Digital Economics — generated by Stable Diffusion XL v1.0 FinTech — Financial Innovation and the Internet 2024 Fall Lecture 3-4 : Internet Technology and Governance Kenji Saito, Graduate School of Business and Finance, Waseda University Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.1/72

This class is recorded Using Zoom For your convenience in reviewing the lectures Recordings are shared via Dropbox and you can ask questions with time-stamped comments Of course, students are encouraged to ask questions in class The recordings could be used for research on (online) learning Transcribed for use and anonymized Will let you know when the necessity arises Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.2/72

The lecture slides can be found at : https://speakerdeck.com/ks91/collections/fintech-2024-fall Recording and chat text will be posted at Moodle and Discord Note, however, that chat messages are often unnoticed I have invited you all to the Discord server of the class (continued from the past years) Trial automatic transcription and summary for lectures will be posted at Discord Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.3/72

Schedule (provisional) Lecture 1 10/4 Overview of FinTech (1) • Lecture 2 10/4 Overview of FinTech (2) • Lecture 3 10/11 Internet Technology and Governance (1) • Lecture 4 10/11 Internet Technology and Governance (2) • Lecture 5 10/18 The World of Apps (1) Lecture 6 10/18 The World of Apps (2) Lecture 7 10/25 Blockchain (1) Lecture 8 10/25 Blockchain (2) Lecture 9 11/8 Smart Contracts and Decentralized Finance (1) Lecture 10 11/8 Smart Contracts and Decentralized Finance (2) Lecture 11 11/15 Cyber-Physical Society and Future of Finance (1) Lecture 12 11/15 Cyber-Physical Society and Future of Finance (2) Lecture 13 11/22 FinTech Ideathon Lecture 14 11/22 Presentations and Conclusions Online presence is possible but not recommended for non-online lectures for interactivity reasons Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.4/72

Last Week, We Did . . . Orientation Objectives, overview and schedule What’s FinTech? Backgrounds and meanings Examples — You will discuss on one Orange Juice Test Changes in the Economy and Labor — How? Tetrad — A Tool for Analyzing Media (Industrial Tools) Gutenberg Galaxy and Its Reversal Future of Monetary-Financial System? (half way) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.5/72

Today’s Topics Tetrad : A Tool for Analyzing Media (reprise) Future of Monetary-Financial System? Assignment Review Internet Technology Internet Govenance Discussion “Commons” in Finance Assignment Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.6/72

Tetrad : A Tool for Analyzing Media Where media nearly equal industrial tools We know that media + governance = industrial tools What haven’t you noticed lately? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.7/72

Tetrad (group of four) 4 questions about a medium (= any technology or artifact) ENHANCES . . . What does the medium enhance? OBSOLESCES . . . What does the medium make obsolete? RETRIEVES . . . What does the medium retrieve that had been made obsolete earlier? REVERSES . . . What does the medium reverse or flip into when pushed to extremes? – McLuhan, “Laws of Media” Questions that can be asked of any media What are the side effects of the media on people and society? Especially, when a new medium (M1) appears, it would obsolesces some existing medium (M2) that has obsolesced some other medium (M3), so that M3 would be retrieved by M1, as M2 is now becoming obsolete Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.8/72

Tetrad of Monetary-Financial System (reprise) Exchange and consumption Savings and investment Specialization, agricultural/industrial society Inequality, exploitation and bankruptcy Bullshit jobs Digital currencies, FinTech and beyond ENH REV RET OBS Control and obedience, hierarchy Maximization of profits Moneyless credit system Gift economy Generailzation (of skills), hunter-gatherer society New medium “retrieves” what was previously made “obsolete” Will “gift economy”, “generalization (of skills)” and “hunter-gatherer society” really be retrieved? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.9/72

Technology Changes Politics What’s politics? Coordination and organization of conflicts of interest among various powers and groups Example : Can a digital currency platform retrieve the stolen digital coins? If yes and it can enforce the law, it is like Judiciary Who decides which action is a crime, who corrects it, who punishes whom? If no and “Code is Law” (stealing was allowed by somewhat buggy code), then Legislation Program code determines the order among people In any case, admins take the role of, well, Administration Order can even be automated with individuals acting according to the rules of an App After the time when the nation separated the legislative, administrative and judicial powers (to avoid large concentrations of authority) . . . We are now living at the turning point of society Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.10/72

Earth-Scale OS (2007) → Meta Nature Anthropology Informatics Environmental Studies Sociology Business Administration Politics Today Hardware Applications User OS Human Business Financial System Human Business Earth-Scale OS Automation System Earth Earth Near Future (as of 2007) Human Meta-Nature (Highly-automated decentralized social environment) Earth Near Future (as of 2021) Financial Big Crunch . . . future of monetary-financial system . . . is that what you mean?! And academia, of course Interface with “apparatus” is transformed into a dialogue with the automated system “Computer, tea, Earl Grey, hot.” Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.11/72

Amazon Go Shoppers are not conscious of the existence of money → Money will soon disappear from our view Different kinds of money, coupons, and point systems can operate behind the scenes Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.12/72

Various Digital Currencies Are Going to be Used Global currencies like Bitcoin Digitization of the national currencies (“digital JPY” in Japan) MUFG Coin, J-Coin Pay, S Coin, Ginko Pay (OEM) Attempts by communities (e.g. Zen, DCJPY) Attempts by central banks (CBDC : Central Bank Digital Currency) Local currencies, “Cause-Oriented Economy” Beginning of world where a variety of digital currencies are used (◦◦Pay, . . . ) The complexity is not going to be in our minds; we only clarify our policies If we would like to keep Amazon-Go-style experiences Then we don’t even know if it is money that is moving behind the scenes The sharing economy comes in there ⇒ Decline of the monetary economy! Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.13/72

What Goes On As money and finance sharpen, “exchange/consumption” stagnates (by the gap between rich and poor) → Sharing economy emerges (which is ultimate form of FinTech) (why?) Lifestyle that operates without specialization (thanks in part to AI and DigiFab) → The degeneracy of economic activities to be taxed Changes in the way the public is served ← Opportunity for us → At that point, money is already declining (disturbance for PO/GO and expansion of NPO/NGO concepts) By advancing the principle of the monetary economy, conversely, accommodation solutions that do not require money are selected, and money rather disappears from the front view → The ideas of “employment” and “separation of buying and selling” collapse “Rulers” do not exist any longer; “consumers” do not exist any longer Specifically, what kind of society is it? → Consider with SciFi prototyping Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.14/72

Amazon Go (reprise) Go where there is food, grab it and just take it home (and share it with family members) It’s similar to something we know Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.15/72

Toward a New “Hunter-Gatherer Society” Observe, grasp, set a goal and prepare tools, challenge, take, share × PDCA cycle (agricultural and industrial people’s style) PDCA : Plan, Do, Check, Action OODA loop (hunter-gatherer’s style) OODA : Observe, Orient, Decide, Act Money doesn’t fit in there The key is how technology can create an “abundant resources” situation “Accommodation” is becoming increasingly important in our society Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.16/72

However, your mileage may vary Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.17/72

Assignment Review Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.18/72

Assignment 1. “Tetrad of the Internet” (1) Draw a tetrad of the Internet Write a bulleted list of what the Internet “enhances”, makes “obsolete”, “retrieves” and what it “reverses” into (2) Based on the tetrad you drew, briefly describe how the Internet affects finance Please be concise in plain text (no picture, no table) Deadline and how to submit October 8, 2024 at 17:59 JST From Moodle (mandatory) Optionally, you can also post to #assignments channel at Discord So that people can comment on your reports and start discussions more easily Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.19/72

Trends and Measures Trends . . . of your reports Measures . . . how to improve the class 24 replies out of 32 students (as of Thursday morning; better late than never) If you don’t see your listed items in the big aggregated tetrad we will see shortly although you thought they were original, did you by any chance submit using image (or PDF/PPT) instead of text so that they cannot be copied and pasted easily? (Just text, please) At Discord, too, please consider sharing by plain-text, as sharing by PDF/PPT means that we have to download your reports and manage files Effects on finance may be a little too conventional (albeit they are good) Considering effects in terms of ENH/OBS/RET/REV is nice There is something there that can be explored more deeply, especially in RET and REV But normally, what everyone knows is 20 years behind (Drucker, 1990) RET and REV seemed difficult to think about (you did pretty good on RET, though) RET in this case : what was made “obsolete” primarily by TV, printing or physical space REV in this case : similar effects as those of TV, printing or physical space Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.20/72

Tetrad of the Internet by You (collectively) ENH OBS RET REV Important but often overlooked effects Revived because of the obsolescence Social networks Information spreading Business efficiency Digital identity Work from home Cost saving freelancers (possibly RET) Innovation capability Entertainment democracy Global communication Education remote learning Digital currencies Gig Economy (possibly RET) Financial inclusion Ability to find a romantic partner Safekeeping of data (REV?) reduce discrimination (accessibility for al) Sharing experiences points of access bartering Self-publishing Global village Personal voices protection and concealment (REV?) political and social influencers (REV?) Communication marketplaces Information dispersal crowdfunding Oral communication Retro culture Freedom to connect A sense of belonging rise of public opinion through social media Peer to peer trading Exchange of information vintage media content( ex. old movie and music) Doing things by oneself Remote collaboration(Zoom; discord; Teams) E-commerce digital financial services Connectivity Streaming services Advertisement Cybercrime Amount of information more dependent on the digital abilities traditional jobs are becoming redundant less real-world interactions Information Cocoons cyberbullying monopolistic behavior freedom of speech (REV?) Less need of specialising (RET?) No more originality Online Human being Filter bubbles Group consciousness is intentionally manipulated digital self can reverse into anonymity and burnout echo chambers censorship Market volatility Digital division Automated work processes Online fraud Invasion of privacy Fake news Social isolation Cash Post mail Physical goods Travel agencies Face-to-face communication Geographical limitations for collaboration physical transportation Landline phones Mail order catalog Cable television physical bank branches Manual record-keeping paper-based documentation CDs & DVDs messenger (person) On-site meetings Old business models Traditional media(print newspapers and magazines) Disrupted 0#4 business models Blue . . . interesting Black . . . suitable Gray . . . controversial (IMHO) Let’s see whether the classi- fication is right or not later Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.21/72

For reference: Tetrad of the Internet by Saito End-to-End, best effort Human network Commons, neutrality and diversity Cyber crimes, fake news Firewalls, network divisions Echo chambers, no privacy ENH REV RET OBS Hunter-gatherer society (generalization) Versatility of individuals, holacracy Credit systems and gift economy Agricultural or industrial society (specialization) Control and obedience, hierarchy Profits and monetary economy Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.22/72

W-san’s View Enhance: Theoretically, the internet should democratize finance as more people can access the financial world through the internet as there is a better accessibility of information Moreover, increasing financial literacy can be achieved as more people can read into freely accessible resources to better understand financial products Makes obsolete: No physical bank branches are necessary anymore, as one can conduct one’s banking business online Additionally, sending and receiving money does not require paper anymore Retrieves: Peer-to-peer lending might be retrieved if there is no financial intermediary anymore However, one must have access to the internet to access this This is comparable to going to a church or lecture to access information Reverses: the internet and robotic investments can lead to extreme volatility as it is unknown how the capital market functions when only algorithms and programs trade Decentralized structures can lead to less security and eventually to instability ⇒ I think it’s a nice overview Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.23/72

M-san’s View It significantly improves accessibility and convenience by facilitating global, real-time financial transactions, leading to the widespread adoption of services such as online banking and digital payments Consequently, traditional financial practices, including in-person banking and physical record-keeping, have become largely outdated Simultaneously, the Internet revives older forms of peer-to-peer financial interactions, exemplified by barter-like exchanges and community-driven lending, through platforms like crowdfunding and peer-to-peer lending Nevertheless, as this digital evolution progresses, it brings forth new challenges, including heightened risks of cyberattacks, concerns regarding privacy, and the increasing influence of technology giants that centralize financial authority While this transformation has enhanced the efficiency and inclusivity of finance, it has also introduced significant security and equity issues ⇒ Some more good points are made about side effects Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.24/72

Let’s Talk ⇒ What would be the side effects of the Internet on finance? Let’s discuss in small groups First, look at the tetrad you made collectively, see if blue, black and gray classification is right and if there are more effects of the Internet Then discuss side effects of the Internet to finance It will help to look primarily at RET (retrieval) and REV (reversal) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.25/72

Internet Technology What’s “digital”? ← Let’s ask What’s “communication”? What’s “network”? What’s “TCP/IP”? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.26/72

What’s “Digital”? Represents information by numbers Ex1 : Assigns a number to a character (encoding) (65 (0x41)) (97 (0x61)) (‘0x’ stands for hexadecimal) ASCII (American Standard Code for Information Interchange) / UTF-8 If you want to convert uppercase to lowercase, add 32 (0x20) to the letter Ex2 : Audio CD (sampling and quantization) ← Do you know what CD is? ;) Stereo 44.1kHz sampling and 16bit quantization (which is far below studio quality today) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.27/72

Advantages of “Digital” Common means of communication → low-cost common base Put everything in a USB flash drive, put everything on the web “Put anything on it” is the whole idea of USB (Universal Serial Bus) to begin with Do you know what bus is? Improvement of transmission quality → No degradation of information Degradation occurs during sampling and quantization, but does not occur after that Concealment or proof of communication → Encryption or digital signature Public key cryptography (we will have a chance to take a deeper look at it in later class) More efficient transmission → Packet communication, compression One single physical communication medium shared by multiple uses at the same time Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.28/72

How Information is Communicated Communication between human minds Expressed and conveyed Digitization determines the amount of information and conveys it efficiently But some things are always lost Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.29/72

What’s Internet? Foundation for communication in which digital information is exchanged Social / requirement aspect Network of networks Technological / functional aspect What’s communication? What’s network? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.30/72

Can Humans and Dogs Communicate? photo by nikoretro Those who think they can Those who think they cannot Why? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.31/72

Definition? Communication 1. The exchange of thoughts, messages, or information, as by speech, signals, writing, or behavior 2. Interpersonal rapport — “The American Heritage Dictionary” It’s undeniable that you feel that humans and dogs feel close to each other . . . Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.32/72

Human-Dog Communication Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.33/72

Mechanism of Communication Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.34/72

Enviroments and Communication Photo by SLU Madrid Campus Can humans communicate with each other in any environment? We use signals under water The meaning is conveyed What can you change? What has to remain unchanged? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.35/72

Protocols and Layers Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.36/72

Definition? Protocol 1. the official procedure or system of rules governing affairs of state or diplomatic occasions 2. the original draft of a diplomatic document, especially of the terms of a treaty agreed to in conference and signed by the parties 3. a formal or official record of scientific experimental observations 4. Computing a set of rules governing the exchange or transmission of data between devices — “Oxford Dictionary of English” Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.37/72

Network and OSI Reference Model OSI : Open Systems Interconnection Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.38/72

Networks and a Relay Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.39/72

Definition? Network 2. a group or system of interconnected people or things a complex system of railways, roads, or other routes: the railway network a group of people who exchange information and contacts for professional or social purposes: a support network . . . a number of interconnected computers, machines, or operations: a computer network . . . — “Oxford Dictionary of English” Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.40/72

Railway Model of Computer Networks In the railway model, “×× line” is a network (hopefully someday this map will look familiar for everyone) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.41/72

Railway Model and a Relay "SFMBZTUBUJPODPOOFDUTUIF OFUXPSLT "OFUXPSLJTEJSFDUMZ DPOOFDUFECZBUSBJO -"/ 3BJMT 5P[BJ-JOF 8BTFEB4U &YJU 8BTFEB6OJW 8BTFEB 3BJMT .JUB-JOF .JUB4U ̖ ,FJP6OJW .JUB 3BJMT ɹ0UFNBDIJ4U .JUB-JOFc5P[BJ-JOF Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.42/72

TCP/IP Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.43/72

Railway Model and TCP/IP Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.44/72

IP Does Not Guarantee Does not guarantee packet delivery No performance or reliability requirements for lower layer networks No lower limit, and no upper limit ↑ Easy to enter, and does not hinder new development for improvements Does not guarantee packet delivery order Can cope with congestions and faults by changing the route TCP recovers from errors Resend packets and/or rearrange the order Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.45/72

Railway Model and TCP/IP (Story of students sending scrolls) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.46/72

Story of Students Sending Scrolls (1/3) Background — Waseda and Keio Univ. Two among the best private universities in Japan These two universities are known for their rivalry and matches in baseball and other sports known as “ ” (first characters of Waseda, Keio and match), although Keio students would often call it “ ” ;) For undergraduates, classes may have to be cancelled for students to go cheer on the baseball team Story The head of the Keio cheerleading squad sends a letter of challenge in the form of a traditional scroll to the head of Waseda’s cheerleading squad It is a very long scroll that has to be untied from Keio’s Mita campus, slipped into Mita Station on the Mita Line, and then slipped out from Waseda Station on the Tozai Line to reach the Waseda campus so that the head of Waseda’s cheerleading squad can read it This is a metaphor of stream communication over the Internet as we do it via Zoom at the class Two ways TCP (Transmission Control Protocol) . . . Don’t miss reading every word of it (e.g. browsing a web page) UDP (User Datagram Protocol) . . . Well, it’s a long scroll, and it’s okay if it’s missing parts (e.g. Zoom) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.47/72

Story of Students Sending Scrolls (2/3) Story – continued Either way, inside the entrance of Mita Station, there is a photocopier, which copies just part of the scroll at a time, and students pass through the ticket gate with one fragment each in their hand Each fragment is sequentially numbered from the top of the scroll Students are not familiar with the railway network, and when they ask the station staff how to get to Waseda, they are told to go to Otemachi, so they do Students ask again at Otemachi Station (router), and are told to change to the Tozai Line When they arrive at Waseda Station, a student operates a scanner/printer before the exit, scanning the fragments in numerical order and outputting a long scroll on the printer, and students pull it to the Waseda campus Now, some students may get lost on the way What would you do? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.48/72

Story of Students Sending Scrolls (3/3) Story – still continued TCP Students pick up their receipts (with fragment #) at Waseda Station and take them back to Mita Station At Mita Station, if a receipt is not returned, it is assumed that the fragment was not delivered, and another student is sent out with the fragment UDP Why do we care if some students get lost? (They are grown up, and we are certain that they will make it to their home) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.49/72

IP Addresses and Domain Names DNS (Domain Name System) is just another application of IP (with layer 4 by UDP (User Datagram Protocol) or TCP) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.50/72

Centralized, Decentralized, Distributed Paul Baran, “On Distributed Communications Networks”, 1964 Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.51/72

The Internet Does Not Care It does not care about communication technology It doesn’t matter whether packets go through the satellites or the ground It could also use a homing pigeon ;) RFC 1149 (A Standard for the Transmission of IP Datagrams on Avian Carriers) * An RFC (Request For Comments) is a publication often of Internet Standards (or jokes, or both) If there is a good communication technology, we use it IP over Everything Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.52/72

IP over Avian Carriers — Wikipedia Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.53/72

Protocol Architecture (1) There have been failures: Captain (NTT), ISDN, Minitel (its success slowed down deployment of the Internet in France?) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.54/72

Protocol Architecture (2) This, of course, means that if IP were to change (it is; IPv4 → IPv6), it would take time Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.55/72

Why Is IP Simple? How many programmers in the world can write IP? How fast can a router get? If it is not simple, it won’t work If it is not simple, it will be slow It is really important to make it simple and easy Smarter design, such as variable-length address instead of fixed-length, would have slowed down development of the Internet if it were chosen IPv4 uses fixed 32-bit IP addresses 10 bit can express approximately 1,000 numbers So, 32 bit can express approximately 1,000×1,000×1,000×4 = 4 billion numbers IPv6 uses fixed 128-bit IP addresses 128 bit can express approximately 1,000×1,000×1,000×1,000 .. . Approximately 256 . . . actually, 340 ×1036 numbers Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.56/72

Internet Governance Autonomous, decentralized (because people insist), and cooperative System of Internet governance What the Internet means Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.57/72

The Railway Model and Distributed Autonomy There is no owner of the whole railway network Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.58/72

Roundabout (traffic circle) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.59/72

Governance Structure of the Internet ISOC (Internet Society) IETF (Internet Engineering Task Force) (a group of individual engineers) ICANN (Internet Corporation for Assigned Names and Numbers) (a non-profit in California) ASO (The Address Supporting Organization) GNSO (Generic Names Supporting Organization) ccNSO (Country Code Names Supporting Organization) United Nations IGF (Internet Governance Forum) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.60/72

IETF The IETF is a loosely self-organized group of people who contribute to the engineering and evolution of Internet technologies It is the principal body engaged in the development of new Internet standard specifications The IETF is unusual in that it exists as a collection of happenings, online and in-person, in which individuals voluntarily participate. It has no members, and no dues —The Tao of IETF – A Novice’s Guide to the Internet Engineering Task Force This document is currently in the process of being re-organised and the content transferred to another document Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.61/72

IETF Principles Principle for decision making (like, we don’t really make decisions) “We reject kings, presidents and voting” “We believe in rough consensus and running code” — David D. Clark General principle of robustness “In general, an implementation should be conservative in its sending behavior, and liberal in its receiving behavior” — Jon Postel Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.62/72

Everyone Is Main Character of Communication . . . The Internet is at a crossroads It means whether the main character is a person, a different unit, a circle of friends, an organization or a country It is important to be able to define it freely Basically, each and every one of us must be able to have a presence on the Internet, and we must ensure that each of us is the main character of communication on the Earth This is very important — Jun Murai 1999-07-07 From “DOCUMENT LIFE a ryuichi sakamoto opera 1999” Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.63/72

Characteristics of the Internet Architecture The Internet is a logical architecture . . . It is the basis for distributing digital information through transparent channels and providing a commons environment The key to Internet architecture is to provide alternatives On the communication side, multiple media can be used freely — Robert Elliot Kahn, 2004-11 (translated back from Japanese) In a private conversation with Prof. Hiroshi Esaki of the University of Tokyo (from his book “Cyber-First”) Commons = resources accessible to all members of a society Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.64/72

10 Characteristics of the Internet Architecture (1) Global (2) Independent and autonomous system (no authority) and social (3) Being connected is assumed (4) The only one on the Earth (5) Providing a commons environment (6) Providing alternatives (7) Providing opportunities (8) Only trust “rough consensus” and “running code” (9) Transparency and End-to-End (10) Best effort Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.65/72

Commons Environment — Network Neutrality Users can (1) Freely have access to (legal) information (2) Freely execute applications within legal limits (3) Freely connect equipment unless it would harm the network (4) Freely choose providers Network providers, application/service providers However . . . What is the scope of the “law”? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.66/72

Best Effort Because there is no quality target to be followed, there is an incentive to make efforts to improve quality and gain market competitiveness — Hiroshi Esaki, “Cyber-First” Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.67/72

“Electronic Something” and Ease of Entry e-mail Everyone can open a post office, so to speak Electric Vehicles (EV) ← not exactly electronic, but . . . Everyone can build a car e-publishing (e.g. Kindle by Amazon) Everyone can be a publisher ← rather, WWW has done it e-money (e.g. Suica by JR East, xxPay, etc.) Everyone can be a bank ← rather, digital currency is doing it e-government Everyone can be or do what? Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.68/72

Discussion : “Commons” in Finance Can we expect positive effects of turning monopoly into commons in some financial areas? Commons = resources accessible to all members of a society Let’s discuss in small groups Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.69/72

Assignment Each assignment in this class is a preparation for the next topic For example, at the time Assignment 1 was given, if you had not known in advance what you have seen today, you would have answered without knowing much about the Internet This time, you may not know what APIs are Look them up on the web or something But for example, they are what your smart phone apps are using when they need functionality from remote entities (like banks) Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.70/72

Assignment 2. “Bank/Payment API” Given that banks and xxPay will publish APIs (Application Programming Interface), think of a new and unusual example application, and describe it briefly Deadline and how to submit October 15, 2024 at 17:59 JST From Moodle (Q&A Forum) (mandatory) Optionally, you can also post to #assignments channel at Discord So that your classmates can read your report, refer to it, and comment on it Just plain text, please You may always add your comments or questions about the class Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.71/72

See You Next Week! Lecture 3-4 : Internet Technology and Governance — FinTech — Financial Innovation and the Internet 2024 Fall — 2024-10-11 – p.72/72