FINA3324 Introduction to Blockchain and Bitcoin Assignment

Question 1

"In reality, blockchain is one of the most overhyped technologies ever. For starters, blockchains are less efficient than existing databases. When someone says they are running something "on a blockchain", what they usually mean is that they are running one instance of a software application that is replicated across many other devices...Blockchains can make sense in cases where the speed/verifiability trade- off is actually worth it, but this is rarely how the technology is marketed. Blockchain investment propositions routinely make wild promises to overthrow entire industries, such as cloud computing. without acknowledging the technology's obvious limitations."

a) Do you agree with Nouriel Roubini and Preston Byrne? Is blockchain "...on of the most overhyped technologies ever." Explain.

b) What do you think is the greatest innovation that came from Nakamoto (2008)?

"A third false claim concerns the "trustless' utopia that blockchain will supposedly eliminate the need for financial or other reliable intermediaries. This is absurd for a simple reason: every financial contract in existence today can either be modified or deliberately breached by the participating parties. Automating away these possibilities with rigid "trustless' terms is commercially non-viable, not least because it would require all financial agreements to be cash collateralised at 100 per cent, which is insane from a cost-of-capital perspective."

c) What is meant by "... cash collateralised at 100 per cent"? How can this be linked to having a margin account when buying futures contracts?

d) What is a smart contract?

e) Do you think smart contracts will revolutionise contracting between parties?

Question 2

Tyler Winklevoss identifies bitcoin as 'gold 2.0'. "So whatever your reasons for investing in gold — whether it's scarce, durability, portability, fungibility - we think that bitcoin matches or beats gold across the board." Do you think bitcoin is comparable to gold? Do you think the market would adopt bitcoin as an alternative-gold investment? Why does Tyler think that it could beat gold?

Question 3

Will global shares follow bitcoin's boom bust cycle? Australian Financial Review March 12, 2018
"History shows that the collapse of major equity market bubbles is often preceded by severe declines in prices of riskier assets, which are usually dismissed as inconsequential at the time... For instance, when the dotcom bubble burst in 2000, the companies that were first to fall were the speculative stocks that had the worst track records in terms of generating profits" - Australian Financial Review March 12, 2018

a) How is the dotcom market similar to what we see in the crypto-market today? Are there differences? (This question requires you to do some reading on the dotcom bubble).

b) If the market expects higher levels of inflation, what kinds of assets do you expect the market to invest in? Do you think the market would favour bitcoin?

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