Hello and welcome to Colombia Business School Executive Educations, Executive of Webinar Series I'm joined today by Professor Farrokhnia Professor of Economics at the Colombia Business School and the Colombia School of Engineering to talk about blockchain, big coin, and crypto currencies

We had a small technical issue while recording this webinar, it did not capture first minute of the original broadcast Please accept our apologies and enjoy this recording of today's webinar >> The complication of our lives, thanks to technology, in a way it could be interpreted both good or bad Obviously technology is affecting every industry Some more so than others

But in financial services world we are in a position where the application of all these complex matters are creating opportunities that not only need to be understood by technologists who are on the ground doing it, but more importantly for the propagators Pretty much all of you, whether you are a consultant or a banker, or a professional in financial services, healthcare, board members, CEO, and so on and so forth I believe that these topics, for those of you in the audience, need to be learned from the top down as opposed to the ground up And the analogy I'd like to use is that you do not need to know at least at the beginning, only intricacies of all the technology nuances of how, let's say, a bit coin wallet is created And the mathematical formulas and theories behind public, private key encryption technologies and so on and so forth

But just like a general contractor that needs to know how a house gets built from the top down, that's the role I feel would be best suited for you That general contractor obviously perhaps, Is not up to date in terms of the latest code when it comes to the wiring and the plumbing of the structure being built They have a very good overview of all the pieces that go into building this home and they can bring in experts who are plumbers or electricians to enable the building of the house I feel like the same holds true for all of you So in that way we have built this program and this two day seminar happening on October 23 and 24 at Columbia Business School

And on your screen you can see the link to the event site as well as our brand new Fintech program Which was launched very recently and it tries to sit at intersection of and practice in financial services and beyond, but also for those of you who are kind enough to give us time we're including the special discount code, the discount webinar54 For if, for the first 30 of you to sign up for the event That you can take $1,000 off your single ticket purchase So I hope you take advantage of it as well

So to give you an overview of our thinking revolves around demystifying these topics For those of you in the audience who may not have technical background or have it limited engineering capabilities and so on We looked at this space from multiple perspectives and we're able to narrow truly the foundational topics that you need to learn and you need to know In order to fully grasp how all the pieces of ecosystems in the blockchain and crypto currencies and digital token worlds operates and how they interconnect and what's the interoperability and how they would enablize to do and monetize some of the initiatives that in the past are either impossible to do, or we had no venue to monetize it So the sequential topic that I would suggest you embark on your learning and as I mentioned at the end of webinar we'll be emailing you a series of suggested books or readings

Did the disclaimer and again though there's not a lot of good primers for those with no tech background Obviously you can go online and do a search of what is blockchain or blockchain primer and many many hits come up, but you're either too short or too long or too technical, were written by engineers for engineers Or typically by someone whose trying to sell you something We here obviously being a Columbia business school stride to give you the most unbiased content And being able to empower all of you with the knowledge needed to understand all these topics

So the first and foremost area you need to understand is essentially how distributed and centralized communication networks operate In essence in our summit we've talk about how internet itself works, the history and evolution of communication networks The move from centralized to decentralized systems Especially auto protocols require to run the systems I'm sure you might include a few enterprises TCP/IP or IMAP or POP

I'm sure most of you if not all of you have heard of these? But in case you haven't, you know these are some of the main protocols which are pretty much standard operating procedures that enable communications over the internet Whether it's through send and receive email or for data packet to travel through the pipelines of internet and go from one switch or router to the next and how you get data from, request data from a server so on and so forth And literally look at these acronyms, they all end in the letter P And that P stands for protocol So, understanding protocols is quite important for reasons I'll allude to at the end of this list

And they also come into play when we talk about digital tokens and with utility functions So there are some textbooks, some quite tech heavy on these topics But nonetheless, we'll be sending you some information and I'll be happy to entertain questions at the end when it comes to module one of the sequential topics Then, once you have embarked on this, you need to understand the world of encryption and cryptography Since the dawn of human age, we have always been interested in being able to send or receive secret communications that cannot be intercepted

Or if it's intercepted, cannot be read by the party who stored the information And all the way back to the days of the Roman Empire and Julius Caesar, we have methodologies developed that enable us to get the sense of information security Obviously we are in very modern age and you know computers play an important role in encryption and they are actually a foundational part of blockchain and crypto currencies to begin with So having a good understanding of how these topics work specifically around secure hashing and modular arithmetics It will enable you to understand the evolution of cryptography and application of it within the digital token and crypto currencies Thankfully here, there are a lot more books

A lot of them quite accessible And some really good journalists have done a really good job in doing a kind of a storytelling of how encryption and cryptography came about And we also will be sending you information on some of the more advanced topics And obviously, in the two day seminar that I mentioned, we do a deep dive into all the applicable Areas of cryptography and encryption in general, especially those applicable to block chain Once you have these three topics down cold, then you're empowered to understand what block chain is and how it operates

So the first, very first, paper on blockchain dates back all the way to '91 And it kind of talked about the use of blockchain in terms of timestamping, ie, how to create and link a series of digital assets You can think of them as documents, Word documents, that are immutable, and are forever linked together in such fashion that no one can go and back date or edit a document that was set in time at the time of original authorship

So, once you understand the first three topics, understanding how the blockchain operates is actually quite easy So we'll be showing you the original paper I would encourage you to read it, again it's not that hard to read Once you have it, then you have very good understanding of how blockchain operates with a digital currency framework Digital currencies are nothing new

One of my colleague did a count, going back all the way to, to mid 90s to late 90s and he counted over 200 cryptocurrencies or digital currencies that came about, but he never got any attraction There are a couple of issues prior to event the blockchain especially as prescribed in the famous Satoshi Nakamoto paper in 2008, was the fact that we had the problem of trust Ie if you're a brand new startup, and you're enabling movement of money or assets of value who would know about you, and who trusts you? But more importantly, the illusion of double spend You can make a simple analogy that whenever you send an email over the internet with an attachment, you're not really sending the actual document, you're sending a copy of it

So the recipient is not getting the original document, just getting a copy of it So, obviously when it comes to money and sending or transferring money over Internet, it cannot have something of that sort because then you can spend the same dollar for many, many times over And that would be unacceptable So the blockchain protocol enabled and pretty much solved many of the inherent problems that they had before And hence the reason BitCoin became one of the most prominent and most recognizable digital currencies and the rest is history

So, there are also a few books that we recommend reading on BitCoin Also again in the two day summit that we'll have we'll use BitCoin as a primary example of a digital currency that eventually worked Obviously has it's own quirks and there are certain advantages and disadvantages to it And obviously it's an incredibly highly dynamic world we had the recent forking of BitCoin so we'll discuss that, some of the limitations, some of the inherent strength and weaknesses, and so on But more importantly, we'll talk about some of the upcoming cryptocurrencies and Digital Tokens that have gotten a lot of press

Some for good, some for bad So hopefully, we can empower those of you who are in strategic advisory position or as investors, whether on your own or with the institutional investors Kind of hopefully be able to understand what is good and what is bad and separate the chaff from the wheat And also be able to discern a lot of misinformation in this world And the fact that obviously, I'm sure that all of you have heard about Initial Coin Offerings

And all th excitements around it, whether for good or bad So hopefully we can empower you with the right knowledge to make the right decisions in analyzing and understanding what's really happening in that world We also dedicate a good chunk of time on Ethereum and Smart Contracts Etherem it's another protocol, I'm sorry, blockchain based protocol with ether being their cryptocurrency But etherium it's to a large extent highly programmable, especially when compared to BitCoin

And that enables us to do a variety of things Including small contracts which are algorithmically driven contracts and initial coin offerings And do a deeper dive into digital tokens, especially those that have utility functions And I'll be happy to give you some examples for those of you interested in learning more about digital tokens So in essence and in conclusion, strive to look at this entire rule of Crypto in a Blockchain and crytocurrency and digital tokens

And figuring out a methodology, at least proposing methodology of sequential topics that a non-technical person could learn on their own And we're finally in a position to understand how all the pieces connect and how they inter-operate And obviously being in a position to have perhaps for a client conversations or for future strategic purposes, be able to make more informed decisions So as I mentioned numerous times, we'll be sending via email a series of textbooks that I recommend By all means, do not limit yourselves to those

But I thought it would be important to share with you at least some of our thinking and some of our findings in terms of research and what it takes to demystify this very exciting world, which even though it's technically complex is not out of reach for those of you who may not have computer science or math background So in conclusion, I would love to entertain questions Once again, I posted the link to our event on the screen, as well as the link to a brand new program on Fintech at Columbia, program focused on Applied Projects and Advanced Research in Fintech And as well as the discount code you all can use in case you're interested in attending our conference, October 23, 24 at Columbia Business School So with that I'll pass it to Grisham who will help us moderate the Q&A and any questions that you ask

>> Yes there are a couple of questions here related to the question of basically if, sorry just reading through a few to see if I can find some ideas here We hear a lot about blockchain having implications for many industries, not just in Fintech Can you speak for a minute, if there are highlights from your list of resources outside of Fintech? >> Absolutely, yes, indeed, great question So we in the course we'll talk about application of BitCoin, I'm sorry Blockchain Not just in financial services but many other industries that are real states, energy, healthcare and so on and so forth

Understanding of that, blockchain essence allows you to create a ledger, or a list of interlinked documents or digital assets that are immutable Will allow you to do many things, for example in energy allowances that create mini-grids, and be able to connect Multiple homes that say they're using solar panels on their roofs to exchange surplus electricity production amongst themselves without the need to go back to the utility In healthcare, allows you to create immutable list of, let's say, medical appointments or records For instance, the Veterans Affairs Department in the US has certain rules around how doctors in the system gets paid based on who they see

Obviously they thought there would be some incentive for a physician to go and backdate certain appointments or insert some appointments that did not exist or were fraudulent and get paid for it even though no services are rendered And obviously a blockchain would allow you to stop something like that happening But more importantly we can build protocols, we can build systems that enable the monetization of the system for those who built it, whereas before, there was no way to do it Just to give you some example, IMAP and POP, or pop, are essential to email delivery across the Internet but none of us knows the heroes, in that sense, who were able to build it And most of them were either government employees or were in academia

So then pretty much for them this was more of a volunteer effort Whereas in today's world, with the technology and the systems that we have at our disposal, we could build protocols such that it would enable anyone to do whatever comes to your imagination but be able to launch and share in the wealth And also new ways of raising capital There was the famous experiment in which you could pretty much create a crowdsource venture capital model Imagine a venture capital firms without any GPs where the decisions are made by the majority of those who commit money

And this would be highly democratic, and so on and so forth So even though the experiment then was kind of a failure, was a bit of hack and we'll cover this in depth in class and you can read about it online, but it was a good start And it showcased the possibility of this in many realms >> All right so we have a number of questions here, sort of a big question But can you speak to a little bit of what is it specifically that governments and central banks, why they've shown so much resistance to cryptocurrencies? And then, a lot of people are asking about some sort of global perspective, why different countries have varying levels of regulation and acceptance? >> Yes, well obviously I'm not a regulator, so I cannot speak on their behalf, but part of the issue, in my humble opinion, is just the complexity of the matter

And the technical requirements that one needs to have down cold to be able to regulate it Part of it is also the notion of regulators ensuring that they are not stifling innovation by regulating it too soon or too early We could also argue that by not regulating or at least providing guidelines, you're creating uncertainty So both side of the arguments, I think, are valid and you could have a successful defense of it either way But also the complexity of the financial services systems in the US

And the legacies and entrenched methods by which we used to conduct business, typically tend to act as impediments Whereas in some other countries, especially in developing world, they may not be bound to legacy systems or these legacy systems may not be as entrenched as they are in the States So by definition, they are more capable of just experimenting And as I'm sure you've heard, you can go to Africa and you see how prevalent paying by one's phone is and people trade minutes Or use their phone, even though it was an analog phone, to conduct business

In the US you still can't do that to the extent that they have been doing for quite some time So it is a combination of factors but the more and more that we interact with regulators, we understand that they appreciate the impact of it and they want to stay on top of it And to our delight, there are pockets of quite intense activity in understanding it and ensuring that it doesn't pose a threat to the system And at the same token, they can foster innovation >> Got a number of questions

In the realm of security, but specifically For Trying to apply some of this in an actual business environment, what are the chief risks from a security standpoint in adopting cryptocurrency or blockchain technologies in your operations? >> Well it is a multiprong approach to this issue One obviously is security The other issue is identity For those of you on Facebook, you know that one of the core strengths of Facebook and the reason that Facebook became Facebook, is that everyone was tied to just one identity And that was their real identity

Whereas in BitCoin world, you can have multiple identities You can open up as many accounts Obviously nowadays when you do it through a company like Coinbase, they require a lot of identification papers so they know who you are, but that doesn't stop anyone from having multiple wallets so to speak Or you could be from somewhere outside the US, and be in a less stringent regime and be able to hide behind multiple layers of identities and no one will know exactly who you are Also, the notion of, Disrupting one's system in such a dramatic fashion

Blockchain in general hits the banks or financial institutions at the core So a kind of a more measured approach perhaps is warranted And the fact that right now they're mostly focused on using blockchain to reduce costs on back office operation, whether it's reporting or trade settlement Or things of that sort that required a lot of manual labor before, now we can do them in a highly automated fashion, driven by algorithms Which enable much more accuracy and a lot faster settlement times but lower error rate

But lastly, the other impediment is just talent Having good talent who understands the technology, also understands business and are able to connect the dots about disparate worlds and understand both opportunities and risks >> All right, a couple of questions have come in about the relationship between cryptocurrencies, BitCoin in this particular, and actual currencies >> [CROSSTALK] >> Yeah, currencies issued by governments and what you see is the future of that relationship >> Well, humans are quite amazing beings [LAUGH]

If you look at the behavioral economics and the implications of it as applied within the world of cryptocurrencies, it's quite fascinating When you look at the philosophical ideas behind BitCoin, per se, and how over time some of those you could argue that have been compromised, you realize that human ingenuity is truly boundless, whether for good or bad So the trades, trade offs speaking to fierce [INAUDIBLE] Those issued by the Central Bank or central authority versus something like Bitcoin Which is truly decentralized, to a large extent and the advantages and disadvantages of each

And also the incredible high volatility of pre occurances thus far, including BitCoin that they might change Massive percentages from week to week creates certain barriers to adoption And some might argue that BitCoin itself is having a bit of identity crisis, ie, should it act as means to store value just like a gold bullion

Or is it meant more as a currency that facilitates trades and payments And after the forking of BitCoin you have two groups that argued for one application more than the other, and the jury's still out And there's some inherene also limits what the BitCoin can do For instance, in order to run a transaction using your credit card The transition itself probably takes no more than a second or two from a computational perspective, it's very light

Whereas a BitCoin transaction takes about ten minutes to go through and be verified Typically, you have to wait an hour just to make sure, and takes enormous computing power So, whether that can be overcome is obviously open for debate in the research and the crypto currency community And the answer seems to be yes but we are also in a very experimental phase Lot of new initiatives exploring all different angles of it and undoubtedly some winners will emerge

>> All right, thank you I think we have time for one more question here Let's see, I think I have one here See we'd addressed a lot of the sort of elements of these questions, definitely ask things that will overlap quite a bit >> I should mention that one thing I forgot to mention is, the value of BitCoin is whatever the market decides to assign to it

It's not based on any actual, physical group for sure and allowing the same for field currency So just please keep that in mind when you think about BitCoin or other digital currency that are truly digital and not backed by any physical assets >> And so from that actually there is a question that came in by email for the webinar About the relationship between people's awareness, the global awareness of Bitcoin and whether that, we've seen that awareness grow obviously the last few years What effect that has had on adoption and use across industries? >> Blockchain itself is gaining a lot more attention these days than ever before which is a good thing

Because it's a fundamentally paradigm shifting approach to many things So not until long ago people used it to confused BitCoin with Blockchain So obviously they are not the same thing One is the court technology and core foundation, another one it's a crypto currency that's public based of it And develop through the application of it

So the adoption and the things that I mentioned that repeatedly we can do with it are quite amazing And sometimes people are coming up with certain use cases for these But, the industry hasn't caught up to it, so it is kind of developing something and waiting for the world to catch up to it Some approach to it is quite different from country to country from regime to regime Obviously, deep deep activities enabled by Bitcoin in which someone sends you a secret code

And they encrypt your hard drive, and you have to pay them some Bitcoin in order to decrypt it, are the ones that grab the most attention, for good reason But there are also lots of good uses for it, and just like any tools that Ever invented by humans, it could be used for good or bad I always make the analogy that in knife in the hand of the surgeon can save the life and the hands of a murderer can take a life Same thing here, but the story pretty much comes down to the fact that most if not, all inventions

Found applications that were beyond the imagination of the original founder And I'll leave you with one last story and that is when Thomas Edison invented the phonograp The killer application for phonograph in his view after doing some thinking and research was that it would be the best vehicle to deliver sermons to people's homes So you could be sitting at home, and you can listen to any sermon that you want Well, the killer app ended up being actually music

And that's true for a lot of dimensions So the future will tell us what direction we're gonna go And we'd love to be part of the conversations and to our program at Columbia and many other researchers We are exploring this, and hopefully with more of you interested and engaged You all will bring your expertise into it and make it a much richer discussion

>> Great, well, thank you so much for your time today >> Thank you >> And thank you everybody for joining us