Cryptocurrency and

Blockchain primer
MMT roundtable Jan 2018
Disclaimer
Presented by: Dmitry Buterin

● I am not a trader, advisor, consultant - just a curious amateur

● Biased because of my personal ties to Ethereum - and thanks to that I get
exposed to a lot of really smart people in the industry
● Bought my first bitcoins in ~2012, lost all of my initial stash in MtGox hacking /
bankruptcy
● About me: www.buterin.com
First, there was Bitcoin
● Turned 9 years old recently
● Like any technology, built on many prior innovations (hashing, Proof of Work etc)
● Solved the problem of double-spend of digital money WITHOUT relying on
some central authority to
● Open-source:
○ Anyone can view the code and verify it
○ Anyone can take the code, tweak it and create their own version (and many did!)
● Has never been hacked
○ And lots of extremely smart and motivated hackers have tried - $250 Billion at stake!
Blockchain
● Technology in the foundation of Bitcoin
● Cryptographically verified and protected record of all transactions that ever
happened
● Valid transactions can be appended to
● Nothing can ever be deleted or changed
● No central authority needed - a network of participating “nodes” economically
motivated to not cheat
Mining
● Fancy word that really means computers servicing the network by verifying and
signing transactions (“achieving consensus” on what’s correct)
● Each miner has a random chance of being the one to processes the current
block (batch of transactions) - and get a reward from the system
● Most cryptos use Proof of Work: Your chances are proportional to your
computing power, prove your power by constantly solving “cryptographic
puzzles” (hashing)
● Bigger players have advantage: economy of scale for buying hardware, setup etc
● Crazy race to the bottom. The more mining power is out there, the smaller are
the chances of your rig to win the mining reward. Ultimate winner determined by
electricity costs
Ethereum
● Once people realized Bitcoin does work, they tried to tweak and improve it
○ “Lets add feature X and call this Xcoin, now we can use it for stock trading and settlement!”
● Vitalik Buterin worked in Bitcoin magazine and was researching and writing
about these innovations. Eventually came up with an idea of a “universal”
blockchain with a built-in programing language (Bitcoin vs Ethereum is like
HTML vs Javascript)
● Published his idea, a group of collaborators (and many vultures) came
together to work on it.
● Crowdfunded $18mln in August 2014, launched live July 2015
● Currently 2nd biggest cryptocurrency, worth over $100 billion. Runs most
● Just as Bitcoin, open-source, governed by a non-profit foundation
Proof of Stake
● Bitcoin mining consumes crazy amount of electricity.
Not a sustainable path
● Ethereum is the biggest major player actively working to
switch over from Proof of Work to Proof of Stake. (Lots of hate
from miners and doubters! Main reason for ETC existence)
● PoS: chances are proportional to money you are putting
at stake (in escrow). You lose it if you cheat e.g. process
invalid transactions
● Ethereum plans to (gradually) switch to PoS in 2018
● I think this will cause major upheaval in the mining business
Privacy
● Bitcoin, Ethereum
○ Public - anyone can see all the transactions and balance of any account
○ Pseudonymous - anonymous IF an account cant be tied to a particular person
○ You can have 10, 1000, 100 billion accounts if you want
● Privacy-focused cryptocurrencies: Zcash, Monero
○ Transactions are hard to impossible to trace
● Ethereum is adding built-in privacy features soon
Keeping it safe
● Each account has a public address (~account number) and private key
(~password)
● Wallets: software that stores your private keys and allows you to interact with
the blockchain (sign and send transactions)
● Wallets typically provide a backup “seed phrase” - sequence of 12-24 words
that can be used to re-generate all your private keys. Store at least two copies
AND make sure no one else can view them
● You have full control and full responsibility
○ Nobody can take your money away
○ If you lose your private key and backups, NOBODY can restore it for you
Wallets types
● Least safe: wallet on an online exchange
○ They store and manage your private keys to do transactions on your behalf
○ If they are hacked, your money can be gone
○ Getting your forked coins might take time/never happen
● Safer:
○ Desktop software wallets. (consider getting a separate clean computer!)
○ Mobile apps wallets
■ (A bit safer because its harder to get malware onto your phone and for it to get access to
your wallet keys)
● Very safe: Hardware wallets (Ledger, Trezor etc)
○ Dedicated device to store your private keys. Malware can’t get in
● Safest: printed private key not stored on any computer (“paper wallet”)
○ Best for long-term storage - hard to use it for regular transactions
2017, the year the crypto has taken off

From ~$17B to ~$750B !! (~44x)

2017
● Huge uptrend in crypto valuation as money has been pouring in
● Lots of volatility
● Lots of ICOs raising crazy amounts of money (for half-baked ideas)
● New market entrants who have no clue what they are buying
● Lots and lots of hype and outright scamming
How I think about evaluating cryptocurrencies
● Technology - is there real innovation?
● Team
● Community
● Real world usage (besides speculation)
○ Just a handful have this: BTC, ETH, BCH, LTC, XNR, ZEC
● Ownership and economic policy
○ E.g. Bitcoin has a fixed cap, Ethereum annual inflation, Ripple is highly centralized
● Battle hardened?
○ Many ideas look great on paper...and fall apart when highly motivated adversaries pound on
them. The ones with real world usage have battle scars to prove their mettle
ICOs
● Crowdfunding to the extreme
● Issue their own currency (token). Most use Ethereum platform
● Hard to impossible to regulate - how do you stop a Canadian sending some
ETH to an ICO domiciled in Caymans?
● Many of them are basically idea-stage businesses with no product getting
millions if not 10s of millions dollars
● And not giving up equity, just a vague promise that their “token” will have
much higher value IF their manage to deliver their product
● Misalignment of investors and founders incentives
● I think 99% of them will fail
● Some had spectacular speculative returns...for now
Blockchain for world domination
● People are realizing that blockchain ideas and technologies will revolutionize
pretty much every industry
● The new wave of disintermediation of centralized systems (banks, insurers,
identity providers etc)
● Thousands of startups have been created
● VCs are having a major FOMO as best startups bypass them and fund via
ICOs
Current challenges
We are in very very early days!

● Very immature technology. Remember dotcom? Mosaic browser, ugly and

slow HTML pages. Well, crypto has not reached even that point yet.
○ Abysmal scalability
■ Major player Ethereum struggled to support one little game of breeding virtual cats
○ Very poor usability of systems involved (exchanges, wallets, decentralized apps)
○ Security is a big challenge
■ Even big players are not immune! Exchanges, wallet providers
● Industry is a mess
○ Poorly self-regulated
○ Tonnes of self-anointed experts
○ Regulators are scrambling and clueless
Takeaways for you
● Learn about it!!
○ Shameless self-promotion: Lots of great free resources on the website I have cofounded
with friend Ameer who runs it (we met through MMT!) www.blockgeeks.com/guides
● Invest - for the long term
○ Once you have some money at stake, you will be much more motivated to learn more!
○ Risk capital: be prepared for very high volatility and potentially losing all of your money
● Find a way to leverage in your business, in your industry
● Be very very cautious, careful and skeptical