The Weekend Read: Mar 26


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: May 15

1. “The DAO” Jonesing

[High five self for NY Post style headline pun]. The DAO public crowdsale that isn’s an equity raise continues to gobble up investors and Ether (already over 13% of the float!). CoinDesk did a great job this week of summarizing both the goals of The DAO and the inscrutable semi-organizational structure behind it. I also asked The Swanny to give me two paragraphs on the topic, which in his world means a whole blog post, which you can read in full here.

Overall this is a fascinating experiment, as a few have put it, but one that is being done WITH MONEY, particularly OPM. Is this a result of folks not knowing or more likely not caring about the time value of money, since real rates are so low? What would be an investor’s time horizon to realize returns, as the VC rule of thumb is ~7 year time frame? When you consider that Angellist put roughly $70m to work in public syndicates in 2015, The DAO would need quite a few years to put its money to work, and that would only start the clock on the investment…

Isn’t this like “Ether squared” from a risk perspective? Since you need to believe that Ether will be stable to higher AND that DAO tokens will be stable to higher AND that using a global censorship resistant computer to allocate investment capital will outpace the returns of other investments (opportunity costs). It most definitely could work and give great returns to those who have invested, but with a VERY unclear risk profile. There will be lots of good and bad (and definitely worthwhile) lessons that come out of this experiment, I am just happy that I don’t have to fund it.

2. A Warm Regulatory Embrace

CFTC Commissioner Giancarlo preceded our panel at Markit’s annual customer conference to give another pro-innovation speech Blockchain: A Regulatory Use Case

This speech reiterated the commissioner’s belief that “we need DLT to succeed” and highlights five steps for a “do no harm” approach. It also has a nice shout out to Corda. The speech also discussed “Regulatory Sandboxes” such as the UK FCA. Speaking of the FCA, they announced a “Fintech Bridge” with the Monetary Authority of Singapore (MAS) earlier this week.

3. Even More Links

Vitalik Buterin’s recent post on settlement finality is a volley in a gentleman’s debate with our Tim Swanson. The Swanny’s article argued that public blockchains by design cannot definitively guarantee settlement finality. Vitalik breaks the argument down into three sections: 1. issues from probablistic finality (such as forks) 2. the interestingly named “law maximalist” position and 3. the economic argument (if value traded >> price of tokens, then attack). Dense stuff but very readable, as is usually the case with Vitlalik’s writing.

CoinDesk’s always interesting State of Blockchain: Q1

The SWIFT Institute (not to be confused with SWIFT itself) released a whitepaper entitled The Impact and Potential of Blockchain on the Securities Transaction Lifecycle. The authors interviewed 75 organizations in post-trade and tech, taking a similar cautious tone and “cold water” approach to other recent papers via market intermediaries.

Nice quick interview with Massimo Morini on his recent paper and the challenges/opportunities facing banks.

IB times profile of David Rutter.

Gideon Greenspan discusses four blockchain use cases: lightweight financial systems, provenance tracking, inter-organizational recordkeeping, multiparty aggregation.

And finally, Fran Strajnar has an interesting post on protocols and standards, a topic that we discuss quite a bit at R3 HQ:

We believe it is too early to tell exactly how things will pan out, but can reflect back to the Internet days and take away the following insights:

Standards/Protocols are inevitable and required.

Networks ALWAYS end up demanding inter-operability.

It took 15 years to shake out the ideas and protocols that solidify the Internet we use today. It will take at least 5-7 years for Distributed Ledger Technology to be implemented commercially on a global scale by enterprise – i.e., using some form of blockchain to replace the SWIFT network, or back-end infrastructure for inter-bank or even inter-branch settlements.

We expect to see proposals rise and fall and flip-flop as solutions and standards evolve, so don’t count on anything proposed today becoming the de facto operating standard. Whatever happens, we know one thing for sure: Millions will be spent, burned, made, and the world will only remember the victors. 

The Weekend Read: Feb 28

1. The Straw Man of Tabb

Larry Tabb has released a (paid) report entitled Blockchain Clearing and Settlement: Crossing the Chasm. I have read a few summaries and excerpts (here here and here) yet not the full report…so at the risk of attacking a straw man of a straw man: the arguments noted against using a blockchain seem to assume a version of the technology forever stuck in 2015.  There (seems to be) no concept of different versions or applications of shared ledgers that account for the issues raised. Drop us a line if you want to chat Larry.

The Brookings Institute released part 2 of their summary of the recent Hutchins Center conference this week. This is welcome news, as it gives me another excuse to showcase my favorite meme featuring our very own Charley Cooper, aka “Scared Banker Guy”:

Ripple released a report earlier this week that goes into detail on how their protocol can save costs in global interbank settlement. Interestingly, the report segments the solution, showcasing both Ripple and Ripple+XRP.

2. RegTech

Back by popular demand (of one reader at least), more snippets of RegTech news. CFTC hosted a rescheduled Tech Advisory Committee meeting this week, featuring one section on blockchain. This article gives a good review of the discussion:

Brad Levy, CEO of financial information firm MarkitSERV, told regulators during this week’s meeting that he believes operational risks and costs could be immediately reduced by implementing blockchain technology in an exchange setting.

But such a network would and should look quite different from the Bitcoin network, Levy said, characterizing the cryptocurrency’s users as favoring anonymity. “We don’t think that that’s necessarily the model that our industry will adopt,” he added. “Identity will be key.” Along those lines, Levy assured the CFTC that he would expect regulators to gain more immediate access to trade data under a blockchain system. “We think about the regulators as a node. …. They themselves become part of the network and have their own permission-ing, based on whatever rights they’re supposed to have as regulators,” Levy said.

The RBA follows the lead of other CBs by making a few positive comments towards the idea of CB issued digital currency:

“A plausible model would be that issuance would be by the central bank, with distribution and transaction verification by authorised entities, which might or might not include existing financial institutions,” Mr Richards said. “The digital currency would presumably circulate in parallel, and at par, with banknotes and other existing forms of the national currency.”

Finally, the FCA checks back in to update the good progress made so far on their Innovation Hub initiative:

[Christopher Woolard, director of strategy and competition] says the FCA is particularly interested in exploring whether blockchain technology can help firms meet know your customer or anti-money laundering requirements more efficiently and effectively, concluding: “We are engaged in discussions with government and industry on this issue.”

3. Bitcoin to the Core

Joi Ito chimed in this week with his thoughts on the block size debate, casting Bitcoin Core in a light similar to a salon of fin de siecle artists:

The future of Bitcoin, decentralized ledgers and other Blockchain-like projects depends on this community. Many people call them “Bitcoin Core” as if they are some sort of company you can fire or a random set of developers with skills that you can just train others to acquire. They’re not. They’re more like artists, scientists and precision engineers who have built a shared culture and language. To look for another group of people to do what they do would be like asking web designers to launch a space shuttle. You can’t FIRE a community and, statistically speaking, the people working on the Bitcoin ARE the community.

One can hope it is meant to be ironic...

One can hope it is meant to be ironic…

American Banker has a lengthy profile on Barry Silbert (with some quotes by the Swanny as well), concluding with this: “Within five years, he predicts, bitcoin either ‘will be a failed experiment, and something else will have taken its place, or it will be eating the world.'” Perhaps those at the invite-only Satoshi Roundtable will be doing the eating, and not just the kind that their all-inclusive resort bracelet will get them during their retreat…As the Satoshi Whitepaper says: “We propose a solution to the double-spending problem using a peer-to-peer network coupled with annual, private, mostly male, retreats for libertarian celebrities.”

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: Sep 20

1. R3 Announcement

It has been a busy week for us at R3. Our announcement in the FT sparked quite a bit of coverage (click here for a selection of articles). We look forward to making more announcements in the coming weeks.

2. Blockchain for Business

IBM hit the news this week with a WSJ article extrapolated from this blog post by Arvind Krishna, SVP and Director, IBM Research:

We believe that for blockchain to fulfill its full potential, it must based on open technology standards to assure the compatibility and interoperability of systems. Furthermore, the various blockchain versions should be built using open source software rather than proprietary software, which could be used to suppress competition. Only with openness will blockchain be widely adopted and will innovation flourish.

Jamie Dimon was specifically asked about “block chain money transfer” at a conference this week (overview here). Dimon reiterated his lack of optimism on Bitcoin itself while making some encouraging comments about blockchain tech (quote edited for clarity, please see full transcript here):

I still believe [Bitcoin] will not be a currency because government’s control currencies and they are not going to like it…but the block chain, which is a technology behind the encryption and the certification…might very well be very useful in a cheap way if you can go see we own something…it takes 21 days on average…to transfer a loan…So if you go to DTCC, they already keep all the data. They transfer all these things, the question is can you use these things to do it more efficiently. And if it is more efficient we should do it. And I don’t know yet and it’s got to be secure.

3. Bitcoin as Commodity (says CFTC)

The CFTC finally gave a clear opinion on Bitcoin, deeming it a commodity (I agree), which not coincidentally puts it directly under the purview of the CFTC. It will be interesting to see if other regulatory bodies such as the SEC start to stake out jurisdictional territory in response.

4. Fintech Conference Season

Fire up the name tags and cocktail banter…conference season is well under way. NYC played host to Finovate (rundown here), while London hosted Fintech Week. Our own Richard Brown took part in a spirited panel entitled Blockchain for Enterprise (video here, but beware the sound mix) along with Jon Matonis and Dr. Lee Braine (IB CTO Office from R3 partner bank Barclays).

5. Odds ‘n Ends

I admit, I cannot help myself when presented with Tech Bubble click bait. In that spirit, here are two stories I have enjoyed recently. First, Bubble-Grim-Reaper Bill Gurley calls out a few Unicorns as potential Undercorns during a Techcrunch chat:

“It’s like the old adage, [when you’re] handing out dollars for 85 cents, you can go [infinitely],” he said. “Chosen unicorns are being given hundreds of millions of dollars, but you have to ask how much margin is there. The unit economics [with Instacart] would be very difficult, I’d think.”

Couple this with the recent Vanity Fair article by Nick Bilton:

Now countless people from all over want this to be a bubble and they want it to burst. There are the taxi drivers who have lost their jobs to Uber; hotel owners who have seen their rooms sit vacant as people sleep in Airbnbs; newspapers that are at the mercy of Facebook’s algorithms; booksellers and retailers who have been in an unrelenting war with Amazon; the elderly, who can’t keep up; the music industry; television producers; and, perhaps most of all, San Franciscans, who would rejoice in the streets if their rents fell from totally insane to merely overpriced, or if they could get into a decent restaurant on a Monday night. The bloggers who cover the technology industry would write a thousand jubilant think pieces saying “I told you so” to the venture capitalists who sneer and scoff when anyone comes close to mentioning the word “bubble.” As one prominent tech reporter told me, “Frankly, wiping that smug look off Marc Andreessen’s face—I can’t wait for that.”

Finally, this fascinating (long) Bloomberg piece on Tom Hayes, one of the chief conspirators (or fall guy, depending on your perspective) in the LIBOR manipulation case is worth a read:

The investigations into Libor kick-started by McGonagle and his colleagues at the CFTC have resulted in close to a dozen firms being fined a combined $10 billion. More than 100 traders and brokers have been dismissed or have left the industry. For those who remain in banking, the trading floor in the post-Hayes era looks like a very different, more chastened place. Emboldened by their success on Libor, regulators have successfully settled manipulation probes in foreign exchange, precious metals, and derivatives markets. Banks have built up their compliance staffs. Gone are the firm-funded trips to Val d’Isère and the $1,000 meals at Le Gavroche. Traders today describe living in a state of paranoia that their past conversations will be raked over and used against them. The draining of excess from banking in recent years is commonly attributed to the financial crisis. But as the public well knows, nobody who ranked on Wall Street went to jail over subprime mortgages. With Hayes behind bars, and others set to follow him to the dock, Libor and the related collusion cases have an equal if not greater claim to the new, subdued reality.