investing in a new asset class: cryptocurrency · the origin of bitcoin - 2009 •“satoshi...
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Investing in a new asset class:CryptocurrencySanto Domingo, República Dominicana
July 2018
© 2018 LUGNA www.lugna.pt
What is covered?
• Blockchain basics
• Traditional World & FinTech – Where does blockchain fit in?
• Cryptocurrencies 101 – Coins Vs Tokens
• Acquiring, holding and selling cryptocurrencies
• A new asset class for investment – The Token in the ICO
• Traditional regulations vs new technologies
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The origin of Bitcoin - 2009
• “Satoshi Nakamoto” whitepaper
• Bitcoin: A Peer-to-Peer Electronic Cash System
• Unknown identity
• Bitcoin (BTC) was a by-product of a propose decentralized payment system.
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Wikipedia print screen
Distributed Ledger Technology
• Technology based on:• Constant duplication and validation• Security by decentralization• Publicity for control, transparency
• List of records – “blocks” linked and secured through cryptography.
• Records are managed by a network of inter-validating nodes using the same protocol.
• The ledger is public – all transactions are validated chronologically.
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Distributed Ledger Technology
• Any information in any given block cannot be altered retroactively without the alteration of all subsequent blocks –the chain of blocks.
• Decentralization avoids collusion of the network.
• Consensus is required.
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Issues
• Lack of regulation + Uncertainty
• Establishment is (usually) against it
• Full transparency can be an issue
• Crime and Money Laundering
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In the traditional world
• Secure ledgers for digital transactions
• Rapidly accelerates the pace of transaction
• Crowd funding – The ICO
• Elections and transparency
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• File storage & Data Management
• Contracts and Land/Commercial Registries
• Identity Management
Concept
• Encrypted digital currency
• Limited entries in a database, which cannot be changed except by fulfilling specific conditions
• In this regard, the concept does not differ much from a bank deposit
• Key aspects - accounts, balances and transactions
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Traits of cryptocurrencies
• Transactional properties
• Irreversible
• Pseudonymous
• Fast and global
• Secure
• Permissionless 11
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• Monetary properties
• Controlled supply
• No debt but bearer
Tokens• Secondary assets
• Part of an ecosystem
• Market value + Function
• Representation of a
particular asset or utility
• Usually resides on top of
another blockchain.
Coins• Protocols
• BTC/ETH/NEO
• Exhibit the same properties
as Bitcoin
• Altcoins
Coins & Tokens
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Coins by Market capitalization
© 2018 LUGNA
Bitcoin (BTC)• 1st coin
• P2P payments
Ethereum (EHT)• Smart contracts• Tokenization
formula
Ripple (XRP)• Instant payments• Banking uses
Bitcoin Cash (BCC)
• Fork of BitcoinLitecoin (LTC)• Fork of Bitcoin• Faster
Cardano (ADA)• Resource
efficient
Smart contract
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• Custom-build
• Enforces a relationship with cryptographic code
• No third parties
• No risk of downtime, censorship, fraud or third-party interference
• Creation of markets, store registries, transactions, redemptions, liquidation of tokens, triggering of other smart contracts
• Tokens
Tokens to watch
© 2018 LUGNA
UTRUST (UTK)• Payment platform• Buyer & Seller
protection
TRON (TRX)• Decentralized
entertainment applications
EOS (EOS)• Easy deployment
of decentralized applications
GOLEM (GNT)• Decentralized
supercomputer
Tether (USDT)• Not ETH based• Pegged to USD
Ontology (ONT)• Trust ecosystem• NEO based
Types of tokens
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Utility Token
Access products and servicesPlatform based
Payment Token
Currency function
Security Token
Represents asset, stake or equityAppreciation
• Regulatory concerns differ
• Payment – KYC/AML + Banking
• Security – Securities Law
Investment alternatives
• Mining – DIY
• Trading – Direct/Exchanges
• Initial Coin Offerings21
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Mining
• Investment – no lucky trades
• Dual purpose• Creating coins• Confirming transactions
• Hardware vs Cloud Mining
• Electricity price vs market price
• Proof of work vs Proof of stake
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Exchanges - Crypto/Fiat frontier
• Online Marketplace
• Trading Platforms
• Direct Trading
• Brokers
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Exchange Policies
• Reputation + Regulatory compliance
• Fees & Payment methods
• Verification (KYC/AML) requirements
• Geographic restrictions
• Exchange rates and Market cap
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Acquisition, sale and conversion
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Exchange
Merchants
A new fundraising model
• Token sale, token generating event or initial token offering
• Facilitated by smart contracts
• Idea or Product + Marketing + Whitepaper
• Usually project oriented
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The issuer
• Blockchain-based start-ups
• Tech companies
• Venture Capital funds or Crypto Funds
• Traditional Finance & Real Estate
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Benefits
Issuer
• Financing
• Community creation
• Positive network effect
• Non-discrimination
• Global marketing
• Speed
• Settlements over the blockchain
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Participant
• Quick gains
• Liquidity
• Easily transferable
• The network effect of value creation
• Democratizing investment
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Private SaleBigger investorsInsidersSeed capitalDiscounts apply
ICOContributions are collected
KYC / AMLAllocation
Pre-saleReduced % of tokens to sellDiscounts apply
Contributions ofCrypto / FIAT
Allocation of Tokens
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Project is viableBTC ETH NEOUSD EURO
Platform is created /
Investment
Token Listed?
Use of the token
Financing of the project
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ICO
Early Stage
Tokens
Developing regulatory framework
Underlying rights vary
Liquidity may be restricted
Whitepaper & Token sale agreements
IPO
Late stage
Equity
Security Commisions supervison
Ownership – Right to Dividends
Liquidity is higher
Plethora of filings and disclosures
Investment cycle
• Price volatility
• Market manipulation – Whales & Pump and dump
• Sales attributed to ICO cash outs36
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Risks of contributing
• Lack of due diligence – No formal process of auditing
• Poorly designed smart contracts
• Lack of education and familiarity with tech
• Phishing scams
• Regulation on security offerings
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Evaluating the ICO
• Does the team have a track record in business and crypto?
• Is the project feasible?
• Is the company incorporated? Is it regulated?
• Is a token necessary?
• Is the pricing accurate?
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Be aware…
• Traditional world strategies for investment need to be adapted
• Take time to educated yourself
• Volatility issues
• Evaluate ICOs carefully – Team, Corporate & Purpose
• Regulation is increasing
• Consider an advisor when investing large sums in crypto
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