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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: August 21

1. Reports

In case you missed it be sure to read the World Economic Forum report, “The Future of Financial Infrastructure” or at least the brief Dealb%k piece.  The report continued on the great work done last year in the report  “The Future of Financial Services.” 

Also CB Insights released “The Pulse of Fintech, Q2”, briefly described here as well, worth a read through for a nice snapshot of the VC funding landscape.

2.  Cash

This week I started reading the new “The Curse of Cash” by Kenneth Rogoff of “This Time is Different” fame.  He is particularly convincing in his argument against higher denominated bills, and it’s a thought-provoking book.  I just wish the chapter at the end which discusses a Fedcoin, (which Rogoff calls “Bencoin,”) was built out a little more.  Perhaps someone should write a book discussing the inherent technical aspects of a CBDC which could potentially add value…I feel like it most recently has been discussed as a means for central bank to enact policy, which gets my inner Econ nerd side interested, but it doesn’t tell the whole story. What about the vast potential ramifications for settlement, or the benefits of programmable money, or the value of a transparent record of payments? 

Speaking of Fedcoin, JP Koning’s blog recaps some recent discussion about expanding access to central bank money;

Echoing Broadbent, BoE Deputy Governor Minouche Shafik has spoken of the need to rethink “about to whom we give access to the advantages of central bank money with its unique qualities of finality of settlement.” The idea here is to allow non-banks involved in fintech direct access to the Bank’s real time gross settlement system, as Mark Carney goes on to illustrate here.

Turning to the blogosphere, John Cochrane has recently written about having all money backed by the government in order to end bank runs. And in the same vein, here is David Andolfatto’s idea of allowing TreasuryDirect balances to be tradeable, thus providing individuals and firms with a safe place to keep cash other than the banking or shadow banking system.

Pretty trippy stuff… News broke on Central Bank Digital Currency lead position opening at BoE.

3. Other news

Zcash release date set on October 28.

Bitfinex gives an interim update, and volume numbers on the platform rebounded nicely this week.

Finally, there was a global payments TechCrunch article, a blockchain as digital tokens vs. activity registers piece, and a piece on the “subtle tyranny of blockchain.”

Thanks to all, have a nice tail end of the weekend.

 

The Weekend Read: June 19

1. This Week in CBDC

I asked our Tim Grant for the R3 take on the Cad-coin news (see Canada experiments with digital dollar on blockchain), also know as Project Jasper:

“Tremendous progress this week with our Canadian partners as we saw the first public outing (see FTWSJBloomberg) of our ongoing collaboration with the Bank of Canada, Payments Canada (the artist formerly known as the Canadian Payments Association), BMO, CIBC, RBC, Scotia and TD. Our shared goal is to understand the mechanics, limits and possibilities of distributed ledger technology in an experimental wholesale payment system environment. Very much a proof of concept, we are looking to explore a number of key questions related to access, cost, security and resiliency, collateral management and transparency.”

Bank of England’s Mark Carney has a very well written speech that covers Fintech in general and calls out DLT specifically, full transcript here:

FinTech has the potential to affect monetary policy transmission, the safety and soundness of the firms we supervise, the resilience of the financial system, and the nature of shocks that it might face. It could also have profound implications for the Bank’s secondary objective, as supervisors, to facilitate effective competition between the firms we regulate. 

Mr. Fedcoin, JP Koning, is back with another post on the relative merits of central bank digital currency. The post is worth a read for its “so what” comparison with an unsexy system that just works: Fedwire.

2. DAO Danger

The big headline this week was the hack of TheDAO, the smart contract decentralized autonomous organization that recently raised over a billionty dollars in their initial crowdfunding raise. There have been lots of very good posts on this subject in the last few days; a non-exhaustive list includes posts by Vitalik, Emin Gun Sirer, Matt Levine, a few by Peter Vessenes, Ryan Shea.

The news is moving a bit too quickly for this post to stay current, but one non-tech lesson is clear: the massive capital raise and subsequent attention on TheDAO was too much, too soon. One could argue that the massive price run up in Q4 2013 was the worst thing that could have happened to Bitcoin at that point in the technology’s (and community’s) development/maturity cycle. It was like watching a young hoops prospect going pro too early.

For TheDAO, their rush to ‘market’ and the ridiculous sums that it garnered in the crowd funding did it no favors. Stephan Tual, Slock.it’s founder and one of TheDAO’s creators, had the audacity to claim that “the unthinkable happened” in his post-mortem blog post. Let that sink in. Unthinkable?! You created a $150m+ bounty in your v1 software that was running on an extremely complex and young platform. It would be unthinkable for it not to be attacked. Perhaps in retrospect the first crowd raise could have been a bit smaller than ~1/5th the float of Ethereum…

As a palate cleanser from all the above, please enjoy this mini-profile of Vitalik from earlier this week.

And Happy Fathers Day to all!

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: May 8

Happy Mother’s Day to all. My gift to my wife is this abbreviated posting (which may be a gift to the readers as well…)

This past week, we witnessed a spectacle that few ever thought they would see, and it all seemed to play out over an excruciating period of time. I am talking of course about Bartolo Colon’s first home run at the age of 42 (and the weight of ten men) and his subsequent home run ‘trot’ around the bases.

There was also some news about Satoshi.

Most of this week’s updates came from Consensus 2016, as many companies and consultants used the showcase to announce initiatives, deals and partnerships. The event wrapped up with what was framed as a debate between Bitcoin and not-Bitcoin, represented by 21.co’s Balaji Srinivasan and R3’s David Rutter. Yet the ‘suits vs hoodies’ event became a bit of a love-in, as Balaji threw compliments instead of shade on the recent blog post from Richard Brown, while Dave complimented Bitcoin as an inspiration, even if he doesn’t know where his private keys are (nice diversion Dave, we know you carry around that titanium briefcase handcuffed to your wrist with all your paper backups for a reason).

Meanwhile, the Ethereum speculative market continues, as the Winklevii announce that they have shipped in a “material” amount of Ether ahead of adding it to their Gemini exchange. Speaking of speculation…nothing like an unregulated capital raise (aka crowdfunding) to get those speculative juices flowing! The DAO takes down 3% of the Ether float (and counting) for their version of tokenized Shark Tank. Holy moly.

As a palate cleanser, please enjoy the latest posting from David Andolfatto called Monetary policy implications of blockchain technology:

The existing structure of money and payments (including central bank design) was built for the pre-Internet world. The world is now changed and we must deal with it. Among other things, there is no reason why, in principle, central banks could not offer online digital money accounts for the public.

Amen. Enjoy the weekend.