Modelling The Economics Of Cryptocurrencies

Transcription

1 Modelling The Economics Of Cryptocurrencies Long Finance Webinar Tuesday, 4 April 2017, 13:00 to 14:00 BST (presentation starts at 13:02) Z/Yen Group Limited Risk Reward Managers 90 Basinghall Street London EC2V 5AY United Kingdom tel: +44 (20)

2 Agenda 13:00-13:05 13:05-13:25 13:25-13:35 13:35-13:40 13:40-13:55 13:55-14:00 Welcome Introduction Cryptocurrency Economics Michael Mainelli, Z/Yen Group Presentation Modelling the Economics of Cryptocurrencies Matthew Leitch, Z/Yen Group Expert discussion Dr Dionysios Demetis, University of Hull General discussion, Q&As Closing remarks

3 Introduction Cryptocurrency Economics Michael Mainelli Executive chairman Z/Yen Group

4 Z/Yen Special City of London s leading commercial think-tank Services projects, strategy, expertise on demand, coaching, research, analytics, modern systems Sectors technology, finance, voluntary, professional services, outsourcing Ø Independent Publisher Book Awards Finance, Investment & Economics Gold Prize 2012 for The Price of Fish Ø British Computer Society IT Director of the Year 2004 for PropheZy and VizZy Ø DTI Smart Award 2003 for PropheZy Ø Sunday Times Book of the Week, Clean Business Cuisine Ø 1.9M Foresight Challenge Award for Financial aboratory visualising financial risk 1997

5 Functions Of Money Money is a matter of functions four: a medium, a measure, a standard, a store.

6 The Eternal Coin Self-referential system upon which all our analysis is based: What does GDP mean? Are competing currencies good or bad? Should money be a long term store of value? [Source:

7 Money As Technology Money is a technology communities use to trade debts across space and time. Representative money Fiat currency Backed Unbacked Money Commodity money Tokens of indebtedness are social desires frozen at a point in time tokens depend on the future persistence of the community and its values. Common tender Composite Baskets - currencies - commodities

8 Private Digital Currencies Combine new payments systems with new currencies that are not issued by a central bank Cryptocurrencies decentralised and require competitive cryptographic proof of work (or of stake) to add blocks (of transactions) to the ledger (blockchain) Examples: Bitcoin but also Ripple, Litecoin, now DasCoin Digital Currencies Central Bank-Issued Digital Currencies Central bank granting universal, electronic, 24x7, national-currencydenominated and interestbearing access to its balance sheet, using distributed ledger technology Examples: none yet, Bank of England is considering the possibility [Source: Bank of England]

9 Mistrust Costs Coins Free for All Nodes No Trusted Third Parties Collective Nodes Woven Broadcasting Supervisor Nodes Efficient Majority Nodes Paper Master Node Central Database Single Trusted Third Party Ethereum Bitcoin Ripple Inefficient

10 AltCoins: Developing & Improving [Source:

11 A convertible store of value unit within a digital asset system Key features DasCoin Ø From fiat currency or Bitcoins > Cycles > DasCoin (no pre-mining or pre-distribution of coins) Ø Authentication through licensing and KYC Ø Cycles can be used to purchase products within the ecosystem e.g. payment system, app, exchange services etc. Ø Supply of DasCoin is capped (c. 8.5 billion units) Hybrid features Ø Permissioned blockchain (to be independently audited) Ø Centralised emission of coins, yet distributed network, decentralised ecosystem

12 DasCoin DasCoin: step by step process USER EXCHANGE Buys with Euros or Bitcoins Vault Account (incl. User information) CYCLES License (different levels) Authentication KYC Wallet Account Use? Yes Digital products & services incl. trading exchange, payment solutions, app development, authentication etc No DASCOIN

13 Questions To Be Considered

14 Theoretical Basis For Modelling Equilibrium assumption it can be modelled Using existing economic activity rates to set exchange rates Timeframe Balance Sheet and/or IS-LM Exchange Rate Quantity Theory of Money Short Statistical correlation Simple rate MV T = S (p. q) = p T q plus distribution Medium Econometric Inflationary and interest-rate expectations, term structure Monetary policy Long Political economy Purchasing power parity Political economy, game theory

15 Purchasing power parity Ø Advertised prices Money supply Theoretical Considerations Ø Inflation Ø Interest rates Significance of money markets Resource efficiency as a payment method Ø Cryptocurrencies: computing effort and competitive make work associated with block validation Methods of estimating exchange rates Ø Fisher equation Ø Simulated currency exchange

16 Presentation Modelling the Economics of Cryptocurrencies Matthew Leitch Senior Researcher Z/Yen Group

17 Prototype Model Design Agent based Discrete time steps Implemented in R Designed to address the huge uncertainties involved ØMultiple runs to allow Monte Carlo simulation ØSystematic experiments varying parameters

18 The Agents A set of merchants A set of customers A currency exchange between the cryptocurrency and Euros. Also, a set of goods, offered by merchants and bought by customers With prices, always in Euros and sometimes also in the crypto-currency

19 The Daily Cycle Of Activity Merchants decide if they will offer cryptocurrency prices and set them Customers make purchases, choosing the best price for a good where there is a choice of currency Everyone decides how much crypto-currency they want to hold and buys/sells on the currency exchange The currency exchange adjusts the price of the crypto-currency for the next day

20 A Single Trial

21 Multiple Trials Trial: A sequence of days representing one possible future Simulation: Multiple trials done to get a distribution of results (i.e. Monte Carlo simulation) Experiment: Multiple simulations to compare results of manipulating parameters systematically

22 A Simulation

23 Early Observations Even with the crude prototype it is easy to see that: ØThe extent to which people decide to participate is crucial ØThe extent to which they wish to hold stocks of crypto-currency is crucial ØAdvertised prices in the crypto-currency influence behaviour and crypto-currency value

24 Expert Discussion Dr. Dionysios Demetis Lecturer in Management Systems University of Hull

25 Discussion?

26 Discussion In what ways do you think that valuing cryptocurrencies is different from valuing fiat currencies? Are there other theoretical approaches worth considering? What questions should this model answer (that have not yet been considered)?

27 Concluding Remarks Michael Mainelli Executive chairman Z/Yen Group

28 Some Of Z/Yen s MDL Research

29 Next Steps Slides to become available on event page White Paper to be published in May Conference Governance and Auditing of Distributed Ledgers/Blockchain Systems, London, 23 May 2017 Ø For more information, contact Simon Mills

30 More Information On this project - DasCoin - and Z/Yen s work on MDL - Long Finance -

31 Get a big picture grip on the details. Chao Kli Ning Thank you!