, that validator: { Appends his veried transaction and puzzle solution to his copy of the community ledger, and { Broadcasts his updated community ledger to other validators Other validators conrm that: { V3's ledger is valid, and { V3's ledger is longer than their own ledger (the \longest ledger policy") If conrmed, then validators update their ledger copy to match V3's and V3 receives .01 coins
- On a micro-level, cryptocurrencies dier in terms of features. Each cryptocurrency has its own ledger and its own rules for transactions. Each is a system unto itself. For example, Litecoin, worth over $3 billion, originated as a fork of Bitcoin's code and has faster transactions. Zcash has more privacy. On a macro-level, cryptocurrencies dier in money supply issuance and tamper-resistance. Each has its own pre-programmed monetary policy. In Bitcoin, long-term supply is xed at 21 million bitcoins; in others, issuance rates remain non-zero and supply grows forever. Bitcoin achieves tamper-resistance by forcing validators to solve cryptographic puzzles; some researchers are developing other tamper-resistance mechanics.12 On a meta-level, cryptocurrencies are a profound social experiment in how people agree on rules to govern themselves in the absence of central authority. Their governance structures are fascinating. In Bitcoin, only a handful of core developers can make changes to the code. However, only if the miners accept code changes do they become real. And if miners accept code changes that users don't like, users may stop holding bitcoin, which in turn hurts miners (since they are paid in bitcoin). There are implicit checks-and- balances in place between developers, miners, and users that discourages a change in rules beneting only one group. When the community disagrees on a rule change, the ledger splits (\forks") and the separate groups follow dierent rules, with each ledger constituting a dierent currency going forward.
- When price rises more engineers are attracted to the space, more hiring happens and more useful services get built, driving user adoption and increases value for everyone in the ecosystem. More validators more ledger security.
- When price rises more engineers are attracted to the space, more hiring happens and more useful services get built, driving user adoption and increases value for everyone in the ecosystem. Morning validators more ledger security.
- When price rises more engineers are attracted to the space, more hiring happens and more useful services get built, driving user adoption and increases value for everyone in the ecosystem. Morning validators more ledger security.
- When price rises more engineers are attracted to the space, more hiring happens and more useful services get built, driving user adoption and increases value for everyone in the ecosystem. Morning validators more ledger security.
- When price rises more engineers are attracted to the space, more hiring happens and more useful services get built, driving user adoption and increases value for everyone in the ecosystem. Morning validators more ledger security.
- Cryptocurrencies are tokens, that use special software that controls, their supply, rate of inflation and use a blockchain to make the network trusted. It’s the only and very significant difference. A token can be produced by anyone, with no ruling of supply and confirmations. Altcoins have a blockchain of their own which can be independent of bitcoin blockhain derived. A “token” by definition is a representation any fungible tradible good such as currency, loyalty points, gold certificates, in game items and more. It represents that I own a underlying tradable asset. Tokens are on top of an existing blockchain to represent a utililty or service. You pay $2 at a pinball machine effectively exchanging your currency for 3 pin balls (tokens) to be used to play within the pinball game. The main difference between altcoins and tokens is in their structure; altcoins are separate currencies with their own separate blockchain while tokens operate on top of a blockchain that facilitates the creation of decentralized applications.