Blockchain, Cryptocurrencies & ICO’s September 20th, 2018 Rusty Yerkes, Ph.D.

This talk is not intended to be investment advice. Disclaimer This talk is not intended to be investment advice.

BTC = $6,445 as of Monday 9/17/2018 Bubble? Source: Coinmarketcap.com

Overview Blockchain and Distributed Ledger Technology (DLT) Cryptocurrencies and Cryptocurrency Market Initial Coin Offerings (ICO’s) Q&A

BLOCKCHAIN & DLT

Blockchain Blockchain is a Platform. Like the internet which can host many “applications” like cryptocurrencies. Potential. To be Revolutionary, like the internet. Block. Block of data. SHA-256 Hash. “Secure Hash Algorithm” cryptographic hash algorithm developed by the NSA. Unique digital fingerprint, uses a one-way compression function (cannot be decrypted) Blockchain. Chain of signed blocks, where each block is linked to a previous block by its hash. Distributed. Decentralized, multiple copies make data tamper resistant. Transactions. Transactions (such as token trades) can operate on the Blockchain platform. Coinbase. Seeding an account, like a deposit. Source: Nakamoto, Satoshi. 2009. Bitcoin: A Peer-to-Peer Electronic Cash System. White paper.

Block from SHA-256 Hash Source: Anders Brownworth, http://Blockchain.mit.edu/block

Blockchain Protocol or Platform Source: Anders Brownworth, http://Blockchain.mit.edu/block

Distributed Ledger Technology (DLT) Source: Anders Brownworth, http://Blockchain.mit.edu/block

“Digital Coin” Application on Blockchain Source: Anders Brownworth, http://Blockchain.mit.edu/block

Key Question? What Problem(s) Does Blockchain Solve? Data Duplication (Record Keeping) Data Verification Key Industries:

Digital/Crypto/Virtual Currency

Digital or Crypto Currencies Digital Coin (Token). Public key. Receive funds (like a bank account and routing number). Private key. Send funds (like a PIN). Can be stolen but virtually impossible to brute force hack (guess) Timestamp. Chronologically record transactions to prevent double spend. Peer-to-peer. No third party institution needed. Supply. May be limited. Irrevocable. Transactions are computationally impossible to reverse. Proof-of-Work. Miners provide computing power to verify transactions in exchange for fees and coins. Digital/virtual coins are not legal tender by decree of and thus not backed the government nor are they backed by anything of value such as gold. Digital currencies have features associated with currencies: Medium of exchange Store of value Source: Nakamoto, Satoshi. 2009. Bitcoin: A Peer-to-Peer Electronic Cash System. White paper.

Satoshi Nakamoto’s 2009 White Paper Source: https://bitcoin.org/bitcoin.pdf

Bitcoin is neither private nor anonymous Source: https://bitcoin.org/bitcoin.pdf

Wallet Address

Public Ledger Source: http://blockexplorer.com

Public “Account” Source: http://blockexplorer.com

Bitcoin Ecosystem Source: BitcoinFoundation.org

“Alt Coins” i.e. Bitcoin Alternatives Hard Fork = essentially new cryptocurrency; Soft fork = enhancement Source: Investopedia.com

Bitcoin 55% Market Share Source: Coinmarketcap.com

Cryptocurrency Market Source: Coinmarketcap.com

2017: The Year of Cryptocurrencies Source: Coinmarketcap.com

Why is Bitcoin so volatile? Headlines.

Digital Currency Theft

Bitcoin Headlines

Initial Coin Offerings (ICO’s)

Initial Coin Offerings (ICO’s) Type of Crowdfunding NONE are registered with the SEC SOME use various registration exemptions (See Reg A, D, CF) The remaining……… Question: Are “coins” securities & subject to securities regulation? Answer: If the SEC says they are securities…..they are securities. (Howey test) Three Basic Types of Tokens Payment coins (means of payment) Utility coins (give holder access to application or a service) Asset coins (represent a claim on earning streams; most like equity)

Token Economies “Token economies introduce a strange new set of elements that do not fit the traditional models: instead of creating value by owning something, as in the shareholder equity model, people create value by improving the underlying protocol, either by helping to maintain the ledger (as in Bitcoin mining), or by writing apps atop it, or simply by using the service. The lines between founders, investors and customers are far blurrier than in traditional corporate models; all the incentives are explicitly designed to steer away from winner-take-all outcomes. And yet at the same time, the whole system depends on an initial speculative phase in which outsiders are betting on the token to rise in value.” Source: https://www.nytimes.com/2018/01/16/magazine/beyond-the-bitcoin-bubble.html

Initial Coin Offerings (ICO’s) Source: Coindesk, as of Jan. 1, 2018.

Initial Coin Offerings (ICO’s) Source: Coindesk, as of Jul 31, 2018.

Initial Coin Offerings (ICO’s) Source: Coindesk, as of Jul 31, 2018.

Initial Coin Offerings (ICO’s) Source: Coindesk, as of Jul 31, 2018.

Initial Coin Offerings (ICO’s) Source: Coindesk, as of Jul 31, 2018.

Source: Coindesk, as of Jul 31, 2018.

Source: Coindesk, as of Jul 31, 2018.

Closing thoughts Blockchain and Distributed Ledger Technology Blockchain will be revolutionary Healthcare, financial services, transportation/logistics, real estate and more Cryptocurrencies Saturated Market Regulators closely monitoring Not backed by any commodity Value driven by fundamental and speculative demand These attributes = volatility Volatility and verification delay make everyday use impractical China cracking down (people use cryptocurrency to get money out of the country) Initial Coin Offerings (ICO’s) Regulators highly scrutinizing Significant source of funding for blockchain applications

Q&A Rusty Yerkes (205) 726-2051 ryerkes@samford.edu