The banking industry needs to know about blockchains, as it stands to possibly force a paradigm change upon the entire industry. This talk focuses on introducing blockchains to laymen bankers in the 8th Annual Bank Tech Asia (Manilla Series).

1. BANKING
ON THE BLOCKCHAINS
PRESENTED BY
.

2. SLIDE #
RUBEN TAN
2
Co-Founder & CTO of Neuroware
Technologist at heart
Involved in distributed startups more than 5
years
Community-Creator & Technology EvangelistRuben Tan
ruben@neuroware.io

3. SLIDE #
NEUROWARE QUICK FACTS
3
1st Malaysian company to graduate from 500 Startups in Silicon Valley
1st company in Asia to provide public blockchain APIs and toolkits
1st startup to develop non-financial, blockchain-agnostic solutions
Helped the world’s 1st bank-backed Blockchain Hackathon in Singapore
Now working with Securities Exchange of Malaysia and Bank Negara
Planning to be first company in Asia to issue equity on blockchains

4. Blockchains
A layman’s introduction

5. SLIDE #
BLOCKCHAINS - WHERE TO START?
5
New Bandwagon?
Silver Bullet?
Snake oil?
The Answer to Everything?
Death of banking?

6. SLIDE #
BITCOIN vs BLOCKCHAINS
6
Bitcoin Blockchain

7. SLIDE #
DOGECOIN vs BLOCKCHAINS
7
Dogecoin Blockchain

8. SLIDE #
ETHEREUM vs BLOCKCHAINS
8
Ethereum Blockchain

9. SLIDE #
A network of nodes each containing a copy of the database
Nodes uses a consensus protocol to agree on what is true in the
database
Data is append-only / immutable, meaning once written into the
database, it cannot be removed, or tampered with
Malicious activities are curtailed by its verification mechanism,
preventing attacks like double spending
HOW DOES BLOCKCHAINS WORK?
9

11. Dissecting Bitcoin
Understanding its internals

12. SLIDE #
Bitcoin is the first digital currency that works
Traded at USD 13 in 2013, now USD 445 in 2016
Released by “Satoshi Nakamoto” in January 2009
Market capitalisation currently at USD 7 billion
Bitcoin’s blockchain is the first public blockchain
Uses Proof-of-work + Longest chain consensus model
Source code is open source - understanding how bitcoin works does
not mean you can attack it in any way
BITCOIN - BLOCKCHAIN AS DIGITAL CURRENCY
12

13. SLIDE #
BITCOIN BLOCKCHAIN OVERVIEW
13
A bitcoin blockchain is made from a chain of blocks
Each block has a hash as their ID
Each block contains the hash of the previous block
This creates a “chain”, or in computing terms, a linked list
Block 1
id: 001
prev hash:
000
Block 2
id: 002
prev hash:
001
Block 3
id: 003
prev hash:
002
Block 4
id: 004
prev hash:
003

14. SLIDE #
A block contains a list of Transactions
… and some misc. meta-data
First Transaction is a Block Reward
Originally 50 bitcoins
Now 25 bitcoins
Soon halving to 12.5 bitcoins
INSIDE A BLOCK
14
Block
Transaction 001
Transaction 002
Transaction 003
Transaction 004
Transaction 005
Transaction 006
…

15. SLIDE #
Each transaction contains inputs and outputs
1 or more Inputs
Which previous output’s coins to spend
Verification details (signature)
1 or more Outputs
Which address to pay coins to
Contract to fulfil in order to receive coins
INSIDE A TRANSACTION
15
Transaction
Input - 10 coins
Input - 2 coins
Output - 5 coins
Output - 3 coins
Output - 2 coins
Output - 1 coin

16. SLIDE #
Outputs describe x amount of coins paid to an address
“Address” is essentially a key; if you have the key, you can unlock the
output and redeem the coins
Outputs can contain complex scripts - paving the pay for smart
contracts
REDEEMING OUTPUTS
16

17. SLIDE #
AND EACH “ADDRESS” REQUIRES A PRIVATE KEY TO ACCESS IT
17

18. SLIDE #
TRANSACTION FEES
18
Transaction
Input - 10 coins
Input - 2 coins
Output - 5 coins
Output - 3 coins
Output - 2 coins
Output - 1 coin
11 coins
12 coins
1 coin as
transaction fee

19. SLIDE #
BITCOIN MINING
19
Block 2
id: 002
prev hash:
001
Block 3
id: 003
prev hash:
002
Block 4
id: 004
prev hash:
003
Block 5
id: 005
prev hash:
004
Miner
Creates a
new block

20. SLIDE #
Each node races to solve a mathematical puzzle called proof-of-
work
First to solve the puzzle gets to add a new block to the chain
Once new block is added, miner collects block reward
Possible that 2 nodes will solve the puzzle at the same time, creating
a race condition and a fork in the chain
Forks are resolved through the longest chain protocol
Proof-of-work + longest chain = bitcoin consensus model
BITCOIN MINING
20

21. SLIDE #
Every transaction records:
How many bitcoins were created as block reward
How many bitcoins were transferred from address A to address
B - inputs to outputs
Great ledger because once a block is added, it cannot be removed or
changed
Attacking the network is extremely costly: electricity cost easily cost
more
BITCOIN AS A LEDGER
21

22. SLIDE #
Ledger is public and anybody can view it
Anybody can start a node and mine bitcoins
Anybody who owns a node has the entire ledger
Owning a node doesn’t mean you can tamper with it
Owning a node doesn’t mean you can attack the network
Owning a node doesn’t mean you can mine malicious blocks
BITCOIN AS A LEDGER
22

23. Beyond Bitcoin
Opening pandora’s box

24. SLIDE #
BLOCKCHAINS AS DISTRIBUTED LEDGERS
24
Immutable, tamper-proof audit-trail
Data easily shared and verified, forced transaction through protocol
Vastly increased security, less vulnerable to attack or outage
Programmable contracts that can radically reduce human errors and costs
“While Fintech Disrupts Banks,
the Blockchains Disrupt Fintech"

25. SLIDE #
Smart contracts that are immutable removes the need for a trusted
intermediary to facilitate any form of lending
Both peers agree on a contract, and trust the blockchain to execute
the contract once both sides fulfil their side of obligations
Possible implementations:
Executing wills
Escrow for digital goods trade
SMART CONTRACTS
25

26. SLIDE #
Since data stored on the blockchain is immutable, ownership
information can be stored on the blockchain
Example implementations
Property ownership
Car ownership
Commodities ownership (gold, silver, etc)
Creative products ownership (art, music, etc)
OWNERSHIP DATA
26

27. SLIDE #
Combines smart contract with ownership data to:
Play music on specific devices, embed contract into music file
Play games on specific machines, embed contract into game files
Operate software on specific machines, can expand to enterprises
and tie into their user database and authentication systems
And more?
Government services tied into smart contracts based on
biometric data
BLOCKCHAINS AND DIGITAL PRODUCTS
27

28. Current Landscape
Finance industry and blockchain technology

29. SLIDE #
BANKS ARE MOVING FASTER THAN USUAL
29
As of January 2016, more than 60 banks and leading financial institutions have made
statements confirming that they are actively working on blockchain projects.

30. SLIDE #
SOME OF THE INSTITUTIONS LEADING THE WAY
30
multiple blockchains for cross-
boarder payments and loyalty
Exploring KYC and AML
via the blockchains
Patented a blockchain
based wire transfer system
Blockchain based
loyalty platform
Blockchain based
remittance platform
Blockchain based
trade finance platform
Custom blockchain
for settlements

31. SLIDE #
HONG KONG
31
‘Government will encourage the industry and relevant
organisations to explore the application of “Blockchain”
technology in the financial services industry, with a view to
developing its potential to reduce suspicious transactions and
bring down transaction costs.’
63rd paragraph, 2016 Hong Kong Budget Plan

32. SLIDE #
ZUG, SWITZERLAND
32
The city of Zug, Switzerland, has announced it will pilot a
bitcoin payments project that will allow local citizens to pay for
public services using digital currency.

33. SLIDE #
SINGAPORE
33
There are other technologies, like blockchains, which is used
for bitcoin, but can also be used for many other applications
like real-time gross settlement, or trade finance verification. So
our banks and our regulators must keep up to date and up to
scratch with these developments
UOB 80th anniversary dinner, Prime Minister Lee

34. Challenges
Roadblocks of blockchain startups

35. SLIDE #
FINTECH ZOO
35

36. SLIDE #
Bitcoin has a bad reputation, and tainted the perception of its
underlying technology (aka blockchains)
Bitcoin, the biggest blockchain, limits itself to 7 tps (vs. VISA at 2,000
tps, max at 56,000 tps)
Non-bitcoin blockchains face technical challenges related to
consensus model
Outside of bitcoin, no standardisation on what blockchains should be
or what protocols blockchains should have at a minimum
Regulators are often overwhelmed by the speed at which blockchains
are developing, let alone understand what they are
BLOCKCHAIN CHALLENGES
36

37. SLIDE #
Industries may be forced to experience a paradigm shift once
automation is enabled by blockchains
Security models are unknown for now, most blockchains are not
battle tested
Most blockchains are at experimental and prototypal stage, not
suitable for mass deployment yet
Difficulty in justifying ROI to senior management, who holds the keys
to funding necessary for blockchain development
There is a divide between industry experts and blockchain engineers
BLOCKCHAIN CHALLENGES
37

38. Thought Experiment
A possible “utopia”?

39. Private
Company
Gov. Tax
Dept.
Central
Bank
Write/Mining
Permission
Decode & read
Transactions
Propose
Transactions

40. Private
Company
Gov. Tax
Dept.
Central
Bank
Relays
Transactions
Mines blockchain
Taxation via
Smart Contracts
Write/Mining
Permission
Decode & read
Transactions
Propose
Transactions

41. Private
Company
Gov. Tax
Dept.
Central
Bank
Law
Enforcement/
Anti-corruption
Relays
Transactions
Mines blockchain
Taxation via
Smart Contracts
Monitors
Transactions
Write/Mining
Permission
Decode & read
Transactions
Propose
Transactions

42. Private
Company
Gov. Tax
Dept.
Central
Bank
Law
Enforcement/
Anti-corruption
Foreign
Company
Relays
Transactions
Mines blockchain
Taxation via
Smart Contracts
Monitors
Transactions
Transacts via
an exchange
Write/Mining
Permission
Decode & read
Transactions
Propose
Transactions

43. THANK YOU
NOW IS THE TIME FOR QUESTIONS
LEARN MORE ABOUT
http://neuroware.io