Χοντινυινγ Εδυχατιον Σεµιναρ Μαρχη 3, 2018

TheBlockchain&CryptocurrencyRevolu6onDemys6fied

Kirk Phillips, CMA, CPA, CFE, CBP Author, The Ultimate Bitcoin Business Guide

YourCryptocurrencyJourneystartswithEduca6on

“Aninvestmentinknowledgepaysthebestinterest”

BenjaminFranklin

YourCryptocurrencyJourneystartswithEduca6on

“Informa6onaboutmoneyhasbecomealmostmore

importantthanmoneyitself”WalterWriston,FormerCi6groupChairman&CEO

YourCryptocurrencyJourneystartswithEduca6on

“Informa6onaboutcryptocurrenciesismore

importantthancryptoitself”KirkPhillips

Itallstartedwithasimpleques6on.

Afriendasked,“ShouldIinvest$800inacomputertominebitcoin?”

BITCOIN&BLOCKCHAIN

Overview

1)  IDon’tknowanythingaboutit2)  Iknowsomethingaboutit3)  Iknowalotaboutit

BitcoinPercep6onPOLL

1)  Ihaveanega:vepercep:onofbitcoin2)  I’mneutral3)  Ihaveaposi:vepercep:onofbitcoin

UptonSinclair

“It’sdifficulttogetamantounderstandsomethingwhenhissalarydepends

onhimnotunderstandingit.”

Howtolistentothispresenta6on

ü  Understandbitcoin&cryptocurrencybasicsü  Theimpactonaccoun:ng,finance&audi:ngü  Theopportunityforyourbusiness&careerü Whatitmeansforyou

TheInten6onofthispresenta6on

WhatisBitcoin?“IdothinkBitcoinisthefirst[encryptedmoney]thathasthepoten:altodosomethinglikechangetheworld."

PeterThiel,co-founderofPayPal

WhatisBitcoin?"EconomistsandjournalistsoPengetcaughtupinthisques:on:WhydoesBitcoinhavevalue?Andtheanswerisveryeasy.Becauseitisusefulandscarce."

EricVoorhees,FounderofShapeShi[.io

Whatiscryptocurrency?"Therearethreeerasofcurrency,

commodity-based,poli:cally-basedandnowmath-based."

ChrisDixon,technologyinvestor

Whatisthistechnology?"Attheendoftheday,we'veneverseen

anythinglikethisbefore."

DavidWoo,HeadofGlobalRates&CurrencyResearch,BankofAmerica

Whatwillhappen?“Everythingthatcanbedecentralized

willbedecentralized."

DavidJohnston,FounderofDecentralizedApplica6onsFundandBitAngels

WhatisBitcoin?"Theaverageusershouldpickupbitcoin.To

experiencethefutureofmoney.Togainaglimpseintoanexci:ngtechnology.Tolearnabouthowmoneycouldbeinthefutureandalsobecome

awareofhowlimitedmoneyandbanksaretoday.”AndreasAntonopoulos,BitcoinevangelistandauthorofMasteringBitcoin

WhatisBitcoin?“Everybodyhatesbanks,evenIhatebanks.[bitcoin]willforcetradi:onal

ins:tu:onstoadaptordie.”DavidAndolfa`o,VicePresidentoftheSt.LouisFederalReserveBank

WhatisBitcoin?“Doingabankingtransac:onona

bankingholidaywithoutusingabank.”

KirkPhillips,AuthorofTheUl6mateBitcoinBusinessGuide

WhatisBitcoin’sImpact?"It'simportanttorememberthatifthere

werenobitcoin,therewouldbenodistributedledgertechnology."

h`ps://www.coindesk.com/former-fdic-head-let-the-market-figure-out-bitcoins-value/3-1-18

Whatdoallthetermsmean?v Coins/Tokensv Digitalcurrencyv Virtualcurrencyv Cryptocurrency

v Blockchainsv DLT~Distributed

LedgerTechnology

ThreeFunc6onsofMoney

MediumofExchangeUnitofAccountStoreofValue

A`ributesofMoney

PortableDurableFungibleDivisible

CompareGoldvs.bitcoin

Whothinksbitcoinisanonymous?

Ø Pseudonymousatbest(iden6ty&transac6onsnotlinked)

Ø Transac6onscanbeanalyzedontheblockchainØ CrystalbyBihuryisablockchaininves6ga6ontoolØ BitcoinisNOTthecoinofchoiceforbadactorsØ WilltoolslikeCrystaldestroyfungability?

BitcoinCharacteris6cs

Ø bitcoinsymbolisBTCØ Eachcoinhas100,000,000unitsor8decimalplacesØ Exampleofabitcoinamountis1.89543145BTCØ TotalBTCsupply21,000,000Ø Cryptographic,predictable,fixedmonetarysupplyØ NooneownsBitcoin~Anyonecanownbitcoins

BitcoinAddress&PrivateKeys

Bitaddress.org

BitcoinCharacteris6csØ PUSHvs.PULL

Ø Peertopeer

Ø Nointermediaries(2008)

Ø NoFraud

Ø NoPCI

Ø Nomoregianta`acksilos

Ø Publicledgertransparency

CreditCardChaos

AshokMisra

MoneyTransferMadness

SimonNahnybida

BitcoinSimplified

BTC.org

TheBitcoinBlockchain

Ø  Ablockisabatchoftransac6ons

Ø  Linkedtogetherwithcryptographichashes

Ø  TheBlockchainisachainofblockslinkedbyhashes

Ø  Infeasibletobreakthechainandrewritehistory

Ø  Bitcoinminersprovide“ProofofWork”

Ø  Bitcoinminerscompetefornewbitcoins

Abitcoiner

BitcoinHas4Elements

Ø OpenØ BorderlessØ NeutralØ CensorshipResistance

AndreasAntonopoulos,LTB#329

BitcoinElementsSaidAnotherWay

Ø NetworkØ ProtocolØ Incen6vemechanismØ (ie.Na6vecurrency)

AndreasAntonopoulos,LTB#329

OneVersionoftheTruth

“Ina6meofdeceit,tellingthetruthisarevolu6onaryact.”

unknown

NOTALLBlockchainsarethesame!

BitcoinBreakthrough

Forthefirst6meinhistorywenowhave

“oneversionofthetruth”

Coinmarketcap.com

TheUl6mateBitcoinBusinessGuide™HashedintoTheBlockchain

ProofofExistence

BitcoinBreakthrough

Forthefirst6meinhistorywecanturnmoneyintodataandprogramit

ABitcoinTransac6on&BlockExplorer

Blockchain.info

DesktopWallet&MobileWallet

ReddcoinCore Airbitz.co

Mul6-Sig:AnInternalControlBreakthrough

BitGo

Mul6-Sig:ComplexCorporateExample

Armory

TheFuture

TheAccountantwillbecometheBanker,FinancialAdvisor,SecurityExpertandmorefortheircompany

TheFuture

Cryptocurrencyisinthe1998eraoftheInternet.Youarefindingoutaboutitnow!

CRYPTOASSETSANewAssetClass

CryptoAssets(termsrefined)

CryptocurrenciesCryptocommodi:es

CryptotokensCryptocollec:bles

ChrisBurniske&JackTatar,CryptoAssets2017

Coinmarketcap.com

MarketCapScreenshot1-16-15

1-16-15

Coinmarketcap.com

5-23-17

Coinmarketcap.com

2-27-18

BuyOrderonaCryptocurrencyExchange

Cryptsy(nowdefunct)

CryptocurrencyCrowdsales~TheICO

Ø Anewprotocolprojectcreatesit’sowncoin

Ø BitcoinistheINTERFACEtoallothercoinsØ AlmostanyonecaninvestintheIni6alCoinOfferingØ It’sNOTsharesinacompany(willbe)Ø It’slikeowningpartoftheprotocol,alicensetouse

CryptocurrencyCrowdsales~TheICOIni6alCoinOffering

TheICO~Ini6alCoinOffering

h`ps://elementus.io/token-sales-history

RemembertheThreeFunc6onsofMoney?ConsidertheintrinsicvalueofCryptoAssets

h`ps://www.coindesk.com/former-fdic-head-let-the-market-figure-out-bitcoins-value/

SheilaBair,FormerFDICChief,suggestedthatwhile…cryptoslackan‘intrinsicvalue,’neitherdocurrenciessuchastheU.S.dollar….“thegreenbillsinyourpocketdon'thaveanintrinsicvalue,either,”shewasquotedassaying.3-1-18

YapeseRaiStones(StoneMoney)8,800lbs.

ByEricGuinther-EnglishWikipedia,CCBY-SA3.0,h`ps://commons.wikimedia.org/w/index.php?curid=161923

o CarvedfromlimestoneinMicronesiao TransportedfromPalautoYapbycanoe

o NoLimestoneonYap=PerceivedValue

o RaiaretransferredbyanORALHISTORY

o TOOBigtoMOVEo MiltonFriedman,“It’sagoldstandard”

IfMiltonFriedmansays,“StonescanbeGOLD”whycan’tGOLDinthegroundbea

cryptocurrency?“NowwecandigitallymineGOLDwithoutactually

physicallyminingit.KirkPhillipsWhatdoyouthink?

ByEricGuinther-EnglishWikipedia,CCBY-SA3.0,h`ps://commons.wikimedia.org/w/index.php?curid=161923

Tradle~KYC-as-a-Service

v KYCisafounda6onallayernecessarytobridgeblockchainwithtradi6onalfinance

v Thenmuchmorebecomespossiblev AnAssuranceMarketplace…..v CapitalwillFLOWlikeELECTRICITY!

Tradle~KYC-as-a-ServiceIden%ty.Contractualandperformanceriskmi6ga6onstartswiththeKYCduediligence.KYCisnecessaryforregulatorycompliancereasons,butweputittouseforassessingthelegalstatusofthecompany,itscorebusinessac6vi6es,professionalismofdirectorsandcharacteroftheowners.Assurance.Further,theintegra6onwithaccoun6ngpackagesandanindependentaccoun6ngaudit,allowstoachievecreditriskmi6ga6on.Creditra%ng.Insuranceoffersaresidualriskcover,thuseleva6ngSME’dcreditra6ng.Thisfinalstepmakesitpossibletobundleupandsecuri6zeloans.Audit,paidbyaninsurancecompany,notbytheSME,allowstoavoidaperpetualconflictofinterestthatplaguestheassuranceindustry.

Tradle~KYC-as-a-Service

CryptocurrencyNon-financialUseCasesØ DecentralizedInternet(Maidsafe)Ø Decentralizedfilestorage(Storj,Sia)Ø Documentimmutability(Factom)Ø Privacycoins(Monero,Dash,Zcash)Ø Governance(Boardroom)Ø Predic6onMarkets(Augur,Gnosis)Ø Smartcontracts(Ethereum)

CRYPTOCURRENCYTAXATION

Conver6bleVirtualCurrency•  IRSNo:ce2014-21~3-25-14:Statesvirtualcurrencyis

treatedlikeproperty(thepropertyrulesapply)•  NOGUIDENCESINCETHISTIME•  MakeaUSDtransla:onatthe:meofatransac:on•  CapitalgainsandlossescomputedonALLtransac:ons•  TherecanONLYbeoneLEGALTENDER

ANewRealmofTaxableEvents&Considera6onso  Forks&ChainSplitso  Like-KindExchangeso  Airdrops&Giveawayso  TokenSwapso  Tippingo  AcceptableValua:ono  CostBasisMethod

o  “DoubleCapitalGainParadox”BitcoinasaConduit

o  ADeMinimisElec:ono  Dealers&Traderso  Dominion&Controlo  PriceDiscovery

SECURITY,RISK&STRESS

ANewRealmofRisko  KeyManagementRisko  Cogni:veRisko  Blockchain

InteroperabilityRisko  BlockchainCon:nuity

Risko  Encryp:onRisk

o  Forks&ChainSplitRisko  ConsensusRisko  GovernanceRisko  SocialEngineeringRisko  CodeManagementRisko  WalletRisko  LegacyRisk

Howdoyousecurepasswords&privatekeys?

****TheGoldenemailRule****Themostvaluablesecuritytakeaway!

ü  UseONEemailforcommunica6onandaDIFFERENTemailforUSERNAMES

ü  Bob.Jones@gmail.comvs.X#Hp9!n*5Q@gmail.comü  OtherwisehackersALREADYhaveyourusernameü  BruteforcingbecomesEASY

ExamplesofBitcoinHardwareWallets

Trezor

Ledger

ExamplesofBitcoinPaperWallets

Trezor

Ledger

ACASESTUDY:Ethereum,TheDAO&Governance

Ø TheDAOraised$150MM+inSpring2016crowdsale

Ø EthereumSmartContractsPlahormØ Marke6ngbe`erthantheexecu6onØ THENahackerdrains$60MMØ EthereumETHFORKS&EthereumClassicETCisbornØ OneCHAINbecomesTwoCHAINS

ACASESTUDY:Ethereum,TheDAO&Governance

Ø NOONEpredictedtheChainSplitØ 10%ofminerscon6nuedtominetheoriginalchainØ EthereumcommunityhasbeenatoddseversinceØ Visith`ps://ethereumclassic.github.io/Ø BREAKOUT#3:STUDYtheTimelineØ Whatdoyouthink?

ACASESTUDY:Ethereum,TheDAO&Governance

Transac:onFinalityofETC“Webelievethecorevalueproposi6onofanyblockchainisimmutability;validtransac6onscanneverbeerasedorforgo`en.Individualsinterac6ngonEthereumClassicaregovernedbythisreality;CodeisLaw.”“Transac6onsarefinal;applica6onsareunstoppable.”

ACASESTUDY:Ethereum,TheDAO&GovernanceTransac:onFinalityofETC“Thisdoesnotnecessarilymeanthatcodereplacesexis6nglaws,orthatonlycodeislaw...ByenteringintocontractsonEthereumClassic,youcanbecertain…theoutcomeoftransac6onswillbedictatedbycodeyouvoluntarilyinteractwith.Unlessexplicitlydefinedbythecontractcode,therearenoreversals,noundos,noopt-outs.”

ACASESTUDY:Ethereum,TheDAO&GovernanceDecentralizedGovernance“Therearemanyproblemsthatfesterduetocentraliza6onandopaqueness;corrup6on,unaccountability,nepo6sm,inefficiencyandstagna6on.Ul6mately,centraliza6onleadstofragility;onlydecentralizedsystemscanstandthetestof6me…webelievethatonlytrulydecentralizedprojectscansurviveinthelongrun.”

ACASESTUDY:Ethereum,TheDAO&GovernanceButwait,there’smoretothestory…...7-19-17

Ø  ParitywalletHACKresultsin$30MMgone

Ø  Asimplebuginthewalletcode(mul6-sig)

Ø  ThreeICO’s:Edgeless,SwarmCity&Aeternityimpacted

Ø  Lot’sofRISKabounds

ACASESTUDY:Ethereum,TheDAO&GovernanceButwait,there’sEVENmoretothestory…...11-9-17

Ø  ParitywalletFREEZEresultsin$152MMfrozenfundsØ  Polkadot$145MMICOraise~$98MM“FROZEN”Ø  TheonlywaytosolveisANOTHERhardforkØ  600walletslockedbytheissueØ  Lot’sofRISKabounds

ACASESTUDY:Ethereum,TheDAO&GovernanceButwait,there’sEVENmoretothestory…...2-8-18

Ø  FourmonthslaterNOsolu6onsandtensionsmountØ  Astatechangeproposalputforthbythosewithfrozen

fundswasvehementlyREJECTEDØ  “Returninglostfundsshouldberareandincreasingly

excep6onal.”AlexVandeSande(ETHdeveloper)

ACASESTUDY:Ethereum,TheDAO&GovernanceButwait,there’sEVENmoretothestory…...2-8-18"Theauthorsares:lllookingforacertainclassofpeoplewhocanmakejudgments.Theyarelookingforauthori:es...singlepointsoffailureandtheneedoftrust[is]whatethereumtriestoavoid.”YoichiHirai(ETHdeveloper)

ACASESTUDY:Ethereum,TheDAO&GovernanceItkeepsoncoming…...2-28-18

v  JamesLevywaspaid40,000ETHon11-24-15($35,000)v  3WeekslaterALLETHishackedv  Nowhewantsahardfork~EIP867Proposal(standard

forfundrecovery)v  Causeofthehack:WEAKPASSPHRASEv  40,000ETHisnowworth$35,000,000

COGNITIVECRYPTOSTRESS“It’sanewrealmofstressandriskwherehumannaturehastoadapt”KirkPhillips

“Yourmindhastobefreeandclearoryouwillmakemistakes.Thestakesincryptoarehigherandyouhavetostepupyouroverallgameinlife.”KirkPhillipsAsT.HarvEckersays,“Howyoudoanythingishowyoudoeverything.”

COGNITIVECRYPTOSTRESS“I’msayingthistoinspireyounottoscareyouawayfromcrypto.”KirkPhillips

“Themarrowandessenceofcryptoishaving100%responsibilityandcontrol.”KirkPhillipsAsStephenCoveysays,“Putfirstthingsfirst.”

IndustryProfessionalOrganiza6ons

YourCryptocurrencyJourneystartswithEduca6on

“Aninvestmentinknowledgepaysthebestinterest”

BenjaminFranklin,Phila17XX