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# System prepended metadata

title: A Corporate Strategy and **Bitcoin Responsible Key Management**

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# A Corporate Strategy and **Bitcoin Responsible Key Management**
[![hackmd-github-sync-badge](https://hackmd.io/el-rCbBXSmapO9xf17iGlg/badge)](https://hackmd.io/el-rCbBXSmapO9xf17iGlg)

The BCWS and service partner Internal Cookbook is [here](https://hackmd.io/myOoc3zZSaWc33VIUnW_pQ)

#### To do list:
Sat March 6
- [x] Erwin asks acknowledgement 'concurrent design': at this stage better use another name because to many people AND companies are invloved (like ESA, mindef, RHEA). Meaning- and endless discussions. Proposal for the time being: Synchronous (Process) Design / Engineering
- [ ] Vinay Flyer?
- [x] Vinay English
- [x] Erwin illustrations: drafts - to be improved and modified
- [ ] Henk RfP video
- [ ] Erwin edits text
- [x] Henk cuts up the text in two: playbook and cookbook


If there is one thing we'd like you to take away from this playbook, there will be a fair share for everyone involved after strenuous work.

> "There is no playbook or foolproof approach for these kinds of bold moves."
[Deloitte 2021](https://deloitte.wsj.com/cfo/2021/03/02/does-bitcoin-belong-on-your-balance-sheet/) about corporates investing in crypto.

Well, now there is for bitcoin.

> **Navigate a corporate bitcoin strategy**\
> **Technical pre-sales for corporate crypto custody**\
> **Risk advisory, technical pre sales and systems brokerage**

![](https://i.imgur.com/wT9jRbI.png)



#### References
{Henk suggests up to max. of 5 refs C. Allen, S. Smith? }
- [Does Bitcoin Belong on Your Balance Sheet?, Deloitte 2021](https://deloitte.wsj.com/cfo/2021/03/02/does-bitcoin-belong-on-your-balance-sheet/)
- [Corporates investing in crypto, Deloitte 2021](https://www2.deloitte.com/us/en/pages/audit/articles/corporates-investing-in-crypto.html?id=us:2el:3dp:microstrat:eng:aud:030221:cfojournal)

## Why digital assets?
Provides the opportunity for asymmetric returns and preserves the value of your capital over time, compared to holding fiat currencies only. 
It can also be part of a corporate strategy to embrace modern, open technologies while exploring futureproof opportunitities.\
[Deloitte 2021](https://deloitte.wsj.com/cfo/2021/03/02/does-bitcoin-belong-on-your-balance-sheet/)

We currently support bitcoin only for the following functions:
- Store of value
- Medium of account
Bitcoin is our sole focus because of its unique inception, maturity, robustness, decentralisation, and exchangeability.

## Why Key Management in the focus of our attention?
Key management refers to management of cryptographic keys in a cryptosystem. This includes dealing with the generation, exchange, storage, use, crypto-shredding (destruction) and replacement of keys. It includes cryptographic protocol design, key servers, user procedures, and other relevant protocols.\
(From [Wikipedia](https://en.wikipedia.org/wiki/Key_management))

Successful key management is critical to the security of any cryptosystem, including Bitcoin. It involves aspects of: 
* social engineering such as system policy 
* user training
* organizational and departmental interactions; and
* coordination between all of these elements, in contrast to pure mathematical practices that can be automated.

## For who?
Organisations that consider acquiring digital assets as a long term hedge on their balance sheet. They face intertwinend challenges. Key players need the in-house expertise to make responsible decisions and manage the responsibilities coming wth it. Either for themselves or for their customers in the longer run.

We have to work for each company as a whole. We cannot have preparatory meetings with indivual stakeholders, for we would irrecoverably destroy our position. Companies' stakeholders should work as a team and contribute to discussions intuitively and spontaneously.

## Stakeholders
Leaders need to be comfortable with the financial investment. It’s imperative that the management and board of directors all have a clear assessment and understanding of the asset’s risk profile.

Traditional models of corporate risk management do not apply to crypto custody. Any sizable investment in digital assets presents more than just technical issues related to treasury, accounting, reporting, tax, and controls. 

{Erwin creates illustration heavily inspired by concurrent design: roles/domains to be added}![](https://i.imgur.com/q0rnKf5.png)


It also involves a significant cultural realignment—internal and external—among the many different groups and departments, including, but not limited to, the board of directors, the audit committee, risk, corporate reporting, finance, tax, internal audit, operations, controls, technology, and investor relations. Since many of these departments interact with external parties, such as the external auditor, tax and legal counsel, etc., it is vital that there be a corresponding realignment in thinking when dealing with these external groups.

They have to comply with many rules and these have to be taken into account from the start.

## Time frame
One month roadmap to responsible bitcoin ownership
1. Assessment sheet / multicriteria analysis
2. Planning phase resulting in a tailor-made playbook
3. Execution phase: (test) bitcoin acquired

![](https://i.imgur.com/ygQy9yR.png)


## Planning phase
Synchronous Design (SD) methodology to prepare the organization for action
1. Intake and quick scan, assessment based on questionaire, architecture plus engineering. Result: Risk modelling in sheets. E.g. multi-criteria analysis.
2. 4 x 4 hour worksessions with all stakeholders, with a mandate, finalized by a fully supported actionplan and playbook. This includes questionaires corporate (self) custodianship: control, risks, legal, accounting and tax. BCC's toolset will be used.
3. Tailoring the RKM building blocks and guided decision making. Result: Responsible key management implemented by our customers. Dependent of the culture of the client organization (self-paced vs. compliant), urgency and priority, BCC co-creates all intermediate results.
4. Knowledge transfer and execution. Intermediate results are at the center of these sessions. Result: Grades achieved by paricipants.
5. Digital assets have been acquired conform playbook. Adversary exercises, role plays and stress tests. Optional BCC Certification.

### Ad 1. Intake and quick scan, elements
- understand the specific terms (for multiple audiences that currently speak "different" languages: CFO/CRO)
- understand the conditions
- understand  the characteristics of the investment
since those will affect accounting, tax, risk, controls, and legal considerations, among others.

> **The View From Treasury**
> The main purposes of the treasury function are risk management and the preservation of capital. When deciding and executing on an investment in digital assets, governance is key to all activities. 
From [Deloitte 2021](https://deloitte.wsj.com/cfo/2021/03/02/does-bitcoin-belong-on-your-balance-sheet/)

Explicit commitment:
* Role based mandate

### Ad 2. Elements of the research that educates at the same time
It’s imperative that the treasurer, CRO, CEO, CTO, and board of directors all have a clear assessment and understanding of the asset’s risk profile, the company’s tolerance for risk, and the way these two may align or diverge.\
From [Deloitte 2021](https://deloitte.wsj.com/cfo/2021/03/02/does-bitcoin-belong-on-your-balance-sheet/)

Explicit commitment:
* Role based assignments

### Ad 3. Tailoring the RKM building blocks
Ultimately, governance is all about monitoring and assuring that the conditions and requirements set by the organization are maintained, since those will affect 
 - accounting and tax
 - risk and controls
 - legal considerations
 among others.\
From [Deloitte 2021](https://deloitte.wsj.com/cfo/2021/03/02/does-bitcoin-belong-on-your-balance-sheet/)

![](https://i.imgur.com/sueW2cf.png)


## Pre-requisites human resources at BCWS and at customer

{Henk creat smartdraw of internal / external stakeholder vs. bcc, bcws, cust, cust-of-cust, third parties: shareholders, gvt institutions}
Everyone involved need to understand the real benefit of proper key management in line with laws and regulations. If not, the process of trying to apply the crypto-innovation might come to a grinding halt. 


## Prerequisites for the method
1. Synchronous Design program results in demonstrable knowledge and experience
2. Feedback loop: synchronous design - decisions - building blocks - implementation - evaluation
3. Scorecard that leads the way to customers' decisions and next steps
4. BRKM method kernel adjustments if needed
5. Established relationship with suppliers for engineering 
6. Template reports and samples
7. Draw up specific terms and conditions as a supplement to our general conditions of service

## Definitions
* _playbook_ = the rules and guidelines covered in this page
* _BCWS_ = Blockchain Workspace vof, registered in Amsterdam
* _BRKM_ = Bitcoin Responsible Key Management, a product / service of BCWS
* _BCC_ = Blockchain Commons, a support partner to BCWS
* _Role_ = a formal function and responsibility in the _BRKM_ sales and  execution, following this guideline and adhering to all its principles
* _Account manager_ (persona Casper) = a _role_ that is responsible for assistance of procurement at the customers organisation, expectation management and account management to keep the customer happy.
* _Research_ = The standardized service of _BCWS_ that results in decisions, architecture, engineering, and education in the customer's organisation.
* _RRKM officer_ (persona Bart) = a fundamental key management trainer / teacher _role_ that knows how to execute an interview and fill out the checklist
* * _Technical partner_ (persona Chris) = a domain expert with regards to crypto currencies, key management that fulfils certain parts of the contract.
* _Partner_ (persona Erwin) = has equity in the firm, registered in the Chamber of Commerce as a legal representative of BCWS
* _Approval officer_ (persona Henk) = One of the _Partners_ that signs off the scores and recommendation
* _Board_ = the board of directors or CEO at the customers organisation
* _Ambassador_ (persona Peter) = _role_ on the customers side that helps to make the deal (*does this person hold influence?)
* _Ambassador2_ (persona Peter) = _role_ ...
* _total service fee_ = One fee in Euros that covers all costs and is paid by the customer in one or two tranches, at least 50% percent upfront.
* _am-share_ = the fee _Account manager_ gets as a percentage of the _total service fee_, e.g. 15%
* _checklist_ = the automated standard interview - and weighted scorecard of _BCWS_

# Goals of Bitcoin Responsible Key Management

## Customer

### Risk assessment
* Increase probability of future success
* Hedge against fiat fluctuations
* Selective prototyping of modern (transaction) technologies
* Liquidation 

### Control funds: self custody
* Signing schemes, multisignature
* Proper backup and restore procedures

### Control funds: third party co-signers
* Business development
* Broker for the co-signer organisations

### Control funds: custodianship
* Business development
* Broker for the custodians

### BRKM Output Scenarios
* Proceed, no recommendations
* Proceed with recommendations
* Reconsider scope and expectations
* Corporate digitals assets have no benefits, proceed without and follow recommendations
* Corporate digitals assets have no benefits, no alternatives, stop project

## Supplier
* Enforce _BCWS_'s reputation
* Deliver Synchronous Design facilitation, while walking the extra mile and getting paid
* Get ahead for follow-up projects

# The service

## Interviews and concurrent design sessions
At the customer's premises with (one responsible representative of) the _Board_ and max two other representatives from customer organisation. XXXX separate interviews.

## Checklist

### Synchronous Design principles Feedback Loop
Research will be based on a detailed list of topics, criteria to assess topics, with scores and weighing factors. The list will be completed by an BRKM officer and cross checked based on the YYYYnd and ZZZZZrd interviews. The first interview will be with the board in order to define the scope and weighing factors. We report into main groups like:
* Crypto key management understanding and skill level across organization and leadership functions
* Project scope and expectations
* Project team and targets
* Applicability of blockchain

We also present an overall project score and provide a visually driven reporting app.

### Gordian Suite method
We use the BCC Gordian Suite to assess how responsible key management (RKM) fits in the customers organisation and their business development aspirations, at any point in time. Elements could be:
* Sharing of control and decision-making power
* Basic, advanced and proficient password management
* Multiple writers, multisign
* Absence of trust
* Disintermediation
* Transaction interaction
* Set the rules
* Pick your validators
* Back your assets
* Bitcoin node management  - This will be a test environment.

## Scores
1. Sub-scores = per theme (or question) BCWS sets an objective score
2. Weight = we have standard weight per theme to be linearly multiplied with the subscore. The resulting number per theme are then linearly added into a total score.
3. Total score = is a score that an organisation could compare to the default weighted score.

## Recommendation
The recommendation will first be summarized in a GO - GO, BUT - NO GO statement.
Consequently we will recommend structural modification in the product scope, team, approach and expectations.
Finally, we will add a list of detailed and pragmatic recommendations and actions.
The recommendations, assessment report and scores will be approved by an approval officer. Consequently, the report and recommendations will be handed over to the board and discussed by a partner.


# Money Creation
Road to fiat money (created from thin air) and deposit multiplication via fractional reserve banking:	
* 1834	US de facto gold standard
* 1933	US abandoned the gold standard entirely
* 1944	Bretton Woods Agreement. This made the U.S. dollar the de facto world currency.

Plus:	Fractional reserve banking: deposit multiplication: commercial bank money vs central bank money (can be multiplied by a factor 10 to 30)

<details>
<Summary>
More history of money creation
</Summary>
* 1834	US de facto gold standard
* 1848	Sutter's Mill gold mined, inspiring Califirnia Gols Rush - inflation
* 1861	Salmon Chase printed the first US paper currency
* 1870	European countries adopted the gold standard guaranteeing that the government would redeem any amount of paper money for ist value in gold (transactions no longer with gold bullion or coins)
* 1900	Gold Standard Act establishing gold as the only metal for redeeming paper currency (at 29,67$ per ounce)
* 1913	Federal Reserve created by Congress to stabilize gold and currency values
* 1914	US and Europe suspended the gold standard when WWI started to print money to pay for the military involvement
* 1919	After WWI a modified gold standard, countries realized that  they didn't need to tie their currency to gold
* 1930	Great Depression at its peak, countries leaving the gold standard en masse because it was causing deflation and unemployment
* 1933	US abandoned the gold standard entirely
* 1933	March 6, FD Roosevelt closed the banks responding on a run on the gold reserves at the FED in NYC.
* 1933	March 13, banks re-opened all gold turned in to the FED. Banks could no longer redeem dollars for gold and no one coudl export gold
* 1933	April 20, FDR ordered American to turn in their gold in exchange for dollars to prohibit teh hoarding of gold and the redemption of gold by other countries. This created the gold reserves at Fort Knox. US held largest gold supply
* 1934	January 30, Gold Reserve Act prohibited the ownership of gold except under license. It allowed the government to pay ist debt in dollars, not gold, and authorized FDR to increase the gold price to 35$ per ounce (devaluating the dollar)
* 1944	Bretton Woods Agreement set the value of all currencies in gold. It obligated member countries to convert foreign official holdings of their currencies into gold at these par values. The United States held the majority of the world's gold. As a result, most countries simply pegged the value of their currency to the dollar instead of gold. Central banks maintained fixed exchange rates between their currencies and the dollar by buying their own country's currency in foreign exchange markets if their currency became too low relative to the dollar. If it became too high, they'd print more of their currency and sell it. It became more convenient for countries to trade when they peg to the dollar. As a result, most countries no longer needed to exchange their currency for gold, as the dollar had replaced it. The value of the dollar subsequently increased, even though its worth in gold remained the same. This made the U.S. dollar the de facto world currency. 
* 1960	The United States held $19.4 billion in gold reserves, including $1.6 billion in the International Monetary Fund.10﻿ That was enough to cover the $18.7 billion in foreign dollars outstanding.
* 1970s	As the U.S. economy prospered, Americans bought more imported goods and paid in dollars. This large balance of payments deficit worried foreign governments that the United States would no longer back up the dollar in gold. Also, the Soviet Union had become a large oil producer. It was accumulating U.S. dollars in its foreign reserves since oil is priced in dollars due to fears that the United States would seize its bank accounts as a tactic in the Cold War. The Soviet Union deposited its dollar reserves in European banks, and these became known as eurodollars. By the 1970s, the United States stockpile of gold continued to decline as President Nixon's economic policies created stagflation. Double-digit inflation reduced the eurodollar's value, and more and more banks started redeeming their holdings for gold. The United States could no longer meet this growing obligation.
* 1971	Smithsonian Agreement. That's when Nixon changed the dollar/gold relationship to $38.0 per ounce. He no longer allowed the Fed to redeem dollars with gold, which made the gold standard meaningless. 
* 1973	US government repriced gold at 42.22$ per ounce. Most countries shifted from a fixed to a floating exchange rate relative to the US dollar.
* 1976	US decoupled the US dollar from gold. End of Bretton Woods. Start of fiat money. Gold price shot up to 124,84 $ per ounce
* 1980s	Once gold was dropped, countries started printing more money causing inflation but also economic growth. In the 1980s all industrialized countries used floating exchange rates.

</details>