This document provides an overview of economics, history, software, databases, blockchain, cryptocurrency and related topics. It discusses how economics studies decision making and incentives. It covers microeconomics topics like supply and demand curves. It reviews events of the 2008 financial crisis and timeline. It explains how normal banks operate and compares the 2023 bank collapse to 2008. It introduces Bitcoin and describes mining and cryptocurrency exchanges. It also discusses other blockchain uses and recent crypto events like the FTX collapse.

1. A LESSON IN ECONOMICS, HISTORY,
SOFTWARE, DATABASE, BLOCKCHAIN,
CRYPTO CURRENCY, NFT, CYBERSECURITY
CONNECTING COMPUTER SOFTWARE WITH ECONOMY AND CYBER SECURITY
SUMIT SENGUPTA - SOFTWARE ARCHITECT AND MICROSOFT TEALS VOLUNTEER

2. ECONOMICS
• We have neither the time nor the money to do everything we might want to do.
• Economics is the study of how people make these decisions
• Incentives and their impact on behavior – either at a
• Small scale – individual person or company
• Large scale – country, or specific sector – manufacturing, service,

3. MICROECONOMICS
• Micro – Small
• Examines “markets” where buyers and sellers transact – products and services
• Question – how much of candy would you buy ?
• At what price ?
• What factors affect the quantity and the price ?
• Demand and Supply

4. DEMAND SUPPLY CURVE
Demand goes up, price goes up
Supply goes up, price goes down

5. CURRENCY VALUE
• Why is it a currency note valuable?
• Because it is trusted – we can exchange it for good or services anywhere
• No double spending - once spent, that money is for someone else to spend again
• Guaranteed by the central bank of a country

6. MACROECONOMICS
• Macro – Large
• Effect on Society on aggregates – sectors like housing, manufacturing or national/global
economy
• Economic growth, unemployment, interest rates, inflation, Monetary Policy
• Monetary policy – how national central banks controls money supply
• The Federal Reserve Bank monitors and supervises other banks
• It can increase money supply by
• Reducing "reserve requirements" for banks allowing them to lend more money out
• Purchasing gov. securities or bank assets,
• Reducing short-term interest rates
• A rise in interest rate, borrowing ( house mortgage, company purchase ) spending slows,
and price drops to control inflation
• A drop in interest rate, borrowing and economic activity rises in times of recession

7. HOW FDIC WAS BORN
• A bank run – when many customers withdraw cash from the bank simultaneously
• If the bank does not have enough cash it has to sell some investments
• During great depression there were bank runs – and 9000 banks folded along with $7B deposits
• That is $110B in today’s amount
• In order to prevent bank run, FDIC was created
• It insures deposits up to an amount – $250K in 2023.

8. 2008 FINANCIAL CRISIS – DOUBLE SPENDING
• House prices kept on going up, and mortgage rates getting lower by year
• People kept buying them, even if pricey
• Banks offered loans to people even with poor credit histories
• These “high risk” mortgages were sold as investments – Collateral Debt Obligation / CDO
• Property values at different places were considered “independent” i.e. price cannot go down in all
places, and these were considered “Low risk” investments.
• In reality, housing price dropped nationwide – starting a domino effect

9. TIMELINE OF 2008 FINANCIAL COLLAPSE
• January 11: Bank of America buys the struggling Countrywide.
• March 16: Fed forces the sale of Investment Bank (IB) Bear Stearns to JPM
• September 15: IB Lehman Brothers files for Chapter 11 bankruptcy.
• September 15: BA offers to buy troubled Merrill Lynch at $50B ($29 a stock – 70% premium )
• September 16: Fed bails out American International Group (AIG) for $85 billion.
• September 25: Washington Mutual fails.
• September 29: Dow Jones fell 777.68 points and the whole system was on the brink of collapse.
• October 3: U.S. government authorizes $700 billion for bank bailouts.
• November: Bitcoin paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,”

10. LINGERING EFFECT OF 2008 CRISIS
• 2009 Dodd-Frank regulations
• 2013 JPM pays $13B to federal regulators for mishandling of CDO, including some of Bear Sterns that it
bought in 2008.
• WEO report – worst decade of economy since the great depression of 1929
• 2018 – Some of the DF regulations rolled back

11. HOW NORMAL BANKS OPERATE
• Banks may offer some interest to those customer deposits
• Part of the deposits is lent as loan to people/businesses at higher interest rates
• Banks also invest some of the deposits to purchase assets just like individuals
• SVB in 2023 made lot of investments in Government Bonds - long term
• As Fed increased interest rates in 2022-23 those bonds were worth less as current rates are higher
• Fueled by Social Media frenzy among tech CEOs, SVB had bank run
• WAMU in 2008 had $17B withdrawal in 10 days. For SVB in 2023, it was $42B in 2 days
• FDIC closed the bank. Fed rescued every depositor even beyond FDIC insurance of $250K.
• Government also offered ”loan of cash at face value” for companies that owned bonds.
• Since those bonds were worth less now, the difference is “bailout”

12. 2023 BANK COLLAPSE – SVB, SIGNATURE
• Banks have customer deposits ( insured to $250K ) and it loans out to customers and it has its own
investments. Some of the investments were in Gov bonds – that lost value with rise in interest rate.
• News on CNN – money beyond FDIC insurance $250K was safe – not a bail out ?
• How bank operates from 2022 Economics Noble winner Prof. Douglas Diamond
• Story on actual FDIC takeover – that happens almost every week
• Analysis on why SVB went down – banking 101 mistakes ?
• Justice Department and SEC investigation
• “Bail out” – government rescuing reckless, irresponsible banks?
• There was no sell out SVB to other banks like Bear Sterns to JPM?
• No time to wait for Monday?
• Feds do not want the big banks to get even bigger as they can be “too big to fail”
• Also banks like JPM do not want to buy

13. In terms of the absolute total size
2008 – Washington Mutual $307B +
others, $374B
2023 – SVB, Silicon - $319B
2009 - $171B
Bank failures between 2008,2015 – 500
@ roughly 1.4 every week
Between 2001-2008 - 25

14. 2008 NOVEMBER – BITCOIN PAPER
• Satoshi Nakamoto’s paper – “Bitcoin a peer-to-peer electronic cash system”
• Cryptography and Cryptography Policy Mailing List.
• Some had doubts –

15. DATABASE
• Server software to manage and store large volume of data
• Concurrent access by many ( thousands of people )
• Different Types
• Transactional ( think store transactions ) vs. Analytical ( what was sold most )
• SQL ( Relational – your bank account ) vs NoSQL ( Distributed - Facebook, Twitter )
• Data can be added, changed, deleted by “transaction” .
• All databases data kept in central database servers – in cloud ( large data centers ) or private data centers
• A fraction of this data can be downloaded locally on our laptop or mobile
• But the ”source of truth” or main database is always in cloud/data center

16. BLOCKCHAIN DATABASE
• A block – consists of a cryptographic hash of previous block, transaction data and timestamp
• Timestamp proves that the data existed when the block was created.
• Each block is ”linked” to previous block

17. GENESIS BLOCK IN BITCOIN
• The first transaction on bitcoin network - Satoshi “mined” at 01/03/2009 06:15:05 GMT
• It is the beginning – does not point to previous block
• Contains 50 bitcoins – they cannot be spent or awarded
• "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."
• Referring to a headline on Times, UK on that day

18. MINING BITCOIN
• Central idea of bitcoin protocol
• Process to add new bitcoins to the money supply with verified transactions in the distributed network
• Computationally intense
• As a reward of participation, you get bitcoin rewards

19. CRYPTOCURRENCY EXCHANGE
• Similar to stock exchange, digital marketplace to trade crypto
• There are many available – with different feature, fee, security measures, regulation by country
• Coinbase, Binance, Kraken, Bitfinex etc
• A public website that lists all transactions https://www.blockchain.com/explorer

20. CRYPTOGRAPHIC HASH EXAMPLE
• Sha256
• “One way” computation from a string to digest
• Not possible to decode it back to string
• A simple change in string value, hash changes drastically
• echo -n Elyria | shasum -a 256 | cut -d " " -f1
• “Elyria” ->b71aadb5be0342434ba414904346ad08702702a1746abd919627eddf380705e4
• “Elyrib” ->9c5572a6951ff87f097b3a2b9fd670a77d5c39749ed4f0910fcb3617e824b93e
• Drastically different but both are 64 bits

21. BITCOIN IS SAFE AND UNBREAKABLE ?
News - 03/21/2023

22. CRYPTO RUN – FTX
• Sam Bankman-Fried (SBF) – founder and CEO of FTX, world’s largest crypto exchange
• His personal net worth topped at $26B, before a sudden collapse in a week bankruptcy in Nov 2022
• FTX was headquartered in Bahamas
• Investigations on, out on $250M jail

23. ONECOIN FRAUD
• FBI Top Wanted Dr. Ruja Ignatova (video)
• Co-Founder of “Onecoin” a fake crypto
• No blockchain behind it (BBC story)
• Was running out of a SQL server database
• Missing since Oct 25, 2017

24. OTHER USE CASES FOR BLOCKCHAINS
• Reproducibility in scientific research
• Pharmaceutical drug tracking – preventing use of narcotics
• Tracking food safety
• Medical records of a patient
• NFT – own digital art in small fractions, affordable and secured for users
• NFT created on blockchain networks and are traded line crypto currency
• First tweet by Twitter CEO Jack Dorsey, sold to $2.9M