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Landscape & Trends
The Money Flower : A Taxonomy of Money
Ref: [@Stanjourdan] 5 / 139
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Digital Currency (a.k.a. Digital Money or
Electronic Currency/Money) is a type of
currency available only in digital form, not in
physical (such as banknotes and coins).
It exhibits properties similar to physical currencies, but allows
for instantaneous transactions and borderless transfer-of-
Global Money Supply: More than 90% of the currency in the world is digital, that is, money held or traded in it's
non-physical form. Ref: [The Money Project] 7 / 139
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Most of the traditional money supply
is bank money held on computers.
This is also considered digital
One could argue that our increasingly cashless society
means that all currencies are becoming digital
("electronic money"), but they are not presented to us
as such. Cf. [Digital currency]
A special kind of digital currency. The most
popular Cryptocurrency is Bitcoin.
"Crypto" refers to the cryptographic method used in the
currency to secure transactions and create new unit of the
This kind of digital money is a revolutionary technology that
allows people or institutions to transfer funds instantly, securely
and without a middleman.
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Non-Traditional Digital Currency
Ref: [5 Ways Digital Currencies will Change the World
| Susan Athey]
1. Faster, Cheaper Bank Transfers
2. A Boost to Global Remittances
3. Safe Money for the Poor
4. Unleashing the Potential of e-Commerce
5. Programmable Money and Smart
International bank transfers can take up to a week. By using digital currency, bank
transfers could be made instantly, cheaply and safely.
Using digital currency, users can send money directly to their families via mobile phone,
eliminating transfer fees that often run up to 10% or more.
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A New Battlefront
New record-keeping and payments systems
create huge cybersecurity issues, from theft
Cryptocurrencies like Bitcoin are volatile, because their value is
based on supply and demand. And the supply is determined by
a computer code, not a central bank.
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Landscape & Trends
Growth of FinTech Investments Since 2000 | Ref: [IOSCO 2017] 12 / 139
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The term Financial Technologies or FinTech
is used to describe a variety of innovative
business models and emerging
technologies that have the potential to
transform the nancial services industry.
Financial Technology describes tech-enabled products and
services that improve traditional nancial services.
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Innovative FinTech Business
o er one or more speci c nancial products or services in
an automated fashion through the use of the internet.
unbundle the di erent nancial services traditionally
o ered by service providers -- incumbent banks, brokers or
Equity crowdfunding platforms intermediate share placements
Peer-to-peer lending platforms intermediate or sell loans
Robo-advisers provide automated investment advice
Social trading platforms o er brokerage and investing services
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Machine Learning/ Arti cial Intelligence
Distributed Ledger Technologies (DLTs)
Such emerging technologies can be used to supplement both FinTech new entrants and
traditional incumbents, and carry the potential to materially change the nancial services
Major Technologies Transforming Financial Services | Ref: [Fintech and Financial Services - IMF] 16 / 139
Unbundling the Banking Business Model | Ref: [CBInsights, Adaptive Lab] 18 / 139
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FinTech has Changed the
Since the 2008 Financial Crisis, FinTech
startups have targeted single underserved
nancial products with better UI, digital
marketing, and services that cater to shifting
Ref: [Banks in Fintech]
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Challengers to the big banks now
range from PayPal, the granddaddy of
e-payments which spun o from eBay
(2015), to cryptocurrency companies
such as Coinbase. Ref: [IOSCO 2017]
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Digital currencies can become another convenient and safe form of payment and
savings in emerging markets where most citizens don't have bank accounts.
High unbanked population, weak consumer banks and high
mobile phone penetration make emerging markets ripe for
There are billions around the world without access to traditional nancial services.
Fintech innovations could be their chance to be included in the global digital
Participation in the nancial system can reduce income inequality, boost job creation,
and directly help the poor manage risk and absorb nancial shocks.
Ref: [The Fintech Revolution]
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Fintech companies could wipe out as much as 60%
of bank pro ts.
Almost 2 million jobs ini banking will be lost,
especially in areas such as lending and payments,
where technology takes over human roles.
While it's di cult to predict how FinTech will play
out over the years, the game is most de nitely on.
Ref: [The Fintech Revolution]
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Landscape & Trends
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There are more than 5,000 FinTech
startups in the world in 2016.
Cumulative funding into FinTech
start-ups: $127 B
Companies tracked: 10,993
Ref: [INSEAD, FinTech Control Tower]
25 FinTech Unicorns Valued at $75.9B | Ref: [CBInsights]
Global VC-backed ntech companies that notched a private market valuation of $1B+
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2017 Sees 8 Fintech Unicorn Births
Global VC-backed ntech companies that notched a private market valuation of $1B+ in 2017
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Financial Services Firms Invest Early in Blockchain | Ref: [CBInsights - Blockchain] 32 / 139
FinTech is no Longer a Niche Market | Ref: [Banks in FinTech]
FinTech Companies have attracted Millions of Customers (Since Respective Launch Date) 33 / 139
Annual Global FinTech Deals and Financing, 2013 - 2017 ($B) | Ref: [Fintech Trends] 34 / 139
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FinTech Trends (2018)
Fintechs unbundling leads to rebundling
European ntechs will expand their global footprint
Banks forgo partnering in favor of ghting ntech with
Wealth management will become the hottest ntech sector
Latin America and Southeast Asia will see strong ntech
Banks deepen their partnerships with regtech
Ref: [CBInsights FinTech Trends 2018]
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FinTech has evolved from startups that want
to take on and beat incumbents, to a
broader ecosystem of di erent businesses
looking in many cases for partnerships.
FinTech startups don't just need capital, they need customers.
At the same time, incumbents need new approaches to drive
change and deliver innovation.
Innovation is also coming from outside nancial services and
being driven by a variety of sources including tech companies,
e-retailers, and social media platforms.
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Landscape & Trends
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The 2008 nancial crisis caused a lot of people to lose trust in
banks as trusted third parties. Many questioned whether
banks were the best guardians of the global nancial system.
Bad investment decisions by major banks had proved
catastrophic, with rippling consequences.
Bitcoin - also proposed in 2008 -
presented something of an alternative.
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Bitcoin made digital transactions possible without a "trusted
intermediary". The technology allowed this to happen at scale,
globally, with cryptography doing what institutions like
commercial banks, nancial regulators, and central banks used
to do: verify the legitimacy of transactions and safeguard the
integrity of the underlying asset.
Bitcoin is a decentralized, public ledger. There is no trusted
third party controlling the ledger. Anyone with bitcoin can
participate in the network, send and receive bitcoin, and even
hold a copy of this ledger if they want to. In that sense, the
ledger is "trustless" and transparent.
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The rst cryptocurrency
Created by Satoshi Nakamoto in 2009
Considered the reserve currency of the cryptocurrency
Lifetime supply of only 21M coins, of which likely about
30% are already lost
Ref: [J. Wong]
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Bitcoin is a decentralized, public ledger. This ledger is known as a blockchain. There is no
trusted third party controlling the Bitcoin blockchain. Instead, anyone can read it, write to
it, and hold a copy.
The Bitcoin blockchain tracks a single asset: bitcoin. The
blockchain has rules, one of which states that there will only
ever be 21M bitcoin. All participants must agree to Bitcoin's
rules in order to use it.
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Because anyone can read it and write to it, Bitcoin needs a
method to establish consensus among untrusted nodes. It
solves this problem via clever economics:
Incentive: The rst miner to verify transactions and devote immense computing
power to secure the blockchain can append a block of transactions to the chain of
previous blocks. This miner is rewarded with bitcoin, and the race starts over every
Disincentive: Bad actors are dissuaded from attacking the blockchain, because it's
e ectively a money-losing proposition.
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Digital asset for value exchange
Decentralized control (no central bank)
Uses cryptography for:
Controlling creation of additional units
Verifying the transfer of assets
Most are built on a technology called blockchain, which is a
public, immutable, distributed ledger of all transactions
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Traditional money is controlled by banks and governments -
which makes it a "centralized" currency.
Crypto (eg. Bitcoin) is not controlled or
regulated by any single entity like a bank -
which makes it a "decentralized" currency.
Having no banks in control makes sending and receiving money
cheaper, faster, and easier.
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Paper currencies, credit cards, and checks can be counterfeit.
Crypto solves the Double Spend Problem
which means criminals cannot create fake
cryptos. Counterfeiting is (almost)
Counterfeit traditional money is very common. In the U.S. alone it is estimated that
between $70 and $200 million in counterfeit bills are in circulation. That's up to 1 out of
every 4,000 real bills. You won't have to pay those high fees for fraud protection either!
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Traditional money is created by governments in unlimited
quantities. They print more constantly, which decreases the
value over time.
Cryptos' supply is usually limited. Why? It's
designed to be scarce so that it increases in
value over time.
A constantly increasing supply of money creates something called in ation. This means
that the money you are holding is worth a little less every day. If you're working hard and
trying to save up, that's bad. It's why an ice cream was $0.05 in 1950, but is $5.00 today
traditional money keeps losing value. Crypto's limited supply creates the opposite e ect,
called de ation.
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Old fashioned money can be spent only in amounts as small as
a single cent (ie. up to 2 decimal places). Crypto is highly
divisible because its value is designed to increase over time
(through de ation).
This divisibility means you can spend very small amounts of a coin. So basically, an ice
cream cone may cost 0.001 coins today, but in the future it may cost 0.00000010 coins, if
coin's value rises even more.
Crypto's high divisibility is useful eg. for microtransactions.
These are very small payments used for digital goods and
services. Microtransactions are something traditional money
can't do, because cents are not divisible enough and therefore
too big for very small purchases.
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Cryptocurrency uses cryptography to securely send payments.
Hence the name. Cryptography is a technology that protects
information through complex math functions.
Cryptocurrencies use strong cryptography to
protect your account and let you securely
Note that security is a highly-dynamic multi-dimensional aspect ie. cryptography alone is
not enough to de ne actual level of security.
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Coins that were created after Bitcoin.
Because Bitcoin's code is open-source, anyone can use Bitcoin's
code to create an altcoin. Many of them seek to improve on
Bitcoin or expand its capabilities.
Altcoins use di erent rules and engage with other economic
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Cryptocurrencies focus on di erent goals, but almost all shared the original purpose of
Some of the most popular cryptocurrencies include Ethereum, Ripple, Litecoin, Dash,
NEO, Monero, and IOTA. The list grows constantly, because new cryptocurrencies are
created all the time.
Anybody is allowed to create their own cryptocurrency. In fact,
there are already over 1,500 di erent ones, and that number is
growing quickly. People are developing new cryptocurrencies
for fun, to solve problems, and to make money.
Because anybody with some technical skills can make them, it's important to know that
some cryptocurrencies are more trustworthy than others.
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E ectively, Bitcoin is a decentralized application for payments.
Ethereum adds another layer by allowing users to put code on
its blockchain that executes automatically. This code is called a
"Smart Contract". In this way, Ethereum hopes to create a
decentralized computing platform - a global supercomputer.
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Ethereum is a decentralized platform
that runs smart contracts.
Ethereum allows participants to execute complex code (smart
contracts) on its ledger.
Ethereum uses a blockchain to track a
cryptocurrency called "ether". Users spend
ether to run programs on the Ethereum
Ethereum is also a construction set for building decentralized
applications. Instead of building their own blockchains from
scratch, developers can use Ethereum's blockchain.
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A unit of value for a blockchain system.
Tokens can be used for payment, access,
voting, and facilitating the overall blockchain
Most tokens are based on Ethereum.
bitcoin is a token that provides ownership of a unit of account
on the Bitcoin ledger (BC). It is impossible to participate in the
Bitcoin ledger without owning bitcoin; bitcoin is the network's
exclusive means of exchange. In this sense, bitcoin isn't a
security, but utility within a network.
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A hash function is any function that can be used to map data of
arbitrary size to data of xed size. The values returned by a hash
function are called hash values, hash codes, digests, signatures,
or simply hashes.
Hash Rate/Power. The number of hash computations per unit time that can be
performed by a mining hardware. The rate determines their mining e ectiveness and
SHA 256. SHA-256 is a member of the SHA-2 (Secure Hash
Algorithm 2) cryptographic hash functions. Digest is 32 Byte
(256 bits) long. Bitcoin mining uses SHA-256 as the Proof of
Work algorithm. SHA-256 is also used in the creation of bitcoin
addresses to improve security and privacy.
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The process by which transactions get veri ed, bundled, and
added to the Blockchain. It's an essential part of any
cryptocurrency, because it processes all transactions.
Mining Pool. A group of people or organizations who come together to pool and share
their computer resources for cryptocurrency mining. They then also split the rewards.
Mining Reward. The payment resulting from volunteering
computer resources to process cryptocurrency transactions.
Mining rewards are often a mix of new coins and transaction
Mining Rig. A computer setup that's specially designed for mining a cryptocurrency. Often
involves multiple graphic cards (GPUs) or other complicated setups for maximum
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An automated mechanism that allows
blockchain participants to agree on which
transactions happened and in which order.
Consensus Point. A point in time when blockchain participants
agree on which transactions happened and in which order. Can
be based on a time interval or based on a volume of
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Proof of Work
Bitcoin uses a Proof of Work scheme to
create distributed trustless consensus and
solve the double-spend problem.
Proof of Work is a requirement that mining be performed.
Miners proof that they did that computational work by nding
the solution of a math puzzle known as PoW problem.
All the network miners compete to be the rst to nd a solution for the mathematical
problem that concerns the candidate block, a problem that cannot be solved in other
ways than through brute force so that essentially requires a huge number of attempts. A
reward (new coins) is given to the rst miner who solves each blocks problem.
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Proof of Work
From a technical point of view, mining process is an
operation of inverse hashing: it determines a number
(nonce), so the cryptographic hash algorithm of block
data results in less than a given threshold.
A Proof of Work is a piece of data which is di cult (costly, time-
consuming) to produce but easy for others to verify and which
satis es certain requirements. Producing a PoW can be a
random process with low probability so that a lot of trial and
error is required on average before a valid proof of work is
generated. Bitcoin uses the Hashcash PoW system.
In order for a block to be accepted by network participants, miners must complete a PoW
which covers all of the data in the block. The di culty of this work is adjusted so as to
limit the rate at which new blocks can be generated by the network to one every 10
Due to the very low probability of successful generation, this makes it unpredictable
which worker computer in the network will be able to generate the next block.
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Proof of Stake
In a distributed consensus-based on the PoW, miners
need a lot of energy. One Bitcoin transaction required
the same amount of electricity as powering 1.57
American households for one day (data from 2015).
And these energy costs are paid with at currencies,
leading to a constant downward pressure on the
digital currency value.
In a PoS scheme, the creator of a new block
is chosen in a deterministic way, depending
on its wealth, also de ned as stake.
All the digital currencies are previously created in the
beginning, and their number never changes. This means that in
the PoS system there is no block reward and the miners take
the transaction fees. This is why, in fact, in this PoS system
miners are called forgers, instead.