The Weekend Read: September 11

Sharing the blockchain pixie dust

Sharing the blockchain pixie dust

1. Talking Down the Hype

Bloomberg and Accenture lead this week’s edition with pieces that try to (somewhat) gently deflate the blockchain hype bubble. First up, Bloomberg columnists compare the lightly funded optimism of blockchains with the harsh reality of Europe’s massive and expensive Target2 overhaul:

Take one recent example of wholesale technological change: The very un-glamorous Target2 Securities pan-European settlement platform. (Next time, call it a blockchain, guys.) It was designed in 2006 as a way to improve efficiency, cut costs and reduce complexity for settling cross-border trades in Europe. A decade and 2 billion euros later (divided between the ECB and the financial industry) it’s still not fully rolled out. Official forecasts say the system will begin paying for itself in 2024 — two years, remember, after blockchain will have supposedly also started to save the industry billions.

So a real-world example, then, that it takes 20 years for a new, efficient 2 billion-euro post-trade system with full central-bank backing to start recouping its cost. It would be a miracle if blockchain could repeat this feat in a fraction of the time without similar backing or funding. To match such ambitious expectations would surely require some seriously large-scale resources — which, despite the hype, bank-friendly blockchain technology has yet to attract.

This has been our opinion (from a much more optimistic perspective, of course) from the beginning, and one that is inevitable as things shift from pure innovation labs to business lines. In a similar vein, Accenture had this post in the NY Times that cautions about the challenges of blockchain immutability in a regulatory climate that increasingly tries to enforce a “right to be forgotten”:

The financial services industry needs to face the question of how to balance the appeal of pristine accounting with the demands of the real world, where some things simply need to be struck from the records.

This challenge is coming to light with new data privacy rules like the European Union’s general data protection regulation, which will add new consumer data privacy and ownership rights over the next two years. These rules will not just affect Europe; they will have a far-reaching impact on global companies, and not least on the back offices of major financial institutions.

[SNIP] One thing is clear: If the financial services industry is to embrace a new technology, it cannot be one in which mischief and mistakes are immutable and fraudsters can defend their actions on spurious ideological grounds. Even the smartest contracts can be susceptible to human error, and even the cleverest I.T. architectures will be hit by events that need to be undone.

On some levels the above concern makes sense, but at least in the capital markets perspective, I struggle to see how immutability creates issues, especially in ledger networks with clear governance. Using a simple markets “fat finger” example, the common and correct practice for unwinding trade errors is not to “strike them from the record” but instead to enter an equal and opposite counter-trade. Cancelling records of trades or obligations would quickly lead to that person looking for their next place of gainful employment.

2. Friends and Blockchain

Many thanks to our partners at BNP for inviting me to the kickoff of their Americas Innovation Zone and their “Bizhackathon” event, which was covered here and here. Our panel discussion and Q+A was very engaging and focused more on the challenges and opportunities highlighted in the above article, namely the positive friction that is starting to result as innovation and business reality start to intersect in the PoC-Pilot-Production journey.

Big ups as well to Gadi and the Wave team, which announced, in collaboration with Barclays, a successful use of a blockchain to digitize a part of the mountain of documentation needed in today’s global trade. And Thomson Reuters, another R3 partner, kicked off a weekend-long “HackETHon” in London to explore a few very important themes, such as secure smart contracts and the challenge of exposing trust-minimized distributed ledgers to “the great unwashed” of the external world of data.

3. Open Source

Hyperledger’s Executive Director Brian Behlendorf recent interview in Bitcoin Magazine lays out the Project’s vision to support the various communities emerging across the distributed ledger spectrum in an open way:

“Permissioned chains do not solve all the interesting problems out there,” he commented. “I think Bitcoin, Ethereum, and other cryptocurrency and distributed application platforms have a long, bright future. Specific currencies may come and go, but the problems they solve are real and worth solving and there are incredibly active user and developer communities around each. I think we’ll also find over time that there are many shades of grey between ‘permissioned’ and ‘unpermissioned’ and I’d love to explore that whole spectrum with projects at Hyperledger.

[SNIP] “We’ll have many public chains and technologies (I think Zcash looks really cool, technically) and many, many private chains, because there are many different kinds of communities and use cases, and expecting one chain to meet them all is unrealistic. We should be asking ourselves how we maximize the amount of re-use and code-sharing between the software driving all those chains. That’s what we’re hoping to help with at Hyperledger.”

We are excited to work with the team at the Linux Foundation as they expand the distributed ledger communities and help prove the model of open source in financial markets. It certainly seems like the right side of history, as the data points of “big bad banks” going all Linus increases (see this article on Goldman Sachs).

4. R3 and Exchanges

And finally, we are very excited to announce the addition of BM&F Bovespa as our third member in Brazil and our first exchange (the largest in South America). The Brazilian market is fascinating, as much of its infrastructure is years ahead of markets like the US. Brazilian markets have had to survive the crucible of hyperinflation and market instability time and again, and their market structure has been built in response to that. Fabio Dutra, Client and Business Development Managing Director at BM&F BOVESPA, says it well here: “We believe that strong collaboration with our customers, regulators and vendors is crucial to futureproof financial and capital markets. Innovation with appropriate regulatory oversight is paramount to making the Brazilian markets even more efficient and reliable. Shared ledger technology may play an important role here.”


My thoughts are with those whose lives were impacted on this day 15 years ago. The years pass but the events that day will not be forgotten.

The Weekend Read: May 1

Welcome to a brief edition of TWR. Next week is sure to be busier as we head into the Consensus conference. Make sure to catch the David Rutter late Tuesday fire-siding. I will be the guy with no badge loitering near the exits, so come say hi.

1. SWIFT Heist

Weapon of Mass (Wealth) Destruction

Weapon of Mass (Wealth) Destruction

Journos got to take their movie analogies into overdrive this week, as more information was revealed (see Reuters and NYT and Bloomberg) on the $81m ‘heist’ perpetrated by unknown attackers via the SWIFT network. BAE Systems followed up with a very in depth review of the cyber heist. Amazingly, one of the keys to the whole operation was to correctly spoof print outs of confirmations! BAE Systems wraps up their post with some words of wisdom:

This attacker put significant effort into deleting evidence of their activities, subverting normal business processes to remain undetected and hampering the response from the victim. The wider lesson learned here may be that criminals are conducting more and more sophisticated attacks against victim organisations, particularly in the area of network intrusions (which has traditionally been the domain of the ‘APT’ actor). As the threat evolves, businesses and other network owners need to ensure they are prepared to keep up with the evolving challenge of securing critical systems.

2. Other News

A short Finextra article extends on last week’s Barclays/Corda announcement to pimp smart contracts: “While blockchain has been enthusiastically discussed with regards to settlements, there are efficiencies and cost reductions throughout the trade lifecycle that would be possible using it. Smart contracts are the key.”

Scott Manuel, vice president and head of product management for Thomson Reuters, expands on TR’s interest in DLT. He also echoes the sentiment above on the potential power of legal prose linked to smart contracts: “Our legal customers … are very excited about the potential of smart contracts, what can smart contracts do, what can they allow in the blockchain world. As most of our legal customers also do legal work with financial services, those clients are all interested in how blockchain can apply.”

And finally, Bank Itaú joins the R3 consortium. Bem vindo!

The Weekend Read: April 24

1. A Corda in London

I am just back from a fun yet very busy week in London with the R3 Braintrust. On Monday, I had the pleasure to accompany the tech crew to the Barclays Accelerator Demo Day. Our highlight was the presentation by Dr. Lee Braine for his team’s work on Smart Contract Templates:

“They provide an elegant way to connect the text within legal agreements to the corresponding business logic. I emphasise to you that legal documentation processes can be lengthy, cumbersome and manual. Smart Contract Templates could simplify all of that and, because they are templates designed for reuse, they could drive the industry’s adoption of standards that are legally enforceable.

“This has huge potential to enable banks to mutualise costs across the industry by using common components – the potential for a paradigm shift in a field where there are billions of pages of legal agreements.”

Dr. Braine went on to show a demo of both the smart contract templates and the interest rate swaps being run via the R3 Corda prototype network, remarking that “this is history in the making.” High five! Another key input to the demo was the use of ISDA Master Agreements, as another example of how crucial it will be to leverage the expertise of incumbents in the evolution of DLT to financial markets.

The week continued with more events including Tomorrow’s Transactions hosted by Dave Birch and Consult Hyperion, which included a presentation and Q+A from our CTO Richard Brown:

Brown said you can think of Corda at a high level as a blockchain platform, but which makes menu selections. “It has a strong focus on interlock between the business logic in code and the data in code and the legal prose. So that in the event of dispute we know what dominates and we know how to resolve it. There’s a focus on interoperability. Private by design – it is not appropriate for me to reveal the private details of my client’s transactions to some other bank. And we do believe strongly that it’s not sufficient just to record the data, we actually have to share execution of business logic.”

I finished up the week by attending a brainiac-fueled QuanTech Conference (thanks for the invite Massimo). I had the unenviable task of being sandwiched between Vitalik Buterin and Dr. Braine on the lineup, so I angled my talk as more vaudeville than valedictorian. Which was a strategy I continued to execute for the closing panel…turns out the audience can’t ask you tough questions if you are taking panel-selfies.

2. Reports Galore

I usually set a rule for myself that I do not share stories or reports in this (mostly) weekly blog unless I have already read them myself. Yet upon my return to the States, I found a distressingly large virtual stack of papers to wade thru and have decided to suspend the above rule for (hopefully) this week only. A selection:

3. Blockchain Consortia

Russia’s Qiwi this week announced their intention for “a consortium similar to R3” for regional Russian FIs. The Chinese press have announced the formation of ChinaLedger Union, a “distributed ledger based coalition.”

We are also proud to announce the addition of Hana Financial, one of the largest bank holding groups in Korea, to the R3 consortium effort. Welcome!

The Weekend Read: Sep 26

Mike Tyson thinks all alt-coins are ludacrisp

Mike Tyson thinks all alt-coins are ludacrisp

1. Barclays wants to help blockchain startups understand investment banking requirements

This lengthy interview with Dr Lee Braine of Barclay’s Investment Bank CTO Office clearly highlights the opportunities (and challenges) for the application of shared ledgers and smart contracts within financial markets. The piece is well worth a careful read, as Dr. Braine’s overview of the essential requirements for shared ledgers echoes what we hear at many of our partner banks. Yet he goes a bit further, intimating that we should not take as a given the need for global distributed consensus in all cases:

“If there is potential from greater sharing of data, we then need to consider the range of architecture options. For example, what if you consider fully-replicated shared copies, so every bank has its own copy of the entire set?

“Well, there are challenges around that in terms of duplicate storage, duplicate processing, etc. And then there are alternatives, such as partitioning the data so participants have only the data that is relevant to them; that could have efficiencies in terms of storage and processing and it may also mitigate challenges around data sharing and privacy for example.

“There is a variety of views in the industry around the pros and cons in each of those design points. And the industry needs to take account of those as it comes up with open standards and open protocols – and heads towards the future state…

“Whether you are looking at permissioned or permissionless ledgers, it’s obviously necessary to ensure security, reliability, performance, etc. I think experimentation will explore all those options. There are clearly tremendous opportunities for startups in the blockchain space. For investment banking, blockchain-inspired solutions such as shared ledgers and smart contracts should aim to meet the enterprise-scale architectural non-functional requirements.”

2. Blockchain on Wall Street

MIT Technology Review has a nice run down this week about Wall Street’s recent firm embrace of all things blockchain, entitled Banks Embrace Bitcoin’s Heart but Not Its Soul:

One such project became public last week, when New York City startup R3 announced that it was partnering with nine banks including Goldman Sachs, UBS, and JP Morgan to develop blockchain software that could ease the transfer of financial assets between institutions. If an asset’s ownership is recorded by cryptographic software in a blockchain recognized by multiple banks, it can be transferred between them more rapidly than today, says Richard Gendal Brown, R3’s head of technology.

In theory, a system like that could be built on top of Bitcoin. But some of its features are not a good fit for the financial industry, such as how its blockchain is public, says Brown. “Customers tend not to want their private financial transactions visible to everybody.”

Richard gets another shout out in an interview with Dr. Gideon Greenspan, founder of Multichain: (ed. note: Dear IB Times: PLEASE stop embedding auto-playing video in your stories, it is driving me mad…)

Greenspan compared this to work that was done decades ago in laying the theoretical foundations for the relational databases that run the world today. He added: “I wouldn’t say that either banks or startups were intrinsically qualified or otherwise to work out these fundamentals. Rather, I think this is work that should be done by experienced computer scientists and system architects, wherever they might happen to be. The hiring of Richard Gendal Brown by R3 is I think a recognition of this fact, and a very positive step.”

3. CFTC loves/hates Bitcoin

Following up from last week’s announcement on Bitcoin-as-commodity, the CFTC announced that they had filed and settled charges against Tera Exchange, accusing the exchange of performing a wash trade during their first (only?) BTC SEF transaction last year. Meanwhile, the recently departed Commissioner Wetjen has joined exchange-in-waiting LedgerX as a board member.

4. The Internet loves/hates on Coinbase and 21

Coinbase stoked the ire of Redditors everywhere with their announcement that they have filed 9 patent applications on business processes related to the Bitcoin protocol. Brian Armstrong, CEO of Coinbase, tried to lay out the case for Coinbase as one of necessity:

Our ultimate goal in obtaining bitcoin related patents is to keep them out of the hands of bad people, use them defensively to protect Coinbase from patent trolls, and help ensure the bitcoin ecosystem continues to grow.

Bank of America also got into the patent game, filing a patent related to cross-border transfers that may involve cryptocurrency rails. (Full patent here).

Yet no story this week produced a hotter internet flame war than the Amazon pre-sale of’s 21 Bitcoin Computer (or Energy-Arb-as-a-Service for the snarky). 21’s CEO Balaji Srinivasan describes the device as a ‘devkit’ that is the first step in returning “economic power to the individual” by making Bitcoin micro-payments embedded into digital workflow.

One excited blogger compares this release to the Altair 8800 and the dawn of a new internet:

Next, link unforgeable bitcoin private keys with biometric identification. And… *waves hands vigorously* You just killed:

  • Passwords…

  • sign-ups…

  • e-mail confirmation…

  • login screens.

And removed a ton of hassle and frustration and waste.

While others weren’t so complimentary…The most eloquent take-down came from Izabella Kaminska of the FT, calling the 21 RPi+ASIC “a machine built to burn your real world money.” She also weaves in Colombian drug trade, Kennedy Airport and the phrase “Keynesian coal mine” in the very entertaining blog post:

Which brings us back to our original point about 21 grammes being the weight of your soul.

What 21 Inc is really doing is recasting the classic story of the Faustian bargain for the digital age. In this retelling of the narrative, however, 21 grammes is the weight of your digital data, $0.03 is the value the digital economy wishes you to get per day and the true breadth and scope of the contract you sign with Balaji Srinivasan, 21 Inc’s CEO, is revealed in the terms and conditions outlined above, and is definitely worth more than $399.99 to 21.

The Weekend Read: Back to School Edition

Summer is (un-officially) over and the Bitcoin livin’ aint easy

1. Bitcoin Nerd Fight Update

Since our last posting, lots of e-ink has been spilled and reddit sock puppets besmirched over the Great Block Size Debate of 2015. There are countless articles and think pieces available on the topic; for a good high level review of both sides, see this New Yorker article. This week, the broadly anti-XT Bitcoin core dev crowd (representing roughly 90% of Bitcoin Core commits) penned an open letter to the community:

There will be controversy from time to time, but Bitcoin is a security-critical system with billions of dollars of users’ assets that a mistake could compromise. To mitigate potential existential risks, it behooves us all to take the time to evaluate proposals that have been put forward and agree on the best solutions via the consensus-building process.

In other words, you can stick your XT hard fork…Let’s see if anything constructive comes out of next weekend’s Scaling Bitcoin nerd summit in Montreal.

2. Blockchain on Wall St. (cont)

The ‘bank love for blockchain’ articles continued unabated during our brief hiatus. First up was this NY Times article, which features a mention of our own David Rutter and reviews the blockchain excitement across Wall St:

Many in the financial industry hope they can find a way to use the blockchain concept — what is often referred to as adistributed ledger — without using the blockchain associated with Bitcoin. Although the bankers working on the idea disagree on how this will happen, they show surprisingly little disagreement on whether it will happen. One of Goldman’s top Internet analysts, Heath Terry, said in a recent company podcast that “the whole blockchain tech behind Bitcoin has massive implications for really any kind of asset — and the ability to transfer ownership of digital goods.”

“It’s hard to see a world where that blockchain technology doesn’t end up changing the way we think about asset
ownership,” he said.

Next up is Bloomberg Markets magazine with their blockchain cover story on Blythe Masters and DAH (which also includes a pic of Sunil practicing for the Staring Contest finals). The always excellent and irreverent Matt Levine followed this up with one of the most on-point rundowns I have read in Blockchain for Banks Probably Can’t Hurt:

You could have a centralized model where the participants get together, set up a DTC-like entity, and let that entity keep track of ownership and transfers. Or you could have a semi-decentralized model where the participants get together, agree to run the same blockchain code, and keep track of ownership and transfers by consensus. There might be good technological or practical reasons to prefer one or the other, and certainly the blockchain excites many technologists. But the point is: Either of those models seems much better than waiting 20 error-prone days for a trade to clear.

Then for the banks themselves. Here is Aditya Menon, managing director of global digital strategy at Citigroup, quoted in The Economic Times: “For us it’s not so much about bitcoin because bitcoin is something that has very volatile value, questionable in terms of an entry in and entry out from a regulatory perspective. But if you think about the distributed ledger -that is extremely valuable.” Barclays also garnered some headlines, with ArsTechnica managing to over-interpret the announced charity pilot with Safello into the headline Barclays to become the first major bank to accept Bitcoin [later updated and somewhat softened to reflect the truth]. Chief Design and Digital Officer Derek White followed up in other stories with more updates on Barclay’s work: “We looked at how many experiments we wanted to do internally with the blockchain. The first wave led to 22 experiments, we’ve now got over 45 experiments our businesses want to do.” And finally, UBS made a big splash late in the week with an overview of their efforts in distributed ledger, which includes a smart bond prototype as well as a ‘settlement utility coin.’

3. Odds and Ends

ICYMI, in late August Richard Brown channeled Barclays’ Lee Braine in FREE ADVICE CAN BE VALUABLE… BUT ONLY IF YOU TAKE IT:

Thirdly, consider the complexity of banks’ existing IT environments. An idealised, “wouldn’t the world be perfect if…” solution is no use to anybody if it requires the whole world to move at once and/or if there is no credible migration path. This points to a need to listen to the incumbents when they object. Furthermore, consider the non-functional requirements which are simply a given in this space.

Fourthly, if we assume that today’s current hyperactivity will lead to a new understanding of the possibilities for banks but don’t assume that today’s blockchain platforms (permissioned or permissionless) are the (whole) answer, then surely we’re back in the land of engineering, architecture and hard work? Perhaps this means that the combination of persistence, data models, APIs, consensus, identity and other components that we need won’t all come from one firm. So a common language, some common vision and an ability to collaborate may become critical. Where is your distinct differentiation? Where would you fit in an overall stack?

And for something completely different…music royalties on the blockchain have been getting quite a bit of buzz lately. This Billboard article How ‘the Blockchain’ Could Actually Change the Music Industry gives a good overview. I bring this up for two reasons. One, this potential use case is one example where Bitcoin itself could ‘win’ as it is applying new principles to create new markets, as opposed to trying to optimize existing financial infrastructure. Second, it led me to read this very good reply to the hype by Alan Graham. The reply is meant to be specific to the music industry, but Graham does an excellent job of playing the optimistic skeptic for blockchain:

The blockchain, in theory, shows some promise as an immutable public ledger that provides some needed transparency when it comes to important transactions, whether they be purely financial or a public statement of fact. However, if it is going to get past the point where it is being funded for the sake of finding the next big thing (beyond bitcoin), to actually being the next big thing, it has to solve five main issues, Authority, Immutability, Scalability, Legacy, and Privacy.

I encourage you to read it in full. Enjoy!