The Age of Blockchain Cryptocurrencies and Blockchain ISACA

The Age of Blockchain Cryptocurrencies and Blockchain ISACA Kenya Chapter Annual Conference Diani 11 th – 13 th April 2018 Dr Joseph Sevilla @i. Lab. Africa Director Strathmore University Nairobi – Kenya jsevilla@strathmore. ed u

Cryptocurrencies • Bitcoin stole headlines throughout 2017 as it made a stunning rise from around $1, 000 at the start of the year to highs of nearly $20, 000 in December. • January 2017: About $1, 000. • Record High: $19, 850 in mid December 2017. • Stumbled to $12, 000 within days. • Surged again and stumbled again in mid January 2018… • 10 th April 2018: $6, 838. • Decline: Fears it could be banned in South Korea

Bitcoin • Bitcoin: be the most famous cryptocurrency but it is not the most • lucrative one and far from alone in a universe that counts 1, 400 rivals. – Dozens of crypto units see the light of day every week, as baffled financial experts look on, and while none can match Bitcoin's market capitalisation (43%), several have left the media darling's profitability in the dust. In fact, Bitcoin is not even in the top 10 of the crypto world's best performers.

Ripple and Ethereum • Top of the heap is Ripple which posted a jaw-dropping 36, 000 • percent rise in 2017 and early this year broke through the 100 billion euro capitalisation mark. – Others point out that Ripple's market penetration is paper-thin as only 15 people hold between 60 and 80 percent of existing Ripples, among them co-founder Chris Larsen. Ether is another rising star, based on the Ethereum protocol created in 2009 by a 19 -year old programmer and seen by some specialists as a promising approach.

Other Cryptocurrencies • Around 40 virtual currencies have now gone past the billion-euro mark in terms of capitalisation (Jan 2018), up from seven just six months ago. – The Cardano cryptocurrency's combined value even hit 15 billion euros only three months after its creation. • In efforts to stand out from the crowd, virtual currency founders often concentrate on the security of their systems, such as Cardano, which has made a major selling point of its system's safety features. – Some, like Monero, focus on guaranteeing anonymity, and others on share and bond issues, or on speeding up the confirmation time for transactions, like Litecoin. – It is impossible for a cryptocurrency to be the best at all the various tasks.

Market Capitalisation/Prices (11 th April 2018) • In December 2018, the total market capitalisation of all cryptocurrencies • surged to an astonishing $620 bn. Current capitalisation: $264 bn (1, 563 cryptocurrencies, 10, 235 markets, $10 bn - 24 hr vol, BTC Dominance: 43. 9 Name Bitcoin Ethereum Ripple Bitcoin Cash Litecoin Market Cap $116 bn $40 bn $19 bn $11 bn $6 bn Price $6, 849 $410 $0. 50 $652 $114 Vol (24 hr) $4, 3 bn $1, 1 bn $160 m $221 m $204 m Source: coinmarketcap. com

Volatility • The currency’s volatility has alarmed regulators around the world. – Bitcoin bubble is bursting and has a long way to fall, economists warn. – Financiers, established banks and regulators keep issuing stern warnings to the investment community to stay clear of cryptocurrencies. – Analysts meanwhile predict that rollercoaster ride of virtual currencies is set to carry on. – Some analysts predict rise to $30, 000 by the end of 2018. – Part of the problem is that despite the claims that cryptocurrencies could replace dollars one day, the surge in the price was not being driven by any strategic world view but more a simple belief that they will continue to rise in value.

Volatility • Scams on the rise: UK: 999 Bitcon related crimes in 2017 vs 320 • • in 2016. Jan to March 2018: Google, Facebook, Twitter, Snapchat ban ICO’s, Wallet services and trading advice ads. Government and social media reactions explain some of the recent drops.

Initial Coin Offering (ICO) • An unregulated means by which funds are raised for a new • • cryptocurrency venture. An ICO is used by startups to bypass the rigorous and regulated capital -raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin. Also called an Initial Public Coin Offering (IPCO). It usually has a whitepaper which states what the project is about, what need(s) the project will fulfill upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO campaign will run for.

Initial Coin Offering (ICO) • During the ICO campaign, enthusiasts and supporters of the firm’s • • • initiative buy some of the distributed cryptocoins with fiat or virtual currency. These coins are referred to as tokens and are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction. If the money raised does not meet the minimum funds required by the firm, the money is returned to the backers and the ICO is deemed to be unsuccessful. If the funds requirements are met within the specified timeframe, the money raised is used to either initiate the new scheme or to complete it.

Initial Coin Offering (ICO) • In early September, 2017, the People's Bank of China officially • • banned ICOs, citing it as disruptive to economic and financial stability. In February 2018, the SEC (US Securities and Exchange Commission) has “issued dozens of subpoenas and information requests” to tech companies that have held token sales. In 2017, more than $6 billion was raised via ICOs; a further $1 billion has been added to that tally in 2018 to date (1 st March 2018).

Regulatory Concerns • Bitcoin faces a regulatory crunch sooner or later and increasingly we see • • signs of this starting to bite following South Korea’s tentative plans to ban trading on cryptocurrencies and China’s move to shutter mines. Growing consensus among European regulators to act in concert. – Bundesbank has called for a global regulation for bitcoin – France’s finance minister is seeking to draft tougher rules for cryptocurrencies. March 2018: the G 20 group of nations failed to agree on specific regulatory action. The Chicago Board Options Exchange and the Chicago Mercantile Exchange both launched bitcoin futures contracts in December 2017, but with the first contracts set to expire on 17 January, investors were expected to be hit with steep losses. The US Marshals Service held an auction in February 2018 to dispose of 3, 813 bitcoins, worth a cool $52 million. – The coins were seized in “various federal criminal, civil, and administrative cases”.

Bitcoin Mining • Mining involves computers completing complex cryptographic • • problems in return for newly "minted" bitcoins. – The process is an essential part of the bitcoin network, allowing transactions to happen. To ensure transactions are not falsified or records of ownership changed, participants of the bitcoin network must sign off on transactions in "blocks" that are recorded in a decentralised database known as the blockchain. – These blocks are checked and sealed by the bitcoin miners, which do the cryptographic work. In return, they are rewarded with bitcoins. While the system is designed to be decentralised, around 5 large "mining pools" controlled by a handful of companies dominate about 75% of the market.

Use of Power • These mining pools, the bulk of which are in China, use huge amounts of • • power. The amount of energy used by computers "mining" bitcoin last year was greater than the annual usage of almost 160 countries. – Enough to power 3 m US households. – 1 to 4 Gigawatts = 3 nuclear reactors. • Less than 1% US production but growing fast. – Mining a single bitcoin requires $1, 400 -$1, 800 worth of electricity (March 2018). Miners of bitcoin will use about 130 terawatt hours of energy in 2018. Mining operations could consume all the world’s energy by 2020. Canada, Norway, Sweden, Iceland looking to attract mining outfits. – cheap hydro-electric energy and low temperatures to power and cool their servers.

Wallets and Security • Ledger recently raised another USD 70 m to become the leader in • • • cryptocurrency hardware wallets. The French startup has been designing some of the most secure hardware wallets out there. The company has sold a million hardware wallets in 2017. – While this sounds impressive, it is even more impressive when you compare it to 2016. – Ledger only sold 30, 000 wallets in 2016 — it represents a 33 x year-over-year increase. Hackers steal as much as 10 percent of new cryptocurrency funds.

Qarnot Unveils a Cryptocurrency Heater for your Home • French startup unveiled a new computing heater specifically made for cryptocurrency mining. – The QC 1 is a heater for your home that features a passive computer inside. And this computer is optimized for mining. – You can set it up in a few minutes by plugging an Ethernet cable and putting your Ethereum wallet address in the mobile app.

Blockchain • In its simplest form, it is a ledger that multiple parties can see at the same • • • time. The transactions are shared equally between all participants and no one owns the master copy. New information can only be added if the other parties agree, and no one can ever go back and change it. There is a full audit trail that everyone can see. Unlike traditional ledgers that prevent tampering by adding layers of security on top of a database, blockchain weaves the security into the data itself. Blockchain’s combination of immutability, consensus and security means you can trust the data coming from other parties, regardless of whether you trust those parties themselves. This certainty and trust can help create new levels of transparency within supply chains, manage customer loyalty schemes, verify the identity or qualifications of workers, and create new business models that were not possible before.

Blockchain • 2018 will be a tipping point for the innovative technology. • Big businesses are already starting to move from experimentation to piloting • • • real world use cases – most of which is in industries outside financial services. Gartner: in the long term, blockchain "will lead to a reformation of whole industries. " Blockchain technologies "should not be ignored. They offer the potential for substantial change in technology development and delivery as well as in how the economy, business and society operates. ” Forrester: Blockchain's "potential is undeniable: Blockchain technology, if implemented appropriately, supports new business and trust models. ” The World Economic Forum: "Blockchain, or distributed ledger technology, could soon give rise to a new era of the Internet even more disruptive and transformative than the current one. Blockchain's ability to generate unprecedented opportunities to create and trade value in society will lead to a generational shift in the Internet's evolution. "

THANK YOU

Dr. Joseph Sevilla Director - @i. Lab. Africa Strathmore University Tel: +254 722 205428/ +254 733 618135 Email: jsevilla@strathmore. edu Strathmore Student Centre Building (4 th Floor), Keri Road, Madaraka Estate, Nairobi, Kenya. Website: www. ilabafrica. ac. ke www. strathmore. edu