Blockchain, Bitcoin, Crypto Assets and ICOs: Emergence of a New Asset Class

Blockchain, Bitcoin, Crypto Assets and ICOs: Emergence of a New Asset Class Prof. Dr. Philipp Sandner Blockchain Center Frankfurt School of Finance & Management E-Mail: p.sandner@fs.de Internet: www.fs-blockchain.de

What do we do? Workshops, trainings, research projects, Ethereum prototypes, startups For whom? Banking, mobility, Industrie 4.0, internet of things, crypto assets, initial coin offerings Supported by: Dates Workshop: How do ICOs work? (Dec. 2017) Crypto Assets Conference 2018 (Feb. 2018) Blockchain Certificate Program (May 2017) Crypto Funds: Investment Vehicles (May 2018) Crypto Startup Summer School (Feb. 2018) Contact Prof. Dr. Philipp Sandner p.sandner@fs.de www.fs-blockchain.de 3

Which problem does blockchain technology solve?

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Sample transaction on Ethereum 1 2 3 14

Blockchain technology provides a layer for the "Internet of Value" in addition to the existing "Internet of Information" The Internet allows sending information: documents, PDFs, emails. Yet, value cannot be transferred via the internet. Internet Information Blockchain technology now allows the electronic transmission of "value": e.g. money, stocks, rights on assets. This is much more than displaying the bank account in online banking. Blockchain Value Information 15

Payment process between two parties A payment requires multiple stages: this costs time and can induce errors Sophie Alex Bank Correspondent bank Correspondent bank Bank Ledger Ledger Ledger Ledger 16

The core of blockchain technology The core of blockchain is that all transactions of a specific asset are recorded in one common distributed database Ledger Sophie Alex The ownership for a property will thereby be transferred from an old owner to a new owner 17

Blockchain technology has enabled platforms in which platform control is decentralized Source: Mattila et al. (2016) 27

Public Blockchain (Crypto Assets)

Ranking of crypto currencies 39

Vier Wellen von Krypto-Investoren: F-G-H-I Was als Tech-Bewegung begann, entwickelt sich derzeit zum professionellen Anlagemarkt I Internationale Institutionelle Investoren H High-Tech Investoren, Hedge-Fonds, High-Net-Worth-Individuals G Geeks, Gründer, Ganoven F Freaks, Fans, Fantasten 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Postera Capital (2017) 42

Bis vor kurzem waren alte und neue Welt getrennt Das Blockchain- und Krypto-Ökosystem ist großenteils außerhalb etablierter Strukturen gewachsen Neue Welt : Blockchain- und Krypto- Ökosystem Alte Welt : Banken, Finanzdienstleister, Institutionelle Investoren Source: Postera Capital (2017) 69

Eine professionelle Infrastruktur für Krypto-Investoren entsteht An der Schnittstelle zwischen neuer und alter Welt entsteht eine Infrastruktur an Dienstleistern, die professionellen Investoren investitionsfähig machen Neue Welt : Blockchain- und Krypto- Ökosystem Alte Welt : Banken, Finanzdienstleister, Institutionelle Investoren Source: Postera Capital (2017) 70

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) 72

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Payment token to pay for asset transfers (e.g. Ether) 73

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Payment token to pay for asset transfers (e.g. Ether) or executing all business processes (e.g. emission) 74

A simple smart contract This functions transfers an asset 75

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Payment token to pay for asset transfers (e.g. Ether) or executing all business processes (e.g. emission) Various transferable assets (e.g. ERC20 tokens) 76

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) or executing all business processes (e.g. emission) 77

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) or executing all business processes (e.g. emission) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) 78

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) 79

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) or other assets (e.g. car, real estate, machines) 80

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) or other assets (e.g. car, real estate, machines) 81

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) Seamless trading of (1) all kind of assets on (2) one single platform on (3) a worldwide level with (4) close-to-zero transaction costs (5) without intermediaries (P2P) (6) 24 hours a day, 365 days (7) instantly (i.e., within seconds) (8) with no clear and settlement or other assets (e.g. car, real estate, machines) 82

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) Seamless bundling of assets similarly to funds automatically through smart contracts, e.g. (1) stocks or other assets (e.g. car, real estate, machines) 83

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) Seamless bundling of assets similarly to funds automatically through smart contracts, e.g. (1) stocks or currencies or other assets (e.g. car, real estate, machines) 84

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) Seamless bundling of assets similarly to funds automatically through smart contracts, e.g. (1) stocks or currencies (2) crypto assets or other assets (e.g. car, real estate, machines) 85

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) Seamless bundling of assets similarly to funds automatically through smart contracts, e.g. (1) stocks or currencies (2) crypto assets (3) real estate objects (not REITS!) or other assets (e.g. car, real estate, machines) 86

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) Seamless bundling of assets similarly to funds automatically through smart contracts, e.g. (1) stocks or currencies (2) crypto assets (3) real estate objects (not REITS!) (4) cars or machines or other assets (e.g. car, real estate, machines) 87

DLT infrastructures will allow worldwide movement of assets Worldwide platform for asset transfers (e.g. Ethereum) Various transferable assets (e.g. ERC20 tokens) Payment token to pay for asset transfers (e.g. Ether) 2nd order crypto assets (e.g. Initial Coin Offerings) Traditional currencies (e.g. Crypto EUR, Crypto USD ) Other traditional assets (e.g. stocks, loans) or executing all business processes (e.g. emission) Seamless bundling of assets similarly to funds automatically through smart contracts, e.g. (1) stocks or currencies (2) crypto assets (3) real estate objects (not REITS!) (4) cars or machines (5) cross-asset classes or other assets (e.g. car, real estate, machines) 88

Token Types Found in ICO Projects Investment tokens were the most unpopular type of tokens. 5.2% Investment Token 18.6% Payment Token 76.2% Utility Token Source: ICO Rating, ICO Market Research Q1 (2018) 115

Dimension Breakdown Dimension Economic Purpose Technological Setup Legal Claim Industry Classes Payment Token Utility Token Investment Token Token with other Economic Purpose Blockchain-/DLnative Token Non-native Protocol Token Token with other Technological Setup No-Claim Token Relative Rights Token Absolute Rights Token Token with other Legal Claim Information Finance and Insurance Art, Entertainment and Recreation Others Categories Unpegged Payment Token, Pegged Payment Token (Stable Coin), Other Payment Token, Access Token, Governance Token, Settlement Token, Ownership Token, Other Utility Token, Asset Backed Token, Debt Token, Derivative Token, Equity Token, Fund Token, Other Investment Token ERC20 Token Other Non-native Protocol Token - IT & Telecommunications, Media and Social Media, Advertising, Marketing and Public Relations, Payment Systems and Services, Exchange, Trading and Settlement Services, Alternative Finance, Entertainment and Gaming, Betting and Gambling, Betting and Gambling, Health Care and Social Assistance, Utilities, Transportation and Warehousing, Etc. Examples Payment Token: Bitcoin Utility Token: Ethereum Investment Token: KuCoin Shares Blockchain-native Token: XRP Non-native Protocol Token: Tether Other Technological Setup: FoldingCoin No-Claim Token: Bitcoin Cash Relative Rights Token: Binance Coin Absolute Rights Token: AurumCoin Information: EOS Finance and Insurance: Stellar Art, Entertainment and Recreation: FunFair 124

Classification Statistics (1/4) Economic Purpose Technological Setup Payment Token 5% 19% 0.38% 33% Blockchain-/DLnative Token Non-native Protocol Token > Other Utility Token Investment Token 57% Non-native Protocol Token > ERC 76% 10% Token with other Technological Setup 76.23% Utility Token 125

Anlagemöglichkeiten in Kryptoassets: Übersicht Anlage in Coins & Tokens Anlagen in das Blockchain-Ökosystem bzw. Krypto-Ökosystem Direkt Indirekt Infrastruktur Unternehmensbeteiligungen Erwerb über Handelsplätze Erwerb über Bank/Broker Zertifikate Futures Single-Asset-Fonds Mining Masternoding Aktien Venture Capital Token-Fonds Hedgefonds Gemischte Fonds CFDs 132

Example of a crypto fund Discovering market inefficiencies for arbitrage opportunities Source: Blocksize Capital (2018), www.blocksize-capital.com 133

Example of a crypto fund Arbitrage spread analysis and trade execution Source: Blocksize Capital (2018), www.blocksize-capital.com 134

Kontakt Prof. Dr. Philipp Sandner Leiter des Frankfurt School Blockchain Center p.sandner@fs.de Frankfurt School of Finance & Management Adickesallee 32-34 60322 Frankfurt am Main Germany Kontaktieren Sie mich gerne via E-Mail, Xing, LinkedIn oder Twitter (@philippsandner). 150

Prof. Dr. Philipp Sandner Geboren 1980 in Heidelberg Kontakt: email@philipp-sandner.de 2000-2005 2005-2011 Studium der BWL an der Universität Mannheim Promotion an der Ludwig-Maximilians-Universität München Auslandsaufenthalte an der Copenhagen Business School und an der University of California at Berkeley Post-Doc an der Technischen Universität München 2010-2015 2015 seit 2017 Themen Praxis Engagement Mitgründer einer auf Innovationsstrategie und IP spezialisierte Unternehmensberatung Professor an der Frankfurt School of Finance & Management; Themengebiete: Digitalisierung, Entrepreneurship und Innovation; Leiter des Frankfurt School Blockchain Centers Blockchain, Crypto Assets, Initial Coin Offerings (ICOs), Digitalisierung und Entrepreneurship Beratung von Unternehmen hinsichtlich ihrer Blockchain-Aktivitäten, u.a. auch den ersten Crypto Fund Europas oder das koreanische Blockchain-Startup HYCON FinTechRat des Bundesministerium der Finanzen, Mitgründer des Blockchain Bundesverband e.v., Multichain Asset Managers Association 151