Fintech Slides Intro - Lec 3
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Transaction Life Cycle
1. Someone Requests a Transaction via something called a wallet. 2. The transaction is sent (broadcast) to all participation computers in the specific blockchain network. 3. Every computer in the network (peer) checks (validates) the transaction against some validation rules that are set by the creators of the specific blockchain network.
Blockchain Timeline
2008 A document is published online called 'Bitcoin: a peer-to-peer electronic cash system'. The document outlines how to build a digital currency that is secure and transparent without a bank or central body. It's written by an unknown person called 'Satoshi Nakamoto'. 2009 Satoshi launches Bitcoin in January 2009 as an alternative to the current financial system and centres of power. At 18:15 on 3 January Satoshi writes a hidden message into the genesis block (first batch of payments): The Times 03/Jan/2009 Chancellor on brink of second bailout for banks. Interest starts to build about this new, truly peer-to-peer currency. 2010 Bitcoin Market, the world's first cryptocurrency exchange is set up. The (now famous) Bitcoin Pizza Guy, Lazlo Hanyecz, makes the first real world payment in Bitcoins (BTC). He pays 10,000 BTC for two Papa John's pizzas. With the pizzas worth millions just a few years later, May 22nd is officially crowned Bitcoin Pizza Day. The (now infamous) cryptocurrency exchange, Mt. Gox, launches. Bitcoin's market cap (total value) reaches $2bn. 2011 Silk Road, an online marketplace is launched in February. Anonymous users buy and sell (mostly illegal) goods in Bitcoin. The cryptocurrency takes the brunt of the bad press. At the same time, the price of 1 Bitcoin reaches $1, driving interest. More people start mining Bitcoin. Satoshi hands over maintenance of the Bitcoin code. He or she leaves at least 50 Bitcoins in a wallet (that are still there to this day) and disappears. The first searches for the term 'blockchain' start appearing on Google. Since Bitcoin's code is open source (available to the public) people start making their own coins. Namecoin, Litecoin and Swiftcoin, appear on the scene. All have their sights set on becoming a global currency. 2012 Tether, the first cryptocurrency to be pegged to the US dollar, is proposed. OpenCoin (now called Ripple) is born. Instead of using mining to verify payments like Bitcoin, it uses consensus among members of the network. Wordpress.com starts accepting Bitcoins. People start to realise that Bitcoin's underlying tech-blockchain-could have other applications. Companies, teams and individuals race to investigate different use cases of blockchain. 2013 The FBI shuts down Silk Road and arrests its owner, charging him with life in prison. In Florida, USA, a homeless shelter starts accepting Bitcoins. Interest grows in other blockchain-related businesses. Pantera Capital, the first US Bitcoin investment firm invests in cryptocurrency exchanges Coinbase, Circle and Bitstamp. Vitalik Buterin, a 19-year-old developer who co-founded Bitcoin Magazine, has a vision for a new kind of cryptocurrency. One that can do more than simply make payments. He proposes this in a whitepaper called 'Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform'. After a huge spike in price, Bitcoin hits $1,000 but immediately falls again and doesn't reach the same high until 2017. China bans its banks from trading Bitcoins. 2014 Mt. Gox, now the world's largest cryptocurrency exchange, is hacked and loses 850,000 Bitcoins. The exchange files for bankruptcy. Vitalik and his team lead a successful ICO (initial coin offering or crowdfunding campaign) to kickstart Ethereum. US Marshals sell 30,000 Bitcoins confiscated from Silk Road. All are bought by billionaire Bitcoin enthusiast Tim Draper. OpenCoin rebrands to Ripple Labs and creates their own cryptocurrency called XRP. They announced partnerships with major banks that sends the price rocketing. In December 2014, XRP overtakes Litecoin as the second biggest currency. 2015 NASDAQ begins a blockchain trial to improve speed, efficiency and lower cost. Barclays, Credit Suisse, Goldman Sachs, JP Morgan and RBS form a new blockchain consortium called R3. Ethereum launches its own blockchain. Capital One, Visa, Citi Ventures and NASDAQ invest in Chain, a company building private blockchains for businesses. Ripple Labs is fined $700,000 by US financial agency FinCEN for selling their cryptocurrency XRP without registering with them first. The world's biggest open source non-profit, The Linux Foundation, launches Hyperledger; a set of tools to help people create blockchain projects. 2016 A project called The DAO is built on top of Ethereum and raises a record $150m by selling its tokens in return for Ether. The DAO loses $50m to a hacker who exploits a weakness in the code. Most of the Ethereum community decide to hard fork (split the blockchain in two) to retrieve the stolen Ether. The others maintain the original version of the network and rebrand to 'Ethereum Classic'. The new fork proceeds as Ethereum. IBM starts offering BaaS (blockchain-as-a-service) to businesses. Zcash, a new cryptocurrency with unprecedented security, is launched. Google joins IBM, Amazon and Microsoft in testing blockchain services with clients. Goldman Sachs and Santander pull out of the R3 consortium for reasons that are unclear. 2017 European banks band together to form the Digital Trade Chain, offering businesses trade finance on the blockchain. Bitcoin is recognised as legal currency in Japan. Vitalik announces his plans to switch the Ethereum network from proof of work to proof of stake. Tencent, one of the world's largest corporations, announces TrustSQL-a blockchain platform for businesses. More people are using the Bitcoin network than ever. But because it's limited to around 7 transactions per second, fees rise. Developers don't agree on how to improve it, resulting in a hard fork. Bitcoin Cash is born on 1 August. World boxing champion Floyd Mayweather Jr. uses his celebrity to promote the stox.com ICO, which goes on to raise $30m. The WFP (World Food Programme) successfully runs an experiment to serve 100,000 Syrian refugees using blockchain technology. Bitcoin's price reaches an all-time-high of almost $20,000 before falling to less than half exactly a month later. 2018 The US state of Arizona accepts taxes in bitcoin. The Long Island Iced Tea company changes its name to Long Blockchain Corp. and sees shares rise nearly 300%. Camera company Kodak announces plans to create its own KodakCoin. Shares rise 60%. Switzerland begins accepting taxes in bitcoin. America's biggest retail store, Walmart, runs a trial with IBM to track and verify the source of food on the blockchain. Cryptocurrency EOS raises $4bn in the biggest ICO ever. Many believe it will one day replace Ethereum. Santander partners with Ripple to offer customers next-day international transfers. It's the first UK bank to use blockchain technology. Consensus, the world's biggest annual blockchain conference, reaches 4,000 attendees. In 2015, there were just 400. The IMF (International Monetary Fund) declares that 'cryptocurrencies pose a limited threat to financial stability'. Spanish banking group BBVA, Swiss multinational investment bank UBS and Microsoft all express interest in blockchain-based smart contracts. The world's biggest crypto exchange, Binance, packs up and moves from China to Malta. Malta becomes recognised as one of the most blockchain-friendly nations on Earth. According to Forbes.com, nearly 15% of finance companies are using blockchain today.
The Development of Bitcoin
2009: Bitcoin announced by Satoshi Nakamoto - Pseudonym for person or group of person 2009-2011: slow start... 2011-2013: Silk Road and Dread Pirate Roberts 2013--: Bitcoin price skyrockets - and the world notices!
Transaction Life Cycle
4. Validated transactions are combined and stored into a block and are sealed with a lock (hash). 5. This block becomes part of the block chain when other computers in the network validate if the lock on the block is correct. 6. Now the transaction is part of the block chain and can not be altered in any way.
Based on the 2007 PWC Global FinTech Report
88% of incumbents are increasingly concerned they are losing revenue to innovators 77% of Financial Institutions will increase internal efforts to innovate 82% expect to increase FinTech partnerships in the next three to five years
Merkle Tree
A Merkle tree is a tree in which every leaf node is labelled with the hash of a data block and every non-leaf node is labelled with the cryptographic hash of the labels of its child nodes. It can be used to hash a large file or a combination of multiple files.
Bit
A bit (short for binary digit) is the smallest unit of data in a computer. A bit has a single binary value, either 0 or 1 (yes or no, black or white, on or off). 2 bits can store 4 different values, 00, 01, 10, 11 N bits can store 2N different values We need at least 4 bits to represent the 10 digits 0—9.
Byte
A byte is 8 bits can an represent 256 different values A byte typically refers to a memory storage of a single character Computer storage, memory or disk drives, generally reports the size in terms of bytes, such as 256 MB, 500GB, 2TB.
Distributed Ledger
A distributed ledger is a database held and updated independently by each participant (or node) in a large network. It is a solution to the cost of trust. Records are not communicated to various nodes by a central authority, but are instead independently constructed, maintained, and updated by every node.
Magnetic stripe card
A magnetic stripe card is a type of card capable of storing data by modifying the magnetism of tiny iron-based magnetic particles on a band of magnetic material on the card. The magnetic stripe is read by swiping past a magnetic reading head.
Nibble
A nibble is 4 bits can an represent 16 different values In addition to the 10 Arabic numerals, there are 6 values left. We use A-F to represent hexadecimal digits with decimal values 10-15.
Bitcoin
A peer-to-peer internet currency that allows decentralized (verification) transfers of value between individuals and businesses. Bitcoin is the system bitcoins are the units In economic terms - A global currency - An international clearing system - A payment system/network
Payment Cards
ATM card, a card that enables depositors to access automated teller machines (ATMs) for transactions such as cash withdrawals, deposits, account balance information. ATMs are often connected through interbank networks. Credit cards and debit cards can also use ATMs. Stored-value card: a card that stores a monetary value that typically is not in a financial system. Stored-value cards are usually anonymous.
Example
Alice sends one bitcoin to Bob. To do this, Alice enters Bob's Bitcoin address, and then her wallet uses the digital signature (private key) to authorize the transaction. Once Alice hits the "Send" button, the system verifies that Alice actually has enough bitcoin to send. This verification is done automatically by comparing Blockchain copies. If it is a valid transaction, it is added to the Blockchain for processing.
Payment Processing
Authorization Clearing Settlement
Interest Charge Calculation
Average Daily Balance Method Daily balance method
Interest Charge Calculation
Average Daily Balance: When cards use this method you are charged interest once a month, based on your average balance. All of your daily balances are added up and then divided by the number of days in your billing cycle. Then this number is multiplied by your monthly interest rate which is 1/12 of your APR.
Bitcoin
Bitcoin can serve as a medium of exchange and a unit of account. Yet it is arguable whether Bitcoin is exactly a stable store of value. It is technically equipped to do the job: coins saved in an encrypted wallet on a hard drive can be retrieved for later use in purchases. But the currency's worth is prone to wild gyrations.
Background of Crypto Currency
Bitcoin is the first implementation of a concept called "cryptocurrency", an idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority.
Payment Methods
Cash, checks, payment cards, automatic funds transfers, wire transfers, cryptocurrencies
Forms of Money
Commodity money Convertible fiat money True fiat money with no intrinsic value Digital money (including Cryptocurrencies)
Commodity Money
Commodity money has intrinsic value. The best example is gold. Gold used to serve as money because it was intrinsically valuable. When people traded their goods for gold, it was necessarily because they wanted gold; rather, it was more often because they believed that they could buy things they wanted with gold. That is, gold has the "generalized purchasing power." Other examples: chickens, eggs, shells, cigarettes
Contactless Payment
Contactless payment systems are payment cards and other devices, such as smartphones, that use radio-frequency identification (RFID) or near field communication (NFC, e.g. Samsung Pay, Apple Pay, Google Pay) for making secure payments. The embedded chip and antenna enable consumers to wave their card or handheld device over a reader at the point of sale terminal. Contactless payments are made in close physical proximity.
Convertible Fiat Money
Convertible Fiat Money: Paper money backed by a certain commodity, such as gold and silver. The paper titles to the commodity were exchanged, not the commodity itself. The gold standard: the government guarantees that paper money can be exchanged for a specified amount of gold. In this sense, the paper money backed by gold was still a kind of "commodity money."
Payment Cards
Credit card: A line of credit (credit limit) issued by financial institutions to cardholders who can use for payment for purchases or cash advances. The cardholder is required to repay the "minimum amount" by due date. Debit card: also called bank card or check card. When a cardholder uses a debit card to purchase something, funds will be withdrawn from the cardholder's bank account. Cardholders can withdraw cash from an ATM and/or cash out along with purchases.
Card Fees
Credit card: the current Visa interchange fee is 1.51% plus $0.10 for a swiped consumer credit card. Debit card: A "regulated" card (any card issued by a bank with more than $10 billion in assets) is capped at 0.05% plus $0.21. An "unregulated" card (any card issued by a bank with less than $10 billion in assets) is capped at 0.80% plus $0.15.
Interest Charge Calculation
Daily balance method (Including new transactions): daily balances are used to determine interest charges. The daily balance is: beginning balance for each day and add any interest charge from the prior day (known as compounding of interest) and any new transactions or other debits (including Annual Membership Fees, transaction fees, Penalty Fees, any other fees and unpaid interest charges). subtract payments or credits and treat any net credit balance as a zero balance.
Regulations to innovations in Fintech
Data Storage Privacy and Protection 54% Digital Identity Authentication 50% AML/KYC 48% New Business Models (crowd-funding, and Peer 2 Peer Lending) 40% E-Money/Crypto Currency 30%
Number Systems
Decimal: base 10-- 0, 1, 2, ....9 Binary: base 2—0, 1 Hexadecimal: base 16: 0, 1, 2, ...9, A,B,C,D,E,F
Money Multiplier
Define: C = currency held by the non-bank general public, D = demand deposits held by the non-bank general public C/D = cd; the desired currency-deposit ratio R = bank reserves = currency held by the commercial banks ("vault cash") plus their demand deposits in the central bank R/D = rd; the desired reserve-deposit ratio.
Digital Money
Digital money is a type of currency available only in digital form, not in physical (such as banknotes and coins). It is accounted for and transferred using computers. (Money is just a number) Digital Money is a balance recorded electronically on a stored-value card or other device, such as internet.
Bitcoin System
Documentation: Ledger Clearing Transactions: Block Chain Clearing House: Miners Currency of Transaction: BitCoin Currency: BitCoin Form of Transaction: P2P + Anonymous
Barter
Double Coincidence Problem: In a barter economy there is no money for transactions. Without money, it would be difficult for people to trade with each other. If you produce apples and you want to trade for eggs, you must find a producer of eggs who wants apples. This problem is called the double coincidence of wants.
EMV / chip card
EMV stands for Europay, MasterCard, and Visa, the three companies that originally created the standard. EMV cards (chip cards or IC cards) are smart cards that store their data on integrated circuits in addition to magnetic stripes (for backward compatibility). EMV cards adds an additional layer of sophisticated fraud protection through an embedded microchip that turns cardmembers' information into a unique code when used at a chip-enabled terminal that is difficult to duplicate or copy.
Distributed Ledger
Every single node on the network processes every transaction, coming to its own conclusions and then voting on those conclusions to make certain the majority agree with the conclusions. Once there is consensus, all nodes update the distributed ledger and maintain their own identical copy.
Fiat Money with no Intrinsic Value
Fiat money: money that has no intrinsic value, such as the dollar bills in our wallets, is known as fiat money. Fiat money is just a piece of paper that is not backed by any commodity.
Fractional Reserve Banking
Fractional reserve banking is a banking system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. Full-reserve banking (also known as 100% reserve banking) is a proposed alternative to fractional-reserve banking in which banks would be required to keep the full amount of each depositor's funds in cash, ready for immediate withdrawal on demand.
Currency, Deposits and Money Multiplier
Further, Reserve-deposit ratio: rd=R/D=0.132 Currency-deposit ratio: cd=C/D=0.133 Money multiplier: mm= (1+cd)/(cd+rd)= 4.28 Ratio of M2 to Base: mm=14,538.8/3400.8=4.28
GA Fintech Companies
GA Fintech $120Bil US Purchase Trans $128Bil US Purchase Vol $5.14Tril Est US Pur by GA $80Bil Emply GA Fintech 38,000Pesons Est Rev. GA. Bas Comp. $72Bil
Expected Return on Investment Fintech
Global 20% Asia 25% North America 23% Latin Ameirca 22% Africa 18% Oceania 16% Europe 14%
Credit Card Interest
Grace period: A grace period is the gap between the end of your credit card's billing cycle and the date your payment is due. With most credit cards, if you pay your balance in full and have no cash advances outstanding, you won't be charged interest on new purchases you make during this interval.
Hashing
Hashing means turning an input string of any length and into an output of a fixed length. In the context of cryptocurrencies like Bitcoin, the transactions are taken as an input and run through a hashing algorithm (Bitcoin uses SHA-256) which gives a 256-bit (64-digit) long output. 2256 possibilities. If you can try 1000 times per second, in 80 years, you can try 80 x 365 x 24 x 3600 x 1000 times.
Hyperinflation
Hyperinflation is caused by excessive money supply growth: When the central bank prints money, the price level rises. If it prints money rapidly enough, the result is hyperinflation.
Fulll Reserve Banking
In a full reserve system, banks can act as intermediaries between savers and borrowers because the reserve ratio is only imposed on the money that the customers currently have the legal right to withdraw, basically demand deposits. In a full reserve system, banks can lend out time deposits which depositors do not have the legal right to withdraw.
Wealth Management
Increase in digital solutions that firms can integrate to improve operations Increased innovation in research tools and analytical capabilities to enable better investment decision-making Shift from technology-enabled human relationships to digital experiences with human support
Banking
Increased customer empowerment/control of financial matters Emergence of new services and solutions for unserved/underserved customers Enhanced credit underwriting using non-traditional metrics to determine applicant creditworthiness
Insurance
Increased sophistication of data models and analytics to better identify and quantify risk Increased sophistication in methods to reach, engage and serve customers in a highly-targeted manner Rise of aggregators to compare products and services from different providers
Elements of Bitcoin
Individuals Wallet (accounts) Identity is anonymous Private Key • Public Key Transactions Peer-to-peer (decentralized) Digital Signatures Verification of "identity" All transactions are public
Fiat Money with no Intrinsic Value
Legal tender laws: The government mandates that dollar bills must be accepted as a way of payment. In a fiat money system, people accept money because they believe it will function as generalized purchasing power, not because the government mandates that the money is legal tender. In other words, the value of money comes from the faith that it will be accepted by everyone else.
Proof of Work
Let M represent the messages from all the transactions, miners need to find a number k such that the hash value h(M + k) is small enough, for example, have five leading zeros. You can imagine h(M+0)=78456...; h(M+1)=ad980... h(M+2,000,000)= 089ec...it's a guessing game, good luck!
M1
M1 is defined as currency in circulation plus demand deposits (or checking accounts) held by the non-bank general public in commercial banks. M1 does not include: 1) currency held by commercial banks (which is part of M0) and 2) demand deposits held by commercial banks in the central bank. Still, M1 includes the major part of M0 and is considerably larger than M0. M1 reflects the quantity of assets serving as media of exchange in the hands of the nonbank general public.
M2
M2 = M1 plus savings deposits and small-denomination time deposits (say below $100,000). Although these claims are not as liquid as demand deposits, they are close to.
M3
M3 = M2 plus large-denomination time-deposits. (say above $100,000)
Hash Functions
MD 5: It produces a 128-bit hash. Collision resistance was broken after ~2^21 hashes. SHA 1: Produces a 160-bit hash. Collision resistance broke after ~2^61 hashes. SHA 256: Produces a 256-bit hash. This is currently being used by Bitcoin. Keccak-256: Produces a 256-bit hash and is currently used by Ethereum.
Card Technology
Magnetic stripe EMV / chip card Contactless Risk and Fraud Control
Functions of Money
Medium of exchange: an item buyers give to sellers when they want to purchase goods and services Unit of account: the yardstick people use to post prices and record debts Store of value: an item people can use to transfer purchasing power from the present to the future
Elements of Bitcoin
Miners Validate Transactions (Clearing house) Record transactions (Solve a complicated mathematical problem; Proof of work) Remuneration (When a block of transactions is recorded) and Transaction fees
Money Creation
Money creation: repeated lending and depositing increase money supply.
Money Supply
Money supply in an economy is usually measured as one of the following alternative monetary aggregates: M0: the monetary base. The monetary base is defined as fully liquid claims on the central bank held by the private sector, It consists of currency (coins and notes) in circulation and demand deposits held by the commercial banks in the central bank (only the commercial banks that are allowed to have demand deposits in the central bank)
Money as One Side of Trade
Money, as a medium of exchange, is used to solve the double coincidence problem and make transactions easier and more efficient. It can be viewed as a lending tool. Money serves as generalized purchasing power: sellers are willing to accept money because they are confident that money can later be used to buy what they want. As a result, a monetary economy makes it easier for people to specialize in producing certain goods.
Money Multiplier
Notice that the currency-deposit ratio, cd, is chosen by the non-bank public, whereas the reserve-deposit ratio, rd; is chosen by commercial banks. In many countries there is a minimum reserve-deposit ratio required. On top of the reserve requirements, banks may hold excess reserves, depending on their assessment of their lending risks and need for liquidity.
Check 21
On October 28, 2004, the Check Clearing for the 21st Century Act (Check 21) was passed to enable banks to handle more checks electronically, which should make check processing faster and more efficient. Traditionally, banks often physically move original paper checks from the bank where the checks are deposited to the bank that pays them. This transportation can be inefficient and costly. Check 21 allows banks to process checks electronically by capturing a picture of the front and back of the check.
Bitcoin
On October 31 of 2008, a person or a group named 'Satoshi Nakamoto' released a white paper called "Bitcoin: A Peer-to-Peer Electronic Cash System." Purposes: A new currency with limited supply Secure transactions Protection against double-spending Anybody can be a "merchant" or a "customer". Pseudo-anonymity
Credit Card Interest
On the other hand, if you pay off most of your statement balance but leave even $1 unpaid, each new purchase you make during the current billing cycle, plus the unpaid balance, will be assessed interest. So, pay off your credit card in full!
Peer to Peer Payments
P2P payments allow the transfer of funds between two parties using their individual banking accounts or credit cards through an online or mobile app. PayPal is an early innovator in the field and is still the most widely used peer to peer payment service. Three leading mobile apps: Venmo, Zelle, and Square Cash.
Seigniorage
Seigniorage: the right of the lord (seigneur) to mint money"), is the difference between the value of money and the cost to produce and distribute it. Say it costs 2 cents to print a $1 dollar bill. Then the government gains 98 cents when it prints that dollar and uses it to buy something. Increase money supply will lead to rise in inflation. Inflation means that money is worth less in real value; seigniorage is like a tax on all money holdings.
Technologies of Fintech
Social media New economy Big data Mobile revolution Blockchain Cloud computing Internet of things
Bitcoin Transaction Life Cycle
Someone Requests a Transaction Transactin broadcasted through P2P Computers(nodes) Miners Verify the Transaction Transactions combined to form a data block New Block added to existing blockchain The Transaction is complete
FinTech Disruption
Startups 75% Financial Infastructure Companies41% Traditional Financial Institutions 28% Social Media Internet Platforms 55% ICT and Large Tech Companies
Miners
Successful miners are rewards with bitcoins and transaction fees. When all 21 million bitcoins have been created, miners will continue to get small transaction fees, but no new bitcoin. The block reward started at 50 BTC in block #1 and halves every 210,000 blocks. This means every block up until block #210,000 rewards 50 BTC, while block 210,001 rewards 25. Since blocks are mined on average every 10 minutes, 144 blocks are mined per day on average. At 144 blocks per day, 210,000 blocks take on average four years to mine.
Bitcoin Problems
Support of government Consumption of resources (power, internet...) Security Competition from other cryptocurrency Tax issues Criminal activities Is it a Ponzi game?
Nonce
The "nonce" in a bitcoin block is a 32-bit (4-byte) field whose value is adjusted by miners so that the hash of the block changes anytime the nonce value changes.
Block Chain
The Bitcoin block chain is a public record of all Bitcoin transactions. You might also hear the term used as a "public ledger." The block chain shows every single record of bitcoin transactions in order, dating back to the very first one. The entire block chain can be downloaded and openly reviewed by anyone, or you can use a block explorer to review the block chain online.
Employment Opportunities
The FinTech Talent Development Insights Report defines the talent areas where the current need is critical, describing the competencies essential for individuals seeking to enter the FinTech sector. It also presents recommendations—a proposed set of initiatives for the University System of Georgia (USG) — to address the current requirements of more than 5,000 professionals, plus the ongoing and long-term and robust talent needs of the state.
Authorization
The cardholder swipes the card at the merchant location. The merchant's bank asks the payment brand network (Visa or MasterCard) to determine the cardholder's bank and request approval for purchase. The issuer approves the purchase. And the payment brand network sends approval to the merchant's bank. The merchant's bank sends approval to the merchant. The cardholder completes the purchase and receives a receipt.
Settlement
The cardholder's bank sends payment to the merchant's bank. The merchant's bank pays the merchant for cardholder's purchase. The cardholder's bank bills the cardholder.
M0
The central bank controls the supply of M0 mainly through open-market operations, that is, by buying and selling treasury bonds with the private sector.
Magnetic stripe card
The magnetic stripe contains three tracks of data. Each track is about one-tenth of an inch wide. The first and second tracks in the magnetic stripe are encoded with information about the cardholder's account, such as their credit card number, full name, the card's expiration date and the country code. Additional information can be stored in the third track.
Clearance
The merchant's bank sends purchase information to the payment brand network. The payment brand network sends purchase information to the cardholder's bank, which prepares data for the cardholder's statement. The payment brand network provides complete reconciliation to the merchant's bank.
Hash Function
To be secure, a cryptographic hash function needs to have the following properties: Deterministic Quick Computation Pre-Image Resistance Collision Resistant Small Changes In The Input Changes the Hash
Elements of Bitcoin
Transaction Block - List of transactions that are unrecorded Transaction Block Chain - List of transactions that have been recorded: Public Ledger
Example
Transactions are bundled together. Each of these bundles is called a block. Each Bitcoin block gets filled up with new transactions until it's full. Overflowing transactions are simply added to the next block. Miners compete to be elected as a leader and choose the next block to be added to the blockchain. They compete through Proof of Work to find a solution to a particular mathematical problem. Once a miner wins the game, a new block is added to the blockchain and the transaction is completed.
Payments
Use of advanced methods, tools and technologies to improve information security and predict, detect and analyze fraud Proliferation of mobile wallets and new payment options Increase in use of consumer data to improve value-added service offerings
Fiat Money with no Intrinsic Value
legal tender laws can not really compel people to accept money; they can always choose not to sell or sell for an astronomical amount of money. When there is hyperinflation, people no longer have faith in money, and money becomes worthless pieces of paper.
