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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: 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, Slock.it, has been busy limiting the extent of the damage and trying to get back the money. “Slock.it 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: 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 21.co’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.