The Weekend Read: Nov 13


by Todd McDonald

An emotional week comes to an end in the US. This will be a thinkpiece-free zone save for one article written and posted by Ben Thompson back in March (but still very relevant today). I did a media detox (hence the late posting) and took a hike instead (literally).

On to this week’s links.


R3 Announcements

Another busy week here at R3. First up, we announced our partnership with the Monetary Authority of Singapore for the launch of R3’s first physical lab. We have been working with MAS on this concept for some time and they have already proven to be great partners. I am beyond excited for this collaboration, especially since it increases my chances of enjoying real nasi lemak again soon. This announcement comes on the eve of the Singapore Fintech Festival, which will feature both Tim Grant and David Rutter. David’s remarks at this week’s Risk USA event were featured in this article: “When I sit here today versus a year ago, this is no longer ‘if’ or ‘will’ this happen. I don’t think there any doubt that we’re going to see these distributed ledger technologies change how transactions are processed globally.”

Later in the week we announced the successful work to represent identity data on our shared ledger system Corda in collaboration with 13 member banks. This work showed how smart contracts could be used in the collection of relevant KYC data for both legal and natural persons, with the key twist being that the data remains in the control of the entity or person themselves. Another example of DLT helping to push power to the ‘edges’ of the system, with the various smart contract pieces then being able to represent a completely new (and potentially much less costly) way to conduct KYC and onboard clients. You can also reference this identity overview post for a different perspective, and R3’s Ian Grigg will be following up in the coming weeks with more on the R3 perspective to identity with (hopefully!) a series of posts.

Another week, another Gendal post (I told you he was back to the land of the blogging!). This is a short post titled On Distributed Databases and Distributed Ledgers:

In Corda, nodes are operated by different organisations and do NOT trust each other, but the outcome is still a consistent view of data.

Nodes of a distributed database trust each other and collaborate with each other to present a consistent, secure face to the rest of the world. By contrast, Corda nodes can not trust each other and so must independently verify data they receive from each other and only share data they are happy to be broadly shared.

And so we call Corda a distributed ledger, to distinguish it from distributed databases. A distributed ledger that is designed painstakingly for the needs of commercial entities.


The Week in Links

Digital Asset paper to the Hyperledger project on The Global Synchronization Log (with Corda shout out)

FCA announces participants in their regulatory sandbox: Meet the 18 companies joining the FCA’s regulatory sandbox

HKMA and ASTRI: Whitepaper On Distributed Ledger Technology. Summary article here.

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: Mar 20

1. The Economist as un-Hype Man

The Economist is back on the blockchain beat with a pair of short articles. The first is a pseudo-cold shower for the enthusiasm within financial services to “put a blockchain on it,” lead by a quote from the Blockchain Beard himself. The article ends on a more hopeful note:

Yet it would be wrong to conclude that the blockchain is no more than a fad. It is merely moving through the same hype cycle as other next-big-things have done before it: inflated expectations are followed by disillusionment before a technology eventually finds its place. Although it will take a while for distributed ledgers to rule the world, they are an idea, to paraphrase Victor Hugo, that will be hard to resist.

The second outlines the nascent love affair between central bankers and distributed ledgers: our oft-cited Regtech theme which we will discuss further down the page. The article does end with a nice crypto-libertarian head exploder: “The technology first developed to free money from the grip of central bankers may soon be used to tighten their control.”

2. Good News

A warm welcome to SBI Holdings as our newest R3 member institution. It is great to have their team on board, as SBI has been quite active in the ledger space, including their recent JV with Ripple to create SBI Ripple Asia. Another member bank, Unicredit, recently released a white paper discussing the potential applications of blockchain tech to financial services. The authors Matteo and Vittorio have a wealth of hands-on experience to draw from and the paper is well worth a read in full. And a congrats as well to the TradeBlock team for their recent announcement of a successful PoC with ICAP as well as their new sister company Axoni.

3. Regtech and Identity

The US Dept of Homeland Security (DHS) recently announced requests for proposals in two blockchain related areas. One area is not too surprising: “Blockchain Applications for Homeland Security Analytics.” But the other one (“Applicability of Blockchain Technology to Privacy Respecting Identity Management”) truly piques my interest, both for their desire to learn more about identity management and in their concern to respect privacy!

Continuing the identity theme, Barclays announced that they are “one [of] a group of nine companies certified by Gov.UK.Verify to supply and manage public IDs for services.” The Gov.Verify program has had some ups and downs, but the effort to create a digital identity service, if only for government services, should be commended. Speaking of the UK government, we have yet another article touting their aggressive push towards central bank digital currency as part of the government’s fintech hub strategy: “The speed with which the digital-currency agenda has captured the imagination of U.K. officials hints at its potential strategic value for both central banking and the economy.”

…and finally, an article that I missed from last week by the always excellent Ben Thompson at Stratechery. The post is nominally about the block size debate, yet it is more a meditation on how a lack of diversity within tech can lead to blind spots in decision making:

Ultimately, I don’t know what will happen to Bitcoin, but I’m skeptical of folks who are attracted to it because it allegedly removes humans from the equation: that is and always has been an idea that only makes sense in the very narrowest view of a single Bitcoin transaction, as we are seeing all too clearly in the community’s inability to address a relatively minor issue.

More broadly, I hope that the fundamental humanity that goes into any decision — product, policy, or otherwise — is appreciated by everyone in tech. Just as products and companies are either growing or dying, so too efforts to make the technology industry more accurately reflect, and thus better serve (and better monetize!) the diversity of the human race, are either explicitly improving the status quo or implicitly embracing it. There are no neutral “rules.”

The Weekend Read: Nov 22

1. Identity

I have just returned from a week in London, where I had the pleasure of participating in the KPMG/HSBC Business Innovation Summit. I also got the chance to spend time with the newer members of the R3 technology team. Yet the main topic of my trip turned out to be identity. Perhaps a reflective mood was brought on by my airplane reading (Sapiens by Yuval Noah Harari, highly recommended), but it struck me that the struggle with identity, both analog and digital, has been a key driver behind recent events. The conflict of both state and religious identity as reflected in the recent horrible events in Paris. The nascent ‘tribal’ identity in the ham-handed student protests on US college campuses. The fight over one’s rights to self-sovereign digital identity. We will explore this theme a lot more in the months ahead, both in defining the problem space and in looking for the right partners to experiment with in the realm of financial institution identity.

2. The Week’s Links

The bearded bard of blockchain at Barclays, Simon Taylor, does my job for me with his post 10 Things You Should Know About Blockchains:

Transformational ROI from blockchain for corporates will take a good number of years. Smaller bits of ROI can be achieved tomorrow if you have the right buy in and strategy and partners.

There are strategies for:

a) Educating a large organisation
b) Delivering quick wins
c) Building a blockchain strategy

But they require understanding it first.

Nice to see that three of the four folks “who can make sense of this stuff” work with us.

Tim Swanson released his latest research paper on Watermarked Tokens (aka Colored Coins) this week. The paper can be downloaded here or here. For the TL;DR, IBTimes gives a quick overview of the main points, along with some interesting observations from a few of the earliest adopters of colored coins. The response from Flavien Charlon (inventor of Open Assets, featured in Nasdaq’s Linq platform) was especially interesting:

As the interest for Blockchain technology in the finance sector grew, and as we started to talk to a number of financial institutions and corporations about their use cases for Blockchain technology, we realised that watermarking systems were often not a good fit for what they were trying to do. This is why we started to build Openchain early 2015. Openchain solves the same problems as watermarking protocols, but with a much lighter use of the Bitcoin Blockchain. This way we can achieve a much higher scale, and handle compliance in a much better way. I don’t think Coinprism and R3 are the only two companies in the space to have realised this. There has been a noticeable turning point in the industry around mid-2015, and more companies are now building permissioned ledgers.

3. Ethereum: DevCon1 continued

This week saw a few additional features and stories related to the previous week’s DevCon1. William Mougayar highlights bank enthusiasm for the Ethereum protocol:

Mougayar said banks know their business better than anybody from the outside and it is therefore their own responsibility to understand what the blockchain does. “It’s easier for them to understand the blockchain than for a blockchain person to understand their business.” He added: “The onus is on them to do these small projects so they can build the expertise and they can come up with insights.”

The article attempts to paint the Ethereum experimentation as a potential “contentious issue” with two “camps” emerging: Ethereum blue sky experimenting vs R3 standards building on top of legacy systems. Yet it is very safe to say that our current and future work covers both of these “camps.” A good illustration of this is another IBTimes article featuring, among others, R3 partners Barclays and UBS. The following quote from Lee Braine of Barclays captures the benefit of this dual approach:

You mentioned one particular avenue of experimentation. If we look at multiple avenues, then we can actually see them cross-pollinating. Effectively you have experimentation: you have Ethereum and other technologies that we can play with, we can experiment, and we can explore the functional and non-functional behaviours.

But in parallel with that, we also need a structured design method: architecture, design, and engineering. This is a common theme that we have been encountering over the past six months or so, that it’s necessary to interplay both of these avenues so that the two can learn from each other.

The Weekend Read: June 12

This week’s edition is brought to you by R3’s Jo Lang
How I imagine mining looks like on the blockchain

Sidechains: Bitcoin 2.5?
Sidechains – the biggest release in bitcoin since well…Bitcoin. October 2014, the team over at Blockstream teased us with the release of their white paper. And now the first version has been released! It has already been covered by WSJ and TechCrunch along with all of the usual suspects. Rather than me try to do it justice, check out Greg Maxwell’s video (and his beard).
For us mere mortals, Richard Gendal Brown provides a quick but very helpful overview of the release and its potential benefits and implications for both bitcoin and wider blockchain development. In particular he highlights the potential for on-chain asset issuance as well as, and perhaps more interesting to some, the potential for confidential transactions.
Color [coin] me excited!
For such a small country, Estonia is certainly making an impression within the global fintech community. Last year they were one of the first nations to begin to implement a global digital identity scheme . This past week Estonia’s LHV Bank announced not only the Cuber Wallet app (enables users to send and receive euros free of charge) but also that they have partnered with ChromaWay AB to experiment with the creation of a digital security on colored coin technology.
We’re actually not so different after all
First it was Bitcoin and now its Blockchain – its the buzzword that means too many things to too many people and as a result has the potential to divide colleagues, friends, and even families. When in fact, our friend Richard Brown (who else?) explains that by stripping down the blockchain to what it is – a shared, replicated ledger – we can see that perhaps we are all working towards the same vision:
“A world where business logic for money – automated fiduciary code, if you like – is deployed to a shared ledger and run autonomously.”
And for Extra Credit…
And for those of you hiding out with a turbo-powered air conditioner and need some extra reading, Lloyds has published a 31-pager explaining why “Bitcoin will always be risky”.