The Weekend Read: May 21

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by Todd McDonald

A Retirement (of sorts)

Welcome to one of the final installments of the now quite-irregular Weekend Read. I will be mothballing this blog series in the coming weeks due to the fact that I am clearly too biased to write a mostly-neutral news summary.

When this series began back almost two and a half years ago (featuring perhaps the best meme I ever found), we at R3 (with ‘we’ being only me, Dave and Jesse!) and many in the financial services industry were in ‘explore mode’…trying to make sense of all things DLT. Fast forward to today, and those many months of exploration have clearly led us and our customers to decide that Corda is the answer for financial services, and potentially for all of commerce. That well earned bias has made it harder and harder to share and comment on the other efforts in the industry in an even-handed way.

But fret not! If you would like to be kept up to date on the news items of the day, please contact us as we are in the midst of putting together a more frequent whiz-bang newsletter for sharing useful links to our wider community.

Speaking of the R3 community, please reach out to our Partner team if you would like to join our ever-growing community of builders on Corda. We would love to have a conversation to show how you can build value and get to market with your applications (CorDapps). Or just head over to corda.net and get started! But don’t just take it from us…stop by this Wednesday at Consensus for a panel called Building on Corda, where you can hear directly from partners like Cognizant and Calypso Technologies on what they are building, and the flexible models they have on how they will be going to market. (Spoiler Alert: unlike other platforms out there, we aren’t requiring partners to deploy their apps on a single “Mainframe-Cloud” network…)

Lots and Lots of Links

Here is an incomplete eight week inventory of links to help clear my Pocket queue:

REG-ISH

COINING IT

OLD SCHOOL

BUILDERS

OPINIONS ETC

The Weekend Read: Mar 26

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by Todd McDonald

When they say ‘Blockchain’ just close your eyes and think ‘DLT DLT DLT’…

First up, some Corda love. This Australian Financial Review article (paywalled) highlights how our bank partner CBA used Corda in collaboration with their customer, Colonial First State, and a delivery partner, Hewlett Packard Enterprise, to show how it could help solve a key business problem of capital costs:

Colonial First State is re-engineering the process of buying units in the $2.2 trillion market for managed funds in a move it says will “dramatically” reduce the amount of capital banks will have to hold against wealth operations. A recent experiment with Commonwealth Bank of Australia’s emerging technology team and Hewlett Packard Enterprise using the R3 consortium’s Corda ‘distributed ledger’ allowed Colonial to eliminate arduous paper application process for managed funds and the three-day wait for the delivery of units.

Corda, which is being developed by a consortium of global banks, can remove counter-party risk for intermediaries like CFS by allowing assets to be exchanged and transactions settled instantaneously. It also provides transparency on what each counter-party holds across geographies. By removing the risk of the issuer defaulting or the investor failing to settle, banks will be able to reduce the amount of regulatory capital required to provide cover for those risks.

“If [a blockchain] was adopted locally, regionally or globally, the capital the industry would need to hold could reduce dramatically,” CBA’s group executive for wealth management, Annabel Spring, told the APAC blockchain conference in Sydney last week.

CBA is confident about Corda’s security protocols, which have been designed with input by dozens of banks around the globe. In the CFS trial, the units were transferred cryptographically with keys in the form of PIN numbers required to access the system through mobile apps.

We also got a nice shout out by our friend Michael Dowling of IBM with this in depth post on the evolution of Corda, along with some reference to the recent blockchain-not-blockchain kerfuffle. And since we have been, ahem, a few weeks between posts, here are some ‘catch up’ blockchain-y links:

And finally, a big congrats to ATB Financial as our newest Canadian member!

RegTech (cont.)

R3 was happy to announce another member recently, as we welcomed the State of Illinois to our growing list of Regulator Members. Read about this here and here, along with their overall plans to leverage DLT. Our CEO David Rutter and R3 world traveller Isabelle Corbett followed up with this conversation with CoinDesk that lays out some of the concepts behind the R3 ‘RegNet’.

The efforts and interest of regulators extends across the US, both at the State (see Delaware is Drafting Law That Would Recognize Blockchain Records) and Federal level; Acting (and now Nominated) Chairman of the CFTC J. Christopher Giancarlo recently gave a speech on his overall agenda. Of note was the section dedicated to FinTech, both due to its substance and to the fact that the Chairman gave the topic proper airtime even with his quite package agenda. Full text is here, quick pull quote below:

[M]arket regulation by the CFTC has not kept pace. In too many ways, it remains an analog regulator of an increasingly digital marketplace, curtailing its effectiveness in overseeing the safety and soundness of markets. But it doesn’t have to be this way, especially in an industry that is synonymous with innovation. The CFTC must be a leader in adopting the “do no harm” approach to financial technology similar to the US approach to the early Internet. We must cultivate a regulatory culture of forward thinking.

Couple the above with this post from ISDA on the ‘past and future’ of ISDA agreements, particularly on the role of Master Agreements in the world of smart contracts. As a reminder, our third Smart Contract Template Summit (suggestions for a new name welcome!) will be coming up this June.

MAS continues to push an aggressive fintech agenda of their own. A few weeks back, MAS announced the successful completion of the interbank payments projects that they executed with R3 and a collection of local banks. See here and here. And this past week they announced more details on their plan to roll out a national KYC utility.

Another organization at the intersection of regulation, infrastructure and fintech is CLS. This IBTimes article gives an interesting look at some of their thinking. The article also lays out the differences between ledger approaches, namely that of IBM’s Fabric vs R3’s Corda.

Get the Papers Get the Papers

Our Research team and amazing collaborators have been busy recently, with three new papers:

  1. R3’s Survey of Confidentiality and Privacy Techniques, with an accompanying piece in American Banker
  2. R3’s Report on Fedcoin with JP Koning
  3. R3’s Bridging the Gap Between Investment Banking Architecture and Distributed Ledgers by my good friend Martin Walker

Others have been busy as well. BIS recently release The Quest for Speed in Payments (summary article here), while G20 Insights released The G20 Countries Should Engage with Blockchain Technologies to Build an Inclusive, Transparent, and Accountable Digital Economy for All

The Weekend Read: Mar 5

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Enterprise Ethereum Alliance

The Enterprise Ethereum Alliance formally kicked off earlier this week with an all day meet up in JP Morgan’s Brooklyn offices. The group consists of Ethereum-focused startups and large companies, with a focus on developing standards for private Ethereum deployments. The reaction by the press was curious, as many picked up a theme of Microsoft and IBM waging a proxy war via EEA (Microsoft) and the Hyperledger project (IBM). For example, American Banker noted “the IBM-led Linux Foundation Hyperledger Project” and their use of “a mainframe in a cloud” vs Microsoft as “more focused on openness — letting organizations choose the combinations of technology that work best for them.” Coindesk followed up with an article on the decentralized nature of the new group:

Still, while the board is also designed to give members a sense of accountability, more experimental governance models are also being considered. “Everything starts as an idea, with one person,” said Lubin. “That happened. But Ethereum is moving towards decentralization.”

The press loves a simple narrative (see below for a fine example), but both groups are very diverse and seek to move the whole industry forward, as we ALL have a lot of work to do to make this technology real for business users. One theme that did persist at Tuesday’s EEA launch was the desire to keep aligned, and in some minds perhaps eventually merged, with the public Ethereum chain (not to be confused with Ethereum Classic, or Ethereum Classic Classic!). This and Bitcoin’s recent price surge are most likely what is behind the recent ramp up in the price of ether. For an older, somewhat related article on public Ethereum, I recommend this Aeon article.

Et Tu, Blockchain?

The only good thing to come out of the R3 non-story was this new Tim Swanson meme...
The only good thing to come out of the R3 non-story was this new Tim Swanson meme…

Over the last two weeks, a blockchain butterfly flapped its wings, and the next thing we knew, R3 was caught in the oddest of fake-news hurricanes. In short: a tweeted pic from a Corda meetup was coupled with the quote “GAME OVER” (perhaps an early tribute to the great Bill Paxton?) and the next thing we knew, there were all sorts of nonsense articles and blog posts. For a run down, you can read Chris Skinner’s take (and yes, his is an intentional fake news headline…) and this Bank Innovation piece (Dave Birch: I would love to meet your tailor). In shorter: it was all complete BS. Which was disappointing, but not surprising. I just finished the Michael Lewis book The Undoing Project and the one thing the book taught me was that we are all “confirmation bias” machines. Or as The New Yorker put it: Why Facts Don’t Change Our Minds

As David Rutter pointed out in his blog post last week:

Humans are creatures of habit. As time went on, the term blockchain came to be associated with any type of distributed ledger, even as the technology matured and evolved to meet the needs of different groups of users. This isn’t an issue unique to our space. The marketing team at Canon must have spent countless hours working out how to stop people referring to all copy machines as Xeroxs.

We can see this in two other thoughtful articles that were recently published. Our very own Antony Lewis has a great take on Distributed Ledger Technology for post trade published in Tabb Group…yet the title chosen by the editors was “Applying Blockchain to Post-Trade Derivatives Processing.” Another from CFO magazine includes yours truly and does a great job in explaining why CFOs should pay attention to distributed ledger technology…which they term “Betting on Blockchain.”

Lost in the noise was the release of an 80 page report by the Aite Group. This Coindesk review of the report gives a flavor of the market landscape that Aite explored, including this key quote:

“A growing trend, adopted by five chaintech platforms and spearheaded by R3,” writes Paz, “calls for consensus taking place at the transaction level, requiring the consent of at least two counterparty nodes.”

Another bit lost was our new intro video to Corda, which declares in very plain language what Corda is (and isn’t):

But don’t just trust our word on it. Sign up for Corda training or sign up to our Slack, and see (and debate) for yourself!

Links

ブロックチェーンがブロックチェーンじゃなくなるときはいつ?

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by David Rutter

これまでCordaを応援して下さっているみなさまに大変感謝しております。しかし、真実ではない噂が流れていることは非常に残念に思います。

物事の正当性はいつの時代も問題になります。新しいアイデア、テクノロジーや文化的現象が主流になるとき、常にメディアの目に晒されます。数年を巻き戻して、オックフォード英語辞典で”meme”という単語の意味を調べてみると、それがInstagramの可愛くない猫か残念なマイケルジョーダンの写真に更新されていると、誰が想像していたでしょう?

私たちが2015年にR3を立ち上げたとき、ビットコインやブロックチェーンを支えられる技術、そして金融市場への適用の可能性に触発された会社は一握りでした。役員会の会話やブロックチェーン絡みのメディアが使う言葉が、当時、分散台帳技術を最も良く表現していました。

人間は習慣の生き物です。時が経つにつれて、ブロックチェーンという用語はあらゆる分散台帳を示すようになってきました。テクノロジーが成熟し、異なるユーザーのニーズを満たすように進化しているにも関わらずです。これは私たちの業界だけの話ではありません。Canonのマーケティングチームは、人々がコピー機をゼロックスと呼ぶのを止めるよう、もっと時間を費やすべきでした。

しかしながら私たちは今、また同じ正当性の罠にはまってしまいそうになっています。Cordaは、当初から分散台帳プラットフォームであり、これまでのブロックチェーンプラットフォームではないと言い続けてきました。またブロックチェーンに似せようとしたこともありません

当初、私たちのアーキテクチャーチームは、既存のブロックチェーンを採用するか、適用するか、一から作るか、の選択が最優先であると考えました。別の言い方をすると、もし現在市場にある伝統的なブロックチェーンのようなプラットフォームが、規制された金融機関の目的にフィットするのであれば、私たちは一から独自のプラットフォームを構築する必要はありませんでした。喜んでそれを採用するか、必要な範囲内で適用していたでしょう。

ブロックチェーンはビットコインやイーサのような仮想通貨の取引をハンドリングするために構築されたソフトウェアです。コンソーシアムのメンバーである銀行と共に調査・研究していく中で、私たちはこのテクノロジーを深く考えず盲目的に金融市場へ適用することは出来ないと、早い段階で気が付きました。規制上の問題やプライバシーやスケーラビリティの問題を無視して進めるわけにはいきません。それがCordaを開発した理由です。

オープンソースである分散台帳技術Cordaは、金融業界の特定のニーズに対応するために一から設計されました。ブロックチェーンの良い面に強く影響されていますが、設計上の判断は、規制された金融機関のニーズを満たすようされています。

決定的な違いは、Cordaでは取引当事者だけにしかデータへのアクセスを認めていない点です。データをネットワーク全体で共有しません。Corda上の金融取引は執行力を持ち、ビジネスロジックと関連する法律文書のデータにリンクしています。これにより、プラットフォーム上での金融取引を法律に根付いたものとしているのです。

Cordaは金融業界の特定のニーズに対応するために一から設計されました。現在、分散台帳プラットフォームの構築事例は数件しかありません。そして、金融業界を横断縦断して70社以上のグローバル企業によって開発された例は一つもありません。Cordaは唯一であり、その発表はマーケットにとって画期的な出来事でした。

ブロックチェーンがブロックチェーンじゃなくなるときはいつ?それはCordaがCordaと呼ばれるときでしょう。

The Weekend Read: Feb 19

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by Todd McDonald

R3 in the News

Our CEO David E. Rutter sat down with Financial News for a very entertaining (and paywalled, sorry) interview that gives more than a few anecdotes on R3 and how we attempted to surf the blockchain hype cycle…all while trying to not get snared in the ‘reef of inflated expectations’ that hides just below the surface. But as Dave says, it is the hardest any of us have ever worked in our careers and yet the most fun any of us have ever had.

Credit Suisse Corda Hackathon in full flight
Credit Suisse Corda Hackathon in full flight

Over the last two weeks, we have talked about our recent work with Credit Suisse on their triple time zone Corda Hackathon, we were very pleased to announce our newest Regulatory Member: Hong Kong’s Securities and Futures Commission, and to read the lessons learned from Bank of Canada’s Carolyn Wilkins on the work dubbed “Project Jasper”, the collaboration w BOC, Payments Canada, R3 and R3 Member Banks to experiment w a DLT wholesale payments system. I wanted to highlight her take aways for the business case below:

We’ve also gained some other important insights that will be relevant to the business case for this type of DLT application:

1. Most cost savings appear unlikely to come in the core system itself, but rather more likely through reducing bank reconciliation efforts. The initial design is quite collateral intensive while the current system is already highly efficient.
2. There’s the potential for more savings if other applications could be built on top of a core cash payment distributed ledger system (eg financial asset clearing and settlement, trade finance).
3. In an actual production system, trade-offs will need to be resolved between how widely data and transactions are verified by members of the system, and how widely information is shared.
4. While DLT may aim to reduce concentration of risk, a substantial amount of centralization would still be required (eg permissioning of nodes and setting of operational standards) if applied to wholesale payments systems.

And a shout out to my colleague, and provider of Slack-Avatars-as-a-service, Gavin Thomas for his post on how he PM’ed the #### out of the Corda open source release: DON’T LOOK DOWN, A PROJECT MANAGER’S SHORT STORY OF OPEN-SOURCING

Industry News

CoinDesk has continued their reporting on the upcoming announcement of Enterprise Ethereum, with two articles this past week, as the group readies for an official announcement soon. We are glad to see that the enterprise blockchain space, both within Hyperledger and the new Enterprise Ethereum, has started to focus on the core requirements of scalability and confidentiality. To echo what our CEO said above, there will be no shortage of hard work involved as the new group “state channels” their inner cat herder.

In another CoinDesk article, Swift’s Global Payments Initiative (GPI) Program Director Wim Raymaekers describes how the project has aimed to improve the current Swift architecture and make payments more transparent by layering on new business rules and a GUI. Raymaekers provided both hope and shade to the blockchain crowd, saying:

[B]lockchain developers will be given access directly to the GPI as part of a hackathon. “We’re going to open those APIs for fintech and blockchain designers to come up with … new ideas,” Raymaekers said.

Overall, while Raymaekers is optimistic about the possibility that blockchain might improve some products, he ultimately sees the need for the tech as limited. He concluded: “We think blockchain today is not ready for wholesale cross-border payments. We are improving that with GPI, so it’s no longer a problem.”

Lots of Links

Here is a quick rundown of other stories from the last few weeks, which features such FoTWR celebs as The Blockchain Beard, lil’ Buterin, The Swanny, and my Snark Sensei