Crypto Finance and Decentralised Financial Intermediation: An Introduction

Welcome to the course on Crypto Finance. In this course, we’ll explore the key concept of decentralized financial intermediation, which is made possible by recent advances in the blockchain technology. In this video, we’ll have brief overview of the structure for this course and our plan of learning. If you have followed the recent news, you’ll have no doubt noticed the concept of financial decentralization has received quite a bit of hype. Think about the innovations that we have studied in the other courses of this series. Most of them are centralized systems in a sense that only one or a few key parties carry out most of the important intermediation tasks.

For instance, in a credit card transaction, the card network, and issuing, and the acquired banks carry out all essential services for a vast network of users. By contrast in a decentralized financial system like Bitcoin, the network of users itself provides most of the intermediation tasks, like transaction verification all in a peer-to-peer setting. Although the idea of decentralized intermediation is not new and had been around for decades in the form say, peer to peer file sharing. It is new in a financial setting, and in this setting is usually done using the new blockchain technology and some level of cryptography. We’ll broadly label this space as Crypto Finance or crypto for short.

Here unlike pay tech innovators such as PayPal, which specializes in the front end, newcomers in this space aim to significantly dis-intermediate the backend of a financial system, replacing or more realistically enhancing some aspects of our traditional bank driven centralized financial transaction system with a network driven decentralized system on the blockchain. Whether this is feasible, how different aspects of the blockchain technology could be connected to the different aspects of the financial market, and where could blockchain deliver the most efficiency gains at reduced costs are the key focus for this course. We’re going to look how these topics in four main modules. Lets focus on the different aspects of the blockchain.

The first module gives you a comprehensive and buzzwords free introduction to a generic blockchain. It turns out that it doesn’t matter what blockchain we look at. Be it Bitcoin, Ethereum or others they all share some common components which are actually not new at all and have been around for a long time. We’ll look at how the data is stored on a blockchain, how they’re transport and propagated, and how different parties of the network reach consensus, that is achieving a single unified copy of the record among them. Then we’ll see that blockchains such as Bitcoin has really tied these relatively old technologies together in a creative way.

The next module look at how these components are actually implemented in different types of blockchains. We’ll first look at the first blockchain implementation that has received significant attention, the Bitcoin. We’ll look at it’s key components focusing on it’s proof of work consensus mechanism, which you also know as mining. Then we’ll look at Ethereum, whose goal is really to expand the functionality of the blockchain from a digital asset to a programmable, decentralized computer. We’ll specifically look at the programs that you can write and run on that computer, and these programs are often given the buzzword smart contracts. After we’re familiar with the technical concepts of the blockchain, we turn to the business side.

In the third module, we’ll examine the usage of blockchain as an asset. That is, the now very big cryptocurrency market with thousands of tradable currencies in all different flavors. We’ll look at the key features of this market in terms of returns and key risk factors. We’ll look at how to buy and sell cryptocurrencies and how it’s different than say, buying and selling of stock. Finally, we’ll look at the relatively new entrant to the market, the stable coins, which promise the benefits of a decentralized currency without the high volatility. At the end of this course, you’ll have a solid understanding of the key technical components of a blockchain and explain how they work.

You’ll be able to articulate the most important differences between the different types of blockchain implementations. Using this knowledge, you will further be able to describe the advantages and risks of using blockchain as an asset and take the first step in being able to evaluate the viability of a blockchain based new business venture.