CRYPTO-CURRENCY AND BLOCKCHAINS · • The notorious black hat hacker CyberZeist (@cyberzeist2) has broken into the FBI website FBI.gov and leaked data on Pastebin. • NSA's Hackers

CRYPTO-CURRENCY

AND

BLOCKCHAINS:WHAT'S ALL THE FUSS ABOUT

Prepared by: Will Middleton – Block Formation LLCMark Waser – Richmond AI & Blockchain

Agenda

● History Lesson

● Explaining Bitcoin to Introduce Blockchain

● What is Cryptocurrency?

● What is DLT?

● Is Blockchain Right For Your Business?

• David Chaum publishes a white paper in 1982:http://www.hit.bme.hu/~buttyan/courses/BMEVIHIM219/2009/Chaum.BlindSigForPayment.1982.PDF

• DigiCash company start eCash - 1990− ECash uses David Chaum's "blind signatures" cryptography

• DigiCash and eCash Ultimately Failed− David Chaum said: "It was hard to get enough

merchants to accept it, so that you could get enough consumers to use it, or vice versa"

In the Beginning.....

• Bailouts everywhere, Lehman bankrupt, AIG close to failure but still paying hundreds of millions in bonuses

• October 31, 2008 – Bitcoin Whitepaper begins circulating in cryptography forums

• January 3, 2009 – Bitcoin network launchesand first block is mined by the mysteriousand infamous Satoshi Nakamoto− First block message was the following:

"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"

Great Recession.....

What is Bitcoin?

What is Money?

• At first money was.........

A Tally

What is Money?

• circa 500 BC

A Celtic Metal Ring

What is Money?

• circa 200 – 400 AD

Roman Coins

What is Money?

• Tang Dynasty 600 - 900 AD

Chinese Folding Monetary Notes

What is Money?

• Europe 1500s

Fra Luca Bartolomeo de Pacioli

- Worked with Leonardo Da Vinci- "Father of Accounting"- Codifies Double-Entry Bookkeeping

What is Money?

• Fast Forward to....US National Bank Act of 1863

US Bank Note

What is Money?

• 1900 Gold Standard Act

President McKinley

- Gold is the only thing that can redeem paper notes

What is Money?

• 1971-1972End Gold Standard

Nixon ends Gold Standard & Congress Approves

What is Money?

What About Money Supply?

Will we ever know:

1. How much cash has been created?

2. How much cash has been removed or destroyed?

3. When these creation and destruction events happened?

What About Money Supply?

Will we ever know:

1. How much cash has been created?

2. How much cash has been removed or destroyed?

3. When these creation and destruction events happened?

• Well it’s a medium of a transaction that varies due to many factors:- Different Points in History (Time)- Perhaps the individuals in power make changes to the money (Politics)- Personal tastes change (Public Perception)----> Ancient Egypt aluminum plates were more valuable than gold, aluminum seemed rare at the time

Ultimately.........What is Money?

So if Money is so Fluid.......

What is the Constant that Keeps the System Going?

So if Money is Fluid.......

What is the Constant that Keeps the System Going?

Think About It

• It's in My Bank Daggumit!

Where is Your Money?

• It's still in My Bank Daggumit????!!!

• …... where in the Bank is it really?

Where is Your Money Now?

• It's in My Bank Daggumit!

• Fact of the matter is.....

• Probably not in your bankat all.............

Where is Your Money Now?

• Simple.....

It just an entry in a database

…. Just like the old ledger

So Where is the Money?

• These bank records are protected by something called encryption

• So a hacker needs to have an encryption key to access your funds.

Unfortunately for banks there is more than one encryption key that will give access to accounts

Just a database entry.....- How is that safe?

• Here is a list of all the organizations that have been hacked in recent years.

• On 15 March 2017, President Donald Trump stated during an interview that "the CIA was hacked, and a lot of things taken".

• Securities and Exchange Commission Chairman Jay Clayton disclosed in a lengthy statement late Wednesday that a hack was detected last year.

• The notorious black hat hacker CyberZeist (@cyberzeist2) has broken into the FBI website FBI.gov and leaked data on Pastebin.

• NSA's Hackers Were Themselves Hacked In Major Cybersecurity Breach by The Shadow Brokers• --- The NSA is regarded as having some of the world's most notorious hackers (but they couldn’t protect

themselves..............)

• British Airways - BA customers' credit card details 'probably already for sale• DHS and FBI detail how Russia is hacking into U.S. nuclear facilities and other critical infrastructure

U.S. nuclear facilities• Equifax• Target• Home Depot

My Bank has Never Been Hacked!!

• We created money out of thin air......... remember?

• The USD value relies on public perception that it's secure

• Do you really think the government would risk public perception deteriorating by disclosing that a Bank was HACKED?!!

Confidence in Money...

• Online banking was a great invention:- We can check our balance from our cell phones or laptops.

• How does this work?

Checking My Balance

LOGIN Check Balance

Report BalanceView Balance

• Online banking was a great invention:- We can move money from our cell phones or laptops

• How does this work?- Banks have to sync their separateledgers all of the time (seems kindainefficient, no?)

Moving Money

LOGIN

1. Created by an entity:- Can we trust that entity forever...- Control the supply of money- Control movement of money- Control who is allowed to participate

2. Intermediary Banks have access to all of our funds and we must trust them to protect our money ***They can change the records of their own Ledger whenever***

3. I cannot withdraw all my money from the bank, whenever I want to (not enough cash in the vault...... just a record on a ledger)

4. Every Bank keeps their own ledger and must sync those ledgers when I want to move money (complex process)

What's Wrong with Money?

Can We Re-Create Money

to Make it Better?

What is Bitcoin?

• *1 Official Public Ledger of TransactionsEvery single transaction is recorded publicly for all to seeBitcoin Transaction

• Trustless Peer 2 Peer Payment System

• Fixed Amount of Supply- 21 Million Bitcoins Max, Ever, Will be Created- "Miners" Paid in NEW Bitcoin for:---- Validating Transactions---- Maintaining the Ledger

What is Bitcoin?

Bitcoin Transaction

Bitcoin Transaction

Bitcoin Transaction

Bitcoin Transaction

New Transactions are Collected by the "Miners"

Now it’s a Race to do 3 Things:

1) Check to Make Sure Transactions are Authorized

2) Verify that Sending Accounts have enough BTC to

proceed with the trade

3) Update Their Local Ledgers with new transactions

and try to solve the next Block

Bitcoin Transaction

New Transactions are Collected by the "Miners"

Now it’s a Race to do 3 Things:

1) Check to Make Sure Transactions are Authorized

2) Verify that Sending Accounts have enough BTC to

proceed with the trade

3) Update Their Local Ledgers with new transactions

and try to solve the next Block

The Global Ledger

Bitcoin Transaction

?

New Transactions are Collected by the "Miners"

Now it’s a Race to do 3 Things:

1) Check to Make Sure Transactions are Authorized

2) Verify that Sending Accounts have enough BTC to

proceed with the trade

3) Update Their Local Ledgers with new transactions

and try to solve the next Block

Check to Make Sure Transactions are Authorized (using cryptography)

Check to Make Sure Transactions are Authorized (using cryptography)

Check to Make Sure Transactions are Authorized (using cryptography)

Check to Make Sure Transactions are Authorized (using cryptography)

Check to Make Sure Transactions are Authorized (using cryptography)

Verify Sending Accounts have Enough Bitcointo Execute Transaction

Total 12.118 BTC

Total 12.118 BTC

Mary's change address

Verify Sending Accounts have Enough Bitcointo Execute Transaction

Total 12.118 BTC

Total 12.118 BTC

Mary's change address

Updating Local Ledgers with New Transactions

Updating Local Ledgers with New Transactions

Updating Local Ledgers with New Transactions

Updating Local Ledgers with New Transactions

The Global Ledger

Bitcoin Transaction

?

RACE TO FIND THE NEXT BLOCK

AND

GET PAID $50,000 (12.5 BTC)

In january 2018 the reward was $250,000

• Immutable – Transactions cannot be "changed", only "added"

Transactions Cannot be Changed

• Immutable – Transactions cannot be "changed", only "added"

Transactions Cannot be Changed

• Public Ledger of Transactions – Every single transaction is recorded publicly for all to see- Ammend Only Database, Transactions Cannot be Changed

• Protocol – Specific software that must be used in order to interact with the Bitcoin network, leaning heavily on cryptography

• Permissionless – Anyone can use the system

• Truly Peer2Peer – Software allows transactions between 2 adversarial parties without any entity or trusted party in the middle

What is Bitcoin?

• Cryptocurrency is a very broad term

• Effectively it means any "Digital Token" that has a value attached to it and that "Digital Token" lives on a Blockchain.

What is Cryptocurrency?

A Bold New Economic Frontier The Lawless Wild Wild West

• Blockchain is generic term for the cluster of technologies that enable Bitcoin to achieve the benefits that it does

• Public Blockchains:-- Consumer focused and disrupting the industry by removing third party intermediaries (typically has a "cryptocurrency" token)

• Private Blockchains or DLT (Distributed Ledger Tech):- Enterprise focused and helping incumbents improve the efficiencies and effectiveness of internal operations(typically do not have any cryptocurrency" tokens)

So What is Blockchain Technology?

1. Data storage- New type of database

2. Data is replicated across many differentcomputer systems (known as “nodes”)

3. Data is immutable (cannot be changed)

4. Transactions are Peer-to-Peer- No need for a 3rd parties to move money- Safe even if everyone else is an adversary

5. Uses cryptography to prove identityand authorize transactions

Blockchain Technology Features

Distributed Ledger Technology (DLT)

● A distributed ledger is a database spread across various nodes or computing devices.

● Each of the nodes/computing devices replicate and save an identical copy of the ledger.

● The primary feature is that the ledger is not maintained by any type of central authority.

● The updates to the ledger are constructed and recorded independently by each node.

● The voting and agreement is conducted automatically by a "consensus algorithm".

● Upon consensus, the latest agreed-upon version is saved on each node separately.

What can blockchain do

for your business?● Blockchain is particularly well suited for:

-- immutably recording contracts and events-- processing transactions-- managing records-- tracing assets

● Blockchain is for distributed operation and transparent workflows

● At the same time, blockchain can use cryptography and other measures to preserve privacy while allowing for the collection of demographic data

Blockchain Investments - Early

Blockchain Investments – More Recent

Key Challenges: Public Decentralized Blockchains

• Garbage In --> Garbage Out• How to ensure data on blockchain is correct in the first place?

• Interface with “Off-Chain” Data• How to enable smart contracts to make decisions based on data that is

not stored on a blockchain?

• Transaction Throughput• Bitcoin Network = 3-5 transactions per second (tps)• Ethereum Network = 20 tps• PayPal = 193 tps• Visa = 1,667 tps

When Implementing Blockchain

The critical questions are:

● “What would immediately help your business?”

○ Start small; do NOT re-invent the wheel

● “What are your use cases & inefficiencies?”

○ Low-hanging fruit is always the best place to start

** Do NOT randomly implement blockchain as “a solution in search of a problem”

When Implementing Blockchain

** Do NOT randomly implement blockchain as “a solution in search of a problem”

● My colleague Mark Waser and I, Will Middleton, can help

● Reach out to us at Richmond AI and Blockchainhttps://rabc.solutions/

Which Coin Do You Want to Own When the US Dollar Fails Due to Cryptocurrency?

Which Coin Do You Want to Own When the US Dollar Fails Due to Cryptocurrency?

None of them

Which Coin Do You Want to Own When the US Dollar Fails Due to Cryptocurrency?

None of them