The Blockchain What is it and why do we care?...The Blockchain –What is it and why do we care? ......

Confidential – For Discussion & General Information Purposes Only

The Blockchain – What is it and why do we care?

WFS and its investment representatives do not act as Municipal Advisors and only provide investment advice or recommendations with respect to bond proceeds as permitted by available exemptions

CMTA 2018 2

Table of Contents

I. Don’t Believe the Hype!

II. The Next Industrial Revolution

III. The Second Era of the Internet

IV. The Origins of Blockchain

V. The Trust Problem

VI. How the Blockchain Works

VII. Features of the Blockchain

VIII. Do I need a Blockchain?

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Housekeeping

Audience Questions

http://WWW.POLLEV.COM/GARRETSLOAN333

TEXT: GARRETSLOAN333 TO 22333

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Poll Testing

Audience Question

My Opinion on Blockchain

A. This is crazy, why botherB. This is still crazy, but I’m listeningC. This could be big…D. Blockchain Nirvana!

CMTA 2018 6

Don’t Believe the Hype!

What is the Big Deal?

Source: Wells Fargo Securities, LLC, CNBC, Wikipedia,

“Bitcoin is a fraud.”

Jamie Dimon,CEO of JP MorganSeptember, 2017

“…I can say with almost certainty that cryptocurrencies will

come to a bad ending."

Warret BuffettCEO of Berkshire Hathaway

January, 2018

Tulip Mania?

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Don’t Believe the Hype

What is the Big Deal?

Source: Wells Fargo Securities, LLC, CNBC, Wikipedia,

“The blockchain is one of the most fundamental

inventions in the history of computer science.”

Mark AndreessenCo-founder of Netscape

If you work in business or government, you need to understand the blockchain

revolution."

Erik Brynjolfsson, MIT ProfessorAuthor, The Second Machine Age

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The Next Industrial Revolution

The First Industrial Revolution

Source: Wells Fargo Securities, LLC, Wikipedia, Don Tapscott: Blockchain Revolution

Industrial & Urban

Agrarian & Rural

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The Second Revolution


Steam & Small

Internal Combustion

Electricity

CMTA 2018 10


The Third Revolution


Mechanical

Analog

PCs and Laptops

Web and ICT

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The Fourth Revolution


Robotics Machine Learning Autonomous Vehicles

BLOCKCHAIN

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The First Era of the Internet

Internet 1.0: The Internet of Information

Source: Wells Fargo Securities, LLC,, Don Tapscott: The Blockchain Revolution

Information

Info

Info

Info

Info

Info

Info

Info

Info

Info

Info

Info

InfoInfo

Info

Info

Info

InfoInfo

Info

Info

Info

Info

Info

Info

Info

Info

Info

InfoInfo

Info

Info

Info

InfoInfo

InfoInfo Info

Info

InfoInfo

Info

Info

Info Info

Info

Info

Info

CMTA 2018 13

The Second Era of the Internet

Internet 1.0: The Internet of Information


Value

Books

IP

Patent

Deposit

$$$

Music

Tickets

Value

Value

Art

IP

ValueBonds

Coupon

Value

Value

MusicVotes

Sftware

Stock

Points

€€€

Art

£££

Value

Ideas

$$$

ValueValue

¥¥¥

Value

Film

ValueValue

IDValue Value

Value

ValueValue

Value

Value

Value Value

Value

Value

Value

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Audience Question

What was one of the first peer-to-peer file sharing services on the internet, started in

1999?

A. LimeWireB. KaZaaC. NapsterD. Gnutella

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Internet 2.0: The Internet of Value


Value

Books

IP

Patent

Deposit

$$$

Music

Tickets

Value

Value

Art

IP

ValueBonds

Coupon

Value

Value

MusicVotes

Sftware

Stock

Points

€€€

Art

£££

Value

Ideas

$$$

ValueValue

¥¥¥

Value

Film

ValueValue

IDValue Value

Value

ValueValue

Value

Value

Value Value

Value

Value

Value

Value

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The Origins of Blockchain

The Double Spend Problem in Electronic Transactions

Centralized System

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The Origins of Blockchain – Centralized System Shortcomings

Centralized Systems Can Be Hacked

What is considered the biggest known business hack to date?

A. JPMorganB. TargetC. YahooD. Adult Friend Finder

Source: Wells Fargo Securities, LLC, CSO Online

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Customer Broker Custodian

The Origins of Blockchain: Centralized System Shortcomings – A Day In the Life of a Trade

Note: Trade process, for illustrative purposes only.

Call broker

Electronic

Verbal

No

Yes

Create and send Bloomberg ticket

Communicate purchaseto custodian

Send Bloomberg ticketto Customer

Communicate purchaseto custodian

Call broker

Initiate security purchase

Verbal or Electronic?

CUSIP on system?

Post Settlement

Validate trade usingCUSIP

Execute tradeSet up asset for delivery

on system

Deliver moniesto brokers

Deliver securityto custodian

Release trade confirmationto depository

Set up CUSIP on system

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The Origins of Blockchain: Financial Exclusion

Centralized Systems Struggle with Exclusion

Source: Wells Fargo Securities, LLC, World Bank Group

“Around 2 billion people don’t use formal financial services and more than 50% of adults in the poorest households are unbanked. Financial inclusion is a key

enabler to reducing poverty and boosting prosperity."

World Bank Group

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The Origins of Blockchain: Data Kept and Stored by Central Counterparties

Source: Wells Fargo Securities, LLC, World Bank Group

Centralized Systems are able to monetize data

Data

Data

Data

Data

Data

Data

Data

Data

Data

Data

Data

Data

Data

Data

Data

$

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48 Global 59 Global

74 China 83 China

71 Indonesia 81 Indonesia

68 India 77 India

66 UAE 76 UAE

58 Singapore 70 Singapore

54 Mexico 67 The Netherlands

54 The Netherlands 65 Malaysia

53 Malaysia 65 Mexico

49 Canada 62 Canada

47 Argentina 60 Argentina

47 Columbia 57 Italy

47 Spain 57 Turkey

46 Turkey 56 France

45 Hong Kong 56 Sweden

44 Brazil 55 Australia

44 S. Korea 55 Spain

43 Italy 54 Germany

43 U.S. 52 U.K.

41 Germany 51 Brazil

41 Sweden 50 Columbia

40 Austrailia 50 S. Korea

40 France 49 Hong Kong

39 Poland 48 Ireland

39 U.K. 48 Poland

38 Ireland 47 Russia

38 S. Africa 46 Japan

37 Japan 45 S. Africa

36 Russia 45 U.S.

General Population Informed Public

Last year a Trusterat 68, the U.S. has dropped to the bottom of the Index23

Trusters (>59)

Neutral (50-59)

Distrusters (<50)

Source: Wells Fargo Securities, LLC, Edelman Trust Barometer

The Trust Index 2018Average Trust in Institutions

The Trust Problem

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The Trust Problem

# of Markets with Extreme Trust Gains

# of Markets with Extreme Trust Losses

9

2

2

6

4

9

12

1

2

13

2013 2014 2015 2016 2017 2018

6

6

Source: Wells Fargo Securities, LLC, Edelman Trust Barometer

A World Moving ApartNumber of markets with extreme changes in aggregate trust in institutions

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The Trust Problem: Decentralization

The Bitcoin Blockchain Solves the Double Spend Problem without a central verification system

De-centralized Confirmations

Source: Wells Fargo Securities, LLC

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How the Blockchain Works

Building Blocks on the Chain

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Features of the Blockchain: Cryptocurrencies

Immutable…when it’s done, it’s done

It’s like a credit card…

Makes digital goods “transferrable”

…It’s also like cash.

Open Network (public)

Neutral (public)

Certain Features of Blockchains

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Features of the Blockchain: Risks, Limitations Concerns

Tempered Expectations


What are the risks, limitations, concerns

Scalability

Power consumption is

very limiting to

scalability

Transactions per

second

Regulation

Regulators have been

providing guidance

around virtual

currencies.

Know Your Client vs.

Pseudonymity

There is no underlying

intrinsic value in virtual

currency.

There is no intrinsic

value in any currency.

Acceptance

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Hybrid

Features of the Blockchain: It’s Not Just One Blockchain

Not All Blockchains Are Created Equal


Types of Blockchains

Permissioned

On and off ramps that

require some form of

validation

Open to the public

Permissionless

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Features of the Blockchain: Current Applications

It’s Not Just One Block Chain


Various Platforms

Bitcoin

Litecoin

Dogecoin

BitcoinCash

Ripple

Single Use Case

Ethereum

Quorum

Corda

Cosmos

Hyperledger

Platform

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Features of the Blockchain: New Applications

New Use Cases are Growing


Why Do I Care?

Capital Intensive

Businesses

Trade Clearing

Digitizing Diamonds

Identity

Internet of Things

Health Records

Art World

Energy

Syndicated Lending

SupplyChains

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Features of the Blockchain: Constraints and Limitations

It’s Not All Sunshine and Rainbows


Energy Intensive

Smart Contracts Are Not Always Smart

Scalability and Acceptance Take Time

Regulation vs. Freedom

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Audience Question

How Many Zeros are in a Quintillion?

A. 10B. 14C. 18D. 24

CMTA 2018 35


It’s Not All Sunshine and Rainbows


Energy Intensive

Smart Contracts Are Not Always Smart

Scalability and Acceptance Take Time

Regulation vs. Freedom

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Do I Need a Blockchain?

Do I Need a Blockchain?

Source: Wells Fargo Securities, LLC, IEEE Spectrum

Can a traditional database technology meet your needs?

Is the database likely to be attacked or censored?

Does more than one participant need to update data?

Do you trust a third party provider?

Do you trust the other participants?

CMTA 2018 37

Disclaimer

This publication is intended for institutional accounts only (as defined in FINRA Rule 4512), please do not forward.

This Commentary is a product of Wells Fargo Securities Fixed Income Sales and Trading and is not a product of Wells Fargo Securities, LLC’s Research, Economics and Strategy. The views expressed herein might differ from those of Research, Economics and Strategy.

This communication is for informational purposes only, is not an offer, solicitation, recommendation or commitment for any transaction or to buy or sell any security or other financial product, and is not intended as investment advice or as a confirmation of any transaction. Interested parties are advised to contact the entity with which they deal, or the entity that provided this report to them, if they desire further information.

WFS and its investment representatives do not act as Municipal Advisors and only provide investment advice or recommendations with respect to bond proceeds as permitted by available exemptions.

Accuracy of InformationThe information in this report has been obtained or derived from sources believed by Wells Fargo Securities, LLC to be reliable, but Wells Fargo Securities, LLC does not represent that this information is accurate or complete. Any opinions or estimates contained in this report represent the judgment of Wells Fargo Securities, LLC at this time and are subject to change without notice. Wells Fargo Securities, LLC and its affiliates may from time to time provide advice with respect to, acquire, hold or sell a position in, the securities or instruments named or described in this report.

Important Disclosures Relating to Conflicts of Interest and Potential Conflicts of InterestWells Fargo Securities, LLC may sell or buy the subject securities to/from customers on a principal basis. Wells Fargo Securities, LLC has or may have proprietary positions in the securities mentioned herein. The trading desk has or may have proprietary positions in the securities mentioned herein. The author's compensation is based on, among other things, Wells Fargo Securities, LLC's overall performance, the profitability of Wells Fargo Securities, LLC's Markets Division and the profitability of the trading desk.

About Wells Fargo SecuritiesWells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, and Wells Fargo Bank, N.A. Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC are distinct entities from affiliated banks and thrifts.

Copyright© 2018 Wells Fargo Securities, LLC

SECURITIES: NOT FDIC:-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

CMTA 2018 38

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The Blockchain What is it and why do we care?...The Blockchain –What is it and why do we care? ......

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