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![• GDP COULD RISE BY 3% AS A
RESULT OF REDUCED INTEREST
RATES AND LOWER TRANSACTION
COSTS.
• THE FINANCIAL SYSTEM COULD
BECOME SAFER.
• COMPETITION AND INNOVATION IN
THE PAYMENT SYSTEMS WOULD
BE ENCOURAGED.
• FINANCIAL INCLUSION WOULD BE
IMPROVED.
What could happen
if the BoE
introduced its own
digital currency?
Source: [to come]](https://image.slidesharecdn.com/blockfintechkeynote-180415123538/75/Blockchain-and-Distributed-Ledgers-Lecture-16-2048.jpg)
Uploaded byDean Demellweek, MFA
Blockchain and Distributed Ledgers Lecture
The document discusses blockchain technology and its transformative impact on financial services, highlighting its key principles such as distributed databases, cryptographic security, and smart contracts. It presents various use cases, including digital currencies and automated transactions, while noting potential benefits like cost reduction and increased efficiency in financial systems. The text also explores challenges to adoption and emphasizes the opportunity for new business models through the integration of blockchain innovations.
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Blockchain and Distributed Ledgers Lecture
- 1. § Blockchain: Key concepts andits importance for the Financial Services innovation
- 2. Name an eventthat has reshaped finance in recent years?
- 3. The collapse of LehmanBrothers.
- 4.
- 5.
- 6. the way weinteract with that database is different! What is Blockchain? YES, but…
- 7. A blockchain, atits simplest, is a shared transaction database on which all participants agree that something is true without the need for a central authority!
- 8. Blockchains are builton a series of innovations: DISTRIBUTED DATABASE • Data is stored in more than one place: no single point of failure • Each entry is chained to the previous: time stamp • Data is kept in sync • Transfer of digital value: any asset can be digitally represented CONSENSUS VALUE TRANSFER • Public/private key encryption • Cryptographic currencies/units CRYPTOGRAPHY SMART CONTRACTS • Code that is stored, verified and executed on a blockchain
- 9. Key benefits: DISTRIBUTED VALIDATIONWITH CRYPTOGRAPHIC GUARANTEE OF SETTLEMENT INCREASED SETTLEMENT SPEED AND REDUCED SETTLEMENT RISK IMMUTABILITY AND AUDITABILITY OF TRANSACTIONS
- 10. DIGITAL CURRENCIES SMART CONTRACTS DIGITALIDENTITY SMART PROPERTY Blockchain technology enables the creation of:
- 11. Digital currency is bothan internet based currency and a payment system.
- 12. The most popular digitalcurrencies: Market Cap Bitcoin (BTC) Ether (ETH) Ripple (XRP) $14b $850m $300m Total = 21m BTC in 2140 72m pre-mined + 18m ETH p/y 100% pre-mined = 100b XRP The main purpose: 1. Block validation incentives 2. Transaction spam prevention
- 13. The cool thingis that you can transfer other things over the bitcoin blockchain… …other financial assets, e.g. shares or collateralised debt!
- 14. Use Case • BITTInc., A CARIBBEAN BASED DIGITAL CURRENCY EXCHANGE, HAS CREATED THE BARBADOS DIGITAL DOLLAR - 1:1 RATE TO THE COUNTRY’S GOVERNMENT BACKED CURRENCY. • NASDAQ’S PRIVATE MARKET FOR TRADING OF PRE-IPO SHARES IN PRIVATE COMPANIES HAS STARTED TRADING SHARES THAT ARE RECORDED AND DELIVERED IN THE FORM OF COLORED COINS. • EVERLEDGER USES COLORED COINS TO TRACK DIAMOND OWNERSHIP. The smallest measurable fraction of a bitcoin (‘satoshi’) can be ‘colored’ in order to represent real world assets, such as, for instance, a share in a company or collateralised debt portfolio. Colored Coins
- 15. If you can’tbeat them, join them! Central Banks have already started exploring blockchain to create digital currencies.
- 16. • GDP COULDRISE BY 3% AS A RESULT OF REDUCED INTEREST RATES AND LOWER TRANSACTION COSTS. • THE FINANCIAL SYSTEM COULD BECOME SAFER. • COMPETITION AND INNOVATION IN THE PAYMENT SYSTEMS WOULD BE ENCOURAGED. • FINANCIAL INCLUSION WOULD BE IMPROVED. What could happen if the BoE introduced its own digital currency? Source: [to come]
- 17. The most famoususe case of blockchain is Bitcoin!
- 18. C Bitcoin is thefirst Blockchain App APPLICATION LAYER APPLICATION PROTOCOL LAYER GENERAL PROTOCOL LAYER Bitcoin Blockchain Bitcoin protocol Bitcoin Gmail SMTP TCP/IP Blockchain is to Bitcoin what Internet is to email: the underlying tech!
- 19. Just what isit that makes Bitcoin blockchain tick?
- 20. A blend ofcryptography, and game theory! m a t h s
- 21. Bitcoin Blockchain: Underthe hood DISTRIBUTED CONSENSUS DISTRIBUTED LEDGER THE INTERNET OF MONEY PUBLIC KEY CRYPTOGRAPHY
- 22. PUBLIC KEY CRYPTOGRAPHY Alice Tx AliceBob 2 BTC Alice’s private key Alice’s public key Signature Bob CREATE VERIFY Signature = f(private key, message)
- 23. DISTRIBUTED CONSENSUS BLOCK 4001 BLOCK4002 BLOCK 4003 TX TXTXTX TX TX TX TX TX TX New/Pending Transactions Existing Blockchain random number (guess)
- 24.
- 25. Why are banksSO excited about blockchain?
- 26. ‘It could cut$20bn in bank costs for cross-border payments, securities trading and regulatory compliance by 2022.’ (Santander InnoVentures)
- 27. DECENTRALISED SECURE PAYMENT = SETTLEMENT REALTIME ASSET MOVEMENT IMMUTABLE HISTORY = AUDIT TRAIL TRANSPARENT EFFICIENT Atributes that make blockchain SO attractive:
- 28. But, what shoulda distributed ledger for financial institutions look like?
- 29. PRIVACY COST REDUCTION SCALABILITY GOVERNANCE Motivation forbuilding private distributed ledgers:
- 30.
- 31. Blockchain • No singleowner • Permissionless • No restriction on ability to join and transact • Users are pseudo- anonymous: access gained through downloading software • Secured by cryptoeconomics • Owned • Permissioned • Participants identified and meet regulatory standards (KYC and AML) • Read/write permissions are normally restricted • Consensus is controlled by preselected nodes Distributed Ledger
- 32. TRANSACTION COST OPENESS DECENTRALISED TRUST CENSORSHIPRESISTANCE SPEED/SCALABILITY DISTRIBUTED LEDGER BLOCKCHAIN Blockchain vs. Distributed Ledger
- 33.
- 34. I’ve built ablockchain from scratch, put a fully functional computer on it… and called it Ethereum!
- 35. It can executeANY smart contract!
- 36. Why did Ido it?
- 37. Because, traditional contracts are notgeared up for the digital age!
- 38. Problem with traditionalcontracts: • Inefficient • Settlement delays • Fraud • Concentration of risk
- 39. ENHANCED EFFICIENCES RISK REDUCTION COSTSAVINGS Potential benefits for financial institutions and their clients:
- 40. IMMUTABILITY CORRUPTION & TAMPER PROOF SECURE ZERODOWNTIME PROGRAMABILITY ESCROW CAPABILITY ORACLE INPUTS Advantages of blockchain-based smart contracts:
- 41. How do SmartContracts on a distributed ledger work in practice? A smart contract between transacting parties is written as code on a distributed ledger shared between all participants. It gets validated by validators. The smart contract connects with banks’ internal systems or external world (e.g. account balances, share prices, etc.) as programmed. The contract waits for external triggers to evaluate pre- defined conditions. It also provides data for compliance and reporting. When the triggering event like an expiration date or strike price is hit, the smart contract executes itself according to the coded terms built into it. It also provides data for compliance and reporting.
- 42. Use Case Flight delayinsurance policy that pays out conditionally based on the delayed time. The smart contract waits until the predetermined time. The Oracle pushes the time report to the blockchain. The smart contract retrieves the time report and self- executes.
- 43. Use Case • INTERBANKCROSS-BORDER PAYMENTS WITH R3 AND 12 OF ITS CONSORTIUM MEMBER BANKS. Smart Bond - automated coupons payments • The smart contract code automatically initiates the payments at the appropriate times. • It avoids all manual processes and guarantees that the issuer cannot default.
- 44. • THE LAGGINGLEGAL AND REGULATORY ENVIRONMENT • THE COMPLEXITY OF THE BUSINESS ECOSYSTEM Key adoption challenges:
- 45. By combining digitalcurrencies, smart contracts and other new tech, blockchain will empower completely new business models!
- 46. What can youdo and where to look for opportunities?
- 47.