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About Bitcoin, Blockchain, and the DLT Chimera

Ferdinando M. Ametrano
November 22, 2016
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About Bitcoin, Blockchain, and the DLT Chimera

Presented at Consob, Rome, November 22, 2016

Ferdinando M. Ametrano

November 22, 2016
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  1. About Bitcoin, Blockchain,
    and the Distributed Ledger Technology Chimera
    Ferdinando M. Ametrano
    Politecnico di Milano, Milano Bicocca University
    Consob, Rome, November 22, 2016
    [email protected]
    @Ferdinando1970
    http://www.slideshare.net/Ferdinando1970
    https://it.linkedin.com/in/ferdinandoametrano

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  2. Investment Landscape
    2/80

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  3. A Blockchain Transaction
    https://blockchain.info/tx/8f1d3a8ef6b2d4a25d2f499279e01518b4770819ccbc39a765c4c326170c61b3
    About $83M transacted with $0.04 fee
    3/80

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  4. Bitcoin Economy
    http://bitcoincharts.com/charts/bitstampUSD#tgWzm1g10zm2g25zv
    • Total number of BTC is about 14M
    • BTC Market Cap: about $3-14B (USD M0 is about $1,200B)
    4/80

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  5. December 2013: China crackdown
    • People’s Bank of China crackdown:
    – prohibits financial institutions from trading, underwriting, or
    offering insurance in bitcoins or any other digital currency
    – Bitcoin is not to be considered a currency
    – owning bitcoins is not outlawed or prohibited
    • As of December 2013 BTC China was world's largest Bitcoin
    exchange by volume
    • Alibaba, China's top Internet retailer, stopped using bitcoins
    as of January 19 2014
    5/80

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  6. February 2014: Mt Gox bankruptcy
    • As of January 2014 Mt Gox was world's largest Bitcoin
    exchange by volume
    • In February 2014 it filed for bankruptcy protection
    from creditors
    • It announced that around 850,000 bitcoins belonging
    to customers and the company were missing and likely
    stolen, an amount valued at more than $450 million at
    the time
    • Fraud or theft?
    6/80

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  7. Silk Road
    • Online market, operated as a Tor hidden service
    • Online users were able to buy illicit goodies using bitcoins,
    while browsing it anonymously and securely without
    potential traffic monitoring
    • Launched in February 2011, shut down in October 2013
    • Ross William Ulbricht, alleged to be the owner of Silk Road,
    arrested in San Francisco, sentenced to life in prison
    • Other black markets have filled in as successors
    7/80

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  8. Bitcoin resilience
    • Is there anything else in financial world:
    • Just 7 years old
    • Without government or corporation backing
    • That can lose its main (China) market
    • With fraud/theft at its main reference exchange (Mt
    Gox)
    • With such a bad reputation (Silk Road)
    • That could be still alive and kicking?
    8/80

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  9. 1. About Bitcoin
    2. Bitcoin as Digital Gold
    3. Bitcoin in the History of Money
    4. Blockchain Beyond Bitcoin
    9/80

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  10. • Decentralized digital currency
    • Not backed by any government or organization
    • Instantaneous peer-to-peer transactions
    • No need for trusted third party
    • Cryptographic security
    • Low-cost banking for everybody everywhere
    https://bitcoin.org/en/faq
    http://www.coindesk.com/information/
    10/80

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  11. The bitcoin currency
    • Not to be found anywhere, they only exist as public ledger documented
    transactions
    • A bitcoin wallet is a public address
    • 1FEz167JCVgBvhJBahpzmrsTNewhiwgWVG
    • the bitcoin public ledger (aka blockchain) certifies for everybody how
    many bitcoins are associated to the wallet
    http://blockexplorer.com/address/1FEz167JCVgBvhJBahpzmrsTNewhiwgWVG
    It is mine; you are
    REALLY
    encouraged to tip
    11/80

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  12. Bitcoins Are Scriptural Asset
    • Bitcoins only exist as validated transactions
    • Bitcoins are not liabilities
    • Bearer instruments
    12/80

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  13. Pseudonymity, Anonymity
    • Bitcoin is really pseudonymous, not anonymous:
    • The public key does not provide direct information about
    the private key owner
    • All transactions are transparent to everybody’s inspection.
    • Perfect persistent public account history: the public ledger
    is forever
    https://blockchain.info/
    http://blockexplorer.com/
    13/80

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  14. Bitcoin’s public ledger: the block chain
    • Transactions are bundled in blocks, sequentially
    chained, about one block every 10 minutes
    • The block chain is a history of transactions resilient to
    network attackers
    • The cryptographic link between blocks requires large
    amount of computing power, so the block chain cannot
    be altered without huge resources
    • Computing power is measured in hash/s, hash being
    the basic operation needed for validation
    14/80

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  15. Network hash rate
    Specialized non-generic hardware, with hashing capacity thousands times
    that of the combined 500 largest supercomputers
    15/80

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  16. Mining
    • Miners are the nodes of the network providing the computing
    power for:
    – processing and validating transactions (avoiding double spending)
    – securing the network
    – synchronizing the nodes
    • Miners compete to process a new block of transactions. The winner
    provides a proof-of-work and is rewarded with the issue of new
    bitcoins.
    • Seigniorage revenues subsidize the network, making transaction
    almost free
    16/80

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  17. Bitcoin Monetary Rule
    • 2009: 50BTC every 10 minutes
    – halving every 4Y
    • This is the only way new bitcoins are released
    • It is called mining because of its similarity with
    the progressive scarcity of gold extraction
    digital cash supply free of discretionary intervention
    17/80

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  18. Inelastic Money Supply
    Deterministic Decreasing Rate
    2029: issued
    96.88% of all BTC
    2141: issued last
    0.00000001 BTC
    18/80

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  19. 1. About Bitcoin
    2. Bitcoin as Digital Gold
    3. Bitcoin in the History of Money
    4. Blockchain Beyond Bitcoin
    19/80

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  20. “Blockchain –
    not bitcoin –
    will prove
    revolutionary
    in banking”
    http://www.economist.com/news/leaders/21677198-technology-behind-bitcoin-could-transform-how-economy-works-trust-machine
    20/80

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  21. Bitcoin in 2014 Is Like Internet in 1994: Weird and Scary
    Marc Andreessen: American entrepreneur, investor, and software engineer.
    Coauthor of Mosaic, cofounder of Netscape
    https://twitter.com/pmarca/status/677658844504436737
    3 4 5
    2
    1
    21/80

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  22. The Walled Garden Model
    • Controlled access to web content and services
    • Offered in the late ‘90s and early ‘00s by
    Compuserve, AOL (and to some extent MSN)
    • Corporates wanted to go online, but not in the
    wild unregulated internet, populated by
    anonymous agents
    • They eventually realized that perceived risks,
    which are real, are outweighed by benefits
    22/80

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  23. Understanding Lags Well Behind The Hype
    Understanding of the technology however lags well
    behind the hype, amongst practitioners, policy makers
    and industry commentators alike. ‘Blockchain’
    technology seems to promise major change for capital
    markets and other financial services – some say it may
    ultimately prove to be as important an innovation as
    the internet itself – but few can say exactly how or why.
    Michael Mainelli, Alistair Milne (2016)
    The Impact and Potential of Blockchain on the Securities Transaction Lifecycle
    http://ssrn.com/abstract=2777404
    23/80

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  24. Why Bitcoin Is Hard To Understand
    At the crossroads of:
    1. Game theory
    2. Cryptography
    3. Computer networking and data transmission
    4. Economic and monetary theory
    Mainly not a technology,
    a cultural paradigm shift instead
    24/80

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  25. What is The Blockchain?
    [A hash pointer linked list of blocks]
    • An append-only sequential data structure
    • New blocks can only be appended at the end of
    the chain
    • To change a block in the middle of the chain, all
    subsequent blocks need to be changed
    • Very inefficient compared to a relational database
    25/80

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  26. Blockchain:
    A Distributed Transaction Ledger
    • Every block contains multiple transactions
    • Massively duplicated across network nodes
    • Shared with a P2P file transfer protocol
    • Updated by peculiar nodes, known as miners,
    appending new blocks of transactions
    26/80

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  27. A Distributed Back-office
    • All network nodes perform transaction validation and
    clearing.
    • Miners perform the additional work required for
    settlement. How do they reach consensus on the
    transaction history?
    • Consensus in a distributed network with faulty (or
    malicious) nodes is a very hard problem known as
    Byzantine General Problem
    27/80

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  28. Distributed Consensus
    • Nakamoto reaches consensus using (game
    theory) economic incentive for the mining
    nodes to be honest
    • Miners are compensated for their proof-of-
    work using seigniorage revenues, i.e. with
    issuance of new bitcoins
    28/80

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  29. Blockchain Without Bitcoin
    Does it make sense?
    No bitcoin
    No asset available to reward miners
    Appointed validator officials required
    Why should validators use a blockchain,
    i.e. a subpar data structure, instead of a database?
    29/80

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  30. What is Bitcoin?
    bitcoin is the native digital asset,
    tracked by the first (and most relevant so far)
    blockchain
    • It exists only as scriptural asset, i.e. validated
    transaction recorded on the blockchain
    • It is a bearer instrument: the (private key) holder
    is the actual effective owner
    30/80

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  31. What Makes Bitcoin Special?
    • It is scarce in digital realm, as nothing else before
    • It can be transferred but not duplicated
    • (i.e. it can be spent, but not double-spent)
    Bitcoin is digital gold: this is the brilliant
    groundbreaking achievement by Satoshi Nakamoto
    31/80

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  32. Bitcoin as (Digital) Gold
    in the History of (Crypto)Money
    gold
    • Its adoption was not centrally
    planned
    • For centuries it has been the
    most successful form of money
    • It has bootstrapped all monetary
    systems we know of
    • It has been surpassed by other
    kind of money without becoming
    obsolete
    bitcoin
    • Its adoption has not been centrally
    planned
    • It is the most successful form of
    cryptocurrency
    • It will bootstrap new monetary
    systems
    • It might be surpassed by more
    advanced type of cryptocurrencies
    without becoming obsolete
    32

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  33. 1. About Bitcoin
    2. Bitcoin as Digital Gold
    3. Bitcoin in the History of Money
    4. Blockchain Beyond Bitcoin
    33/80

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  34. Explain Money To An Alien
    fiat money
    • No intrinsic value (legal
    tender, social contract)
    • Currency based on
    paper/ink security
    • Discretionary governance
    • Wicksellian interest-rate
    approach
    bitcoin
    • No intrinsic value (digital
    gold)
    • Currency based on
    math/cryptographic security
    • Algorithmic governance
    • Deterministic supply
    34

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  35. Money As A Social Relation Instrument
    1. Human beings are born into a gift economy
    2. Enlarged relationship circle requires exchange
    economy
    3. Barter economy: coincidence of wants
    4. Trade economy: money as medium of exchange
    5. Global information economy: supranational
    digital money
    35/80

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  36. The Information Economy
    • Data is transferred with zero marginal cost
    • Why pay a fee to move bytes representing wealth?
    • Why only 9-5, Monday-Friday?
    • Who (and when) will gift humanity with a global
    instantaneous free p2p payment network?
    BANK
    36/80

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  37. Bitcoin:
    Money For The Information Economy
    • Decentralized: no authority
    • Permissionless: no regulator
    • Censorship resistant: no frozen funds
    • Open-access: no discrimination, no amount limits, 24/7, 365 days
    • Free: negligible transaction costs
    • Borderless: no geographic limits
    • Transnational: no specific jurisdiction applies
    • Secure: non falsifiable, non repudiable transactions
    • Resilient: nothing has been able to stop it or break it
    37/80

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  38. Trade Economy
    From gold standard to fiat money
    • Gold: the commodity money standard
    – resistance to corrosion and oxidation
    – high malleability
    – relative easiness of purity assessment
    – Pleasant color
    • Gold purity certification
    • Representative money
    • Fractional receipt money
    • Fiat money and legal tender
    38/80

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  39. Friedrich August von Hayek -
    Denationalisation of Money
    • history of coinage is an almost uninterrupted story of debasements; history is
    largely a history of inflation engineered by governments for their gain
    • why government monopoly of the provision of money is regarded as
    indispensable? It deprived public of the opportunity to discover and use a better
    reliable money
    Blessed will be the day when it will no longer be from the benevolence of the
    government that we expect good money but from the regard of the banks for their
    own interest
    A Free-Market Monetary System, Gold and Monetary Conference, New Orleans, Nov. 1977, https://mises.org/daily/3204
    Hayek, F. A., Denationalisation of Money, The Institute of Economic Affairs,http://www.mises.org/books/denationalisation.pdf
    39/80

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  40. Permissionless Innovation
    Fast and Effective
    • No centralized security mechanism, no barrier to
    enter, no editorial control
    – Email has not been designed by a consortium of postal
    agencies
    – Internet has not been developed by a consortium of telcos
    • Will a decentralized transactional economy be
    shaped by a consortium of banks?
    40/80

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  41. Statement of the bitcoin problem
    • successful at getting
    rid of a centralized
    monetary authority, it
    has given up the
    flexibility of an elastic
    supply of money
    • no salaries, no
    mortgages, no stable
    purchasing power
    41/80

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  42. Money Comparison
    Medium of Exchange Store of Constant Value Unit of Account
    Live cattle
    Diamonds
    Gold
    Fiat coins and notes
    Bitcoin
    • swappable
    • fungible
    • portable
    • divisible
    • recognizable
    • resistant to
    counterfeiting
    • reliably saved, stored,
    and retrieved
    • retain usefulness over
    time
    • Maintain its storage
    properties
    • non-perishable or
    with low preservation
    cost
    • relative worth unit of
    measure
    • stable value for
    stable price
    comparison
    • supply must be
    controlled in some
    way
    42/80

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  43. Unit of Account: Money as numeraire
    • Money is the unit of account against which the
    value of every other good is measured
    • The price system measures the value of goods
    relative to the value of money
    Good money should provide stable prices to best
    perform its role as unit of account
    43/80

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  44. The Holy Grail of Stable Prices
    • Gold standard, bimetallism, symmetallism
    • Fixed value of bullion (Aneurin Williams 1892)
    • Compensated dollar (1911-20 Irving Fisher)
    • Commodity Reserve Currency (1932 J. Goudriaan, 1937-44
    B. Graham, 1942 F. Graham, 1951 M. Friedman)
    • ANCAP basket (1982 Robert Hall)
    • Futures contracts (1984 Miles, 1989-95 Sumner)
    • Quasi-futures contract (1994 Kevin Dowd)
    • Price index option (2000 Kevin Dowd)
    44/80

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  45. Hayek Money
    • The cryptocurrency monetary standard of
    elastic non-discretionary supply
    • Price stability paradigm with respect to a
    reference basket
    • Concurrent cryptocurrencies will compete in
    monetary policy definition and reference
    basket choices
    45/80

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  46. Fixed USD Exchange Rate
    • USD/BTC: 15-Apr-11 1.0, 29-Mar-14 500.0
    • x500 increase for BTC demand relative to USD
    • 29-March-14: 12.5M bitcoins in circulation
    • Inflate their number 500 times to 6250M
    • On 29-Mar-14 it would have been equivalent
    – to own BTC1 worth $500
    – or (rebased) RBTC500 each worth $1
    46/80

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  47. USD-Parity Rebased Bitcoin
    Daily rebasing
    47/80

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  48. Brent-Wheat Commodity Price Index
    48/80

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  49. Brent-Wheat Commodity Price Index
    Rebased Bitcoin
    49/80

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  50. Brent-Wheat Commodity Price Index
    50/80

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  51. Rebasing Bitcoin?
    No, not really!
    • Use bitcoin for the sake of discussion, basically
    to leverage its historic price series
    • Bitcoin is good as it is: more of a
    cryptocommodity than a cryptocurrency,
    bitcoin is digital cryptogold
    51/80

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  52. Observation of Commodity Prices
    Without A Central Authority
    • Miners are the agents of the transaction history
    consensus algorithm
    • Miners can also be the agents of the reference
    price consensus algorithm
    • Shelling points: unbiased market prices are focal
    prices for the average consensus process
    • Miners as (black market) brokers
    52/80

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  53. Commodity Price Index Maintenance
    • Commodities’ importance changes, traded volume, relative
    price stability and sensitivity, and competitive markets
    might suggest Commodity Price Index alterations
    • The Commodity Price Index is composed of technically
    unconstrained numbers
    • Nothing could stop the majority of miners from changing
    the Commodity Price Index definition
    • Proof-of-stake is crucial: the prerogative to change the Price
    Index is not oligopolistic power abuse, but the proper right
    of the majority to rule about its own money
    53/80

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  54. Hayek Money
    This First Simplistic Implementation
    • Results:
    – Price stability
    – Salaries, mortgages, forward payments are now possible
    • Problems:
    – Number of coins in a wallet changes without direct in/out flows
    – Purchasing power of a given wallet is not stable
    – Miners are in charge of reference basket maintenance
    – Coins still have speculative investment appeal and so enjoy
    limited transaction usage
    54/80

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  55. Hayek Money
    Further Research
    • Split transactional and speculative money demand
    with two non-fungible assets: coins and shares
    – see Sams (2014) A Note on Cryptocurrency
    Stabilisation: Seigniorage Shares
    https://github.com/rmsams/stablecoins/blob/master/paper.pdf
    • Leverage bitcoin as reserve asset
    – see Ametrano (2016) Price Stability Using Bitcoin as
    Reserve Asset
    http://ssrn.com/abstract=2508296
    55/80

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  56. 1. About Bitcoin
    2. Bitcoin as Digital Gold
    3. Bitcoin in the History of Money
    4. Blockchain Beyond Bitcoin
    56/80

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  57. Blockchain Transactional Economy
    • Bitcoin is the only blockchain asset
    • Everything else tracked with blockchain technology is
    somebody’s liability
    A healthy digital transactional economy requires
    a native digital asset
    to be used for payment and collateral;
    it makes no sense to only have liabilities!
    the same is true for other native
    digital assets (ethereum, litecoin,
    etc.) of less secure blockchains
    57/80

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  58. Blockchain Needs A Native Digital Asset
    https://www.finextra.com/videoarticle/1241/blockchain-needs-a-native-digital-asset
    Ferdinando Ametrano, Head of
    Blockchain and Virtual
    Currencies, Intesa Sanpaolo,
    discusses the relationship
    between bitcoin and
    blockchain, and outlines how
    banks can stay ahead of this
    evolving landscape.
    58

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  59. Blockchain Without Bitcoin: No
    Blockchain Beyond Bitcoin: Yes
    • 1992: email was the killer Internet app
    • Impossible to imagine Google, Facebook, Amazon
    • 2016: bitcoin is the killer Blockchain app
    • More ambitious apps will be built on blockchain, but
    they have not been really imagined yet, and they will
    need a native digital asset
    59/80

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  60. Time-stamping and Notarization
    • A generic data file can be hashed to producing a short unique
    identifier, equivalent to its digital fingerprint.
    • Such a fingerprint can be associated to a bitcoin transaction
    (irrelevant amount) and hence registered on the blockchain
    • Blockchain immutability provides non-repudiable time-stamp,
    proving the existence of the data file in that specific status at
    that moment in time
    • This generic process is even undergoing some standardization
    to achieve third party auditable verification: broker-dealers
    could use it to satisfy regulatory prescriptions
    60/80

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  61. Anchoring: A New Security Paradigm
    • Bitcoin blockchain network security is preserved
    by a computation power unparalleled in human
    history
    • Other transactional networks can tap into this
    security via anchoring (i.e. periodic time-
    stamping of the network status)
    • Bitcoin miners as global outsourced decentralized
    security of the future
    61/80

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  62. Other Blockchain Use Cases
    OK: applications based on cryptographic proofs and digital IDs [not
    really blockchain]
    As for the rest, it is basically hype. Questions always to be answered:
    • Can be achieved with a database?
    • What consensus is required? (distributed, bilateral, centralized)
    • What kind of security is required: preventive, detective, or
    corrective? (ok / yes today, probably not in the future/ no)
    • Blockchain is absolutely not suited for storing large amount of data
    62/80

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  63. The Shifting Narrative
    2014 bitcoin
    2015 blockchain technology (Economist)
    2016 distributed ledgers
    2017 Databases on crypto-steroids
    2018 bitcoin, again!
    63/80

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  64. Insecure Snake-Oil Sold To Bank
    Andreas Antonopoulos: technologist, serial entrepreneur, one of the most
    well-known and well-respected figures in the bitcoin ecosystem
    https://twitter.com/aantonop/status/702307516739428353
    64/80

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  65. R3 Corda
    http://r3cev.com/blog/2016/4/4/introducing-r3-corda-a-distributed-ledger-designed-for-financial-services
    • R3 was originally touted as “a project intended to bring
    blockchains to finance”
    • Its Distributed Ledger Group is developing a
    proprietary platform, named Corda: “Corda is a
    distributed ledger platform […] we are not building a
    blockchain”
    • A revamped SWIFT secure messaging protocol on
    cryptographic proof & bilateral ledger steroids?
    • Goldman Sachs and Santander just left the consortium
    65/80

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  66. Why is finance fascinated with blockchain?
    Blockchain transactions are immediately validated
    and cleared, then settled shortly thereafter,
    automatically without a central authority
    • In the financial world, cash transactions only are
    cleared and settled automatically without a
    central authority
    66/80

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  67. Consensus by reconciliation
    • Financial transactions that take milliseconds to
    execute, clear and settle in days
    • Not a technological problem
    • Consensus by reconciliation of multiple
    independent ledgers: a checks and balances
    system that allows for prescriptions,
    corrections, and restrictions
    67/80

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  68. Instant Settlement
    • Instant settlement would reduce liquidity
    making leverage, short selling and netting
    almost impossible
    • Instant settlement (e.g. for payments) has
    costs: who should pay for them?
    • It costs: who should pay for it?
    68/80

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  69. Cash On The Ledger
    • Cash-on-the-ledger is imperative for Delivery
    vs Payment
    • absent from the agenda of prominent players
    promising DLT solutions
    69/80

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  70. Cash on the Ledger
    • Central bank digital currency is problematic: [… it] is appealing
    […] it would mean people have direct access to the ultimate
    risk-free asset [...] it could exacerbate liquidity risk by lowering
    the frictions involved in running to central bank money [...] it
    could fundamentally and perhaps abruptly re-shape banking.
    Mark Carney, Governor of the Bank of England, June 2016
    http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech914.pdf
    • IMF sponsored blockchain tokens might replace Special
    Drawing Rights: unrealistic as it would severely undermine US
    dollar predominance
    • A free instantaneous P2P payment network is a great
    opportunity for retail banks (probably worth a consortium)
    70/80

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  71. DLT for Derivatives Clearing
    • collateral amount calculation is computationally
    intensive: not clear which agent would perform it, its
    economic incentive, which models it should use
    • variation margin automated payments: programmatic
    access to payment funds entails huge operational risks
    • the default of counterparty would leave the other
    party exposed to the market risks usually covered by
    initial margin: i.e. initial margin are still required
    71/80

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  72. Single Shared Data Set
    • Single data source, avoiding reconciliation
    • Without a central governing node how to manage
    priorities between conflicting updates? Which
    consensus model?
    • Bilateral consensus? Really?!?!?
    • Central governance: back to DB admin
    • What if the single authoritative data source is
    hacked? Which reference can be used to fix it?
    72/80

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  73. Improved Automation: Smart Contracts
    • The DAO (decentralized autonomous org): the main Ethereum
    project, it raised >$160m as leaderless Venture Capital
    • The terms of The DAO are set forth in the smart contract code
    […] Nothing […] may modify or add any additional obligations
    or guarantees beyond those set forth in The DAO’s code
    • Based on its self-executing nature an agent diverted about
    $50m from The DAO to its own child-DAO start-up
    • If code is law, then this is not a theft: it is a feature
    • Beware of extreme automation
    73/80

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  74. The Mirage of Low Operational Costs
    • If one takes into account the seigniorage revenues invested,
    each transaction on the bitcoin blockchain has a cost of about
    5-10USD
    • Cheaper forms of consensus have not been proven yet
    • Even in the case of basic bilateral consensus through digital
    signatures (something hardly innovative or disruptive...) the
    integration cost in the existing infrastructure is not going to be
    irrelevant
    74/80

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  75. Time-stamping and Notarization
    • A generic data file can be hashed to producing a short unique
    identifier, equivalent to its digital fingerprint.
    • Such a fingerprint can be associated to a bitcoin transaction
    (irrelevant amount) and hence registered on the blockchain
    • Blockchain immutability provides non-repudiable time-stamp,
    proving the existence of the data file in that specific status at
    that moment in time.
    • This process is undergoing standardization: third party
    auditability makes it suitable for regulatory prescriptions
    75/80

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  76. Anchoring: A New Security Paradigm
    • Bitcoin blockchain network security is preserved
    by a computation power unparalleled in human
    history
    • Other transactional networks can tap into this
    security via anchoring (i.e. periodic time-
    stamping of the network status)
    • Bitcoin miners as global outsourced decentralized
    security of the future
    76/80

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  77. Data Storage, Consensus, Security
    Questions always to be answered:
    • Can be achieved with a database?
    • What consensus is required? (distributed, bilateral,
    centralized)
    • What kind of security is required:
    – Preventive (ok)
    – Detective (ok today, probably not in the future)
    – Corrective? (no)
    77/80

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  78. New Regulatory Framework?
    • Public permissionless blockchains are not aiming for regulation
    • Private permissioned DLTs are supposedly being built from the
    ground up according to regulatory compliance guidelines
    • Regulators should examine DLT under the light of the existing
    regulatory framework
    • To regulate in advance on the basis of vague ephemeral discussions
    about DLT would be problematic and might stifle innovation.
    • The necessity for ad-hoc regulation is not evident yet, and there has
    not been a motivated explicit request for it.
    78/80

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  79. About Bitcoin, Blockchain
    and the DLT chimera
    • The slides of my recent presentation to Bank of Italy
    (Rome) and the European Banking Federation (Bruxelles):
    https://speakerdeck.com/nando1970/about-bitcoin-and-blockchain-1
    • Joint answer with Barucci, Marazzina, and Zanero to the
    ESMA consultation on DLT for securities markets:
    https://drive.google.com/drive/folders/0B8tGDTaBY4-Nb3ZuRmgzRXJXOUk
    • My recent article for the Swift Institute newsletter
    https://www.linkedin.com/pulse/bitcoin-blockchain-dlt-chimera-ferdinando-maria-ametrano
    79/80

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  80. Conclusions
    • Bitcoin is resilient
    • Blockchain needs a native digital asset such as bitcoin;
    • Bitcoin is digital gold and can be as relevant as physical gold for the history
    of civilization, money, and finance
    • Unrealistic expectations arise from distributed ledger hype: no reference
    implementation has emerged yet
    • Instant settlement, cash on the ledger, shared data set, and improved
    automation are not easy to obtain
    • Time-stamping and anchoring are promising applications
    • Hardly disruptive, DLT might be evolutionary DB tech
    80/80

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