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The Weekend Read: Oct 23

Corda Open Source: Coming Soon

We were pleased to announce this week our intention to open source our distributed ledger technology Corda by the end of November:

R3 says it hopes its platform will become the industry standard, although its intention is indeed for firms to build products on top of it.

“We want other banks and other parties to innovate with products that sit on top of the platform, but we don’t want everyone to create their own platform … because we’ll end up with lots of islands that can’t talk to each other,” R3’s chief engineer, James Carlyle, told Reuters. “If we have one platform with lots of products on top, then we get something that’s more like the internet, where we still get innovation but we can still communicate with each other.”

Corda’s code will be contributed on Nov. 30 to the Hyperledger project – a cross-industry project led by the non-profit Linux Foundation to advance blockchain technology by coming up with common standards.

Our technology team has been hard at work on Corda for many months and we are excited to see the reaction and feedback of the wider community, both for financial and non-financial applications. You can also expect to hear more publicly from Richard Gendal Brown, James Carlyle, Mike Hearn and the whole R3 tech team. To celebrate, I have included a gallery of our tech leadership team as rendered by Cointelegraph’s slightly creepy animation:

We and our partner institutions are committed to an open technology strategy, but this strategy is a means to achieve commercial benefits for both our customers and the end clients of financial institutions. Our CEO David Rutter laid out parts of this vision in this post on Tabb Forum:

By enabling the industry to move from duplicated and inconsistent isolated systems of record held at each firm and to cloud-based systems with shared data, business logic and processing, blockchain-inspired technology will facilitate mutualized and consistent middle- and back-office systems that assure that one firm’s view is identical to its counterparts’ view. Moving to the cloud will allow firms to start decommissioning expensive elements of their bespoke infrastructure, break down silos and significantly reduce costs.

Distributed and shared ledger technology protects privacy, replacing many human processes with software; enhances security due to its distributed nature and the use of advanced cryptography; and allows the industry to reduce the costs caused by redundant and non-proprietary processes and shared services.  

The application of this technology to finance holds the key to releasing banks and other financial institutions from the technological binds in which they find themselves after years of unstructured investment in multiple generations of expensive legacy middle- and back-office technology.

Announcements

We were also happy to publicly announce our recent collaboration with Ripple via our Lab and Research Center. The team at Ripple was a pleasure to work with during the trial that included 12 of our member banks:

“The exercise we did with R3 is to show to a group of banks in a controlled environment how XRP can be used by financial institutions to rebalance their liquidity positions all over the world,” said Nilesh Dusane, vice president for client relations at Ripple in an interview with Reuters.

In the cross-border test, banks used the XRP currency to form part of the liquidity needed in nostro accounts, instead of the actual currencies needed for the payment. Ripple’s XRP can be converted into traditional currencies.

The trial demonstrated that Ripple’s technology could enable banks to make markets for fiat currencies such as dollars and euros using XRP and then complete authenticated payments in real time without multiple “nostro” accounts.

The pace of work, and collaboration, continues across the industry. Axoni and eight other firms announced a successful trial of post-trade processing of equity swaps. And Visa and Chain announced Visa B2B Connect, a blockchain powered payments network.

Links

Quick hits of interesting reads:

I asked Tim Swanson for a run down on this week’s “Internet of Toasters” DDoS attack:

Imagine you’re a hacker. And imagine you want to wreak havoc on telecommunications infrastructure. And then imagine you have access to thousands, nay millions, of insecure internet-connected devices that can be zombified into a massive, coordinated army of bandwidth consuming drones. That’s basically what happened this past week when the Mirai botnet was unleashed on Dyn DNS, a company that maintains important network infrastructure in the US. Everyday equipment such as DVRs and surveillance cameras that are becoming commonplace in homes across the country, were hacked and turned into a cog that snowballed into one of the largest distributed denial-of-service (DDoS) attacks ever recorded. In its path were many information portals including Reddit, Twitter and Amazon.

While the series of tubes has (momentarily) recovered, this illustrates the risks and vulnerabilities that the “internet of things” exposes to not just individusssal homes and businesses but to the public at large.

Further reading:

The Weekend Read: Oct 2

Apologies for the delay, as your author was busy wiping away Bubba Watson-sized tears of joy after watching ‘Murica make the Ryder Cup Great Again.

U.S. Fans cheer on the team at the Ryder Cup

U.S. Fans cheer on the team at the Ryder Cup

Sibo(ast)s

FoTWR’s Simon Taylor used to have a killer out of office message: “I love all your emails equally, and will respond to them as soon as I can.” So with that as inspiration, instead of having to pick, I will love each of the (many) Sibos press releases equally (even our own!) and list them below.

BackspaceChain (cont.)

Accenture’s “editable blockchain” mentioned last week prompted this response by Brian Kelly in CoinDesk:

In my view, for blockchain technology to move beyond “lab experiments”, it is critical that we embrace the features of immutability and use the tool for its intended purpose. A blockchain is a great way to keep a record that you don’t ever want changed – this is the heart and soul of a trustless system – it is a feature, not a flaw.

Interestingly, Accenture decided to respond in the comments section (!) to set (or edit, haha) the record straight:

So Accenture considers immutability very much an asset, and not a flaw. We simply believe that “absolute immutability” will become a challenge when it meets real-world compliance and risk management requirements. There needs to be a technical solution when things go wrong.

Blockchain Hype (cont.)

Vitalik Buterin gets another Vanity Fair-esque profile in this Fortune piece (which also has a bonus pic of our Mike Hearn rocking a v-neck sweater/jumper), in the wake of the second well attended DevCon in Shanghai. Pair this article with this cautionary posting from Nick Tomaino on Irrational Appcoin Exuberance:

Crypto enthusiasts (myself included) want to see these types of projects come to fruition; the visions are alluring. The projects haven’t delivered anything tangible yet though. These fundraises are getting done based on vision rather than any semblance of execution. This has been a problem on Kickstarter for years and I’m fearful we’re going to see a lot of the same in the ICO world.

IBM released a survey of over 200 global banks entitled Leading the Pack in Blockchain: Banking Trailblazers Set the Pace:

It found 15% of bank respondents intend to have fully implemented, full-scale commercial solutions in 2017. Behind them, another 65% indicated they plan to have blockchain solutions in production over the next three years.

Perhaps the report should be checked for proper usage, according to this handy, short guide by Ryan Shea on Blockchain Terminology:

The term “blockchain” is a noun, but it’s important to note the noun types that it can fit into.

Just like the term “rocket”, the term “blockchain” can be used as a concrete noun, but never as an abstract noun, like “genetic engineering”. One can say “I have a rocket”, “I see the rocket”, “there are rockets” and “we’re using rocket technology” but one cannot say “I am focused on rocket”.

Likewise, one can say “I have a blockchain”, “I see the blockchain”, “there are blockchains”, and “we’re using blockchain technology” but one cannot say “I am focused on blockchain”.

What is this Rocket you speak of? Can I get in on the pre-mine ahead of the ICO?? I want Rocket.

The Weekend Read: Sept 18

Chris Khan (R3), Roman Dahl (Nordea), David Rutter (R3) at our recent European Members' Conference

Chris Khan (R3), Roman Dahl (Nordea), David Rutter (R3) at our recent European Members’ Conference

R3 Recap

I just got back from a very full and rewarding week in our London office, highlighted by our third Members’ Conference on Tuesday. Many thanks to all the participants, as we had 44 institutions represented, including talks by 11 different members and topped off by two live demos. Perhaps most impressive was the energy carried over from the Monday night cocktails all the way thru to the end of Tuesday’s session…

One of the day’s presenters and R3 colleague Ian Grigg filed this short post on Corda and our introductory white paper. The post reviews two big considerations/requirements that drove the Corda design work: privacy (you need it!) and consensus:

The reason for [proof-of-work] was that we cannot trust the sybil element of an open access system – necessary to ensure the fabled censorship resistance. But in the institutional market, they know how to trust each other. They’ve been doing that for 100s of years. Literally – with letters of credit, trade finance, introductions, short term loans and interconnects, relationships.

[SNIP] Without proof of work, and without the public blockchain, we are really talking about a completely different animal to Bitcoin. And that’s what Corda is – a redesign from the base requirements of the institutions.

A good companion read is the recent public disclosure of the GS patent filing for FX on a blockchain, as the main themes are extremely consistent w Corda’s core requirement set:

Essentially, Goldman wants to merge the benefits of blockchain technology—speed and efficiency—with other technologies that offer privacy, security, and compliance with regulatory guidelines. For example, Goldman’s version of the blockchain would allow for private transactions only visible on a need-to-know basis; permit regulators to access the database; and adhere to anti-money laundering regulation and Know Your Customer laws, which require that banks confirm the identity of their customers.

Tim Grant makes mental note to pack shorts next time

Tim Grant makes mental note to pack shorts next time

And a sartorial shout out to our Stafford Lowe for keeping it real Bermuda style (and boos to the staff photographer for not capturing the full glory of the Bermuda shorts!) in this feature on Bermuda Reinsurers + blockchains.

Banks Bruised and Battered

McKinsey released a report on the state of banking and, well, it aint pretty:

Firing people won’t be enough to save the world’s biggest banks from technological and regulatory changes that have reshaped the industry — whole businesses must go, according to McKinsey & Co. Almost every bank will have to quash aspirations to be all things to all customers so that they can eliminate fixed costs, the consulting company said Wednesday in a report titled “Time for Tough Choices and Bold Actions.” Only three to five global full-service banks will survive, McKinsey said.

Meanwhile, the FT stood for (F)in(T)ech this week as there was a barrage of articles, but effectively helped the FT cover all bases by both deflating and inflating the fintech bubble: Cyber attacks raise questions about blockchain security and Banks find blockchain hard to put into practice and UK regulators are the most fintech friendly and Fintech start-ups put banks under pressure.

RegTech (cont.)

The Bank of England released their Consultation Paper on a potential new RTGS. This includes mention of Central Bank Digital Currency (CBDC) on page 18 and distributed ledgers on page 42. Lazy pull quotes below!

The Bank does not propose to extend direct participation in the new RTGS service to non-financial corporates or households in the United Kingdom. This is for two reasons: (a) Such a change in access would raise fundamental questions about the nature of banking, the shape of the financial system and the role of the central bank that need to be researched over a longer timeframe. (b) Attempting to accommodate a dramatic extension of access would create very material technological and security challenges for RTGS that would have significant implications for the cost and timeframe for renewing the system and would fundamentally alter the resilience and operational availability requirements of the service.

[SNIP] The research conducted so far in the Bank and elsewhere shows that asset transfer and gross settlement can successfully operate on a distributed ledger, and demonstrates many of the features of network resilience in a small-scale application. In its current state, however, this work has also highlighted that the technology is not sufficiently mature to provide the exceptionally high levels of robustness required for RTGS settlement. Further work is required to address privacy and system scalability in particular, and these and other topics suggested by this initial work will drive the Bank’s future research programme on this technology.

A bit of cold water, but one that is balanced by continued research and engagement in the space. Speaking of engagement, Hong Kong joins the party of fintech accelerators supported and hosted by government authorities, much like the FCA in England and MAS in Singapore. And ISO has approved the proposal by Standards Australia to lead an international tech committee “to build a uniform approach to the technology.”

Announcements

Congrats to our friends at Ripple for closing their latest round of funding and for the expansion of their partner financial institutions:

“Our mission is to make cross-border payments truly efficient for banks and their customers, and in doing so, lay the foundation for an Internet of Value where the world moves money as easily as information,” said Ripple CEO & co-founder Chris Larsen, “We’re thrilled to have these world-class investors joining forces with us to help make this vision a reality.”

And ICYMI, Hyperledger’s Executive Director Brian Behlendorf published an introduction to the new vision of the Hyperledger Project as An “Umbrella” for Open Source Blockchain & Smart Contract Technologies:

Perhaps most importantly, we can directly address what many have observed as a major challenge with the existing open source blockchain efforts – tremendous levels of tribalism amongst developers. While invigorating, it can also make sharing code between efforts, or talking about common challenges and how to meet them, notoriously difficult. This is true even when the payoff would be less duplicated code and more eyes looking for security holes and other issues.  Multiply that rivalry with the effects of holding fungible currency whose value can be tied directly to the software in question, or open source project brands tightly associated with commercial brands in which developers own equity, and incompatible copyright license paradigms, and working together can be nearly impossible.

At Hyperledger we believe we can provide an answer to this.  Let’s bring these different implementation efforts within the same “home”, with a consistent approach to intellectual property, community collaboration standards, overall branding (“Hyperledger ____”) and an encouragement to either work together or usefully differentiate.  If we do this, it will remove barriers to collaboration, encourage developers to find opportunities to work on common code, and address the potential for confusion and wasted duplication of efforts without requiring a top-down single architecture or personality to dominate.

The Weekend Read: Feb 28

1. The Straw Man of Tabb

Larry Tabb has released a (paid) report entitled Blockchain Clearing and Settlement: Crossing the Chasm. I have read a few summaries and excerpts (here here and here) yet not the full report…so at the risk of attacking a straw man of a straw man: the arguments noted against using a blockchain seem to assume a version of the technology forever stuck in 2015.  There (seems to be) no concept of different versions or applications of shared ledgers that account for the issues raised. Drop us a line if you want to chat Larry.

The Brookings Institute released part 2 of their summary of the recent Hutchins Center conference this week. This is welcome news, as it gives me another excuse to showcase my favorite meme featuring our very own Charley Cooper, aka “Scared Banker Guy”:

Ripple released a report earlier this week that goes into detail on how their protocol can save costs in global interbank settlement. Interestingly, the report segments the solution, showcasing both Ripple and Ripple+XRP.

2. RegTech

Back by popular demand (of one reader at least), more snippets of RegTech news. CFTC hosted a rescheduled Tech Advisory Committee meeting this week, featuring one section on blockchain. This article gives a good review of the discussion:

Brad Levy, CEO of financial information firm MarkitSERV, told regulators during this week’s meeting that he believes operational risks and costs could be immediately reduced by implementing blockchain technology in an exchange setting.

But such a network would and should look quite different from the Bitcoin network, Levy said, characterizing the cryptocurrency’s users as favoring anonymity. “We don’t think that that’s necessarily the model that our industry will adopt,” he added. “Identity will be key.” Along those lines, Levy assured the CFTC that he would expect regulators to gain more immediate access to trade data under a blockchain system. “We think about the regulators as a node. …. They themselves become part of the network and have their own permission-ing, based on whatever rights they’re supposed to have as regulators,” Levy said.

The RBA follows the lead of other CBs by making a few positive comments towards the idea of CB issued digital currency:

“A plausible model would be that issuance would be by the central bank, with distribution and transaction verification by authorised entities, which might or might not include existing financial institutions,” Mr Richards said. “The digital currency would presumably circulate in parallel, and at par, with banknotes and other existing forms of the national currency.”

Finally, the FCA checks back in to update the good progress made so far on their Innovation Hub initiative:

[Christopher Woolard, director of strategy and competition] says the FCA is particularly interested in exploring whether blockchain technology can help firms meet know your customer or anti-money laundering requirements more efficiently and effectively, concluding: “We are engaged in discussions with government and industry on this issue.”

3. Bitcoin to the Core

Joi Ito chimed in this week with his thoughts on the block size debate, casting Bitcoin Core in a light similar to a salon of fin de siecle artists:

The future of Bitcoin, decentralized ledgers and other Blockchain-like projects depends on this community. Many people call them “Bitcoin Core” as if they are some sort of company you can fire or a random set of developers with skills that you can just train others to acquire. They’re not. They’re more like artists, scientists and precision engineers who have built a shared culture and language. To look for another group of people to do what they do would be like asking web designers to launch a space shuttle. You can’t FIRE a community and, statistically speaking, the people working on the Bitcoin ARE the community.

One can hope it is meant to be ironic...

One can hope it is meant to be ironic…

American Banker has a lengthy profile on Barry Silbert (with some quotes by the Swanny as well), concluding with this: “Within five years, he predicts, bitcoin either ‘will be a failed experiment, and something else will have taken its place, or it will be eating the world.'” Perhaps those at the invite-only Satoshi Roundtable will be doing the eating, and not just the kind that their all-inclusive resort bracelet will get them during their retreat…As the Satoshi Whitepaper says: “We propose a solution to the double-spending problem using a peer-to-peer network coupled with annual, private, mostly male, retreats for libertarian celebrities.”