BitCoin and the Global Economy by Cristina Dolan Presented at MIT Center for International Studies

BITCOIN AND

THE GLOBAL

ECONOMY

CRISTINA DOLAN

APRIL 7, 2016

MIT CENTER FOR INTERNATIONAL STUDIES – STARR FORUM

WHAT IS BITCOIN?

Next Generation

Information,

Communication and

Transaction Technology

Global Peer to Peer Exchange of Value

TrustlessDeflationary

© 2016 Cristina Dolan

HOW BITCOIN

WORKS?


TIMING IS

EVERYTHING

BitCoin Timing for Trust

11/2008

Satoshi NakamotoWhite Paper

1/9/2009

Released Bitcoin

Code

2011

Mt Gox & Silk Road

Wave of Early Adopters

2013

Venture Capital Investment

Products Launched and Partnerships Announced

2015

Wall Street Adoption of BlockChain

TODAY

Network Effect with Layers of Applications

2016

$1B+ in

Venture

Capital

2007 – 2008

Global Financial Crisis


DISRUPTIVE

TECHNOLOGIES

Change in Business Models and Human Behavior

WWW

& Graphical Browser

Wireless

&

Internet Broadband

OpenSource

Cell Phone

&

Smart Phone

Blogs &

Google Ads

Cloud Computing

Portable Cheap

Memory

Cheap Cameras &

Video

Digital & Streaming Music and

Video

VCRs & DVRs

Time Delay

Viewing


BITCOIN

COMPONENTS

BitCoin

Digital Currency & Stored Value

Conduit

Peer to Peer Efficient Transactions Technology, Business

Process and Communications

Blockchain

Peer-to-Peer Distributed Ledger. Next generation

technology that establishes trust, accountability and

transparency while streamlining business processes. © 2016 Cristina Dolan

NEW SOLUTION FROM

OLD TECHNOLOGIES

Economic Incentive Layer

Spread of distributed ledger and incentive for consensus computations

Merkle Trees

Patented in 1979 by Ralph Merkle

SHA-256

A Secure Hash Algorithm family algorithm invented in 2000 by U.S. NSA

Decentralized P2P Networks

Popularized by Napster in 1999, KaZaA in 2001 and Skype and Gnutella

Hashcash

Proof-of-work proposed by Adam Back in 1997

Solution to Byzantine Generals’ Problem

The proof-of-work chain solution


ECONOMICS OF

TRANSACTIONS

•2 Billion Unbanked, Number improved by 20% in 2015

•59% Unbanked in developing countries & 11% in high-income areas

•77% of adults earning less that $2 per day

•75% of World’s poor unbanked due to poverty, costs, travel distance, paperwork

Banking

• $4 Trillion

• $436B of $583B Cross Boarder remittances sent to developing countries in 2014

• 4% to 30% transaction fees, Cutting 5% points can save up to $16 Billion per year

• Cross Boarder Payments benefit developing countries improves education and health

Remittances

•1-4% Payment Fees

•Personally Identifiable Information in Central Database

3rd Party

Payments

•860M Global Mobile Bankers

•Mobile Payments: Android, Apple and Samsung Pay

•Stronger Customer relationships

•M-Pesa in Kenya and M-KESHO Partnership for Banking

Mobile Banking

and Payments

•New Business Models

•New Compliance

•New Customer Self Service Models

Business

Efficiencies


WORLD BANK –

UNBANKED

2B Unbanked People - 50% with Mobile Phones


http://datatopics.worldbank.org/financialinclusion/

GLOBAL REMITTANCE

OF MONEY

• Cross Border $583 Billion 2014

• $436B send to Developing Countries, a 5% decrease in fees will save $16B

• Migrants sending home 3X the World Total Aid Budget


PAYMENT

OPTIONS

Payment Processing Value Chain

Source of Funds

Customer Account Provider

Funds Transfer

Funds Withdrawal Settlement

Four Party CardBank Issuer Card Network

• Acquirer

• PSP

E-Wallet • Card

• Stored Value

• Bank

Wallet Provider

ACHBank

Bank

ACH Network BankScheme

Mobile Money

Transfer

• Carrier Bill

• Mobile Money

• Agent

Mobile Network Operator • Mobile Wallet

• Agent

• Bank/ATMPartner Bank Bank Intermediary

Network

Carrier Billing Carrier

Bill/Prepaid

Balance

Mobile Network

Operator Mobile PSP

Distributed

Ledger Model

Bank Virtual

Currency

Gateway

Exchange

Provider

“Ledger” Server

Network

Gateway /

Exchange / PSP

Banked

Unbanked


CUSTOMER

RELATIONSHIPS

Telcos have deepest customer relationships for paid services

• 7.413 Billion - Total World Population (including children)

• 7.526 Billion - Active Mobile Subscriptions

• 3.4 Billion - Smartphone Subscriptions Globally

• 1B Mobile - Phones in Africa – doubled in the past 5 years

Mobile

Infrastructure

Order

Process

Management

Payment

Process

Management

Account

Access &

Management

Marketing

CRM

Services

Telcos√ √ √ √

Bank/Payment

Networks√ √ √

Merchants √ √

Tech Providers √ √

New

Intermediaries√ √ √ √ √


MERCHANTS, ATMS,

M-BANKING GROWTH

42% YoY Growth BTC Merchants 150K by YE 2016 Forecasted

13% Growth New BitCoin Deployment

860M Mobile Banking Users 100% growth by 2021 to 1.6 Billion


REGULATORY

DECISIONS

• Virtual Currencies are ‘Property’ for US Federal Tax • European Court exempt bitcoin from VAT, categorized as a ‘Currency’

Map by Latham Watkins


PUBLIC RECORDS

Public Registry Land Titles

Business License

Business Incorporation

Business Ownership

Business Dissolution

Regulatory Records

Criminal Records

Birth Certificates

Marriage Licenses

Passports

Death Certificates

Name Changes

Voter IDs

Voting Records

Voter Registration

Restaurant Licenses/Ratings

Health Inspections

Safety Inspections

Building permits

Court records

Building Construction Permits

Gun Permits Forensic Evidence

Court Records

Non-Profit Records

Government Financials

DMV Driver’s License

DMV Parking Violations

DMV Vehicle Registration

Judgments

Property Liens

Patents

FINANCIAL

Currency

Public Equities

Private Equities

Bonds

Commodities

Derivatives (Swaps, Futures, Options, and other contracts)

Interest

Insurance Contracts

Mortgage

Loan Records

Crowd-Funding

Micro-Finance

Micro-Charity

Servicing Records

Trading Records

Voting Rights

Proxy Fights

Brokerage

Exchanges

Merchants

Wallets

Trading Platforms

Capital Markets

Banks

ATMS

Money Services

Investment Services

Payroll

Insurance

Compliance

Financial Data

SEMI-PUBLIC RECORDS

Educational Degrees

Certifications

Grades

Testing/Scores

Company HR Records

Medical Records

Accounting Records

Business Transaction Records

Business Tax Forms

Personal Tax Forms

Genome data

Institutional GPS Trails

Delivery Records

Arbitration

Physical Asset Keys

Vacation Home/Timeshare Keys

Hotel Room Keys

Car Keys

Rental Car Keys

Leased Car Keys

Nodes – Internet of Things

Sale of Registered Property

Art Registry

Precious Stones and Jewelry Registry

PRIVATE RECORDS

Contracts

Auto-Contract

Smart Contracts

Signatures

Notarizations

Wills

Escrows

Trusts

Diamonds & Gems

Adoptions

Health Records

DNA/Genome

Personal GPS Trails

Corporate Emails

Corporate Research and patent notes

TYPES OF

APPLICATIONS


EVOLUTION OF

MARKET ECONOMICS

Traditional Markets

Supply and Demand – Discovery and Negotiation – Intermediaries Centralized Control

Internet Marketplaces

Shift in Control – Disintermediation – Easier Access – Supply Chain

Shared Economies

Swapping – Sharing – Bartering – Lending – Trading – Renting

Evolving roles, changing behaviors, different challenges, easier access, less expensive alternatives to incumbent provides

Peer to Peer Transactions and Contracts

- Frictionless – Efficient – New Business Processes

- Incumbents will resist change

- New entrants will disrupt and innovate


BLOCKCHAIN VS

BITCOIN INVESTMENTS

• BitCoin Applications – 66%

• Non Currency Applications – 20%

• Opportunities for Tools and Services Businesses

• Commercial implementation of OpenSource


BLOCKCHAIN

NUMBERS

Value Description

$1.109 Billion Cumulative VC investment in Bitcoin & Blockchain Companies to Oct 2015.

($649.99M in 2015, $361.53M in 2014 and $95.05M in 2013.)

$121 Million Largest cumulative funding total – raised by Bitcoin computer developer 21inc.

805 Number of early stage Bitcoin & Blockchain companies identified by Venture

Scanner

43+ Banks & Financial Institutions know to be testing, analyzing or investing in

Blockchain technologies. (R3 Consortium is made up of 43 banks)

11 Million Number of registered Bitcoin wallets in Sept 2015 – up from 6.6m in 2014

106,000 Number of merchants who accept Bitcoin

$6.455 Billion Bitcoin market capitalization April 4, 2016.

Bitcoin accounts for around 90% of the capital value of cryptocurrencies

$2.7 Billion Value of Bitcoin trading in Sept 2015

475 Bitcoin ATMs installed worldwide

25 Bitcoins The Mining fee will decrease to 12.5 BTC per block in mid July 2016.

15.39M Total Bitcoins (limited to 21 Million) with 405.7K Total Blocks


SCALABILITY

• Visa

• 2,000 transactions per second (tps)

• 4,000 peak

• .5 kilobyte average size

• Paypal

• 115 tps

• 10 Million transactions per day

• Bitcoin

• 7 tps (due to bitcoin protocol restricted block size of 1MB)
