Understanding Block Chain and Demystifying Crypto Currencies

Contributed by : Rajni Dhameja, CFA

CFA Society India organised a session on “Understanding Block Chain and Demystifying Crypto Currencies” on Nov 25, 2017. The session was divided into two parts viz: Blockchain which was presented by Hrishikesh Dewan, Director, Zero Labs Private Limited and Crypto currencies, which was presented by Ramani Ramachandran, Co-Founder and CEO, ZPX and Gautam Seshadri, CFA, Co- Founder and Chief Business officer, ZPX.

Key takeaways from the presentation:

– Block chain is a bunch of records ordered in time and stored at central network. It is a distributed system wherein all people in the network (called as nodes) will have access to the same records.

– Once validated, it is difficult to alter the records stored in any of the blocks of the chain, which is what differentiates the Block chain.

– Any new record once entered is validated by one of the nodes which are miners and then that record in the block becomes part of the chain and is difficult to alter.

– There are various applications of Block chain technology : Store KYC, property records, land records, health records etc..

– Bitcoin is one of the largest application of Block chain technology. Bitcoin is a type of crypto currency which aims at disintermediation of the fiat currency. Today, in case of fiat currency, the currency notes are validated by the central Bank which helps in avoiding the double spending of same money. Bitcoin being the virtual currency, it is challenging to track the double spending of the same coin. To tackle this problem, Satoshi invented that Block chain can be used wherein all the transactions done in Bitcoin are validated by the miners and published to the entire network.

– Considering this, Block chain can disintermediate almost anything and everything. That sounds simple enough, but there are still lot of questions which are unanswered like privacy of data, searching the data if it is encrypted to name a few. A lot of research is going on to answer these questions.

– Global banks, some regulators etc. are experimenting with the Block chain. Some countries are researching on virtual version of their own fiat currencies.

– Considering the current situation, crypto currencies have become a new asset class altogether. Bitcoin futures are listed on stock Exchange and the way market capitalisation of crypto currencies have gone up has taken everyone by surprise. Believers in this asset class are viewing it as just the beginning.

– Initial coin offerings (ICOs) have begin to replace the traditional financing models. There are other crypto currencies as well in the market like Ethereum, Ripple, Litecoin etc.. ICOs have raised $1.5 + bn surpassing the early stage VCs. Investing in this asset class comes with its own idiosyncratic risk as one needs to understand lot of things about crypto currencies which are too technical to begin with. There are extreme views on whether or not virtual currencies would become a reality to replace the fiat currency or it would become a sustainable asset class. That is something yet to be seen over coming decade.

– RD