Financial technology in the living room. Generated by Stable Diffusion XL Beta FinTech — Financial Innovation and the Internet 2023 Fall Lecture 4 : Internet Technology and Governance (2) Kenji Saito, Graduate School of Business and Finance, Waseda University Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.1/53

This is an on-demand class material Students are encouraged to comment and ask questions with time-stamped comments in Dropbox Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.2/53

The lecture slides can be found at : https://speakerdeck.com/ks91 Trial automatic transcription for lectures will be posted at Discord Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.3/53

Schedule (provisional) Lecture 1 10/6 Overview of FinTech (1) • Lecture 2 10/13 Overview of FinTech (2) • Lecture 3 10/20 Internet Technology and Governance (1) • Lecture 4 10/27 Internet Technology and Governance (2) on-demand • Lecture 5 11/10 The World of Apps (1) Lecture 6 11/17 The World of Apps (2) Lecture 7 11/24 Blockchain (1) Lecture 8 12/1 Blockchain (2) Lecture 9 12/8 Smart Contracts (1) Lecture 10 12/15 Smart Contracts (2) Lecture 11 12/22 Smart Contracts (3) Lecture 12 1/12 Cyber-Physical Society and Future of Finance Lecture 13 1/19 FinTech Ideathon Lecture 14 1/26 Presentations and Conclusions Online presence is possible but not recommended for non-online lectures for interactivity reasons Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.4/53

Last Week, We Did . . . Tetrad : A Tool for Analyzing Media (reprise) Future of Monetary-Financial System? Assignment Review Internet Technology (just a little) Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.5/53

Today’s Topics Internet Technology Internet Governance Discussion (at Moodle Q & A Forum) “Commons” in Finance Assignment Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.6/53

Internet Technology What’s “digital”? ← Let’s ask What’s “communication”? What’s “network”? What’s “TCP/IP”? Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.7/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.8/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.9/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.10/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.11/53

Can Humans and Dogs Communicate? photo by nikoretro Those who think they can Those who think they cannot Why? Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.12/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.13/53

Human-Dog Communication Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.14/53

Mechanism of Communication Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.15/53

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? What we call physical disability is merely a mismatch between physical conditions and the environment Digital technology often helps mitigate this mismatch Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.16/53

Protocols and Layers Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.17/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.18/53

Network and OSI Reference Model OSI : Open Systems Interconnection Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.19/53

Networks and a Relay Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.20/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.21/53

Railway Model of Computer Networks In the railway model, “×× line” is a network (hopefully someday this map will look familiar for everyone) Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.22/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.23/53

TCP/IP Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.24/53

Railway Model and TCP/IP Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.25/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.26/53

Railway Model and TCP/IP (Story of students sending scrolls) Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.27/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.28/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.29/53

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 (a receipt is called ACK) 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 To streamline transfers, they can determine how many fragments can be sent before receiving a receipt 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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.30/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.31/53

Centralized, Decentralized, Distributed Paul Baran, “On Distributed Communications Networks”, 1964 Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.32/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.33/53

IP over Avian Carriers — Wikipedia Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.34/53

Protocol Architecture (1) There have been failures: Captain (NTT), ISDN, Minitel (its success slowed down deployment of the Internet in France?) Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.35/53

Protocol Architecture (2) This, of course, means that if IP were to change (it is; IPv4 → IPv6), it would take time Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.36/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.37/53

Internet Governance Autonomous, decentralized (because people insist), and cooperative System of Internet governance What the Internet means Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.38/53

The Railway Model and Distributed Autonomy There is no owner of the whole railway network Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.39/53

Roundabout (traffic circle) Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.40/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.41/53

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 Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.42/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.43/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.44/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.45/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.46/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.47/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.48/53

“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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.49/53

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 Write your answers at Moodle Q & A Forum and start discussions We can continue discussion until like November 7. Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.50/53

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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.51/53

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 November 7, 2023 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 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.52/53

See You Next Month! Enjoy Culture Day Holiday (Nov 3) Lecture 4 : Internet Technology and Governance (2) — FinTech — Financial Innovation and the Internet 2023 Fall — 2023-10-27 (on-demand) – p.53/53