Crypto-Currency - Strategic Review v3

WhiteHat Engineering, Inc.Bryan Starbuck [email protected]

Strategic BlockChain Analysis

Understanding the Technology

Blockchain(Aka Bitcoin & Crypto-Currencies)

Explaining Blockchain

Blockchain = Read & Append Only Database

New accounts = $0

Transaction = Transfer from Account A to B

Database is ONLY list of TRANSFER transactions

Explaining Blockchain

Details…

Details… Details…

Details…

Details…

#5

#3#2

#4

#1

Transaction #

Transaction Details

Crypto-Currency Wallet

Your account control comes from your “Wallet”, which is a Private asymmetric encryption key.

Your Public Key is your Crypto-Current Address.

Transactions are “Signed” with your private key (aka wallet)

Local software challenge

Using crypto-currency can require installing local software.

The local software has access to your WALLET on your local computer.

PRO: Harder to use. People hate installing software.CON: Ultra-secure (possibly)

Or use the cloud

Or you can use a cloud provider (like)

PROs: No local software.CONs: Security returns to equaling banks.

Local wallet keys

Local WALLETs are:

More secure: in the case of risk of cloud banking

(Mt Gox or a bank)

Less Secure: Local computer hacked or data loss.

Strategic analysis of the layers

We will analyze these in the strategic stackUser Interface

(Owning Customer relationship)Currency Exchange

Interop with the Offline WorldBacking Financial Transactions

Smart Contracts

Platform Strategy

Ethereum

Ethereum

Transactions +

Code +

Custom database storage

Ethereum

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Ethereum

Ethereum “Smart Contracts” include a mini-database to store values

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Why

The high level

Top reasons this is important

1. Preservation of Capital – Converting the asset class into being secure

2. Race to own the USER EXPERIENCE3. Lower fees4. Infrastructure that is revolutionary5. New Scenarios

Hear my story to illustrate

This story illustrates all of the trends coming together

We want a car

AirBnb for buying cars:

We want to buy a car to share among our house-mates

The purchase

The car costs $15,000.

Everything will happen with crypto-currency

But we only pay a little along the way.

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Smart Contracts

Platform Strategy

Monthly payments

We make monthly payments.

Buying all up-front is expensive.And we are poor college students.

I buy 50% of the car

I’m buying 50% of the car,

so I get more hours and priority on booking it.

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Assessing credit

I’ll assess their credit rating.

I have my assets at risk, based on the results.

I make more than my peers with my quality score is higher. I earn less

when it is lower.Backing Financial Transactions

Credit risk

Then a credit risk score is issued.

Backing Financial Transactions

Getting the loan

We invest money buying this

”Consumer Credit”.

We get 8.1% returnsBacking Financial Transactions

This is the crypto-currency version of LendingClub ($4 billion loaned)

Monthly payments

They allow us to make monthly

payments


It tracks my driving

When I drive,

it logs that JENNIFER and her driving hours

Priority reservations

I rarely drive.

I save my KARMA CREDITs for cross-state drives to

family on holiday weekends.

Sold my share

I only needed it senior year.

I sold my share to someone else, when I

graduated.

I bought more

I started out owning 25%.

I bought more to 75%, after I drove more with

my new job.

Credit default swaps

We buy 1% slices of people’s loans.

We pick a wide range of loans at credit risk level 50% to 75%

These get sold, over and over.


Who can do this?

Who could do this ENTIRE CAR Scenario?

MasterCard?Bank of Canada?

PayPal?Equifax?Stripe?

LendingClub?

Crypto-currency=

Powerful Legos

Unlocks innovation

People act as a Store

Creating a store can be as simple as printing out a sheet of paper.

Buy my stuff:

My bike: $30

Rent my car for Christmas break:

$25

Let’s go deep





Smart Contracts

Platform Strategy

Startup Weekend

You have 3 days at a startup weekend.

Add value in the world.

Startup Weekend

You can only have:

3 days

2 devs

500 lines of code(Or less)

Startup Weekend

What you deliver:

Unlock Value X&

Charge Y

Startup Weekend

This is a real Ethereum Contract:

Simple, Simple, Simple

What could you write in an hour?

It is 9 lines long (ignoring comments)

Prediction Markets

Prediction markets are great.

Consumer credit risk. Asset Pool risk levels.

Presidential elections.


VISA Fees

The race to cut the VISA fees.

Their value-add is to interact with the offline world.

Interop with the Offline World

Offline world and VISA


INTERNET = Connection

iPad = P.O.S. system

Where is VISA needed?

HARDWARE Locks


Hardware locks

that unlock upon crypto-currency

payments

HARDWARE Locks


Seattle had paid toilets

Insert joke here

HARDWARE Locks


Uber for Bike Rentals

HARDWARE Locks

Unlock it in a few lines of code


Platform strategy

A platform strategy unlocks

the masses

Platform StrategyWe can write

500 lines of code.

Own the customer relationship = strategic lock

This is the true strategic lock

This would require giving another

talk…User Interface

(Owning Customer relationship)

Fees

Crypto-Currency fees race to $ZERO

Why #1

Making CURRENCIES a secure asset class

Living on the edge of leverage

During the 2007/2008 crisis:

Bernanke said,

~They are all digital accounts. If everyone withdrawals, the just isn’t enough cash to back it up.

Person A is wealthy. My wealth is backed up by assets.

I live safely here.

1) Real estate asset class2) Precious metals3) Stocks (Equities)

The point is that they are secure

I’m in the bottom 60%. I live 100% in the CASH asset class.

I’m forced to live on numbers in a computer.

In the next 2007 crash, I can’t feed my family.

I’m denied the ASSET BACKING that the wealthy get.

Fiat Currencies

Fiat Currencies do crashRome in 213 adGermany 1923

Argentina in 1932

France in 1795

Mexico 1994

Many moreThai “baht”

1997China – 11th century

Rome

Gov Needs Money Dilute Collapse

Around the time of Rome’s collapse, the denarius contained only 0.02%

silver and virtually nobody accepted it as a medium of

exchange or a store of value

France

French revolutionDefault on Debt ~1785

People Starve

1795 currency inflates by 13,000%

Failing currency

Could this happen in 2016?

Greece is a recent example

60The LEFT:

“Crony capitalism is alive and well and flourishes under big, powerful government. Because the bigger government gets, the more powerful and complicated it becomes, the more true it also is that only the big, the powerful, the wealthy and the well-connected can handle it and the small and the powerless get crushed.”

The RIGHT:

Carly Fiorina2015 Presidential Republican Candidate

I’m forced to live on numbers in a computer.

In the next 2007 crash, I can’t feed my family.

I’m denied the ASSETs that the wealthy get.

My family matters.

The End

An engineering team that builds entire startup companies

from the ground up

WhiteHat EngineeringSTARTUPS & ENGINEERING

Early Stage Crypto-Currency & more

TalentSpring Founder & CEO - Acquired in 2010B2B Enterprise SaaS company with Artificial Intelligence / Machine Learning

SPARKON Founder & CEO - 2011 to 2013B2C Online learning & Passion Discovery

Owner at WhiteHat Engineering: (Current)Our engineering team builds startup companies & products

Bryan StarbuckSTARTUPS & ENGINEERING [email protected]

NXT Coin

How NXT Coin HELPS

1. “Assets”2. Example: Buy a boat. Pay NXT

coins. Then issue a new asset of SHARES in boat XYZ.

NXTCoin

BitShares

How BitShares Helps

1. “Crypto-Finance”2. BitUSD vs BitGold vs BitEU3. Currency Derivatives

BitShares

Ethereum

How Ethereum Helps

1. “Crypto-Law”2. Smart Contracts3. “Ether” vs “Gas”4. Smart Contract = Coins + code

Ethereum

Other Areas

Regulations – Money Laundering

• USD Dollars Bitcoin = Exchange

• Bitcoin: Owner A B

• California = Bank $1,000,000 annual fee for regulators

• “Bit License”: NY Dept of Financials Services

Other Important Areas

• Protect the wallet• Hosted coin providers (CoinBase.com)• Regulations• Proof of Work –vs- Proof of Stake

• Byzantine General’s Problem• Liberty Reserve: Costa Rica. Founders in Jail

THE END

See the backup slides

An engineering team that builds entire startup companies

from the ground up

WhiteHat EngineeringSTARTUPS & ENGINEERING

Early Stage Crypto-Currency & more

Business

Crypto-Currency - Strategic Review v3