I hope you enjoy this jet-lag fueled edition of The Weekend Read, as I have just returned from a busy and productive week in London. I would like to thank Paul Gordon, Adam Cleary, Cecile Baird, Pinar and Erika for their help in organizing Tuesday’s Coinscrum event, which was a wonderful opportunity for the R3 team to meet and mingle (and argue) with the London blockchain crowd.
Entrepreneurs worldwide are now working to harness that technology for use beyond Bitcoin transactions. The block chain, they say, could ultimately upend not only the traditional financial system but also the way people transfer and record financial assets like stocks, contracts, property titles, patents and marriage licenses — essentially anything that requires a trusted middleman for verification.
WSJ’s debate Do Cryptocurrencies Such as Bitcoin Have a Future? features two authors arguing slightly different questions, yet both continue to shower praise on the blockchain. And finally CNBC notes how the Bitcoin Investment Trust has achieved FINRA approval to list BIT on the pink sheets, potentially opening up BTC investment to a much wider audience. The author also notes that a similar launch of the largest gold ETF preceded a very long rally in bullion prices. Speaking of price, action there has been improving, with the above news setting a bid under the market even in the face of another US Marshalls auction. As previously stated, any close above the previous support band top (and spike high of Coinbase Exchange euphoria) of $300-310 would be bullish medium term.
2. Gendal + (de) Central Bankers
My man Richard Brown published yet another excellent post this week, extending the recent discussions on central bank issued digital currency (such as FedCoin) to how government backed cryptocurrency could be the key to unlocking the utility of smart contracts:
Think back to the Andolfatto piece. He mused about building “FedCoin” on a distributed ledger. On its face, that doesn’t seem to make much sense. But if we open the topic of distributed ledgers, it also brings Smart Contracts into play. In my recent piece on the topic, I suggested a definition for a smart contract as follows: “A smart-contract is an event-driven program, with state, which runs on a replicated, shared ledger and which can take custody over assets on that ledger.”
Implicit in my definition was that these “assets” could be native assets to the ledger (e.g. Bitcoin). But , more likely, they would be representations of real-world assets: GBP tokens issued by Barclays or HSBC or Coop, say. [snip] And this is where I think a central bank digital currency could make sense on a distributed ledger. It would clear away all that complexity.
You could simply write the contract to demand payment in the central bank token.
ECB joined the fray this week with an update to their previous report on cryptocurrencies, or as they like to call them Virtual Currency Schemes (I can’t help but think that the choice of “scheme” is more than a bit pejorative). Bloomberg has a good review of the ECB’s lack of enthusiasm, as well as a sobering counter to any optimism for official adoption (or co-option) of digital currency:
[The BOE] proposal sums up how central banks are likely to deal with Bitcoin in the future. They’d clearly prefer virtual currencies to die a natural death. Absent that outcome, they’ll attempt to drag the digital platforms into existing oversight frameworks, and smother them in the suffocating embrace of rules, codification and administration.
Ensnaring digital currencies in a web of officialdom would destroy their principal attraction to users — the fact that they’re not part of the existing financial infrastructure, operating instead in a digital hinterland removed from government interference. That would be a pity.
William Mougayar continues his quest to identify and codify the crypto landscape with an open source database of crypto-related companies:
We do our best to keep up with this ever expanding universe and very much appreciate William’s efforts. Speaking of the startup universe, two interesting entrants were featured in stories this week. First, Abra emerged from stealth with their Uber-meets-hawala app that uses reputation scoring plus crypto rails to bring low cost remittances to the consumer. Second, CoinDesk featured decentralized prediction market startup Augur and their attempt to create a platform for anyone to forecast any measurable event. There are lots of issues with running such prediction markets, as Intrade can attest, but I do have a soft spot for these types of markets…even though I still have scars from being caught long Intrade John Kerry contracts on the 2004 election day headfake.
4. Continued Dis-aggregation of the Bank
As the Economist points out, banks continue to face a lot of pain in their core businesses. Meanwhile, fintech startups have not let up in their attempt to peel away and improve delivery of singular banking services. Some banks have chosen to adapt/adopt the upstart’s tactics, especially BBVA, and this FT article highlights their extreme focus on digital banking. Some banks have admitted the challenge they face in attracting talent, especially via this too-self-aware job posting by JP Morgan: “You have an opinion on bitcoin and other cryptocurrencies, and you are probably ambivalent about the prospect of working for a large financial institution.” Comments at a recent SWIFT conference further laid out the proposed threats:
“We really can’t close our eyes,” said Cheryl Gurz, managing director of the emerging technology segment at Bank of New York Mellon Treasury Services. “If we as traditional correspondent bankers don’t keep looking and determining where [cryptocurrency technology] will take us, new entrants will completely take our space.”