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The Weekend Read: Nov 20

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MAS MD Ravi Menon announces MAS-R3 Interbank Payments project at SGFintechFest

by Todd McDonald

Singapore Fintech Festival

MAS MD Ravi Menon announces MAS-R3 Interbank Payments project at SGFintechFest

I asked Antony Lewis for a field report on this week’s Singapore Fintech Festival:

11,000 sweaty people couldn’t be wrong…Singapore was the hottest place for FinTech this week, as the world’s first regulator-managed FinTech event kicked off for a week-long collab confab.  Ravi Menon, the MD of the Monetary Authority of Singapore, opened the festival by announcing R3’s collaborative efforts with 10 banks and partners to put the Singapore Dollar on a distributed ledger. (see BBG article here). This garnered quite a bit of inbound interest from other parts of the globe as the week wore on, and we look forward to pursuing this piece of collaborative work in a “jurisdiction near you” soon.

Tim Grant insists that he didn’t pay off the Audio/Visual crew during his panel on Wednesday when Blythe Masters’ microphone didn’t work. The whole panel, including Oliver Bussmann (independent) and Sandra Ro (CME), generally agreed that we need to see some traction next year.  Tim’s “5 Ps” of DLT (Proof-of-Concept–>Prototype–>Pilot–>Permission–>Production) crashed Instagram as the audience became bewitched by the power of alliteration. ABC (AI, Blockchain, Cloud) grew a little more mature and became ABCD (AI, Big Data, Cloud, DLT). Our CEO, David Rutter, was also featured at the ASIFMA Annual Conference (all pics above).

The above, and the MAS’ partnership with R3 announced last week, all paves the way nicely for our Lab of Excellence in Singapore. Lattice80, the world’s largest FinTech co-working space, will be the perfect location to light up those Bunsen burners. If you would like to join us, we are hiring in Singapore.

RegTech and CBDC (cont.)

Continuing the MAS RegTech focus elsewhere, there continues to be a steady drumbeat of news stories concerning the regulator’s role in fintech and DLT. First up is the U.S. SEC and CoinDesk’s profile of the SEC DLT lead Valerie Szczepanik. The article reviews the SEC working group’s focus to date, as well as raising the topic of regulation and ICOs:

Since an ethereum startup called The DAO raised over $100m by selling digital tokens without an exchange, a rush of companies have followed suit. So-called initial coin offerings can be launched from anywhere in the world and cross borders as easily as the Internet itself. With millions of dollars worth of capital raised so far and dozens of ICOs in the works, how the SEC will handle the technology is one of the biggest areas of regulatory uncertainty in the industry. Regardless of whether Gemini and SolidX ever win approval or if ICOs might displace traditional fundraising, the SEC will likely play a role.

Speaking of The DAO, the team behind the dream/nightmare, Slock.it, are back with another project, pushing the “fail fast, fail upwards” concept to its limits. I happened to see this being compared to the advent of flight and aviation inventors, yet the comparison falls flat (like many early aviators (groan)) as these innovators fail the “skin in the game” test popularized by Nassim Taleb. As far as I can tell, there was no repercussion from the absolute failure that was The DAO, whereas those early aviators had the ultimate skin in the game! (For more on that story, check out David McCullough’s excellent book on The Wright Brothers).

Sweden’s Riksbank made headlines this week with talk of issuing digital currency:

The so-called e-krona may be introduced within two years. “The less those of us living in Sweden use bank notes and coins, the clearer it becomes that the Riksbank needs to investigate whether we should issue electronic money as a complement to the money we have today,” Riksbank Deputy Governor Cecilia Skingsley told the Financial Times.

Sweden’s Riksbank is the world’s oldest central bank, and was the first to issue paper banknotes in the 1660s.

Central Bank Digital Currency (CBDC) remains an area of focus for R3 and our Research team. For R3 members, please reach out to us if you have seen our recently published private reports on this topic.

India has also made headlines with their recent demonetization scheme. Once again, many armchair economists/sociologists on the Twitter have been giving their “two paise” on the subject, but since I at least admit total ignorance to all the nuance, here instead is what looks to be a great run down of the issue at hand by The Diplomat.

Bonus link: no idea where to put this but here is CoinDesk’s summary of their recently released State of Blockchain.

R3’s Second Smart Contract Templates Summit & RGB on Corda

We were very pleased to host the second summit dedicated to all things smart contract, with participants in person in Barclays London and New York, with many more across the globe dialed in (Ed. note: need to clarify how time is measured by organizers of upcoming event billing itself as “The Industry’s First Event Exclusively Dedicated to Smart Contracts”…). Dr. Lee Braine of Barclays once again set a high standard for the proposed agenda, and all the contributors managed to outdo themselves. IB Times has a great rundown of the event, and we have provided all of the presentation materials via this link. Allow myself to quote…myself:

The summit featured presentations by Barclays, CIBC, Nordea Markets, ISDA, FIA, Norton Rose Fulbright, Thomson Reuters, University College London, Cardozo Law School, and R3. Todd McDonald, co-founder of R3, said: “We wanted to hold this second summit to keep up the cadence and to continue what we at R3 and all the participants feel is important: progressing this in the open and it being industry led, rather than by just one organisation or one company.”

Our CTO Richard Gendal Brown was featured on two 11FS podcasts this week. First up, RGB was joined by Richard Crook (Head of Innovation Engineering, RBS) and Ajit Tripathy (Fintech and Digital Director, PWC) for a more wide ranging chat. The second is a video link to a 1-on-1 chat with Richard Brown. Both pieces were moderated by our old friend Simon Taylor, aka The Blockchain Beard (who evidently put his size smedium t shirts on a high-heat drying cycle in order to show of his Blockchain Biceps in the attached video…). Richard as always delivers an extremely lucid explanation of not only the functionality but more importantly the benefit of DLT, and specifically Corda, to financial institutions:

On why anyone should care about blockchain and DLT: It just becomes self-evident that there’s a massive opportunity in finance, wherever firms record the same data that their counterparts do, and then have to manage it, that this blockchain technology…can be used to massively simplify and reduce that cost and complexity by just doing it once and knowing for sure that what you see is what your counterpart sees.

On how is Corda different from traditional blockchains: The short answer to your question…it is designed by and for financial institutions, its focus is not on crypto-currency or virtual machines; its focus is managing legal agreements between regulated institutions, is designed to integrate and inter-operate with existing systems in banks, and is designed to integrate well with the legal system…. So this isn’t the idea of computers running amok and controlling the world. This is computer code. This is computer data that, in the event of dispute, is grounded firmly in legal reality.

The Weekend Read: April 9

1. Introducing

Many thanks to The Swanny for filling in for me last week. Its great to be back, as I have the pleasure to recap two pretty awesome announcements. On Tuesday, our CTO Richard Brown returned to the blogging world to announce Corda, a distributed ledger designed for, and with, financial institutions:

Corda is a distributed ledger platform designed from the ground up to record, manage and synchronise financial agreements between regulated financial institutions. It is heavily inspired by and captures the benefits of blockchain systems, without the design choices that make blockchains inappropriate for many banking scenarios.

Just reading a few pull quotes wont do the post justice, so I urge you to read it in full. I particularly liked this passage on Bitcoin as an odd architectural choice for financial institutions:

But what is often missed is that the cleverest part of Bitcoin isn’t actually its architecture; I think the cleverest part was to articulate the business problem.  We don’t tend to think of Bitcoin as being the solution to a “business problem” but it can perhaps be thought of as a wonderfully neat solution to the problem of: “how do I create a system where nobody can stop me spending my own money?”

[Yet] Satoshi Nakamoto didn’t wake up one morning wanting to “apply Blockchain to finance”. Blockchain was the tool that was invented to solve a real problem. So we have a conundrum, right?  If that’s the case, then what on earth is the argument that says blockchain has any relevance at all to banking?!

Indeed, last time I checked, banks have the inverse of my Bitcoin problem statement!

Matt Leising at Bloomberg also has a great overview of the Corda approach in this article.

The announcement was followed up with Richard’s participation in Money 2020 Europe, where his R3 panel was SRO.

On Monday, Microsoft CEO Satya Nadella used the first ever Envision event to announce an R3 – Microsoft partnership (see other coverage: WSJ, Bloomberg). We have been working closely with the Microsoft Azure team since the start of the year. The combo of Microsoft technology horsepower with the undeterred energy of the Azure team has been a massive help in launching our Global Collaborative Lab (thanks Marley!). Microsoft’s EVP of Business Development, Peggy Johnson, also commented on the partnership:

Navigating the changing digital landscape can be daunting. Success demands a trusted and collaborative network of partners – particularly in a highly regulated industry with billions of dollars and sensitive financial data at play. We’re proud that organizations like R3 trust Microsoft as a partner to build the financial technology systems of the future. With next–generation technologies like blockchain poised to disrupt the way we do business in nearly every industry, we’re committed to continue earning the trust of business leaders and their customers around the world.

Change is never easy, but with partnerships built on trust, together we can change the idea of “disruption” from a threat to an opportunity – one that will empower us all to achieve more.

2. Blockchain Announcements

Our friends at Intel announced late this week the open sourcing of their blockchain approach, dubbed Sawtooth Lake, which was also one of the five protocols tested across 40 banks in our February Lab project. Intel has provided comprehensive documentation here if folks want to dive in. Their aim is to provide “a highly modular platform for building, deploying and running distributed ledgers,” with an emphasis on unlocking the power of a Trusted Execution Environment.

IBM announced this week that they are in the midst of getting their Watson AI’s chocolate into some blockchain peanut butter via an early prototyping exercise. If they manage to get some unstructured Big Data in there they will have hit the rather elusive Disruption Trifecta. And another win for the Axoni/TradeBlock team with the announcement of their CDS trial with Markit, DTCC and 4 banks.

3. Fintech etc.

The NY Times Dealbook posted a special section on Fintech this week, called “Fintech’s Power Grab.” It highlights that the sudden focus on all things fintech by the very institutions targeted as the ‘disruptees’ may signal a turning point, with the upstarts being consumed by the big guys. It also has some cool profiles and stories, including one on Chris Larsen at Ripple.

And in a different “tradition unlike any other” yet a tradition nonetheless, the long awaited decentralized marketplace OpenBazaar went live earlier this week…and within hours started to build up quite the inventory.

The Weekend Read: June 20

bitcoin comic
 

1. Santander Innoventures Fintech 2.0 Paper: Rebooting Financial Services

Very well done high level summary of the opportunities in re-engineering financial services, with an emphasis on the collaborative uses of IoT, big data and distributed ledgers.

Screen Shot 2015-06-20 at 2.15.55 PM

In time, distributed ledgers will support “smart contracts” – computer protocols that verify or enforce contracts. This will lead to a wide variety of potential uses in securities, syndicated lending, trade finance, swaps, derivatives or wherever counterparty risk arises. For example,smart contracts could automate pay-outs by the counterparties to swap contracts.

Cutting operational costs is not the only benefit in securities trading. Distributed ledgers can increase investor confidence in products whose underlying assets are now opaque (such as securitisations) or where property rights are made uncertain by the role of central authorities. Our analysis suggests that distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15-20 billion per annum by 2022.

2. UBS Crypto 2.0 Legathon

Alex Batlin of UBS hosted an afternoon brainstorming session at UBS’s Level 39 Innovation Lab. You can read a review in his own words here, along with a list of attendees here. Ian Grigg expands a bit on the discussion to revisit his thought experiment of smart contracts as the genesis block of a new blockchain, where any legal dispute is settled by siding with the longest chain.

sum-of-all-chains-unchain

3. The Weekend Read Watch

4. Odds and Ends

The Weekend Read: Mar 27

 
1. Bitcoin Bull Corner

As price continues to chop sideways in the broad $200-300 area, a few more positive news stories hit the wires. Noble Markets announced a deal to use Nasdaq’s X-stream trading system to power their exchange. Some took this as Noble being de facto regulated but the deal is purely a tech white label, and CEO John Betts equivocated when asked about the prospects of launching a fully regulated exchange. In other somewhat positive news, Barry Silbert’s Bitcoin Investment Trust “received formal approval for listing on OTC Markets Group’s OTCQX exchange. The fund is listed under the symbol GBTC, and trading is expected to begin early next week.”

2. Bitcoin Bear Corner

Megan McArdle of Bloomberg shared her mostly bearish take on bitcoin’s potential as both a speculative asset and payment system: “the primary risk I see is simply that the allure of bitcoins as money will wear off — and that when it does, bitcoin as payment system will also stop working very well.” Izabella Kaminska continues her assault on bitcoin libertarian shibboleths in her post Bitcoin’s lein problem:

“Indeed, given the high volume of fraud and default in the bitcoin network, chances are most bitcoins have competing claims over them by now. Put another way, there are probably more people with legitimate claims over bitcoins than there are bitcoins. And if they can prove the trail, they can make a legal case for reclamation.”

And if your eyes aren’t watering already, check out this twitter debate, with both sides fully armed with loaded handbags.

3. The Future of Fintech and Banking

Accenture released a very interesting (and graphic heavy!) report on how digital disruption could impact banking. It is worth a read in full:

“Possibly the biggest opportunity from taking an open approach to innovation is in the area of the Blockchain, the protocol that underpins the distributed architecture of the Bitcoin cryptocurrency. It is early days for cryptocurrencies, and it is unclear what the long-term effects of their adoption will be on the financial services industry. However, it is clear that if established players are going to benefit from this revolutionary approach to finance, they will have to engage with a much wider range of technical specialists and developers outside their own organisations.”

The report spends quite a bit of time discussing the risk of banks not doing enough to keep up with the pace of innovation, but if this graphic is any guide, they are starting to try harder (or spend more):

graph

…but perhaps some should be worried about legacy systems, namely Bank of England, which this week released an independent Deloitte report on the recent RTGS outage (with some bits redacted). The Bank has only paid out about £4k in damages, even though close to £300bn of payments were impacted. Now that is a low cost transaction fee network…