Understanding Blockchain & its implications for financial professionals

Transcription

1 Understanding Blockchain & its implications for financial professionals Professor George M. Giaglis Director, Institute for the Future, University of Nicosia

2 UNIC Blockchain Initiative Blockchain Education & Training Online Programs MSc in Digital Currency Professional Certification Programs Face-to-face / Blended Executive Training Programs

3 Outline Toward new forms of money From fiat currencies to Bitcoin, Ethereum, et al. Toward a new Internet From the internet of information to the internet of value Implications Dis-intermediated commerce/finance

4 Outline Toward new forms of money From fiat currencies to Bitcoin, Ethereum, et al. Toward a new Internet From the internet of information to the internet of value Implications Dis-intermediated commerce/finance

5 Bitcoin Bitcoin is a private, decentralized, digital cryptocurrency Private: Not issued by a sovereign Decentralized: No issuing party; units are issued algorithmically Digital: Fully electronic; no peg to other assets Cryptocurrency: Anti-counterfeiting through cryptography

6 A brief history of Bitcoin October 2008: January 2009: October 2009: February 2011: Satoshi Nakamoto s Bitcoin design paper Genesis block Bitcoin becomes operational $1 = 1,300 BTC $1 = 1 BTC December 2013: 1 BTC = $1,000 October 14, 2017: 1 BTC = $5,679.62

7 BTC/USD exchange rate

8 Bitcoin as a payment network Network # of transactions (daily) Value of transactions (daily) VISA (Sep 2015) 50,000,000 $4.1bn Bitcoin (Oct 2017) 266,000 $860m

9 Bitcoin s monetary features Fixed Supply: Only 21,000,000 Bitcoins will ever exist Transparent monetary policy: The protocol is fully open source Consensus-based governance: Key features can t change unless a majority of participants agree to change them.

10 Bitcoin is not alone

11 Fiat money vs. Digital money Property Fiat Money Digital Money Scarcity (trust in CB/gov) (fixed supply) Divisibility (2 decimals) (8 decimals) Storability? (physical) (learning curve) Durability? (physical) (digital) Fungibility (Bitcoin is not fungible) Portability? (physical) (digital) Verifiability? (blockchain) Acceptability (it ll take time)

12 Why is this important? Think of Bitcoin (or any public blockchain) as a global system of trust: Anyone can buy in or sell out of it Anywhere in the world Without anyone s permission or intervention At virtually no cost Without needing to know or trust one s counterparty Practically, this gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that: the transfer is guaranteed to be safe and secure everyone knows that the transfer has taken place nobody can challenge the legitimacy of the transfer The consequences and application implications are hard to overstate

13 Outline Toward new forms of money From fiat currencies to Bitcoin, Ethereum, et al. Toward a new Internet From the internet of information to the internet of value Implications Dis-intermediated commerce/finance

14 The Blockchain (or DLT) A blockchain is a ledger of transactions. A blockchain is a shared, time-stamped, append-only, immutable, cryptographically-secured ledger of transactions. Shared: blockchains do not make much sense unless two or more parties (or systems) are involved. Time-stamped: transactions are stored in chronological order. Append-only: you can only add new transactions to a blockchain. Immutable: Once written, a transaction cannot be erased or altered. Cryptographically-secured: advanced cryptography enables all the above

15 Types of blockchains Blockchains come in two flavors: Public (or permission-less), like Bitcoin & Ethereum. Private (or permissioned or enterprise), like Ripple & Hyperledger

16 Why is this important? (enterprise blockchains) Think of an enterprise blockchain as a networked system of trust: No third party is required to clear/settle transactions No data reconciliation is needed between systems Transactions are secure and final in almost real time Again, the consequences and application implications are hard to overstate

17 Outline Toward new forms of money From fiat currencies to Bitcoin, Ethereum, et al. Toward a new Internet From the internet of information to the internet of value Implications Dis-intermediated commerce/finance

18 Toward a new era for commerce Digital currencies create new forms of money Programmable and active money for machines? Blockchains create a new Internet layer Internet of trust Dis-intermediation across industries, esp. finance Consequences will be vast: Money transacted in nano-quantities will lead to M2M commerce Autonomous, AI-based, economic agents will emerge (imagine self-driving cars bidding for your ride) Cloud-based, autonomous corporations will be made possible

19 How far are we?

20 Which areas will be disrupted? Ultimately, all markets that rely on the following mechanisms: Intermediation and trust Clearing and settlement of transactions Recording and information keeping Auditing Traceability Finance is right in the epicenter of all the above

21 Financial services to be disrupted 1. Payments, esp. international ones. Faster and cheaper settlement, improved security. 2. Trade finance: Transparency, shorter cycle times. 3. Data management: Improved auditability, no reconciliation, improved reporting, process automation. 4. Contracts: Letters of credit, accounts payable/receivable. 5. Loyalty schemes: based on pseudo-currencies and blockchain wallets.

22 Conclusions The ability of blockchains to transfer value in new ways has the potential to transform the financial services industry. First areas to be impacted are international payments, trade finance and data management/reconciliation. We expect first commercial implementations in The need for coordination between actors and regulation will delay full-scale implementation to A corporate blockchain-readiness strategy should involve: Studying up on blockchain. Forming cross-functional teams to investigate use cases.

23 UNIC Blockchain Initiative xxx 23