Andreas Park PRO
Professor of Finance at UofT
Andreas Park
Part 1: 30,000 ft overview
Part 2: Drilling down
Part 3: Moving along
Part 4: Smart contracts
Objectives
Sue wants to send Bob money
Version 1: They use the same bank
Change ledger entry locally
Version 2: They use different banks but the banks have a direct relationship
Sue's bank transfers from Sue's account to Bob's bank's account
Bob's bank transfers from its account to Bob's account
Version 3: They use different banks that have no direct relationship
Sue's bank transfers from Sue's account to its own account
Bob's bank transfers from its account to Bob's account
Central Bank
Central bank transfers from Sue's bank's account to Bob's bank's account
International transfers
Sue's bank transfers from Sue's account to its own account
Bob's bank transfers from its account to Bob's account
use the Swift network of correspondent banks
Crazy thought:
Wouldn't it be nice if there was a single ledger?
One more: a stock trade
Sue wants to sell ABX
Bob wants to buy ABX
sell order
buy order
Clearing House
Stock Exchange
Broker
Broker
3rd party tech
custodian
custodian
record beneficial ownership
central bank for payment
Crazy thought:
Wouldn't it be nice if the money and stock transfer could be arranged on the same ledger?
Blockchain
=
Ledger
Ledger
=
append-only database
Current world: many databases that need to be reconciled for value transfers
Central database would be most efficient
One thought: distributed database
blockchain is a distributed database that
think of blockchain as
Step 1:
send dollars to (say) coinbase using a bank transfer of a credit card
Step 2:
convert dollars to cryptocurrency at
Step 3:
send crypto to blockchain address
0xA69958C146C18C1A015FDFdC85DF20Ee1BB312Bc
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
Step 1: address
composes and signs transaction
digitally signed
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
Step 2: send transaction to P2P network of validators
Step 3: validators validate that signer owns has sent transaction and owns Ether
Step 4: transactions are bundled with others in "block" and appended to the existing blocks
Header:
Main part
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
}
}
digitally signed
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
Header:
Main part
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
transaction:
0x4E3996EEae8Bb4BC0f041Fd9ead61e639B29167A
sends 0.002 Ether to
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
Objectives
What we now need to understand and drill down to:
By Andreas Park
This deck is for the first of four lectures on Blockchain technology in finance, taught at the Rotman School of Management, Spring 2018. A narrated version is on my YouTube channel (please subscribe!) https://www.youtube.com/watch?v=SZzETQW_cVk&list=PLTmzBTSqnXdtm9qq9H3sRgfTmlX55qZER