Name: Choolun Pawan Kumar Choolun

Ansha Guness

Nitisha Lollith

Komal Deeksha

Module Name: Globalisation

Cohort: BSc Banking and Financial Services

Group: Ban 3.1

Submitted To: Miss L.M.Amelot

Date: 15 October 2019

ABSTRACT

The development of E-Commerce in the world has impacted to the payment system which
requires such fast, secure, and private. In 2008, a new payment method was introduced by
Satoshi Nakamoto which called Bitcoin. Bitcoin is a series of programming code that secured
by using cryptographic method as a peer-to-peer virtual and independent currency. Since its
launching in 2009, it has generated volumes of debate in economic press whether will Bitcoin
be an opportunity or merely a disruptive innovation in the future. Besides, the legality of
Bitcoin in Indonesia is also questionable. The fact in the field approximates Bitcoin users in
Indonesia reached 700,000 in the late 2017. According to the Article 1 of Indonesian Currency
Law 2011, Currency is a money which issued by the State. Meanwhile, Bitcoin is not
completed that qualification due to the independent issuance of it. Conjointly, Cybercriminals
are attracted to choose Bitcoin as the currency in crime. It is because the distinctive
characteristics of decentralization and pseudo-anonymity in general, and yet Bitcoin has
assessed as representing only a low money laundering risk. By using secondary data and
juridical-normative method, the research aims to analyse the legal existence of Bitcoin as a
new payment method in the form of virtual currency and to provide best solutions for
preventing disadvantages resulted from Bitcoin’s existence itself. Furthermore, the research
also highlights three strong factors should be settled by Indonesian government in dealing
Bitcoin’s matters i.e. demystifying of Bitcoin concept, providing strict substantial provision in
preventing Cryptocurrency misuse, and promoting the awareness among criminal justice
professionals and law enforcement officers.

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ACKNOWLEDGEMENT

All praise is to Almighty God who has enabled to complete our assignment. Indeed it has been
a journey that was marked all throughout with ups and downs, hardships and patience. Writing
this was not a cup of tea for us, as it demands a lot of research works, courage and moral support
from my dear ones.

We would like to express our deepest gratitude and appreciation to Miss L.M.Amelot, our
lecturer, for all his help and support in class and with her own explanation.

We are also grateful to our close friends and parents for their support and encouragement
without whom, this dissertation would have not been possible.

Any accomplishment requires effort and hard work and this work is no different. We believe
that you will appreciate our work and find the content useful.

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Table of Contents
ABSTRACT ............................................................................................................................... i
ACKNOWLEDGEMENT ........................................................................................................ i
Executive Summary ................................................................................................................. 2
Introduction .............................................................................................................................. 4
What Is Cryptocurrency: 21st-Century Unicorn – Or The Money Of The Future? .............. 4
History .................................................................................................................................... 4
Advantages of Cryptocurrency: ............................................................................................. 7
Disadvantages of Cryptocurrency: ......................................................................................... 8
What is a crypto wallet? ......................................................................................................... 9
How do cryptocurrency wallets work? ............................................................................. 10
Types of wallets ................................................................................................................ 10
What is Blockchain?............................................................................................................. 13
Bitcoin .................................................................................................................................. 17
What is smart money? .......................................................................................................... 20
How smart money works? ................................................................................................ 20
Identifying smart money................................................................................................... 20
The scale of smart money ................................................................................................. 21
How Does Cryptocurrency Work? ....................................................................................... 26
What is Mining? ................................................................................................................... 26
The Future of Fintech ........................................................................................................... 27
Conclusion .............................................................................................................................. 28

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Executive Summary

Rapid technological developments bring progress to almost all aspects of human life. Along
with the globalization, people’s need for the fast, secure and private of payment system are
increasing. The economy system has changed due the rapid development in internet system
known as digital economy. It can be seen by the changing of economic activities which mostly
engage in online systems as the media called electronic commerce (e-commerce). E-commerce
is the style of trading which based on the online access and virtual transaction. These
developments have led to renewed interest extraordinary in societies.

One of the major development in economic transaction is non-cash-based instrument which

previously used cash-based system. It is a method of paying for goods and services that does
not involve the exchange of cash such checks and credit cards, for examples. As time goes by,
the non-cash-based instrument has well- developed to be paperless and the recent one is
cryptocurrency. According to Andy Greenberg, cryptocurrency is a digital asset designed to
work as a medium of exchange that uses cryptography to secure its transaction, to control the
creation of additional units, and to verify the transfer assets. As the beginning of 2018, the
number of cryptocurrencies available over the internet is 1,384 and growing. By market
capitalization, Bitcoin (BTC) is currently (18th of February 2018) the largest blockchain
network, followed by Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH), Litecoin (LTC),
and Cardano (ADA).

Bitcoin is a purely peer-to-peer version of electronic cash would allow online payment to be
sent directly from one party to another without through a financial institution. It was introduced
by Satoshi Nakamoto in 2008 and launched in 2009. Since its launching, Bitcoin has generated
volumes of debate among economist whether will Bitcoin be an opportunity or merely a
disruptive innovation in economic sector. In fact, Satoshi Nakamoto is only a name used by
the unknown person or people who designed Bitcoin and created its original reference
implementation. Until now, nobody knows who Mr. Nakamoto is at least as brilliant as the
technology he created in 2008.

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Many countries responded toward this issue by supporting, banning, or having no decision yet.
One of the party who supports Bitcoin is European Union. They have passed no specific
legislation relative to the status of Bitcoin as a currency. Additionally, in October 2015, the
Court of Justice of the European Union ruled that “The Exchange of traditional currencies for
units of the ‘Bitcoin’ virtual currency is exempt from VAT” and that “Member states must
exempt, inter alia, transactions relation to ‘currency, bank notes, and coins used as legal
tender’”, making Bitcoin a currency as opposed to being a commodity. They believed that
Bitcoin could be an opportunity if it is well-managed.

On the other hand, China, as expected as a country that holds much economic power of world’s
economy, has banned mainland residents from trading in cryptocurrencies on exchanges and
made it illegal for Chinese start-ups to raise funds via initial coin offerings a hybrid
crowdfunding, venture capital, and initial public offerings, to put it simply. China believes that
Bitcoin could be a potential to the cybercriminals in near future and harm the economic sector
affairs.

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Introduction

What Is Cryptocurrency: 21st-Century Unicorn – Or The Money Of The Future?

Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions

to conduct financial transactions. Cryptocurrencies leverage blockchain technology to gain
decentralization, transparency, and immutability.

The most important feature of a cryptocurrency is that it is not controlled by any central
authority: the decentralized nature of the blockchain makes cryptocurrencies theoretically
immune to the old ways of government control and interference.

Cryptocurrencies can be sent directly between two parties via the use of private and public
keys. These transfers can be done with minimal processing fees, allowing users to avoid the
steep fees charged by traditional financial institutions.

Today cryptocurrencies (Buy Crypto) have become a global phenomenon known to most
people.

History

In 1983, the American cryptographer David Chaum conceived an anonymous cryptographic

electronic money called ecash. Later, in 1995, he implemented it through Digicash, an early
form of cryptographic electronic payments which required user software in order to withdraw
notes from a bank and designate specific encrypted keys before it can be sent to a recipient.
This allowed the digital currency to be untraceable by the issuing bank, the government, or any
third party.

In 1996, the NSA published a paper entitled How to Make a Mint: the Cryptography of
Anonymous Electronic Cash, describing a Cryptocurrency system first publishing it in a MIT
mailing list and later in 1997, in The American Law Review (Vol. 46, Issue 4).

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In 1998, Wei Dai published a description of "b-money", characterized as an anonymous,
distributed electronic cash system. Shortly thereafter, Nick Szabo described bit gold. Like
bitcoin and other cryptocurrencies that would follow it, bit gold (not to be confused with the
later gold-based exchange, BitGold) was described as an electronic currency system which
required users to complete a proof of work function with solutions being cryptographically put
together and published. A currency system based on a reusable proof of work was later created
by Hal Finney who followed the work of Dai and Szabo.

The first decentralized cryptocurrency, bitcoin, was created in 2009 by pseudonymous

developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, as its proof-of-
work scheme. In April 2011, Namecoin was created as an attempt at forming a decentralized
DNS, which would make internet censorship very difficult. Soon after, in October 2011,
Litecoin was released. It was the first successful cryptocurrency to use scrypt as its hash
function instead of SHA-256. Another notable cryptocurrency, Peercoin was the first to use a
proof-of-work/proof-of-stake hybrid.

On 6 August 2014, the UK announced its Treasury had been commissioned to do a study of
cryptocurrencies, and what role, if any, they can play in the UK economy. The study was also
to report on whether regulation should be considered.

Examples of Cryptocurrency are as follows:

 Bitcoin

The one and only, the first and most famous cryptocurrency. Bitcoin serves as a digital gold
standard in the whole cryptocurrency-industry, is used as a global means of payment and is the
de-facto currency of cyber-crime like darknet markets or ransomware.

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  Ethereum

The brainchild of young crypto-genius Vitalik Buterin has ascended to the second place in the
hierarchy of cryptocurrencies. Other than Bitcoin its blockchain does not only validate a set of
accounts and balances but of so-called states. This means that Ethereum can not only process
transactions but complex contracts and programs.

This flexibility makes Ethereum the perfect instrument for blockchain -application. But it
comes at a cost. After the Hack of the DAO – an Ethereum based smart contract – the
developers decided to do a hard fork without consensus, which resulted in the emerge of
Ethereum Classic. Besides this, there are several clones of Ethereum, and Ethereum itself is a
host of several Tokens like DigixDAO and Augur. This makes Ethereum more a family of
cryptocurrencies than a single currency.

 Ripple

While Ripple has a native cryptocurrency – XRP – it is more about a network to process IOUs
than the cryptocurrency itself. XRP, the currency, doesn‘t serve as a medium to store and
exchange value, but more as a token to protect the network against spam.

Ripple, unlike Bitcoin and Ethereum, has no mining since all the coins are already pre-mined.
Ripple has found immense value in the financial space as a lot of banks have joined the Ripple
network.

 Litecoin

Litecoin was one of the first cryptocurrencies after Bitcoin and tagged as the silver to the digital
gold bitcoin. Faster than bitcoin, with a larger amount of token and a new mining algorithm,
Litecoin was a real innovation, perfectly tailored to be the smaller brother of bitcoin. “It
facilitated the emerge of several other cryptocurrencies which used it’s codebase but made it,
even more, lighter“. Examples are Dogecoin or Feathercoin.

While Litecoin failed to find a real use case and lost its second place after bitcoin, it is still
actively developed and traded and is hoarded as a backup if Bitcoin fails.

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  Monero

Monero is the most prominent example of the CryptoNight algorithm. This algorithm was
invented to add the privacy features Bitcoin is missing. If you use Bitcoin, every transaction is
documented in the blockchain and the trail of transactions can be followed. With the
introduction of a concept called ring-signatures, the CryptoNight algorithm was able to cut
through that trail.

The first implementation of CryptoNight, Bytecoin, was heavily premined and thus rejected by
the community. Monero was the first non-premined clone of bytecoin and raised a lot of
awareness. There are several other incarnations of cryptonote with their own little
improvements, but none of it did ever achieve the same popularity as Monero.

Monero‘s popularity peaked in summer 2016 when some darknet markets decided to accept it
as a currency. This resulted in a steady increase in the price, while the actual usage of Monero
seems to remain disappointingly small.

Besides those, there are hundreds of cryptocurrencies of several families. Most of them are
nothing more than attempts to reach investors and quickly make money, but a lot of them
promise playgrounds to test innovations in cryptocurrency-technology.

Advantages of Cryptocurrency:

1. Lower fees

Transaction fees are lower with bitcoin than with credit cards, and when cryptocurrency is not
exchanged, it also eliminates the need for bank charges.

2. Fraud reduction

A payment made with bitcoin cannot be reversed after the fact. This is different from credit
card payments, which can be reversed using chargebacks, a feature often exploited by
fraudsters.

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 3. Instant payments

Credit card payments can take days or even weeks to come through. Meanwhile,
cryptocurrency offers instant transfers.

4. No barriers

Cryptocurrency makes international trade more accessible by removing barriers and

restrictions to trade, ultimately making it easier to accept payments in different currencies.

Disadvantages of Cryptocurrency:

1. Scalability

Probably the biggest concerns with cryptocurrencies are the problems with scaling that are posed.
While the number of digital coins and adoption is increasing rapidly, it is still dwarfed by the number
of transactions that payment giant, VISA, processes each day. Additionally, the speed of a
transaction is another important metric that cryptocurrencies cannot compete with on the same level
as players like VISA and Mastercard until the infrastructure delivering these technologies is
massively scaled. Such an evolution is complex and difficult to do seamlessly. However, some have
already proposed several solutions, including lightning networks, sharding, and staking as options
to overcome the scalability issue.

2. Cybersecurity issues

As a digital technology, cryptocurrencies will be subject to cybersecurity breaches, and may fall into
the hands of hackers. We have already seen evidence of this, with multiple ICOs getting breached
and costing investors hundreds of millions of dollars this summer alone (one of these attacks by
itself resulted in the loss of $473 million). Mitigating this will require continuous upkeep of security
infrastructure, but we are already seeing many players dealing with this directly, and using enhanced
cybersecurity measures that go beyond those used in the traditional banking industries.

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 3. Price volatility and lack of inherent value

Price volatility, tied to a lack in inherent value, is a major problem, and one of the specifics that
Buffet referred to specifically a few weeks ago when he characterized the cryptocurrency ecosystem
as a bubble. It is an important concern, but one which can be overcome by linking the cryptocurrency
value directly to tangible and intangible assets (as we have seen some new players do with diamonds
or energy derivatives). Increased adoption should also increase consumer confidence and decrease
this volatility.

4. Regulations

Even if we perfect the technology and get rid of all the problems listed above, until the technology
is adopted by federal governments and regulated, there will be increased risk in investing in this
technology.

Other concerns with the technology are mostly logistical in nature. For example, changing protocols,
which becomes necessary when the tech is being improved, can take quite a long time and interrupt
the normal flow of operations.

What is a crypto wallet?

In short, a crypto wallet is a tool that you can use to interact with a blockchain network. There
are various crypto wallet types which can be divided into three groups: software, hardware,
and paper wallets. Depending on their working mechanisms, they may also be referred to as
hot or cold wallets.

The majority of crypto wallet providers are based on software, which makes their use more
convenient than hardware wallets. However, hardware wallets tend to be the most secure
alternative. Paper wallets, on the other hand, consist of a "wallet" printed out on a piece of
paper, but their use is now deemed as obsolete and unreliable.

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How do cryptocurrency wallets work?

Contrary to popular belief, crypto wallets don't truly store cryptocurrencies. Instead, they
provide the tools required to interact with a blockchain. In other terms, these wallets can
generate the necessary information to send and receive cryptocurrency via blockchain
transactions. Among other things, such information consists of one or more pairs of public and
private keys.

The wallet also includes an address, which is an alphanumeric identifier that is generated based
on the public and private keys. Such an address is, in essence, a specific "location" on the
blockchain to which coins can be sent to. This means you can share your address with others
to receive funds, but you should never disclose your private key to anyone.

The private key gives access to your cryptocurrencies, regardless of which wallet you use. So
even if your computer or smartphone gets compromised, you can still access your funds in
another device - as long as you have the corresponding private key (or seed phrase). Note that
the coins never truly leave the blockchain, they are just transferred from one address to another.

Types of wallets

Hot v/s cold wallets

As mentioned, cryptocurrency wallets may also be defined as "hot" or "cold," according to the
way they operate.

A hot wallet is any wallet that is connected somehow to the Internet. For example, when you
create an account on Binance and send funds to your wallets, you are depositing into Binance's
hot wallet. These wallets are quite easy to set up, and the funds are quickly accessible, making
them convenient for traders and other frequent users.

Cold wallets, on the other hand, have no connection to the Internet. Instead, they use a physical
medium to store the keys offline, making them resistant to online hacking attempts. As such,
cold wallets tend to be a much safer alternative of "storing" your coins. This method is also
known as cold storage and is particularly suitable for long-term investors or "Holders’."

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As a way to protect users' funds, Binance only holds a small percentage of coins in its hot
wallets. The remaining is kept in cold storage, disconnected from the Internet.
Noteworthy, Binance DEX provides an alternative for users that prefer not to keep their funds
in a centralized exchange. It's a decentralized trading platform that allows you to have total
control of their private keys, while also being able to trade directly from their cold storage
devices (hardware wallets).

Software wallets

Software wallets come in many different types, each with its own unique characteristics. Most
of them are somehow connected to the Internet (hot wallets). Following are descriptions of
some of the most common and important types: web, desktop, and mobile wallets.

Web wallets

You can use web wallets to access blockchains through a browser interface without having to
download or install anything. This includes both exchange wallets and other browser-based
wallet providers.

In most cases, you can create a new wallet and set a personal password to access it. However,
some service providers hold and manage the private keys on your behalf. Although this may
be more convenient for inexperienced users, it's a dangerous practice. If you don't hold your
private keys, you're trusting your money to someone else. To address this problem, many web
wallets now allow you to manage their keys, either entirely or through shared control
(via multi-signatures). So it's important to check the technical approach of each wallet before
choosing the most suitable for you.

When using cryptocurrency exchanges, you should consider making use of the protection tools
available. The Binance Exchange offers several security features, such as device
management, multi-factor authentication, anti-phishing code, and withdrawal address
management.

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Mobile wallets

Mobile wallets function much like their desktop counterparts but designed specifically as
smartphone applications. These are quite convenient as they allow you to send and receive
cryptocurrencies through the use of QR codes.

As such, mobile wallets are particularly suitable for performing daily transactions and
payments, making them a viable option for spending Bitcoin, BNB, and other cryptocurrencies
in the real world. Trust Wallet is a prominent example of a mobile crypto wallet.

Just as computers, however, mobile devices are vulnerable to malicious apps and malware
infection. So it's recommended that you encrypt your mobile wallet with a password, and
backup your private keys (or seed phrase) in case your smartphone gets lost or broken.

Hardware wallets

Hardware wallets are physical, electronic devices that use a random number generator (RNG)
to generate public and private keys. The keys are then stored in the device itself, which isn't
connected to the Internet. As such, hardware storage constitutes a type of cold wallet and is
deemed as one of the most secure alternatives.

While these wallets offer higher levels of security against online attacks, they may present risks
if the firmware implementation is not done properly. Also, hardware wallets tend to be less
user-friendly, and the funds are more difficult to access when compared to hot wallets.

To overcome the lack of accessibility, you can use Binance DEX to connect your device
directly to the trading platform. This is a secure way of accessing your funds because the private
keys never leave your device. Some web wallet service providers also offer a similar service,
allowing hardware wallets to be connected to their browser interface.

You should consider using a hardware wallet if you plan to hold your crypto for a long time or
if you're holding large amounts of cryptocurrency. Currently, most hardware wallets allow you
to set up a PIN code to protect your device, as well as a recovery phrase - which can be used
in case your wallet is lost.

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What is Blockchain?

While we are doubtful whether cryptocurrencies will ever become a mainstream means of
exchange, the underlying technology, blockchain, is likely to have a significant impact in
industries ranging from finance to manufacturing, healthcare, and utilities. We estimate that
blockchain could add as much as USD 300-400 bn of economic value globally by 2027.

The blockchain is the key mechanism for the Bitcoin. Blockchain was first proposed in 2008
and was designed by Satoshi Nakamoto for Bitcoin. Blockchain could be viewed as a public
ledger, wherein every single transaction is gathered in a chain of blocks. This chain constantly
develops when new blocks are attached to it. The blockchain innovation has the key qualities,
for example, decentralization, persistency, anonymity and auditability. Blockchain can work
in a decentralized situation, which is empowered by incorporating several fundamental
technologies, for example, cryptographic hash, computerized signature (dependent on
asymmetric cryptography) and distributed consensus mechanism. With blockchain innovation,
a transaction can occur in a decentralized manner. Subsequently, blockchain can highly
economize the expense and improve the productivity.

Despite the fact that Bitcoin is the most popular blockchain application, blockchain can be
applicable into differing applications far beyond cryptocurrencies. Since it enables installments
to be made without any bank or any mediator, blockchain can be utilized in different monetary
administrations, for example, digital assets, remittance and online payments.

How does it work? Put essentially, every 10 minutes or so, all clients are required to affirm
every single transactions (called blocks) done on the system, utilizing cryptography (or hash
esteems), and record them in a sequential order (chain). The term block-chain alludes to this
block of transactions recorded in a ledger through an immutable chain (see figure 1).

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Figure1: An example of hash values in blockchain transaction

Security is enhanced by the utilization of hash esteems – series of letters and numbers which
alter data through numerical transformation. If an individual client were to make any
improvements, the hash function would restore a totally different hash value, indicating that
the record has been changed. This aids prevent any malign user from changing past
transactions, making the system immutable.

To summarize the key advantages of a blockchain network:

 Disintermediation:

Blockchain makes the centralized server less relevant. This allows peer-to-peer transactions
with less oversight or intermediation of a third party, while still not exposing the system to
counterparty risks.

 Security:

The cryptographic nature of blockchain transactions makes the network more secure than
traditional databases. Hash values prevent any maligned user from altering the transactions.

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  Resilience:

In addition to its immutability, blockchain networks are resilient as they do not have a central
point of failure. Also, given the encrypted and chain nature of the data blocks, any potential
damage to the data would not affect records of historical transactions.

 Lower costs:

By eliminating or reducing the reliance of intermediates and associated costs, blockchain

networks can significantly reduce transaction costs. The ability to monitor transactions in real-
time, for example, can reduce the effort needed to reconcile dispute resolutions.

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Page | 16
Bitcoin

Bitcoin is an information technology breakthrough that encourages both a safe, decentralized

payment framework and an instrument for the storage, verification and evaluating of data,
including digital presentations of value. Moreover, a bitcoin is the intangible unit of record that
encourages the decentralized computer system of Bitcoin clients. As presently devised, Bitcoin
is an open and transparent framework that enables all clients to effortlessly come to an
agreement on the realness of transactions and data stored on the system, all without the need to
include a trusted third party and without the concern of control of data or value transmitted
over the system.

Adaptations of the Bitcoin innovation consider various controls and access, yet the essential
reason of solid and brief system agreement with respect to information (including value) is at
the heart of this innovation. Unlike customary PC systems and payment frameworks, Bitcoin
is not managed by any incorporated power or constrained by any rights holder. Rather, it was
acquainted with the world as an open source venture. It might be used by any individual,
without charge, by downloading Bitcoin programming and accessing the peer-to-peer network.

These clients collectively provide the framework and computing power that processes and
confirms transactions and data posted through that system and recorded on its decentralized
ledger.

A critical economy has developed, and keeps on growing, around Bitcoin, both as a payment
system and as a potential data innovation tool. There has likewise been significant investment
in bitcoins as an advanced resource. The economy is driven from one perspective by direct
members and investors seeking to upset existing frameworks and on the other hand by financial
systems trying to appropriate the development to improve those equivalent existing
frameworks.

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Other forms of Blockchains: Ethereum and Hyperledger

 Ethereum

Ethereum is the foundation for a new era of the internet:

 An internet where money and payments are built in.

 An internet where users can own their data, and your apps don’t spy and steal from you.
 An internet where everyone has access to an open financial system.
 An internet built on neutral, open-access infrastructure, controlled by no company or
person.

Launched in 2015, Ethereum is the world’s leading programmable blockchain.

Like other blockchains, Ethereum has a native cryptocurrency called Ether (ETH). ETH is
digital money. If you’ve heard of Bitcoin, ETH has many of the same features. It is purely
digital, and can be sent to anyone anywhere in the world instantly. The supply of ETH isn’t
controlled by any government or company - it is decentralized, and it is scarce. People all over
the world use ETH to make payments, as a store of value, or as collateral.

But unlike other blockchains, Ethereum can do much more. Ethereum is programmable, which
means that developers can use it to build new kinds of applications.

These decentralized applications (or “dapps”) gain the benefits of cryptocurrency and
blockchain technology. They can be trustworthy, meaning that once they are “uploaded” to
Ethereum, they will always run as programmed. They can control digital assets in order to
create new kinds of financial applications. They can be decentralized, meaning that no single
entity or person controls them.

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Right now, thousands of developers all over the world are building applications on Ethereum,
and inventing new kinds of applications, many of which you can use today:

 Cryptocurrency wallets that let you make cheap, instant payments with ETH or other
assets
 Financial applications that let you borrow, lend, or invest your digital assets
 Decentralized markets, that let you trade digital assets, or even trade “predictions”
about events in the real world
 Games where you own in-game assets, and can even make real money

 Hyperledger

Hyperledger launched in 2016 with a technical and organizational governance structure and 30
founding corporate members. Hyperledger is an open source collaborative effort created to
advance cross-industry blockchain technologies. It is a global collaboration, hosted by The
Linux Foundation, including leaders in finance, banking, Internet of Things, supply chains,
manufacturing and Technology.

Not since the Web itself has a technology promised broader and more fundamental revolution
than blockchain technology. A blockchain is a peer-to-peer distributed ledger forged by
consensus, combined with a system for “smart contracts” and other assistive technologies.
Together these can be used to build a new generation of transactional applications that
establishes trust, accountability and transparency at their core, while streamlining business
processes and legal constraints.

Think of it as an operating system for marketplaces, data-sharing networks, micro-currencies,

and decentralized digital communities. It has the potential to vastly reduce the cost and
complexity of getting things done in the real world.

Only an Open Source, collaborative software development approach can ensure the
transparency, longevity, interoperability and support required to bring blockchain technologies
forward to mainstream commercial adoption. That is what Hyperledger is about – communities
of software developers building blockchain frameworks and platforms.

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What is smart money?

Smart money is the capital that is being controlled by institutional investors, market mavens,
central banks, funds, and other financial professionals. Smart money was originally a gambling
term that referred to the wagers made by gamblers with a track record of success.

Usually, these gamblers had deep knowledge of the sport they were betting on or insider
knowledge that the public was unable to tap into. The investing world is similar. The populace
perceives that the smart money is invested by those with a fuller understanding of the market
or with information that a regular investor cannot access. As such, the smart money is
considered to have a much better chance of success when the trading patterns of institutional
investors diverge from retail investors.

How smart money works?

Smart money is cash invested or wagered by those considered experienced, well informed, "in-
the-know," or all three. There is little empirical evidence to support the notion that smart-
money investments perform better than non-smart-money investments; however, such influxes
of cash influence many speculation methods.

Important:

Smart money can refer to the collective force of big money that can move markets. In this
context, the central bank is the force behind smart money, and individual traders are riding the
coattails of the smart money

Identifying smart money

Because insiders and informed speculators typically invest more, smart money is sometimes
identified by greater-than-usual trading volume, particularly when little or no public data exists
to justify the volume. Knowing who are the holders of smart money and where they are

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investing can be of great benefit to retail investors who want to ride the coattails of smart
money investors.

Tracking methods group transactional data from commercial and non-commercial traders into
various assets and markets. These "smart money versus dumb money" charts emphasize the
stark differences in how the two groups position themselves in the market. However, smart and
dumb labels are often exaggerated. On an individual basis, most professional portfolio
managers and traders struggle to match the returns of blind index investing over time.

The scale of smart money

Investors with large followings, such as Warren Buffett, are considered smart money investors,
but the scale of their activities is not always taken into account. When the cash reserves at
Berkshire Hathaway accumulate and are not invested, this is definitely a sign that Buffett does
not see many value opportunities in the market. However, Buffett functions on a different scale.
A $25,000 investment is not too significant in a billion-dollar portfolio.

Key takeaways:

 Smart money is capital placed in the market by institutional investors, market mavens,
central banks, funds, and other financial professionals.
 Smart money also refers to the force that influences and moves financial markets, often
led by the actions of central banks.
 Smart money is invested on a much larger scale than retail investments.

Buffett's smart money acquires companies rather than taking a position.

Institutional investors of Buffet's size need scale for overall portfolio impact. Therefore, even
when the smart money is out of value picks in the current market conditions, it does not mean
that there are no opportunities—particularly for modestly sized stocks.

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Financial technology, nowadays better known as Fintech describes a business that aims at
providing financial services by making use of software and modern technology.

Today fintech companies directly compete with banks in most areas of the financial sector to
sell financial services and solution to customers. Mostly due to regulatory reasons and their
internet structures, banks still struggle to keep up with Fintech startups in terms of motivation
speed. Fintechs have realized early that financial services of all kinds including money transfer,
lending, investing payments… need to seamlessly integrate in the lives of the tech-savvy and
sophisticated customers of today to stay relevant in a world where business and private life
become increasingly digitalized.

Fintech Examples

1. Crowdfunding Platforms

Companies like Kickstarter, Patreon, GoFundMe and others illustrate the range of fintech
outside of traditional banking.

Crowdfunding platforms allow internet and app users to send or receive money from others on
the platform, and have allowed individuals or businesses to pool funding from a variety of
sources all in the same place.

Instead of having to go to a traditional bank for a loan, it is now possible to go straight to

investors for support of a project or company. And while their applications range from family
and friends funding to fan and patron funding, the number of crowdfunding platforms have
multiplied over the years.

2. Blockchain and Cryptocurrency

Cryptocurrency and blockchain are examples of fintech in action.

Cryptocurrency exchanges like Coinbase and Gemini connect users to buying or selling
cryptocurrencies like bitcoin or litecoin.

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But in addition to crypto, blockchain services like BlockVerify help reduce fraud by keeping
provenance data on the blockchain. And while cryptocurrency and even blockchain may be
somewhat controversial uses of fintech, they have certainly taken parts of the investment world
by storm in recent years.

3. Mobile Payments

It seems as though everyone with a smartphone uses some form of mobile payments. In fact,
according to Statista data, the global mobile payment market is on track to surpass $1 trillion
in 2019.

Using increasingly sophisticated technology, services have emerged that allow consumers to
exchange money and payments online or on mobile devices - including popular payment app
Venmo.

Apple (AAPL - Get Report) and Alibaba (BABA - Get Report) got in on the mobile payment
business with Apple Pay or Alipay.

4. Insurance

Fintech has even disrupted the insurance industry. In fact, insurtech (as it's been so called) has
come to include everything from car insurance to home insurance and data protection.

Additionally, insurtech startups are increasingly attracting funding, with insurance startup
Oscar Health securing some $165 million in funding in March of last year - at a $3.2 billion
valuation, according to CNBC.

Additionally, popular personal finance company Credit Karma was valued at $4 billion,
according to Forbes in 2019.

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 5. Robo-Advising and Stock-Trading Apps

Robo-advising has disrupted the asset management sector by providing algorithm-based asset
recommendations and portfolio management that has increased efficiency and lowered costs.

Since the rise of more advanced technology that can analyse various portfolio options 24/7,
financial institutions have adapted to offer online robo-advising services - including the likes
of Charles Schwab (SCHW - Get Report) and Vanguard.

Additionally, other popular robo-advising services include Betterment and Ellevest.

Perhaps one of the more popular and big innovations in the fintech space has been the
development of stock-trading apps. When once investors had to go directly to a stock exchange
like the NYSE or Nasdaq, now, investors can buy and sell stocks at the tap of a finger on their
mobile device.

And with inexpensive and low-minimum apps like Robinhood or Acorns, investing from
anywhere with any budget has never been easier.

Potential benefits

 Speed and convenience

Fintech products tend to be delivered online and so are easier and quicker for consumers to
access.

 Greater choice
Consumers benefit from a greater choice of products and services because they can be bought
remotely, regardless of location.

 Cheaper deals
Fintech companies may not need to invest money in a physical infrastructure like a branch
network so may be able to offer cheaper deals to consumers.

 More personalised products

Technology allows fintech companies to collect and store more information on customers so
they may be able to offer consumers more personalised products or services.

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Cryptocurrencies and Blockchain Technology Are Making Inroads into the FinTech
Arena

A whole range of companies within the banking and FinTech industries are starting to explore
ways through which they can take advantage of the electronic ledger technology that powers
cryptocurrencies, such as Bitcoin and Ethereum This distributed system stores data
chronologically in segments known as “blocks” which allow the information to be processed
and transferred almost instantaneously.

Among the benefits of the blockchain technology, that make it so attractive to FinTech
companies and other large institutions, is the lowered risk of fraud since the technology is
notoriously difficult to hack, its speed and the fact that it eliminates intermediary steps between
parties in a transaction.

It is no wonder that many Wall Street giants, including JPMorgan Chase and the Bank of
America, are scrambling to get on the blockchain bandwagon.

However, it is not just the technology that has wowed the industry; the digital currencies
themselves have also started to gain the attention of the FinTech world.

For instance, Seba Crypto AG, a Swiss financial services company, recently raised about $104
million from a consortium of investors as it seeks to set up the world’s first crypto bank where
customers can trade digital and fiat currencies.

According to one of the company’s co-founders, Guido Buehler, Seba’s vision is to make it
possible for customers to access both fiat currency and crypto within the same online bank
account.

Eyal details the huge benefits to the FinTech sector. First, blockchain tech can significantly
speed up bank-to-bank transactions.

“For FinTech, Bitcoin’s ability to facilitate secure transactions when operated by a few
thousand volunteer servers is evidence that perhaps the same could be done for existing
interbank, or bank-to-bank (B2B), transactions, which are operated using secure dedicated
servers. In FinTech’s existing setup, such transactions take a day or several days between
issuance and settlement. Using a blockchain to mediate B2B transactions could improve
performance such that an agreement could be reached in a fraction of that time,” says Eyal.

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Second, FinTech companies will be able to build smart contracts—related to virtually any type
of business or personal transaction—on top of the blockchain black box.

“Because DLT can facilitate the transaction of anything that can be digitally represented—
including fiat currency, arbitrary securities, and physical goods such as gold—the various ways
in which it can be used is a rich area for exploration and research for many central financial
institutions, including major commercial banks, central banks, major accounting firms, and
tech giants,” Eyal writes.

How Does Cryptocurrency Work?

This digital currency gains its security by being stored on a vast digital ledger, called a
blockchain. This blockchain is like a vast public ledger, where all confirmed transactions are
included as so-called “blocks”. As each transaction or block enters the system, it is broadcast
to the peer-to-peer computer network of users for validation. In this way, all users are aware of
each transaction, which prevents someone stealing your money and also prevents double-
spending, where someone spends the same currency twice.

The blockchains are organized and transported by a process called “mining” which also creates
more cryptocurrency.

What is Mining?

Mining, or processing, keeps the Bitcoin process secure by chronologically adding new
transactions (or blocks) to the chain and keeping them in the que. Blocks are chopped off as
each transaction is finalized, codes decoded, and bitcoins passed or exchanged.

Miners can also generate new bitcoins by using special software to solve cryptographic
problems. This provides a smart way to issue the currency and also provides an incentive for
people to mine.

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The Future of Fintech

This decentralized blockchain system is going to change your life from the way you transact
business or manage assets, to the way you use your machines, vote, rent a car, and even prove
who you are. Along the way, it will transform banks and other financial institutions, hospitals,
companies, and governments among others. Experts predict the blockchain could become a
powerful tool for improving business, conducting fair trade, democratizing the global
economy, and helping support more open and fair societies.

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Conclusion

Short-term (3-5 years)

 Increasing Efficiency in the Financial Industry

Since the 2008 financial crisis, large banks are increasingly feeling pressure to increase
efficiency and cut costs wherever possible. To that end, a May 2016 report from Goldman
Sachs estimates that the financial industry alone could realize up to $6 billion/year in savings
through use of blockchain technology. However, this would not necessarily include
decentralized cryptocurrencies such as Bitcoin, but may involve the creation of new proprietary
centralized cryptocurrencies (such as the Bank of England’s newly introduced RSCoin).

The introduction of cryptocurrencies may also lead to increased levels of transparency and few
incidents of fraud. Under current systems, the correct identification of fraud is very manual-
labor intensive and prone to error. However, cryptocurrencies are designed to be explicitly
transparent and automatically detect fraud, greatly alleviating the costs associated with
managing associated systems.

 Emerging Markets
Because cryptocurrencies require only an Internet connection, and are not dependent on
established institutions such as banks, they are ideally suited for societies without a well-
developed financial infrastructure. As with how many individuals emerging markets skipped
over landlines and went straight for mobile phones, the same individuals may skip the overhead
of the traditional banking system and engage directly in mobile banking. For these reasons, we
expect cryptocurrencies to become a major influence in emerging markets over the next 3-5
years.

Long-term (5-10 years)

Financial Market Disruption

Within the cryptocurrency community, one of the most popularized goals is the total
replacement of banks and other centralized financial intermediaries. Although such institutions
may never be fully replaced by a democratized network, their role (and associated profitability)

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may steadily diminish with rise of cryptocurrencies, hopefully leading to the prevention of
future financial catastrophes on the scale of the 2008 crisis.

IoT Integration

Although cryptocurrencies have the possibility to replace functions of the existing financial
infrastructure, their greatest potential may be in incorporating with other technologies to
facilitate a true revolution. The blockchain model is ideally suited for Internet of Things (IoT)
transactions, which require both efficient simplicity and robust security. For example, imagine
if every time you needed to fill up a car with gas, your car could pay the gas station
automatically.

Expanding Industries

In addition to revolutionizing the financial system, the blockchain technology of underlying

cryptocurrencies has the potential to expand across nearly any industry that involves large-
scale record-keeping.

Blockchain could be a massive boon to proponents of effective protection of intellectual

property rights, such as with music and film. New companies such as Ascribe are pioneering
methods for creating secure limited copies of digital media, in order to ensure that artists are
properly compensated for their work, instead of being financial damaged by pirates. Other
examples include the growing "Sharing Economy" (including AirBnB) which can use
blockchain to ease identity and reputation management, and "Smart Grid" utility companies
which could use blockchain to introduce efficient microtransactions for energy consumption.

Far Future (10+ years)

In the very far future, global and democratized cryptocurrencies have the potential to replace
government-backed fiat currencies as the primary means of conducting financial transactions.
With that end in mind, Microsoft has also begun facilitating large-scale simulation tests on
behalf of banks and other large corporations interested in understanding the potential
ramifications for such a large-scale shift in the global economy.

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