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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: July 10

Hey Bae Readers, welcome to The Weekend Read. Oh sorry, I was using my “Intern Recruitment” template from Microsoft…if you haven’t seen their recruitment strategy for “Interapalooza” you should check it out. Its so turnt that its on fleek.

1. Blockchain Speed Round

Due to the late filing of this post, let’s go for a quick run thru the links:

What’s in a Name? — The Disambiguation of Smart Contracts by Anthony Macey. Nice rundown of the challenges bridging the legal prose and code worlds. I especially liked his 5 point list of what a “contract” could mean.

How Distributed Ledgers Impact Post-Trade in a Dodd-Frank World:

While two parties can benefit from a shared ledger and a single smart contract, the true benefit of these technologies will not be realized until they are widely adopted. For example, regulator access into a permissioned distributed ledger will be most helpful when the regulator can view an entire market or at least a broad cross-section of that market, seeing the same data fields for each transaction.

5 Things We Learned From Analysing the Location of 950+ Blockchain Startups. Mainly included so I could include this pic. I find it oddly soothing, like an Eric Carle illustration. Maybe “The Hungry Little Blockchain”

Bitcoin Halvening happened this week. Much like the new fave expressions of “The Youngs,” I have no idea how to pronounce this word. Set your Bitcoin Clocks for the next halvening party at the moontower on July 6th, 2020…

Shout out to Richard Brown as a co-author with Dave Birch and Salome Parulava on their “Towards Ambient Accounting” paper:

And finally, a nice article on R3 in Fortune this week that gives some context to the design choices of Corda to be more applicable to the realities of market dynamics. It also provides the scoop that our NY office meeting rooms are indeed (for now) named after Top Gun characters.

The Weekend Read: June 12

WARNING: do not try at home. Objects in picture may not be to scale.

WARNING: do not try at home. Objects in picture may not be to scale.

Many thanks to Kevin Rutter for pinch hitting for last week’s Read. Your author was unavoidably detained at my 20th college reunion, aka a mid-nineties Hot Tub Time Machine. An age before social media (thankfully, for all involved) and carb-phobia. The only thing that seems to survive is that, now and forever, Slices come plain only.

1.  CBDC Discussed in DC

The World Bank, IMF and the Fed recently hosted an event called “Finance in Flux” to broadly discuss the impact of technology on finance. Chain’s Adam Ludwin delivered a keynote address and shared his speech on the Internets here. As usual with Adam’s articles, he provides a clear narrative and interesting context, especially for the evolution of distributed ledgers versus the recent financial backdrop and other technological developments:

The medium of money has only changed a few times in history, from precious metals to bearer currencies to now our ledger-based electronic systems. Bitcoin and blockchain represent a transition to a new medium. This transition is often referred to as distributed ledger technology, which is a reference to today’s centralized ledgers. But I find it more helpful to look back to bearer instruments, like banknotes, to appreciate what this new medium enables: a digital bearer instrument.

[SNIP] The goal of the blockchain industry is to collapse these steps into a single step, where payment is the settlement, just like with physical notes. This is what I mean by digital value transfer, which I sometimes like to call money-over-IP. Soon, the phrase “cross-border payment” will make about as much sense as “cross-border email.”

The main thrust of the talk was to introduce and potentially advance the topic of central bank digital currency (CBDC), something we often reference in this space. There is undeniably a lot of activity going on across both public and private sectors, and I expect that the discussion, especially around the second order benefits and (most importantly) risks, will only increase thru the end of 2016.

2. Blockchain Buzz. Bitcoin (price) Breakout?

Bloomberg published a short op-ed touting the promise of blockchain, although they perform an all-star hedge, claiming in a single paragraph that it can “change the world” or “fade into relative obscurity.” Do we only get two choices? Meanwhile, the IMF chimes in with an article entitled The Internet of Trust, shared here not because it breaks much ground but to highlight that the IMF would bother publishing such a piece. The blockchain buzz continued with the second annual “Blockchain Illuminati” resort retreat on Necker Island, where attendees unironically discussed solving Peruvian land title issues while sitting poolside.

Quick test of target $650/700 level. To the moon...or back to retest breakout?

Quick test of target $650/700 level. To the moon…or back to retest breakout?

Meanwhile, Bitcoin price continues its strong run. As noted a few weeks back, a break of the $465 resistance opened up a test of 650/700 area…and here we are. Not a bad level to trade against. I am sure we will be in for lots of XBT cheerleading this week, so take this as a semi-regular reminder to not read into any of it, as (now and forever) story chases price.

 

 

 

3. Blockchain…what is it good for?

Back to the more pedestrian topic of what we can actually do with distributed ledgers. Dave Birch has an interesting 4 part series on digital identity and how this could be implemented with shared ledgers:

What if we could use shared ledger technology to build this record of financial services passports but but in such a way that no institution owned it, that it had no central system to go down, that it could resist intrusion or attempts at fraud from compromised members of the network, and that it could provide a platform for new products and services that we can’t really imagine at the moment? Personally, I think the shared ledger may well a plausible solution to this problem.

I especially liked his observation in Part 3: “while the idea of having sovereign control of your digital identity in some sort of blockchain is an appealing prospect if you are a 20-year-old computer science major MIT, I remain unconvinced that is a mass-market solution especially in developing countries.” Indeed.

Meanwhile, ICYMI (I did…), Josh Stark of Ledger Labs provides a nice review of the different perceptions of smart contracts, breaking them into two overlapping yet unique definitions: smart contract code and smart legal contracts. He explains both in detail and also nails how Corda fits into the ledger ecosystem:

The different uses of the term illustrate a broader challenge in our industry. The interdisciplinary nature of blockchain technology, and “smart contracts” in particular, lead people to see the technology as primarily belonging to their own discipline, at the expense of the others.

Lawyers often look at smart contracts and see marginally improved legal agreements, without appreciating the fuller potential of blockchain-code to extend beyond law’s reach.

Developers, on the other hand, consider smart contracts and see the limitless possibilities of software, without appreciating the subtleties and commercial realities reflected in traditional legal agreements.

As with any interdisciplinary field, both must learn from the other.

The Weekend Read: June 5

1. Mike Hearn’s Post

Mike’s post counters a point from Fred Ersham’s post last week as a launching point to discuss developer issues across Bitcoin, Ethereum, and private ledgers such as Corda alike.

If we as an industry misunderstand the pain points in developing decentralised financial applications then we won’t be able to fix them.

2. WSJ “What is a Bank?” Series

The series looks at the rise of the megabank, and also has several pieces by different thought-leaders including Chris Larsen of Ripple on the role of, and future of, banks.

3. Cryptocurrency Update

DAO cracks the top five cryptocurrencies.  WSJ writes an article on 5/30 on the recent Bitcoin price surge, and buying pressure from China…the price ripped up another 10% from that price. The ETH-BTC friends-or-foes debate.

The CFTC establishes jurisdiction over Bitfinex.

4. R3 News

Coindesk speaks with Tim Swanson about the Ethereum platform review by Vitalik Buterin.  Hong Kong insurance giant AIA joins the consortium.  A profile on R3’s relationship with Ping An.  Lastly, watch Lee Braine’s presentation on smart contract templates.

The Memorial Day Read: May 30

1. Goldman Sachs Profiles in Innovation Report

Goldman Sachs Investment Research joins the recently steady stream of bank blockchain pieces with a very cogent overview of the potential of blockchain tech, subtitled Putting Theory into Practice. The report goes into detail via seven case studies and does a very good job in walking thru the business case and risks in each. The money quote:

A key takeaway across these applications is that blockchain is not just about disintermediating the middleman. In some cases, blockchain could disrupt markets and existing participants, while in others, it promises to help drive cost savings by reducing labor-intensive processes and eliminating duplicate effort. And in some instances, it can create new markets by exposing previously untapped sources of supply. The common thread is that by enabling a fundamentally new type of database technology that can be distributed across organizations, blockchain creates the foundation for solving problems or seizing opportunities that have eluded current systems.

 

2. Bitcoin, why can’t you be more like your little brother Ethereum?

Fred Ersham from Coinbase, fresh off the listing of Ether on their GDAX exchange, has a very thoughtful post on how he has come to appreciate the growing Ethereum ecosystem, especially in comparison to both Bitcoin the protocol and community:

What is very real, though, is the possibility that Ethereum blows past Bitcoin entirely. There is nothing that Bitcoin can do which Ethereum can’t. While Ethereum is less battle tested, it is moving faster, has better leadership, and has more developer mindshare. First mover advantage is challenging to overcome, but at current pace, it’s conceivable.

Test of $650/700?

Test of $650/700?

But…Bitcoin price just broke out (on low volume) to new year highs and past previous strong resistance around $465 (see chart), while Ether may be tracing out an interim double top.

But…large mining company KnCMiner declares bankruptcy just as prices shoot past their supposed break even point. Very odd.

But…our old bailiwick TheDAO comes under increased scrutiny, with some calling for a DAO moratorium.

Stay tuned…

3. The Race to Innovate…Ahead of the Ongoing Innovation of Fraud

SWIFT remains in the news, with more reports of attempted hacks surfacing. They even get the badge of honor to have their attacks linked to the same (potentially North Korean) group behind the Sony hacks! We may be coming to the point where we have a version of Godwin’s Law for hacks…eventually all will lead back to (alleged) North Korean hackers. In the meantime, banks are stepping up the pressure for SWIFT to adopt new safeguards.

Banks are also looking to attack fraud in the guise of honest trade finance. Bloomberg details the drive behind and some of the detail of the recent PoC conducted in Singapore, with Ripple, DBS, SCB and the Infocomm Development Authority of Singapore. The application of distributed ledger tech can go a long way in preventing the “double spending” of invoices.

4. R3 In The News

Our own Tim Grant had the honor to present at the President’s Council of Advisors on Science and Technology recently, and his talk (skip to minute 32) and others is posted here. Unfortunately he divulges a bit too much of our “pixie dust and unicorns” business strategy. Oh well, back to the drawing board.

And finally, we are proud to welcome Ping An, our first Chinese institution, and our first insurance company, to the R3 family. Welcome aboard!