Digital (Bitcoi Currencies ENT 470 Social Innovation in Finance - - PowerPoint PPT Presentation
Digital (Bitcoi Currencies ENT 470 Social Innovation in Finance n) HULT Internatj onal Business School - Summer One 2016 Alessandro alessandro.lanteri@faculty.hult.edu Lanteri Schedul More or e less Mark Lamb CEO & Co-Founder
ENT 470 Social Innovation in Finance
alessandro.lanteri@faculty.hult.edu
HULT Internatj onal Business School - Summer One 2016
More or less…
Break
15 min
Money
9 am
Blockchain + Bitcoin
10:30 pm
Mark Lamb CEO & Co-Founder CoinFloor
Guest Lecturer
11:30 pm
Wrap up
12:30 pm
http://www.ted.com/talks/paul_kemp_robertson_bitcoin_sweat_tide_meet_the_future_of_b randed_currency
Paul Kemp Robertson Contagious Communications
the daring and fascinating alternatives to government-backed currencies
watch at hom e
ENT 470
ECB (2012); Ali et al. (2014)
(very, very, very brief)
commodities
goods with intrinsic value cows, potuery, shells, grains…
commodity-backed
items representing underlying commodities with intrinsic value gold certjfjcates…
fjat money
legal tender issued by a central (trusted) authority USD, GBP… trust is very important (e.g., dollarizatjon)
ENT 470
Ali et al. (2014)
Classical theory of money
NOTE: money with such functions is not necessarily legal tender (ex. gold, diamonds…) Medium of exchange money is used as an intermediary in trade to avoid the inconveniences of a barter system, i.e. the need for a coincidence of wants between the two parties involved in the transaction.
example: trading cards, hours…
Store of value money can be saved and retrieved in the future.
example: houses…
Unit of account money acts as a standard numerical unit for the measurement of value and costs of goods, services, assets and liabilities.
example: cigarettes…
ENT 470
Ali et al. (2014)
Hierarchy of functions
Unit of account Medium of exchange Store of value money is a social convention as such, it evolves over time not all the functions must be present at all times and for all constituencies
ENT 470
ECB (2012)
formats and legal status
ENT 470
ECB (2012)
with respect to their relationship with legal tender and real goods
Unidirectional flow
The virtual currency can be purchased directly using real currency at a specific exchange rate, but it cannot be exchanged back to the original currency. The currency is used to purchase virtual goods and services, but some may also allow their currencies to be used to purchase real goods and services.. example: F acebook Credit, air miles…
Closed virtual currencies
Almost no link to the real economy and sometimes called “in-game
subscription fee and then earn virtual money based on their
The virtual currency can only be spent by purchasing virtual goods and services offered within the virtual community and, at least in theory, it cannot be traded outside the virtual community. example: WoW Gold…
Bidirectional flow
Users can buy and sell virtual money according to the exchange rates with their currency. The virtual currency is similar to any other convertible currency with regard to its interoperability with the real world. These schemes allow for the purchase of both virtual and real goods and services. example: Linden Dollars,
ENT 470
ECB (2012)
with respect to their relationship with legal tender and real goods
ENT 470
ECB (2012)
Types of money schemes
digital
electroni c virtua l
digital traditional currency ‘universal’ legal money inst. fixed invented currency within a community non-fin. company determined by issuer money format unit of account acceptance issuer supply guaranteed not guaranteed redeemability
ENT 470
ECB (2012)
A definition
// A virtual currency is a type of
unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community. //
unregulated communi ty based issuer determin ed privat e issue r digital
ENT 470
Andreas Antonopoulos Bitcoin Foundation
the first virtual currency
ENT 470
watch at hom e
an intro
ENT 470
HOT wallets are online allow for instantaneous transfer of funds greater ease of use but more vulnerable to hacking Wallets are where bitcoins are virtually stored and are used to make transactions. COLD wallets are o ine ffl more secure payment process is slower and more cumbersome
an intro
EARN
Like any currency, Bitcoin can be obtained in exchange for goods and services rendered.
A TM’s
ATM users first verify their bitcoin wallet by scanning a QR code on their smartphone. They then insert cash into the ATM and submit to complete the transaction. The appropriate amount of bitcoins are credited to their wallet (at current exchange rate).
DIGIT AL EX CHANGE
Digital currency exchanges allow buying and selling Bitcoin at the current market rates.
MINING
Miners are the backbone of the Bitcoin ecosystem, providing services that help secure the network and keep it running. Miners are rewarded for their services with Bitcoin payments.
ENT 470
an intro
PURCHASES
A growing number of merchants are accepting bitcoin as a form of payment.
P2P P A YMENTS
Bitcoins’ fast transfer times, lower fees and absence of transaction limits make them an attractive option for micro-payments.
INVESTING
Bitcoins are frequently traded on digital currency exchanges.
CHARITY
Bitcoins o er ff a faster and safer way to give to charities in the developing countries marred by social and political unrest.
ENT 470
(in a nutshell)
ENT 470
www.blockchain.info (2015)
Miners worldwide
ENT 350
the physical making of digital currencies
ENT 470
Ali et al. (2014)
Mainly, its strengths
Decentralise d Stabl e Transpar ent F ast, Cheap Privat e
BU T
The decentralized nature of Bitcoins eliminates the prospect of government control or ownership. The blockchain is a permanent public record of all confirmed transactions that occur in the system and an integral part of the Bitcoin ecosystem. The blockchain helps promote order and transparency while prevent counterfeiting. Digital payments to individuals and merchants can occur at anytime and are processed faster with lower fees. This is due in large part to removing banks from the transaction processing equation. Only a finite amount of bitcoin is
manipulate bitcoin value through an increase or decrease in currency
largely to the laws of natural supply and demand economics. Although all Bitcoin transaction details are stored publicly, the identities of the users involved remain relatively anonymous. These benefits extend to payments ranging from basic P2P transfers to remittances. Remittances are instantaneous and inexpensive, < 1% fee. FX fees are eliminated.
ENT 470
The true social innovation in bitcoins
permanent chronological complete public
// A blockchain is a public ledger of all Bitcoin
transactions that have ever been executed. It is constantly growing as 'completed' blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. //
ENT 470
The true social innovation in bitcoins
miners confirm the validity of transactions and add them to the blockchain
// A blockchain is a public ledger of all Bitcoin
transactions that have ever been executed. It is constantly growing as 'completed' blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. //
the blockchain publicly records the transactions between sender and recipient and allows verification the blockchain ensures each BTC is uniquely coded and therefore can only be spent once the systems allow the elimination of intermediaries (e.g., banks), creating new possibilities beyond the currency
ENT 470
Nakamoto (2008)
The true social innovation in bitcoins
Blockchain technology is arguably the greatest innovation of the Bitcoin system. The blockchain is a constantly updated public ledger of all transactions that have
It provides transparency across the Bitcoin system, allowing transactions to be processed in a decentralized, trustless manner.
ENT 470
The true social innovation in bitcoins
identitie s transaction s trusted third party co unterpa rt y public identities transaction s public
traditio nal privacy model new priva cy mod el
ENT 470
Nakamoto (2008)
The true social innovation in bitcoins
Blockchain technology is arguably the greatest triumph of the Bitcoin system. The blockchain is a constantly updated public ledger of all transactions that have occurred. It provides transparency across the Bitcoin system, allowing transactions to be processed in a decentralized, trustless manner.
ENT 470
Bank of America - Merril Lynch Global Research
million BTC, since launch
ENT 470
Ali et al. (2014)
According to the classical theory of money
it is, but for limited numbers of
widespread? Store of value average transactions per wallet USD 0.02/day encouraged by deflationary nature penalised by high volatility Medium of exchange currently little used in the long run, transaction costs will likely increase (end of mining) Unit of account little evidence of use merchants who accept BTC use USD as unit of account
ENT 470
www.blockchain.info
in USD, since launch
pric e volatilit y
ENT 470
www.blockchain.info
value in USD, per day
(USD daily transactions are > $ 5 trillion)
low value
transaction s
ENT 470
www.blockchain.info
number, per day
possibl y
d
ENT 470
www.blockchain.info
days destroyed
still imperfec t
ENT 470
ENT 470
BitGold vs Bitcoin (video)
www.bitgold.co m https:
ENT 470
Juan Llanos EVP Bitreserve
everything is not so bad
watch at hom e
ENT 470
actors in the bitcoin ecosystem
wallets payment processors exchange s lender s investment vehicles hardware & equipment
remittances
ENT 470
actors in the bitcoin ecosystem
wallets
Although a necessary part of the Bitcoin infrastructure, most of the reputable Bitcoin wallets are not monetized per se. Additional services, like currency exchange or merchant tools, provide revenue generating capabilities. Safety of a wallet is a prime concern for a user.
ENT 470
actors in the bitcoin ecosystem
payment processors
Payment processing appears to be an attractive business model due to a large volume of transactions daily and a growing number of merchants accepting Bitcoin. Ability to acquire merchants is the key to success. Competition, however puts downward pressure on fees.
ENT 470
actors in the bitcoin ecosystem
exchanges
Startups see a lot of space to innovate with additional trading services, exchange pairs (both currency and precious metals), and financial instruments (forwards, shares). However, market leaders process 75+% transactions. A novel unilateral exchange model is through ATM’s.
ENT 470
actors in the bitcoin ecosystem
hardware & equipment
Hardware and equipment, built specifically for bitcoin, represent a recent development in the value chain. Despite the potentially capped demand for mining equipment (due to the capped bitcoin supply), the demand exceeds supply.
ENT 470
actors in the bitcoin ecosystem
investment vehicles
ETF and mutual find-like investment vehicles are yet to gain popularity due to the volatility of BTC and potential of large players to influence the price. Prominent venture capital investors increasingly fund companies in the Bitcoin ecosystem. BTC Hedge Fund launched in Malta.
ENT 470
actors in the bitcoin ecosystem
lenders
Lending platforms represent a great potential (with Bitcoin credit cards being a part of it). The operators release themselves of the liability for the loan repayment and from the guarantees on deposit investments.
ENT 470
actors in the bitcoin ecosystem
remittances
Remittances are a $500 bil / year market. New BTC operators are entering the space (e.g., Kipochi integrated with M-Pesa, BitPesa…).
ENT 470
actors in the bitcoin ecosystem
Miner Lease – Bitcoin mining contracts for investment; BTC Levels – platform allowing a user to profit from correct prediction of the BTC price forecasts; Satoshi dice – leading Bitcoin gaming site; Coinster – cryptocurrency search engine; BTCVoip – provides VOIP services at low prices for BTC only; BitcoinGet – allows earning bitcoins by watching the videos and completing simple tasks; Cryptcard - international prepaid Bitcoin loadable virtual MasterCard to get money to the people, who do not accept bitcoins.
ENT 470
CEO & Co-Founder of CoinFloor www.coinfloor .com
ENT 470