Blockchain for Financial Markets

Day One: From Bitcoins to Distributed Ledgers for Financial Markets

Money

• Digital currencies in a world with negative rates and electronic payments
• The roles and the forms of money in modern economy
• Money creation by central and commercial banks

Understanding Bitcoin

• Transactions
  • Foundations of cryptography: hashing, symmetric and asymmetric cryptography, digital signature, examples
  • How transactions work
  • Pseudonimity
  • Wallets, Exchanges and other services
• The Blockchain
  • Foundations of Distributed Databases: replication vs duplication, homogeneity vs etherogenity, examples
  • Blockchain: Logic, Structure, Security
  • The Blockchain as a Distributed Ledger
  • The UTXO (Unspend Transaction Amount)
  • Other Blockchain Services
• Mining and proof-of-work
  • Foundations of State Machine Replication:fault-tolerance, single points of failure, determinism, transition function
  • The Consensus Protocol
  • Byzantine failure
  • Double-spending risk and Proof-of-work
  • From Game Theory to the reality of Mining

Workshop: Hash functions, Private and Public Key Cryptography, and Transaction Signature

Evolution of Cryptocurrencies

• Prices, stability, “monetary policy” for cryptocurrencies (Hayek coins, Inv and Sav wallets, Seignorage Shares)
• The Bitcoin Scalability issue
• Is Proof-of-Stake possible?
• Non-Turing complete: Multisig and nLockTime but no smart contracts
• The concrete possibility of BitDollar, EuroCoin or BitOfEngland: a central bank cryptocurrency
• Settlement coins: banks from money creation to management

From Bitcoins to Banking: Payments

• Banks in front of transforming payments (Paypal, Apple Pay, Google, etc.)
• Cross-Border Payments
• The Ripple™ model
• Payment channels and other scalability solutions
• Cryptography and its risks – Security, Privacy, Identity
• Disintermediation and Reintermediation

Day Two

From Bitcoins to Finance: Smart Contracts and Ledgers

• From paper to Digital Contracts
• Contract Code Managing a Transaction
• Szabo and Ricardian Contracts
• Ethereum: How it works, Virtual Machine, accounts
• Ethereum Smart Contracts
• What to learn from TheDAO hack
• What is known of other projects:
  • R3 CEV’s CORDA, the Distributed Ledger for Financial Contracts
  • Side-chains, the proposed Bitcoin extensions
  • HyperLedger Project for Interoperability
  • Which Consensus for Financial Markets

Blockchain and Distributed Ledgers in Financial Markets: a market and business reform

• From hype to skepticism, aiming at realism
• Financial Market Problems: consensus by reconciliation
• Too much Trust: Slow Transactions, Costly Duplication, Opacity, Litigations
• The Risk Consequences: Operational Risk, Credit Risk and Capital requirement
• Can we really apply “Blockchain Technology” to these problems?
• From Fintech-hype to a possible business reform enabled by aspects of Tech
• Which business impact from distributed ledgers?
  • Removing hidden trust in business steps
  • Shared accounting on a DLT
  • More efficient automation through smart contracts
  • Cryptosecurity to go beyond centralization

The Business Cases

• Post-trading workflow
• Securities: bonds and equity
• DLT for T+0 and Smart Contracts for riskless symultaneous deliveries and payments
• Using the Ledgers for Voting Rights
• From Coloured Coins to Ricardian Contracts
• Escrow services, trade finance and letters of credit
• From Order-book to Clearing and Settlement on Distributed Ledgers
• Impact on the other players in DLT world: Exchanges, Trade Repositories, Custodians, CCPs and other Financial Market Infrastructures
• Focus on CCPs: replacing them or improving them?

A Detailed Case Study: Collateralized Derivatives

• Variation and Initial Margin. The issue of Reconciliation
• The Margin Period of Risk and The Default Closeout. The consequences of Opacity
• The regulatory response: SIMM, CCPs, Capital regulations
• The CVA/DVA, FVA and Capital costs of imperfect collateral
• Smart CSA Contract for the Variation and Initial Margin
• The workflow on a Distributed Ledger
• Smart Contract automation to reduce Risk and Capital. Role of regulators
• Netting automated algorithms
• The issue of the Valuation Oracle

Workshop: Managing Collateralized Derivatives with Smart Contracts on Blockchains

Oracles

• Bringing data into the Blockchain
• Shelling Point. The Markit Totem™ model
• TLS for communication between different networks and Intel SGX for cloud computing in private networks
• Data providers for DLT. The future of data in DLT

Blockchains and Regulation

• The first regulations made on cryptocurrencies. The opinion of regulators
• The existing regulations that are restraining technological innovation
• How accounting and legal would be impacted
• Which regulations could adapt to increased automation and transparency