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Understanding Bitcoin, Blockchain, Cryptocurrencies, ICOs

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

  1. 1. Bitcoin, Blockchain, Cryptocurrencies, ICOs Nitin Mittal 1
  2. 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. 3. Agenda • Why money? • What is money? • Money Systems • Bitcoin Characteristics • Bitcoin Price & Valuation • Bitcoin Investment Arguments • Other Cryptocurrencies/Tokens • ICOs 3
  4. 4. Understanding Money 4
  5. 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. 6. What is Money? • A medium of exchange • Widely accepted • Interchangeable • Divisible • Transportable • Transferable • Hard to counterfeit • Store of Value • Stable value 6
  7. 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
  8. 8. Understanding Money Systems 8
  9. 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. 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. 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. 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. 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. 14. Bitcoin Characteristics 14 Source: Introduction to Bitcoin and Cryptocurrencies, Michel Rauchs
  15. 15. Bitcoin Wealth Distribution 15
  16. 16. Bitcoin Price and Valuation 16
  17. 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. 18. Top Coins 18
  19. 19. Bitcoin Adoption – Early Days Bitcoin is 9 years old: First BTC Whitepaper was released on 31 Oct 2008 19
  20. 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. 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. 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. 23. Is Bitcoin a Bubble? 23
  24. 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
  25. 25. Bitcoin Investment Arguments 25
  26. 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. 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. 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. 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. 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. 31. Will Bitcoin Cash Pass BTC in adoption and value? 31 Source: Forbes
  32. 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. 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
  34. 34. Other Cryptocurrencies 34
  35. 35. Terminology 35
  36. 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
  37. 37. ICO 37 Source: Digital Ventures
  38. 38. ICO Process vs IPO 38 Source: Digital Ventures
  39. 39. Comparison of Fund Raising Methods 39 Source: Digital Ventures
  40. 40. Typical Token Use Cases 40 Source: Digital Ventures
  41. 41. Top Tokens 41
  42. 42. QASH ICO looks promising… 42 Sign up via: https://accounts.qryptos.com/sign-up?affiliate=9GFQ2xHF5550
  43. 43. Appendix 43
  44. 44. Blockchain Visual Demo 44