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The Weekend Read: Feb 19

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by Todd McDonald

R3 in the News

Our CEO David E. Rutter sat down with Financial News for a very entertaining (and paywalled, sorry) interview that gives more than a few anecdotes on R3 and how we attempted to surf the blockchain hype cycle…all while trying to not get snared in the ‘reef of inflated expectations’ that hides just below the surface. But as Dave says, it is the hardest any of us have ever worked in our careers and yet the most fun any of us have ever had.

Credit Suisse Corda Hackathon in full flight
Credit Suisse Corda Hackathon in full flight

Over the last two weeks, we have talked about our recent work with Credit Suisse on their triple time zone Corda Hackathon, we were very pleased to announce our newest Regulatory Member: Hong Kong’s Securities and Futures Commission, and to read the lessons learned from Bank of Canada’s Carolyn Wilkins on the work dubbed “Project Jasper”, the collaboration w BOC, Payments Canada, R3 and R3 Member Banks to experiment w a DLT wholesale payments system. I wanted to highlight her take aways for the business case below:

We’ve also gained some other important insights that will be relevant to the business case for this type of DLT application:

1. Most cost savings appear unlikely to come in the core system itself, but rather more likely through reducing bank reconciliation efforts. The initial design is quite collateral intensive while the current system is already highly efficient.
2. There’s the potential for more savings if other applications could be built on top of a core cash payment distributed ledger system (eg financial asset clearing and settlement, trade finance).
3. In an actual production system, trade-offs will need to be resolved between how widely data and transactions are verified by members of the system, and how widely information is shared.
4. While DLT may aim to reduce concentration of risk, a substantial amount of centralization would still be required (eg permissioning of nodes and setting of operational standards) if applied to wholesale payments systems.

And a shout out to my colleague, and provider of Slack-Avatars-as-a-service, Gavin Thomas for his post on how he PM’ed the #### out of the Corda open source release: DON’T LOOK DOWN, A PROJECT MANAGER’S SHORT STORY OF OPEN-SOURCING

Industry News

CoinDesk has continued their reporting on the upcoming announcement of Enterprise Ethereum, with two articles this past week, as the group readies for an official announcement soon. We are glad to see that the enterprise blockchain space, both within Hyperledger and the new Enterprise Ethereum, has started to focus on the core requirements of scalability and confidentiality. To echo what our CEO said above, there will be no shortage of hard work involved as the new group “state channels” their inner cat herder.

In another CoinDesk article, Swift’s Global Payments Initiative (GPI) Program Director Wim Raymaekers describes how the project has aimed to improve the current Swift architecture and make payments more transparent by layering on new business rules and a GUI. Raymaekers provided both hope and shade to the blockchain crowd, saying:

[B]lockchain developers will be given access directly to the GPI as part of a hackathon. “We’re going to open those APIs for fintech and blockchain designers to come up with … new ideas,” Raymaekers said.

Overall, while Raymaekers is optimistic about the possibility that blockchain might improve some products, he ultimately sees the need for the tech as limited. He concluded: “We think blockchain today is not ready for wholesale cross-border payments. We are improving that with GPI, so it’s no longer a problem.”

Lots of Links

Here is a quick rundown of other stories from the last few weeks, which features such FoTWR celebs as The Blockchain Beard, lil’ Buterin, The Swanny, and my Snark Sensei

The Weekend Read: Nov 27

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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 corda.net. 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.

Announcements

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 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 25

All those other chains are low energy...

All those other chains are low energy…

Another fun and busy week in Blockchainland. Many thanks to the folks at Finance Montreal for hosting me on Tuesday and Wednesday and for putting up with my Trumpchain jokes during my panel session…The market is gearing up for another barnburner as Sibos kicks off in Geneva. Stop by the jauntily named “Conference Room 3” on Tuesday to catch a panel with our CEO David Rutter.

R3 in the News

It was gratifying to see the interest* in our announcement this week on the application of DLT to the management of reference data. We partnered with Axoni and SIFMA, along with seven buy and sell side institutions including AB (Alliance Bernstein), Citi, Credit Suisse and HSBC, to demonstrate how multiple actors can manage and agree upon key reference data facts without having to rely upon a traditional (centralized) data aggregation model. As FoTWR Emmanuel Aidoo says below, we run the risk of getting so focused on the allure of ‘instant settlement’ that we overlook some of the other powerful and, arguably, more achievable applications of DLT:

“Using Blockchain and Distributed Ledger Technology as a shared reference data backbone for the industry makes intuitive sense. Our vision is to demonstrate how distributed ledgers applicability can go beyond settlement and help reduce duplicate reference data costs and improve data latency which will ultimate lower costs and reduce operational risks,” said Emmanuel Aidoo, who heads the Distributed Ledger and Blockchain effort at Credit Suisse.

[*Request to WSJ editors: please please please stop referring to things being “bitcoin-like” when they have nothing to do with the bitcoin blockchain!]

R3 (and many others) in China

Our man Tim “The Swanny” Swanson was kind enough to send the following field report from the backseat of an Uber-like car service somewhere in Asia:

This past week I attended two events in East Asia: SmartCloud in Seoul and BlockchainWeek in Shanghai. BlockchainWeek included Devcon 2, the official Ethereum developers conference. 

From the TimTroll collection of menswear

From the TimTroll collection of menswear

The fact that the organizers invited me to formally present speaks volumes of how inclusive the Ethereum community is. While I do not necessarily agree with their governance decisions (cue Groucho Marx and club memberships!), their inclusivity has led to a very healthy diversity of opinions as shown by the fact I wasn’t booed off the stage for discussing topics like regulated clouds and data custody laws.

Altogether about 800 attendees came to the event which is pretty impressive considering that Ethereum as an idea is only about 2.5 years old. The first few days the attendees were mostly expats/foreigners while the final two had more Chinese attendees than laowai.

Notable notables: I was talking to a small group of bankers from South Africa in the main lobby of the event (as one does). They were peppering me with questions about zero-knowledge proofs. As I glanced around the lobby, I noticed that the creator of Zcash, Zooko Wilcox O’Hearn, was less than 20 meters away. I waved him down and he sauntered over to explain how to handle/track multiple assets with a ZK proof system to a circle of people that grew as he spoke. It was that kind of event: you could just bump into alot of brain power everywhere you went.

Reports and Releases

Congrats to our friends at RBS for announcing Emerald, an open source “Clearing and Settlement Mechanism (CSM) based on the Ethereum distributed ledger and smart contract platform.” Watch this space for more soon.

The Roubini ThoughtLab released a report entitled Wealth and Asset Management 2021 which focused on the adoption curve for asset managers (see above on ref data) with new tech. The headline was “nearly two-thirds (64%) of asset managers [surveyed] expect to use blockchain technology within the next five years.”

SWIFT released a short paper on smart contract standards, a theme that we and others have spent quite a bit of time on…but one thing I haven’t had time to do was give this a careful reading, due to being unavoidably detained on the Wooden Warrior this weekend, so we will post more on this next week.

BackspaceChain

Accenture announced their patented “editable blockchain” this week and, well, I just dont get it. Some folks seem excited. Others, not so much:

Accenture says it addresses the issue by allowing the trusted authority to edit individual pieces of the chain, subject to validation by the participants. In other words, Accenture has solved the blockchain’s immutability problem by creating a giant, horribly inefficient Excel spreadsheet. Which raises another question: When will financial institutions stop to ask themselves why they need a blockchain at all?

Maybe this is the real world fulfillment of the aforementioned Trumpchain: a shared ledger that has a very loose definition of what is and isn’t a fact…

The Weekend Read: Back to School Edition 2016

Summer’s (unofficially) over, Hermine aint here, and it is time to get back to school.

1. Blockchain Hype

The Bloomberg article Maybe Blockchain Really Does Have Magical Powers produced a fair bit of chatter in the office this week. Some couldn’t get past the snark, but your author respects good snark when he see it. The article calls into question the hyperbole of the WEF report released this summer and also highlights our recent Corda whitepaper:

What’s new is that each transaction comes with attached code (a “smart contract”) containing standardized rules about how to decide whether it is valid. The parties download and independently run the code to verify the transaction. This is cheaper and faster than traditional reconciliation, because it eliminates the need for a bunch of back-office employees at each separate institution to reconcile transactions using their own unique sets of rules and data fields.

[SNIP] The only thing previously stopping the standardization of reconciliation processes was the unwillingness of financial institutions to collaborate. Financial institutions spend $65-80 billion on back office reconciliation every year. The employees working in back offices probably offered lots of excellent reasons why their roles couldn’t simply be standardized away.

[SNIP] Standardization of rules and data fields is a good idea that could save billions of dollars in back-office reconciliation costs. Maybe one of the biggest effects of all the blockchain hype will be getting a bunch of security-conscious egoists to come to an agreement that benefits them all. That would truly be magical.

More in don’t believe the hype: Adam Ludwin of Chain tries to slow the roll of “put a blockchain on it” enthusiasts:

It’s strange to hear chief executives pour cold water on technologies that are at the heart of their own companies. Yet that’s what Adam Ludwin, who is the CEO of blockchain company Chain, did when I met with him this month. The hype over blockchain—a new form of record keeping that relies on a shared digital ledger—is causing people to lose sight over what the technology is meant to do, according to Ludwin. “Blockchain is a database for money,” he said. “I don’t understand why people talk about it in terms of health records and home deeds and voting systems.”

Couple these articles with the recent Gartner Hype Cycle warning, and it shows how important delivery becomes as we head toward 2017.

2. Catching Up

A few updates and announcements to share:

Visa eyes new link in blockchain payments

The project is designed to cut costs, speed up settlement time and reduce credit risk in the market for moving money between banks both domestically and across borders. It could represent a challenge to the Swift interbank payment system, the main messaging system used by banks to handle large money transfers. Swift has recognised the potential threat and has itself been examining blockchain’s potential.

Swift warns banks about successful raids by hackers

Swift — the Society for Worldwide Interbank Financial Telecommunication — warned its members that while there had been fewer publicly reported cases of banks being attacked, hackers were still on the hunt for weaknesses in their security systems. “We have seen new cases of input fraud since we last wrote to update you on these issues,” Swift said in its letter. “The attackers have followed a broadly similar modus operandi, but have specifically tailored every attack to each individual target.”

Smart Contracts Firm Taps Wall Street Vet as President, Chairman

Symbiont, a developer of software for self-executing smart contracts, has hired Wall Street veteran Caitlin Long as president and chairman.

IBM Bridges Blockchain, AI With New Business Unit

IBM is reorganizing its internal blockchain team into a business unit that encompasses its artificial intelligence and cloud computing efforts, called ‘Industry Platforms.’ In addition to the work on blockchain tech, the business unit will lead IBM’s efforts to bridge its financial services work with its Watson artificial intelligence initiative.

Key themes from the R3 summit on smart contract templates

A nice summary of our recent summit (rumor has it that there may be a follow on summit in the coming months…)

Eleven Reasons To Be Excited About The Future of Technology

Not exactly an announcement, but this is a really cool summary of all the things to be optimistic about in technology. When you get bored of being excited and feel like trying on some dread and paranoia, check out this review: Homo Deus by Yuval Noah Harari review – how data will destroy human freedom (!)

3. An R3 Welcome

Two big shout outs this week. A warm R3 welcome to China Merchants Bank and to Met Life!