First presented on February 15, 2015 to the Sim Kee Boon Institute (SKBI) for Financial Economics at Singapore Management University. Citations and references are in the notes section. Abstract: For the past two years, many entrepreneurs, developers, investors and enthusiasts have promoted the view that blockchains and in particular, Bitcoin will eventually be adopted as a universal value transfer mechanism -- a type of global payment rail fit for a cornucopia of use-cases. Empirically this does not seem to be the case as over the past year and specifically the past 6 months, multiple startups have been created that specialize in areas that Bitcoin is not particularly well suited for. Whether any of these succeed is another matter entirely, but it is not a foregone conclusion that any one blockchain will be the "one to rule them all" based on their competitive (dis)advantages. This presentation outlines a number of vendors that have either announced or are working on solutions for the broader "Fintech" space as well as incumbent institutions in the existing ecosystem.

1. Is the adoption of blockchains and
consensus ledgers a foregone
conclusion?
Discussing the evolution and confluence of use-cases, traction and business
requirements of the various value transfer projects

2. In the future
• A more clear distinction between:
• Distributed ledger (consensus as a service such as Eris or Hyperledger)
• Cryptocurrency system (Bitcoin, Ethereum)

4. Illustrating the promises from last year

5. Some of those did not pan out
• Ethereum still looking to launch (late March 2015?)
• Ripple has grown but is still not ‘Turing complete’ (became
Codius)
• Colored coins are still in a perpetual ‘holding pattern’
• Most (if not all) proof of stake systems still become
centralized in some manner (usually via checkpoints)
• Namecoin remains a cliche use-case at conferences
• Generally speaking, they are all ‘consensus ledgers’ --
definitional debate over what is / is not a ‘blockchain’
• Limited: many other projects announced and developed
post-March 2014 (after the diagram was made)

7. Brown’s mental model of a smart contract

8. Working definition
“A smart-contract is an event-driven program, with
state, which runs on a replicated, shared ledger and
which can take custody over assets on that ledger.”

10. A shared, cloud-based robust calculator...
“And now you have something really interesting: neither of you have to go to the
effort of reimplementing the terms of the contract in your own systems: you both
know that this single piece of code satisfies both your purposes. And because
it is running on this shared, replicated ledger and using it as its source of
information, you can both be sure that whatever the program outputs will be the
same for both of you.”
“It’s as if this program isn’t just a computer program: it’s an actor in its own right.
It responds to the receipt of information, it can receive and store value – and it
can send out information and send out value.”

11. What can this be used for?

12. Practical use-cases (on paper)
● Cross Border Settlement / B2B international transfers
◦Rebuilding SWIFT (PayWise)
◦Can use a blockchain/CaaS to move in seconds/minutes
◦Biggest challenges are liquidity/settlement with market makers as
well as compliance in jurisdictions
● Central clearing / settlement (e.g., derivative clearing)
◦Prime case for “multi-party payments” and netting/clearing. Could
be on a ledger (autonomous) but if participants “fail” then move to
centralize the credit risk which was the purpose of CCPs in the first
place
◦Complying with existing laws such as Dodd-Frank are a
hurdle/challenge
● Mortgages (may be more relevant for CDOs)

13. Larsenian use-cases
● CDO/CLO/CMO/ABS
◦Smart contracts based on assumption that banks are not to be trusted to pass on all cash flows
received in the “waterfall.” Alternatively, build competing platforms where you set up “smart contract”
(special purpose vehicle) that automatically pay through waterfall. Problem is on enforcement of
loans in case of non-payment.
● Collateralized / Guaranteed Lending
◦A bank, borrower and potentially a 3
rd party providing collateral or guarantee. Though without
identity, credit checks/worthiness the promise of decentralization may not do much.
● Letter of Credit
◦Multiple parties involved, trust is low, cost is high. Incumbents are strong, little incentive to change,
requires central changing (with “crossing the chasm” problem) and most importantly multiple
jurisdictions.

14. • Top 2 platforms through 2014 were:
• Ripple from Ripple Labs (Stellar initially used a similar consensus
ledger)
• Counterparty (also has spin-off called “Medici” though part of that
team has split off to create another fintech startup)
• NXT (problems found by Garzik?)
• Omni/Mastercoin (little traction relative to XCP)
• Bitshares (from Invictus, uses DPOS)
• Open Transactions (not ‘fully’ released)
• Coloredcoins (Coinprism, Coinspark, Chromaway, Colu)
Current “2.0” Platforms

15. • Ethereum (Proof of Work)
• Tezos (POS)
• Tendermint (POS, DC ledger?)
• Pebble (Proof of Processing, TC ledger?)
• Nimblecoin (Merged Mining)
• Eris (‘application-specific blockchain template’)
• Factom, formerly Notarychains (POE/MSC)
• Proof of Existence, Block Sign
• SKUChain (DPOS/DPOW) / PurchaseChain
• BlockTrace (digitally fingerprinting diamonds)
• ArtCOA (proof of provenance for art), mine.NYC
• Hyperledger (PBFT)
• Filecoin (~Bitcoin, see also Permacoin)
Future “2.0” protocols and/or coins

16. Future cont’d
• Augur prediction market (part of hub/spoke of Truthcoin, DC
ledger)
• Secure Asset Exchange / SmartContract.com
• Codius (developed on Ripple system by Ripple Labs)
• Tillit (based on Ripple-like system)
• Tembusu (based on Ripple, creating TRUST framework)
• Treechains (first seen in Viacoin as “ClearingHouse”)
• Sidechains (several proposals, largest is Blockstream effort)
• PeerNova (software stack on top of a cryptocurrency platform)
• Several other niche projects (Zerocoin/Zerocash, La’zooz)

17. • Clearmatics (forthcoming from Robert Sams’ team)
• Eris (Preston Byrne-led team unveiling December 17)
• Hyperledger (beta since July 2014)
• Hyperdex (from Emin Sirer, NoSQL system)
• Medici (“used” Counterparty, early beta, assuming it is not
based on Bitcoin)
•Mirror (formerly Vaurum, escrow and other services)
• Pactum - BitSapphire effort (still in pre-Alpha phase; uses HL,
Codius, DPOS, OT)
• Other consensus ledgers (Ripple via Codius/Trustlines)
• Stellar had a forking issue recently (new version Q1 from David Mazières?)
Vendors “pitching” financial & govt institutions

18. Tech for tech sake, is this all just “Solutionism”?

19. “In practice, Proof of Authenticity, Proof of Existence, Proof of Audit and
Proof of Custody require no blockchain database. Any proof of physical
data or transaction status just needs a database and trust in the database
manager which can be completed with transparent reporting and auditing.
In these circumstances intermediaries matter and are good enough.
Blockchains are really about asset rights management which removes the
intermediary from custody of the asset rights. This is what we get from
using the Bitcoin blockchain in new approaches. If we can prove we do not
control the asset rights, then we have disruptive innovation that is not yet
good enough and requires further blockchain innovation. Asset rights
control problems are great candidates for blockchains.”
• Taariq Lewis, CEO of Digital Tangible

20. With all of these blockchain/ledger projects, is
there any other point of view?

21. Not being built in vacuum: real competition
• ‘Neobanks’: GoBank (Greendot), Simple, Acorns, Moven, Ixaris,
Numoni, Balance Financial (prepaid MasterCard from WalGreens)
• Branchless banking coming from all major banks (Kashmi, DBS Paylah! in SEA)
• Listed on AngelList:
• 1,586 Payment startups
• 947 Mobile Payment startups
• 106 P2P Money Transfer startups
• 250 mobile money services in over 80 countries, half of them in sub-
Saharan Africa (M-Pesa, Orange Money)
• Ecuador has launched domestic non-Bitcoin digital currency project
• Philippines is publicly looking for vendors

22. Efforts from incumbents
• Large institutions: Fedwire, CHIPS, SWIFT, ACH, EPN
• SEPA initiative, EMV, Chip & Pin rollout (Ross Anderson says is broken?)
• Existing private web companies: AliPay, TenPay, PayPal
• Existing virtual / digital currency projects: Amazon Points, frequent flier
miles, SecondLife Linden Dollars, ISK from EVE Online, WoW gold,
WebMoney (Russia)
• No longer around: E-gold, Liberty Reserve
Notable new(er) efforts:
• ApplePay, Google Wallet, Square, Venmo, Braintree, Transferwise, Xoom
• Softcard (AT&T, T-Mobile, Verizon) and CurrenC/MCX – developed by
retailers (CVS & RiteAid) to compete with ApplePay NFC-based tap-to-pay

23. What does the overall fintech space look like?

25. Just because you have "smart" investors…
• … doesn’t mean the startup or space will be successful
• Notable “payments” examples:
• Beenz, founded 1998 – raised ~$100 million including
Larry Ellison and Vivendi Universal
• Flooz, founded 1999 – raised ~$50 million, alliance with
Microsoft and promoted by Whoopi Goldberg
• DigiCash, founded in 1990 by David Chaum, courted by
Visa and Microsoft, bankrupt in 1998
• Clinkle, founded 2011, SV’s largest seed round ($25mil)

26. Measuring some traction among cryptocurrencies

27. If it is the most popular distributed consensus-
based database, how much volume can it
currently handle in a production environment?

29. Mandatory gobbledygook sources of increase
• Mining rewards
• –Some pools like Eligius payout directly from coinbase reward
creating extra transactions
• Mixing / laundering of funds
• –CoinJoin / CoinShuffle / DarkWallet / SharedSend
• Blocksign / Proof of existence
• P2SH (multisig)
• Counterparty (XCP) and Mastercoin (MSC)
• –Crowdsales on these platforms (e.g., ‘Gems’ sale)
• OP_RETURN
• –Chromaway and Coinprism
• –Advertisement spam (see pics)

30. Pay to script hash (P2SH)
• ‘Created in 2012 to let a spender create a pubkey
script containing a hash of a second script, the redeem
script’
• January 2014: 0.014% of all bitcoins are stored using
P2SH
• February 2015: 7.69%
Reasons why:
• USMS (Bitcoin Investment Trust), Xapo and Ripdice (?) recently
switched to P2SH for cold storage
–Note: Counterparty uses “old school” method of multisig

34. Top Heavy
• Metaprotocols that utilize and sit on top of Bitcoin
blockchain provide disproportional rewards
◦XCP/MSC are effectively piggy backing and free riding off
seigniorage rewards
◦Also happens with colored coins and Dogeparty
◦E.g., Apple shares (total market cap = $710 billion USD)
issued as metacoin. Will Bitcoin security suffice to keep the
market in Apple shares trading secure?
• In long run, miners are probably not destroying
enough capital to ultimately secure metacoin
assets, making the network less secure

35. There is no such thing as a free lunch for
sustainable network security

36. • June 2014, Kerem Kaskaloglu
illustrated the “ideal scenario” of
the seamless switch from block
rewards (seigniorage subsidy) to
transaction fees (donations)
• As of February 2015, the very
opposite has occurred, fees to
miners has declined which is “not
ideal”
• Leads to “dark hashing inventory”
after block halving
Retcon won’t fix collective action problem

37. • Example:
• A Hyperledger consensus pool can be
implemented in different ways
• Some pools may exist of only known entities,
like banks, but more public pools can have their
own node membership requirements, like an
extended SSL certificate from a Certificate
Authority to prevent Sybil attacks
Is token agnosticism viable?

38. • “Whenever SPAM comes up, people seem to be quick to jump to the easy
solution of "if we charge a little bit then it will go away" without thinking of
the damaging consequences this could have to adoption and legitimate use
cases. Let's take email for example, charging 1c an email would be pretty
negligible, but what happens to newsletters? Alert systems? Notifications?
Now imagine it's not 1 cent but 1 emailcoin. Would email have overcome
the early barriers to adoption to become the universal communication
system it is if you had to purchase a new currency just to use it? The
solution to SPAM is better software; blacklisting, greylisting, rate limits,
etc. Gmail is free but I get 0% SPAM in my inbox. Snail mail costs a stamp
but nearly 100% percent of my letterbox is unsolicited.”
• Dan O’Prey, co-founder of Hyperledger
TCPIPcoin/emailcoin

39. Can you remove the token from the chain?

40. • Meher Roy’s IoM proposal
• A Decentralized Exchange Protocol (DEP)
for exchanges between 2 ledgers
• A Real Time Gross Settlement Protocol
(RTGSP) for transfers between 2 ledgers
• A Deferred Net Settlement Protocol
(DNSP) also for transfers between 2
ledgers
• A Static Liquidity Payment Processing
Protocol (SLPPP) for peer to peer
payment processing between 2 ledgers
Unbundling and decoupling the token from
the ledger (BINO is unnecessary)

41. What are the business requirements?

43. Has interest in Bitcoin peaked?

44. Conclusion
• Anyone claiming that there will just be “one winner” that
encompasses all use-cases is probably wrong in the short run (RB and
MR: is there a “Grand Unified Theory” of Cryptofinance?)
• Every business, institution and customer has different wants and
needs that will dictate actual adoption of technology and not the
other way around
• Entrepreneurs, developers and investors cannot assume market will
adopt their own narrative any more than shipwreck survivors can
“assume a boat”
• Blockchains and consensus ledgers may find traction outside of
niches only if they satiate mass consumer appeal, not just hobbyist
interest

45. • tim@melotic.com
• Twitter: @ofnumbers
• Melotic.com / OfNumbers.com
Contact