The Weekend Read: Nov 27


by Todd McDonald

How do you write a summary of the weekly news when you are the news? I have been thinking about that for the last few days. I have mentioned in the past that one of the lessons that I took from my trading days is that everyone is talking their book, always, even if they don’t realize it (or won’t admit it). I try to guard against that in this blog, but it is inevitable to some degree. I also don’t want to pull a ‘Zuckerberg in China‘ gambit and ‘erase’ the news. So, for a selection of articles on R3 this week, click a few of these links.

With the Thanksgiving holiday here in the US, I was in a reflective mood on all the things that I am thankful for this year. I am thankful to be part of a wider ecosystem that is trying hard, in many diverse ways, to find the next thing. I am thankful to work with a team that has the strongest collective resolve I have ever witnessed. I am thankful for creative Tim Swanson memes. I am thankful to work with folks like Richard, James, Mike and our whole tech/product team who are focused on building things (instead of with those focused on trying to tear things down from the sidelines of life). I am thankful to be working harder than I ever have in my life and enjoying (almost) every minute of it. On to the links.

Corda Open Source

This Wednesday, November 30 is the day for Corda open source. Richard Brown weighed in with another update/preview of what is to come:

Distributed ledger technologies will have such phenomenally powerful network effects that it is unthinkable that serious institutions would deploy base-layer ledger software that is anything other than fully and wholeheartedly open. And it’s why we’ve been committed all along to releasing Corda just as soon as we were sure it was heading in the right direction. It is and so we are.

We’re really proud of Corda and its progress to date. But, that said, Corda is far from finished. Mike Hearn will soon be publishing a “warts and all” description of quite how much work we still have to do. This is true for all other platforms in this space, of course, but I feel a particular responsibility to be transparent given the ambitions we have for Corda and the uses to which it will be put.

How to get Corda on November 30: Corda’s home will be Head over…for links to the codebase, simple sample applications and a tutorial to get started writing your own CorDapps.

Corda is still young, but to echo what Hyperledger’s Brian Behlendorf states below, we feel it is better to open up early rather than late. Now is the time to invite contributions from outside. As the code matures further in the coming months and reaches a stable enough point where detailed code review makes sense, we’ll be looking forward to analysis and review from the industry’s leading experts. And others.

American Banker has a fantastic review of open source in DLT, highlighting both the advantages and risks to this approach. It is worth a read in full:

“Let’s say someone wishes to connect a Chain network that has digital assets running on it with a Corda contract,” [Adam] Ludwin said. “If those projects are open source and well documented, and that documentation is public, then whoever might be building the interfaces or connectors for these networks and services will have a much easier time doing so. That’s why open source is a boon for interoperability.”

[SNIP] Moreover, it is a way for engineers to give back to the engineering community.

“When external engineers can review the architecture and code, they can assess the quality of the projects companies are working on. This serves as a great recruiting tool,” said Max Levchin, CEO of the digital lending startup Affirm and a co-founder of PayPal. “When you open-source, it allows third parties to build applications on top of yours, [a process] which acts as a distribution channel for your own product.”

Ethereum Forks

As the article points out above, open source is hard. This week saw Ethereum initiate a planned fork on Tuesday, which lead to an unplanned fork a few days later, which the Ethereum community rushed to fix. This seems to have led to a bit of schadenfreude twitter style from the Bitcoin community. as they reposted this article in quite a few threads. Meanwhile, earlier in the week the head of strategy for Ethereum-based Consensys penned this article entitled What Venture Capitalists Got Wrong About Bitcoin:

Instead, the infrastructure built for bitcoin can increasingly be co-opted for use by new tokens. These new tokens don’t necessarily add any value for the venture capitalists who originally invested in bitcoin. To illustrate what is happening: Imagine if a railroad company in the 1800’s spent millions laying tracks, only to see a second (and third, and fourth) railroad come along and use the finished tracks for free, to ship more cargo in faster and safer cars.

Interesting to see the perspectives of the two sides, with some viewing all this activity as zero-sum, winner (chain) takes all…while others share our view that success in one ‘camp’ can serve as a positive multiplier across the whole space.

RegTech (cont.) and LegalTech

This week saw the big finale of R3’s initial global regulatory tour, culminating in Eltville am Rhein, where our very own Charley Cooper spoke to the Deutsche Bundesbank’s Central Banking conference devoted exclusively to blockchain technology. For those curious about the participants, see this link. Here is Charley’s report:

The conference lasted for four days and covered a wide range of topics, with my remarks focused on the importance of public/private collaboration as a driver of technology innovation in the highly regulated financial services industry. In the lead up to that event, Isabelle Corbett and I barnstormed through four other countries in seven days, meeting one-on-one with Swiss and Nordic regulators as part of our relentless efforts to involve government agencies and oversight bodies in our work from the outset. A huge thanks to Credit Suisse, UBS, Danske Bank, Nordea, and OP Financial for helping us navigate their home turf. R3 representatives have now met with regulators in almost all of our member jurisdictions, including central banks, securities and derivatives overseers, consumer protection agencies, law enforcement, tax authorities, NGOs, trade associations and legislators. It feels good to be home.

Risk Magazine posted a very thoughtful piece as a follow up to R3’s Smart Contract Template Summit (it is even worth the pain of signing up for a free trial!). Our partners at Norton Rose Fulbright announced the publication of our joint white paper on the legality and enforcability of smart contracts. You can request a copy of the paper here or members can contact R3 directly.


Swift announced this week that they would become more open and vocal about their exploration into DLT, which is very welcome news. They also announced some details on their latest POC.

Damien Vanderveken, head of R&D at Swift Labs, says: “Swift has been targeted in the press as a legacy incumbent that will be doomed by DLT. But we believe Swift can leverage its unique set of capabilities to deliver a distinctive DLT platform offer for the community.”

Congrats to our friends at the JP Morgan Blockchain Center of Excellence for their open sourcing of Quorum, which you can access here. This is yet another example that the above American Banker article highlighted of the growing acceptance of open source within finance, and the advantages that even the world’s biggest banks see in an open source approach. We look forward to exploring Quorum more during the upcoming Hyperledger events in December.

And finally, we are very happy to welcome China’s Minsheng Bank to the R3 consortium, as another member in our growing network China and North East Asia.

The Weekend Read: Oct 9

REVEALED: The R3 Blockchain Prototype. Immutability comes at a cost...

REVEALED: The R3 Blockchain Prototype. Immutability comes at a cost…

RegTech (cont.)

A bevy of bankers (central) were in the news this week. Bank of Russia announced their POC dubbed “Masterchain” (uh, that is a bit too Putin-esque for my tastes), the Dubai government is backing multiple streams of DLT innovation, and Thomas Jordan from the SNB extolled the promise of DLT at a recent speech at Sibos:

Instead of a financial industry that is replaced by distributed ledgers, Jordan described a “hybrid scenario” where security information is settled on a distributed ledger and even opened up to the possibility of central banks issuing currency on a blockchain.

U.S. Fed Governor Lael Brainard gave an on the record address to a recent IIF gathering (attended by R3’s Charley Cooper) that outlines the deep interest and knowledge of DLT within the Federal Reserve. It is worth a read in full:

All of this activity demonstrates that we are in a very innovative period. The industry is eager to get on with adopting the various possibilities that distributed ledger technology may bring. However, established players and, increasingly, new entrants understand that there are important guardrails that have been carefully developed over many years in the arena of payments, clearing, and settlement. The safety and soundness of financial institutions, safety and efficiency of the payment system, and broader financial stability are critical to a healthy financial environment that fosters innovation with broad public benefits over the long run. We expect the private sector to bear important responsibility for developing and deploying new financial technologies in a safe and sound manner, even as we all seek an innovative and efficient payment system over the long run. The deployment of any new financial technology must be undertaken with a thorough understanding and management of risks.

Like many new financial technologies, distributed ledgers could ameliorate or exacerbate traditional financial risks. What matters to us as policymakers and regulators is not only whether the migration to a new technological platform increases or reduces risks, but also whether risks are rendered more or less opaque, and how they are distributed among and between financial intermediaries and end users.

R3 R4?

There are so many Things Tim Swanson Says that he has earned his own R3 Slack emoji (the timoji of course, see pic). This article from IBT is an almost perfect distillation of the Swanny Experience. I like this quote: “Despite likening his presence at DevCon to ‘an atheist at church’, Swanson applauded the Ethereum community for its openness and amiability.” In other R3 news, we are pleased to welcome Antony Lewis to our growing team in Asia. Check out his personal blog at for some lucid musings on all things blockchain.

R3 member JP Morgan provided further details on their Quorum project, a private and privacy-enhancing fork of the Go Ethereum client. You can view their short deck on it here. announced plans to go “one louder” than R3 with their blockchain consortium called “Revolution 4” which if you shorten it…hey wait it is R4! Echoes of the war of 7 vs 8 Minute Abs

Blockchain Farther Afield

Healthcare has recently emerged as the new hot field for blockchain tech. This past week, the Distributed: Health conference delved into the promise and hype of applying the blockchain magic wand to medical records. In Amsterdam, the winner of the Hyperledger hackathon tried to harness that magic by putting doctors and patients in control of their own data.

Another oft-cited application is in voting (which is the main topic of conversation in my house this weekend, as the missus is joyously tap-dancing on the grave of Trump ’16). The European Parliament released this two pager on “a new generation of ‘techno-democratic systems’.” next up is OxChain, a research project on how DLT may have “a unique capacity to broker value between stakeholders in a decentralised manner.” The concepts behind smart contract creating “circular economies” are fascinating, yet they must overcome the hidden frictions that these utopian thought experiments inevitably leave out of scope (see: all human history of micropayments).

…and finally, folks keep comparing the blockchain movement to the Internet of the mid-nineties…so perhaps now is the time for the adult film industry to embrace it? [multiple blockchain puns removed by the editor]

The Changing Role of Banks

Last week, I drove across the US with my husband and dog. The 40 hours of driving corresponded nicely to the audio version of ‘The House of Morgan’, Ron Chernow’s 1989 history of the Morgan banking family through the preceding 135 years.

While the core function of a bank, providing financing services to institutions and individuals, has remained intact for hundreds of years, the relationship of banks to their clients has changed dramatically. The most interesting difference I noted through the years covered by the book was a departure from the so-called “Gentleman Banker’s Code”, where relationships were sealed with a handshake and partnerships were forged over books of business. Since banks historically had a role as the intermediaries between the users and providers of (scarce) capital, clients would look to them for financing activities but also as long-term advisors. A banking relationship was a signal and a partnership.

Though some form of trusted advisory service is still alive in banking, it’s much less common to think of banking relationships as a seal of quality on an actor. I don’t buy an equity based on its underwriter, for example, though that was not an uncommon pretense in the early 20th century. As education and regulation created more access to financial information, and alternative vehicles for financial services created competition, companies and individuals have looked less to banks as financial advisors. 

Part of the value proposition of “blockchain” technology is the ability to automate some of the procedures central to financing and trading activities. The promise of more automation in an age of cheap computing power threatens all route processes, from driving on roads to flipping hamburgers, but it also creates opportunities for differentiation. Migration to software-driven paradigms strip activities down to reveal the subtleties of our social and political ecosystem. 

One example of this in financial services is the practice of margining, where the holder of a financial instrument posts collateral with a counterparty. Though margins can be computed by an algorithm and arguably enforced on a blockchain, it’s not obvious that it ought to be. Margining can act as a tool. In a long term relationship, it can solidify trust between two actors that they are willing to forgo enforcement of a particular change in margin – understanding that their counterparty will be “good for it” later.

Judgement, integrity, and trust will always be at the foundation of commercial relationships. It’s worth remembering the Gentleman Banker’s Code and the value of a handshake as we try to think of ways to lower transaction costs. 

The Weekend Read: July 17

1. This Week in The DAO: Money on the Hard Fork

For those (like me) who have taken a break from The DAO story during the summer months, this Motherboard piece is a great review of the attack, the aftermath and the soft/hard fork debates. One just has to ignore the soundtrack of Stephan Tual playing the world’s smallest violin for himself and all his self-inflicted troubles:

Since the $53 million were hacked in mid-June, basically everyone on the team at Stephan Tual’s startup,, has been busy limiting the extent of the damage and trying to get back the money. “ put a huge amount of work in building the framework for the DAO. At least six months of work—that’s a net loss, we are financially and mentally exhausted,” Tual said.

To paraphrase what has been said on the Internets, this is like someone complaining about having to save horses from a burning barn after they were the ones who soaked the stables in gasoline!

The market looks set for the hard fork option, and sports fan can follow the hard fork progress here (gotta love this site’s tagline for honesty: “Blockchain, make me rich and I care not what you can be used for.“) Benjamin Dean of Columbia University does a nice job of summarizing the governance questions and challenges that The DAO episode has raised for Ethereum and decentralized systems in general in this article:

This episode introduces nuance to Ethereum’s pitch on enabling applications to run “without any possibility of downtime, censorship, fraud or third party interference”. Similar claims are made by the promoters of crypto-currencies and blockchains more generally.

Smart contracts may run exactly as programmed but this does not mean that they will run as the creators intended. The DAO incident demonstrates how the complexity of these contracts is outstripping the comprehension of the people who wish to write them. This in turn introduces bugs and vulnerabilities, some of which are known, but others will only become known when something goes wrong.

While the Ethereum network’s users might be decentralised, certain features of the network are not. [SNIP] A skewed distribution of mining power and crypto-currency holdings is combined with pseudonymity of account holders and a strong incentive to game the system. This has all the makings for deceptive, unaccountable, fraudulent, and self interested decision making.

Until hard questions around governance of blockchains are asked, and solutions implemented, we should brace ourselves for more incidents like that which has befallen The DAO. At stake is not just the fate of projects like Ethereum but the future potential of blockchain technology more generally.

2. The Steem Hack

Ether isn’t the only cryptocurrency in play this week. I asked our in-house altcoin/stonewashed-jeans expert Chris Khan to file a report on the latest on Steem:

A quick look at CoinMarketCap (a daily occurrence for some) shows an unfamiliar face right above Ripple in terms of market cap: Steem. As of Sunday morning, Steem’s $3.58 cryptocurrency tokens place the total value of coins in circulation at just above $300 million. And what happens when a novel crypto takes off ? The hackers come out to play.

Steem is a native cryptocurrency used by a new social media website named Steemit. Think of Steemit a bit like Reddit (the name is obviously a total coincidence), except upvotes are worth real money. I’m not talking about Reddit gold here. I’m talking about ~$30k for a makeup tutorial. (Note, a parody of that video currently has a payout pending for ~$12k.)

At the end of last week, 260 accounts were compromised to the tune of ~$85k. Neither the Steem blockchain nor Steemit’s servers were hacked; the hackers simply took advantage of browser-side vulnerabilities (Ed. Note: another reminder that most attacks happen at the edge of the network, not the network itself). Within just 24 hours, the site was up and running, with a plan to secure compromised accounts with a balance over $100. Users have since been asked to change their passwords, with the promise of two-factor authentication in the near future. (Interestingly enough, Steemit users have multiple separate passwords for different activities such as posting and voting.) In addition, Steemit will be refunding any stolen funds (probably not too difficult given the funds amount to a mere .028% of Steem’s market cap, which Steemit can certainly spare given their assumed coin stash).

Just as things were settling down, hackers (unclear whether they were the same as those from the first attack) attempted to DDoS Steemit, so the Steemit dev team took the site down to protect against further damage and quickly learn from their mistakes to build a superior product. Steemit CEO Ned Scott seems optimistic about the site’s security enhancements, as Steem’s early investors line their pockets with what could be just another fad altcoin, or something else altogether. In any case, it might be worth taking a trip to your local Sephora and dusting off that old DSLR.

3. New Entrants

Two new entrants in the banking-blockchain ecosystem were announced this week. Two developers from the JP Morgan blockchain team have announced their effort to build an enterprise version of the open source Juno blockchain that JP Morgan released earlier this year. A company dubbed Thought Machine have emerged from stealth with few details outside of discussing their VaultOS blockchain tech will be targeted at core banking services.

4. R3 in the News

I try not to reserve too much space in these posts for R3 news, but there are two interesting things to share this week (and I am sure that the editor in chief of Pravda used to say the same thing…)

As we have mentioned previously, R3 co-hosted a Smart Contract Templates Summit with Barclays earlier this month. We have shared all the day’s presentations here. IB Times (and others) followed up with articles that provide quotes and context from our CTO Richard Brown, Dr. Lee Braine of Barclays Investment Bank CTO Office and Clive Ansell, Head of Market Infrastructure and Technology at ISDA. The following pull quote is best contrasted with The DAO entry at the beginning of this post:

Braine said that one of the motivations for creating smart contracts, together with shared ledgers underneath them, is the opportunity to reduce the number and duration of disputes. Some of the potential improvements could result from simply making the relevant information, such as agreements governing specific trades, more easily accessible.

Brown agreed, adding: “If you look at the experience with The DAO recently, one of the key takeaways from that incident was that, in a system that perhaps had an express design goal of having the code be dominant, there is a need to have a broader contract that explains what happens in the event that things do go wrong.”

And finally, we are very happy to announce that Absa has joined the R3 effort as our first African member. Welcome aboard!

The Weekend Read: April 10

tim bubble 1
There is so much to get to in this week’s edition that news of a presidential candidate accepting bitcoin and the release of CoinDesk’s Q1 update to their mega-deck The State of Bitcoin gets relegated to the intro aside…

1. Consensus-as-a-service by Tim Swanson

A must read report on the differences between permissioned and permissionless ledgers, of which I was a proud but minor contributor. You can also see a nice review of the article’s findings in this American Banker story. I asked Tim for a “Weekend Read Exclusive” quote on his report and the key highlights:

Distributed ledgers could provide innovative solutions to the clearing and settlement space. Bitcoin and cryptocurrency are all about censorship-resistance transactions. In contrast, distributed ledgers/consensus-as-a-service are instead about fast and secure updating of property titles and securities interests. This may sound mundane but could radically change things by disintermediating certain players (such as clearing houses) while delivering to regulators the benefits of increased transparency and mitigation of systemic risks. This consensus-as-a-service could also deliver cost savings via automation, eliminating some human intervention such as those in back office processes.

I think Richard Brown summarizes the idea well in three words: “replicated, shared ledger.” In a recent email he said, “it’s not a “blockchain” that gives Ripple, Hyperledger, Clearmatics or the rest their value from what I can see… it’s the fact that multiple mutually-untrusting parties can come to agreement about some shared state/facts/logic — thanks to having their own copies of some state, which a “system” guarantees to keep in sync for them.”

2. Banks and the Blockchain (cont.)

Following on from last week’s announcement from UBS, we have another WSJ story of bank experimentation, with BNY Mellon kicking the tires on the Bitcoin blockchain:

Despite the potential risk to their businesses, banks are intrigued by bitcoin’s underlying blockchain technology [snip] Mr. Kumar says that he is curious how the software can be used to make financial transactions more efficient

Perhaps even more shockingly, JPM CEO Jamie Dimon dares utter the “b” word in his recent letter to shareholders. A review of the article can be found here, but the letter itself is an interesting read (from Page 29):

You all have read about Bitcoin, merchants building their own networks, PayPal and PayPal look-alikes. Payments are a critical business for us – and we are quite good at it. But there is much for us to learn in terms of real-time systems, better encryption techniques, and reduction of costs and “pain points” for customers.

Some payments systems, particularly the ACH system controlled by NACHA, cannot function in real time and, worse, are continuously misused by free riders on the system.

The always interesting Dave Birch has an interesting review on all the blockchain love, balancing the hype with the promise:

There is an ongoing discussion and evolution of serious thought around what the distributed ledger can be used for, whether proof-of-work or proof-of-stake scales best and whether blockchain or consensus protocols are the best decentralised option. All I will say here is that in our work with clients (large financial institutions) on the topic, currency is probably the least interesting use of the ledger that gets discussed

What is driving all this interest? The growing fear that the age of asymmetric information (or access) is coming to a close. This development is examined in detail in this excellent article by Tyler Cowen and Alex Tabarrok, which is worth a read in full, even if it is just for their comparison of Tinder to third party escrow!

3. Stellar Consensus Protocol released

Stanford professor and Stellar Chief Scientist David Mazieres released his white paper on the revamped Stellar Consensus Protocol (nice TL;DR article here). This new approach called “federated byzantine agreement” claims to overcome the flaw found in the Stellar/Ripple consensus last December while also enabling network scaling. Not many have gotten their head around this federated trust model, including your humble author, so we will leave the debates for now to the more egg headed among us.