Introduction to Blockchain
and Cryptocurrencies
Michael Josem – 21 February, 2019
Michael Josem
Current:
Head of Customer Growth at Jobhawk, an app-based marketplace for construction labour
Freelance marketing, communications and public relations. Past Clients have included CoinPoker &
SimpleToken
Current crypto portfolio: 2 ETH
Past:
A decade in online gaming, serving as Head of Public Relations, Innovation Manager and Senior Security
Manager for various brands including PokerStars, Full Tilt, 138.com, etc.
What do we know today?
Who owns any cryptocurrencies?
At the outset
I’m not a financial advisor, and nothing here should be
construed as financial advice. I’m not making any
NOT
financial predictions or offering any investment advice
here.
My skill here is in translating from the complicated
financial
advice
technical speak into normal words.
Agenda
WHAT IS BLOCKCHAIN? WHAT IS A WHAT IS A SMART WHAT ARE SOME
CRYPTOCURRENCY? CONTRACT? OPPORTUNITIES FOR
INSURANCE?
What is blockchain?
“Distributed Ledger Technology”
Basically, a shared list
Bitcoin is a subset of blockchain
Key features of blockchain
Distributed publicly but centralised ledger
A consensus algorithm
A currency or token that has value and is tradeable
The implications of this
Any peer can view the entire ledger (transparency vs privacy)
The ledger cannot be changed (no trusting of any central authority to fix errors)
Rewards for participating (encourages centralisation)
“Mining” to verify and process transactions (huge volume of processing power)
A simple metaphor
A shared spreadsheet where anyone can append, but no one can edit, running simultaneously on many
processors around the world.
What is
cryptocurrency?
What is cryptocurrency?
What was currency?
What is currency?
How is cryptocurrency
different from currency?
Recorded on the blockchain
Something that people value
No centralised operator – distribution is determined by the programming
In some ways, replicates some features gold-backed money
Cryptocurrency Attributes
No central authority: useful for transactions that banks and Governments would prohibit
Ethical uses: circumvent capital controls (China; Latin America)
Unethical uses: circumvent capital controls (Iran; North Korea; illegal goods & services)
No middleman storage
Benefits: you have 100% control of your money
Weaknesses: security and usage is entirely on you
Supply set by programming
Benefits: Semi-Predictable inflation
Cost: No fractional banking
Cryptocurrency Attributes
Entirely Electronic
Benefit: You can hide and send it easily (much of the time)
Weakness: You need electricity to send it
Immutable
Benefits: No chargebacks
Cost: No fixing mistakes or theft
Transactions happen on the blockchain
Benefits: All the above
Weaknesses: Variable transaction fees, congestion, real-world centralisation
The biggest – by far - Bitcoin
Percentage of Total Market Cap
Bitcoin was the first meaningful cryptocurrency in 2008 60
Pseudonymous creator, Satoshi Nakamoto 50
“Hard” limit of 21 million 40
Until early 2017, accounted for 85%+ of cryptocurrency 30
value. Around 50% for the last 6 months or so.
20
Each transaction is published with to/from wallet
address recorded. 10
Technical reasons limit it to around 7 transactions per 0
second. Bitcoin Ethereum Ripple Litecoin Others
Percentage of Total Market Cap
Source: coinmarketcap.com
What is a smart contract?
In our blockchain (append-only spreadsheet running on lots of processors) you can run programs
These programs can be setup to do stuff (eg, move cryptocurrency around)
Hypothetical examples
If a flight is delayed X minutes, pay compensation
If it rains in Douglas on Y consecutive days, pay money to event organizer
“Insurance” on any event with a clear authoritative electronic oracle
A Giant Warning Label
The words "hack" and "theft" make human, normative presumptions about how
you're supposed to use the code. But the code doesn't care. The code can't be "hacked."
It can only be used; its use has no normative implications.
-Matt Levine, Bloomberg.com
A Giant Warning Label
The legal system has safeguards so that investors usually get what they expect. If you
invest in a company, you are in a sense signing up for a certificate of incorporation and
bylaws, which are written in lawyerly language. But you also get a prospectus that explains
the terms of your investment in relatively plain English. The terms of that investment tend
to be constrained by law, underwriter due diligence, public policy and tradition. Even if you
invest in a company whose bylaws say that the board of directors can sacrifice you to a
demon on the first full moon of a leap year, it's unlikely that that term would be enforced.
-Matt Levine, Bloomberg.com
A Giant Warning Label
If you invest your Ether in a smart contract, you'd better be sure that the contract says (and
does) what you think it says (and does). The contract is the thing itself, and the only thing
that counts; explanations and expectations might be helpful but carry no weight. It is a
world of bright lines and sharp edges; you can see why it would appeal to libertarians and
techno-utopians, but it might be a bit unforgiving for a wider range of investors.
-Matt Levine, Bloomberg.com
Hypothetical examples
If a flight is delayed X minutes, pay compensation
If it rains in Douglas on Y consecutive days, pay money to event organizer
“Insurance” on any event with a clear authoritative electronic oracle
Potential Opportunities for Insurance
Asset listing/recording (But can be done without blockchain)
Automated settlement (But assessing & adjusting claims! Electronic oracle!)
Cross-jurisdictional agreements (But if you don’t trust them…)
Providing insurance to sector
