1Author: Vikram Andem

A case for the Block chain

2Author: Vikram Andem

History of early adaptation of technology by airline industry

KLM introduces punch based (printed paper & type writer) ticket issuance, starts record keeping of its flight and passenger details for its regular scheduled commercial air services from Amsterdam to London and Batavia (Colonial Jakarta)

1920’s 1950’s 1970’s 1990’s

1910’s 1940’s 1960’s 1980’s 2000’s

Tony Jannus conducted the world’s first

scheduled commercial airline flight on Jan 1st 1914 for the St. Petersburg-Tampa Airboat Line operating two scheduled flights per day, six days a week. Passengers sat on a wooden seat in the hull of a two-place seaplane that did not have a windshield and rarely flew more than 5 feet above the water. Price of a one-way ticket was $5 for the 22-minute trip. Passengers were allowed a maximum weight of 200 lbs., including hand baggage. Excess weight was charged at $5 per hundred pounds, minimum charge 25 cents.

Invention of magentronic reserve allowed airline agents to search a memory drum to quickly determine the availability of seats. Single reservation time reduced from 120 minutes to 40 minutes.

United Airlines with its own “new” physical Keyboard interface offers travel agents the first access to its central reservation system “Apollo”, which gives agents access to listing for all major airlines as well as for hotels, car rentals and other travel-related services revolutionizing the way passenger’s book airfare.

Internet booking engines give consumers the first web-based access, allowing them to search across multiple independent travel sites for the best fares. Search and booking time for airfares and travel reduced to few minutes.

Commercial Airline Reservations are made by agents on large card index files with tally marks for the number of available and assigned seats, and are only accepted 30 days prior to departure.

IBM develops the SABRE (Semi-Automatic

Business-Related Environment) reservation system for American Airlines, the industry's first to work over phone lines in "real time”. In the picture below, an AA operator sitting at a prototype of the SABRE ticket agent console poses next to 20,000 airplane tickets. That represented one day of AA ticket sales back in the early 1960s. Being able to have instant updates to its seat inventory and passenger information gave AA a big competitive advantage.

Introduction of Global

Distribution Systems (GDS), which allows airline agents and travel agents to search fares and book flight legs across multiple carriers. A GDS can link services, fares and bookings consolidating products and services across all three travel sectors: i.e., airline, hotel, car rentals, and other reservations.

Since 2000

consumers are increasingly using smart phones and tablets to book travel and airline reservations.

3Author: Vikram Andem

History of early adaptation of payment systems

1920’s Late 1940’s to Early 1950’s

1910’s 1930’s Post 1960’sIn 1934, American Airlines and the Air Transport Association simplified the process even more with the advent of the Air Travel Card.They created a numbering scheme that identified the issuer of the card as well as the customer account. With an Air Travel Card, passengers could "buy now, and pay later" for a ticket against their credit and receive a fifteen percent discount at any of the accepting airlines. By the 1940s, all of the major domestic airlines offered Air Travel Cards that could be used on 17 different airlines. By 1941 about half of the airlines' revenues came through the Air Travel Card agreement. In October 1948, the Air Travel Card became the first internationally valid charge card within all members of the International Air Transport Association

In 1914 Western Union began

issuing charge cards a.k.a collect cards to its frequent customers.

Though United tracked customers as far back as the 1950s, the very first modern frequent-flyer program was created in 1972 by Western Direct Marketing, for United Airlines. It gave plaques and promotional materials to members. In 1979, Texas International Airlines created the first frequent-flyer program that used mileage tracking to give 'rewards' to its passengers, while in 1980 Western Airlines created its Travel Bank, which ultimately became part of Delta Air Lines' program upon their merger in 1987. American Airlines' AAdvantage program launched in 1981 as a modification of a never-realized concept from 1979 that would have given special fares to frequent customers. It was quickly followed later that year by programs from United Airlines (Mileage Plus) and Delta Air Lines (SkyMiles), and in 1982 from British Airways (Executive Club).

The Charga-Plate, developed in 1920’s, was an early predecessor to the credit card. It was embossed with the customer's name, city, and state. It held a small paper card on its back for a signature. In recording a purchase, the plate was laid into a recess in the imprinter, with a paper "charge slip" positioned on top of it. The record of the transaction included an impression of the embossed information, made by the imprinter pressing an inked ribbon against the charge slip. In some cases, the plates were kept in the issuing store rather than held by customers. When an authorized user made a purchase, a clerk retrieved the plate from the store's files & then processed the purchase. Charga-Plates speeded back-office bookkeeping and reduced copying errors that were done manually in paper ledgers in each store.

The concept of customers paying different merchants using the same card was expanded in 1950 by Ralph Schneider and Frank McNamara, founders of Diners Club, to consolidate multiple cards. The Diners Club, which was created partially through a merger with Dine and Sign, produced the first "general purpose" charge card and required the entire bill to be paid with each statement. That was followed by Carte Blanche and in 1958 by American Express which created a worldwide credit card network.

4Author: Vikram Andem

Year 2009: Bitcoin and Blockchain (the underlying technology)

Bitcoin¹ is a digital asset and a payment system invented by Satoshi Nakamoto, who

published the invention in 2008 and released it as open-source software in 2009. The system is peer-to-peer; users can transact directly without an intermediary. Transactions are verified by network nodes and recorded in a public distributed ledger called the block chain. The ledger uses bitcoin as its unit of account. The system works without a central repository or single administrator, which has led the U.S. Treasury to categorize bitcoin as a decentralized virtual currency. Bitcoin is often called the first cryptocurrency, although prior systems existed. Bitcoin is more correctly described as the first decentralized digital currency. It is the largest of its kind in terms of total market value.

Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into a public ledger. This activity is called mining and miners are rewarded with transaction fees and newly created bitcoins. Besides being obtained by mining, bitcoins can be exchanged for other currencies, products, and services. Users can send and receive bitcoins for an optional transaction fee. Bitcoin as a form of payment for products and services has grown, and merchants have an incentive to accept it because fees are lower than the 2–3%

typically imposed by credit card processors. Unlike credit cards, any fees are paid by the purchaser, not the vendor. The European Banking Authority & other sources have warned that bitcoin users are not protected by refund rights or chargebacks. Despite a large increase in the number of merchants accepting bitcoin, the cryptocurrency does not yet have much momentum in retail transactions.

Bitcoin FAQ Blockchain Vocabulary Bitcoin Network

Legal & Regulatory: Official Government Reports

USA: Congressional Research Service: Bitcoin: Questions,

Answers, and Analysis of Legal Issues (Oct/ 2015)

USA: Government Accountability Office: Report to the

Committee on Homeland Security and Governmental

Affairs, U.S. Senate (May/ 2014)

USA: Government Accountability Office: Report to the

Committee on Finances, U.S. Senate (May/ 2013)

USA: Library of Congress: Regulation of Bitcoin in Selected

Jurisdictions (Nov/ 2014)

USA: Federal Reserve Bank: Technical Background and

Data Analysis (Oct/2014)

European Parliament: Markets, economics & Regulation

(Nov/ 2014)

Court of Justice of the European Union: Ruling Bitcoin is

Exempt from VAT(Oct/2015)

European Banking Authority: Opinion on virtual currencies

(July/2014)

Clickable links on Bitcoin

Blockchain (database) is a public ledger that records bitcoin transactions. A novel solution accomplishes this without any trusted central

authority: maintenance of the block chain is performed by a network of communicating nodes running bitcoin software. Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications. Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The block chain is a distributed database; to achieve independent verification of the chain of ownership of any and every bitcoin (amount), each network node stores its own copy of the block chain. Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the block chain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the block chain is the only place that bitcoins can be said to

exist in the form of unspent outputs of transactions.

Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions. This ledger of past transactions is called the block

chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere. Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function. The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system.Miners are paid any transaction fees as well as a "subsidy" of newly created coins. This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system. it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground. Bitcoin mining is so called because it resembles the mining of other commodities: it requires

exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.

¹ for this presentation “Bitcoin” and “bitcoin” terminology are used interchangeably , but in technical literature , Bitcoin with a capital “B” refers to the protocol – the code, the nodes, the network and their peer-to-peer interaction. bitcoin with a lowercase ‘b’ refers to the currency – the cryptocurrency we send and receive, via the Bitcoin network.

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5Author: Vikram Andem

Bitcoin/Blockchain : Facts vs. commonly misunderstood/misstated information assumed by public

Challenge explaining

the underlying disruptive

technology “Blockchain” to a common person today.

It requires a certain level of

understanding of underlying mathematics/cryptography to understand how Bitcoin or Blockchain internals' work (but its easy for anyone to use it).

As a disruptive technology Its not easy to perfectly predict use cases, applications of future growth prospectus just like other disruptive technologies e.g., Telephone (1877), Digital Circuit (1938), Transistor (1947), RDBMS (1970) or TCP/IP (1982) especially in the early stages of the invention to a common person.

It’s a great invention,

but who would ever

want to use one?on May 10th 1877: US President Rutherford B. Hayes speaking

about the first telephone installed in the White House

² satoshi is currently the smallest unit of the bitcoin currency recorded on the block chain. It is a one hundred millionth of a single bitcoin (0.00000001 BTC). The unit has been named in collective homage to the original (anonymous) creator of Bitcoin, Satoshi Nakamoto

An innovative open source project / an algorithm

based on Mathematics/Cryptography.

A distributed transaction public ledger (database).

A distributed de-centralized peer-to-peer digital/

virtual currency/commodity used on internet.

Unspent (cryptographic public /private key pair)

outputs of transactions denominated in any multiple

of satoshis². Sample bitcoin paper wallet is shown below.

A currency issued by an institution.

A Ponzi scheme.

A currency backed by gold / silver

or computing power.

A physical currency that looks like

the gold plated coins shown below.

The bitcoin infrastructure isn’t controlled by any entity. There are plenty of legitimate reasons why someone would use bitcoins for a transaction.

6Author: Vikram Andem

Very high level overview (source: Nature magazine)

This overview is published by Nature, an

international journal widely known in the

scientific community for covering original,

groundbreaking research spanning all of the

scientific disciplines.

The article was published on September 30th

2015 and can be accessed at:

http://www.nature.com/news/the-future-of-

cryptocurrencies-bitcoin-and-beyond-1.18447

7Author: Vikram Andem

(very simplified) Bitcoin transaction life cycle

8Author: Vikram Andem

How a bitcoin transaction works

Bob an online merchant, decides to begin accepting bitcoins as a payment. Alice, a buyer, has bitcoins and wants to purchase merchandise or services from Bob.

Wallets & Addresses

Bob and Alice both have Bitcoin “wallets” on their computers.

A bitcoin address is a string of 26-35 alphanumeric characters, beginning with the number 1 or 3.

Two examples of bitcoin address are listed below:

1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy

Wallets are files that provide access to multiple Bitcoin addresses.

Each wallet has its own balance of bitcoins.

It’s tempting to think of bitcoin addresses as bank accounts, but they work a bit differently, Bitcoin users can create as many addresses as they wish and in fact are encouraged to create a new one for every new transaction to increase privacy. So long as no one knows which addresses are Alice’s, her anonymity is protected.

Creating a New Address

Bob creates a new Bitcoin address for Alice to send her payment to for the purchase.

Public Key Cryptography 101When Bob creates a new address, what he’s really doing is generating a “Cryptographic Key Pair”, composed of a Private Key and a Public Key. If you sign a message with a Private Key (which only you know) it can be verified by using the matching Public Key (which is known to anyone). Bob’s new Bitcoin address represents a unique Public Key and the corresponding Private Key is stored in his wallet. The Public Key allows anyone to verify that a message signed with Private Key is valid.

Submitting a Payment

Alice tells her Bitcoin client that she’d like to transfer the purchase amount to Bob’s address.

Alice’s wallet holds the Private Key for each of her addresses. The Bitcoin client signs her transaction request with the private key of the address she’s transferring bitcoins from.

Anyone on the (Bitcoin) network can now verify that the transaction request is actually coming from the legitimate account owner (Alice).

Verifying the Transaction

Gary, Garth, and Glenn are Bitcoin miners. Their computers bundle the transactions of the past 10 minutes into a new “transaction block”

The miners’ computers are set up to calculate cryptographic hash functions.

Cryptographic hash functions transform a collection of data into an alphanumeric string with a fixed length, called a hash value. Even a tiny changes in the original data drastically changes the resulting hash value.

it’s essentially impossible to predict which initial data set will create a specific hash value.

continued (next page)

9Author: Vikram Andem

How a bitcoin transaction works (continued)

Verifying the Transaction

Nonces : To create different hash values from the same data, Bitcoin uses “nonces”. A nonce is a just a random number that’s added to prior data to hashing. Changing the nonce results in a wildly different hash value.

continued (from previous page)

The (bitcoin) mining computers calculate new hash values based on a combination of the previous hash value, the new transaction block, and a nonce.

Creating hashs is computationally trivial, but the Bitcoin system requires that the new hash value have a particular form – specifically, it must start with a certain number of zeros.

Each block includes a “coinbase” transaction that pays out 50 bitcoins to the winning miner (say Gary). In this case a new address is created in Gary’s wallet with the balance of newly minted bitcoins.

Finding a needle in a haystack (within 10 minutes): The miners have no way to predict which noncewill produce a hash value with a required number of leading zeros. So they’re forced to generate many hashes with different nonces until they happen upon one that works.

Miners get rewarded for finding the next “correct” block. (awarded on lottery basis by the system)

Note: The 50 bitcoins are awarded every 10 minutes (as when the project kick stated in year 2009) and the system is designed to half the reward after every four years or precisely, after every 210,000 block is mined – currently at the time of writing the presentation the (lucky) miner reward for finding the next block (on lottery basis) is 25 bitcoins, which will half to 12.5 bitcoins in the September of 2016. The system is designed so that the Bitcoin mining reward will stop entirely after 21 million bitcoins are awarded (in year 2140). This means there can be a maximum of 21 million bitcoins in circulation “forever”. No one person or one entity can tamper or change the design given the mathematics/cryptography used in the (open source) design of the system and its practically (mathematically) impossible in the near distance future to break (e.g., DDOS) the system. The largest (and the fastest) bitcoin mining community as of 2016 are located in China which took over USA (in 2015) followed by the European Union.

Transaction Verified

As time goes on, Alice’s transfer to Bob gets buried beneath other, more recent transactions. For anyone to modify the details, he would have to redo the work that Gary did (and the entire change after that) –because any changes required a completely different winning nonce – and then redo the work of all the subsequent miners. Such a feat is practically (mathematically) impossible as time passes by.

Miners

Reward (coinbase)

10Author: Vikram Andem

News (What others are doing?) clickable links

Microsoft's Azure Blockchain As a Service Program Gains Momentum (01/07/2016)

Forty Big Banks test blockchain-based bond trading system (03/02/2016)

IBM Bets Big On Blockchain, The Bitcoin Technology That Could Revolutionize Business (02/16/2016)

Nasdaq Linq Enables First-Ever Private Securities Issuance Documented With Blockchain Technology

(12/30/2015)

Goldman Sachs wants to create its own version of bitcoin (12/02/2015)

Harvard Business Review: Bitcoin’s Promise Goes Far Beyond Payments (04/24/2014)

Microsoft Certifies Ethereum Offering in Blockchain Service First (03/01/2016)

8 Banking Giants Embracing Bitcoin and Blockchain Tech (Citibank, BNP Paribas, Société Générale, UBS,

Barclays, Banco Santander, Standard Chartered) (07/27/2015)

Universal Air Travel Plan (UATP) & Bitnet Partnership Opens Up 260 Airlines to Bitcoin Payments

(02/10/2015)

The Economist: Booking flights with bitcoin (02/26/2015)

Sabre: Bitcoins, digital currency and new opportunities for the industry (01/26/2016)

Amadeus IT Group: Travel payments take centre stage at ATPS in San Francisco (12/04/2014)

Mexico's TAR First Latin American Airline to Accept Bitcoin (06/02/2015)

Leading European airline, Wizz Air, promoting the world’s first bitcoin-only espresso bar (02/17/2016)

Expedia Begins Accepting Bitcoin For Hotel Bookings (06/13/2014)

CheapAir.com First Online Travel Agency to Accept Bitcoins (11/22/2013)

LOT Polish Airlines, Air Lituanica, airBaltic are accepting Bitcoin along with normal payment options.

(08/05/2015)

Virgin Galactic Now Takes Bitcoin for Private Spaceflights, Sir Richard Branson Says (11/26/2013)

Universal Air Travel Plan (UATP) and Bitnet Work to Bring 'Frequent Flyer Miles' to All Bitcoin Enthusiasts

(02/14/2015)

Air

lin

e &

Tra

ve

l sp

ec

ific

Ge

ne

ral

Use Cases

Top General Usages

Instant and Low Cost Transfer of Money,

including Remittances, Micropayments, and

Donations

Execution of Contracts

Identity Management

Transfer of Property

Top Airline Usages

Transforming Miles (frequent-flyer)

Additional Revenue (for those who choose to pay

with bitcoin or other virtual currency)

Cost & Time Savings (vs. credit card payment fees, and other expenses

incurred with foreign currency conversion )

11Author: Vikram Andem

Appendix A : (free) links to online learning, videos, text book, projects & clubs etc.

Learn Bitcoin in one hour (each video is ~10 minutes)

1. What is it?

2. Overview

3. Cryptographic hash functions

4. Digital signatures

5. Transaction records

6. Proof of work

7. Transaction block chains

8. The money supply9. The security of transaction block chains

Source: Khan Academy, this effort was

partially funded by Bill & Melinda Gates

foundation, Google & others and designed

by Chief Technology Officer of RSA

Security, Dr. Zulfikar Ramzan, Ph.D (MIT).

The Economics of Bitcoin & Virtual Currency Dr. Susan Athey, Graduate School of Business, Stanford University

Video’s

Bitcoin and Crypto Currencies (CS 251): Autumn 2015

School of Engineering, Stanford University

(formal/free) Courses

Bitcoin and Crypto currency Technologies (Sept 2015)

Course era offering by Princeton University

Bitcoin and Cryptocurrency Technologies (February 2016)

Princeton University Press

(academic) Text Book

MIT Bitcoin Project

Massachusetts Institute of Technology

Projects, Clubs & Entrepreneur groups

Bitcoin Club, Harvard Business School

Harvard University

The future of blockchain and disruptive financial technologiesHutchins Center on Fiscal and Monetary Policy, Brookings Institution

Bitcoin's impact on Global EconomyMicrosoft (NY) Technology Center & MIT Media Lab

Bitcoin's impact on Global Economy, Cyberposium 20

Harvard Business School, Harvard University

Bitcoin vs. Banks: on how bits are replacing banks Dr. Randall Kroszner, Booth School of Business, The University of Chicago

Bitcoin Association of Berkeley

The University of California, Berkeley

Why Bitcoin Will Change EverythingHaas School of Business, The University of California, Berkeley

Bitcoin &

Blockchain for

high school & college students

Bitcoin Engineering

Stanford University

New

development

The 21 bitcoin

computerFirst computer with

native hardware and software support for the Bitcoin protocol

It is designed for developers to easily

build Bitcoin-payable apps, services and

devices

12Author: Vikram Andem

Version Release date Author Contact

0.1 03/13/2016 Vikram Andem vikram.andem@united.com

Questions