The Weekend Read: Dec 11

by Todd McDonald

R3 at TechCrunch Disrupt

Our CEO David Rutter hit the stage during TechCrunch Disrupt in London earlier this week for an extended interview. Among the highlights was his call that we will see substantial activity on a distributed ledger in 3-5 years, and that R3 will have a DLT-based product in the market by the end of 2017, much the delight and cheer of our product department. (Side note: Dave called me and asked for any background on this event. I pointed him to this clip…not sure it was helpful). In a DLT world, he noted, the idea of hiding a ticket or manipulating a trade will be a thing of the past, which could bring much needed trust back to Wall Street. On trust, he also pointed out the irony of many libertarians and bank antagonists: We all trust our banks, though we like to say we don’t. If we get a chunk of money, we put it in a bank. And for the quantitative participants in the audience, he noted R3 and others in the space addressing a $3.6tn opportunity to re-work the global payments infrastructure, cited from a recent McKinsey report.

Smart Contract Debate

The Chamber of Digital Commerce put out a doc this week entitled Smart Contracts: 12 Use Cases for Business & Beyond that features a forward by Nick Szabo. Luckily for your lazy author, R3’s Ian Grigg has written a very concise response to some of the points in the paper on his Financial Cryptography blog:

The finance end of town is only interested in smart contracts within the fully contractually-informed framework. That’s because accidents happen and the go-to place to sort out disasters is the courts, with their facility for dealing with the unexpected or unusual. This notion goes back to the Magna Carta, which was ultimately a brawl over the right to a fair day in court.

If you want a pithy principled statement, it is like this: people who trade in large values want someone to mind their backs. These people believe that smart contracts will always break, and we need a way to get predictability back into the contract.

Which brings us to the DAO – that $150 million lesson in how not to build a smart contracts platform. [SNIP] To interpret a short, pithy principle, the investors in the DAO found that nobody’s minding their backs. And when that happens, the brawl starts. Magna Chaina?

I know that some folks can’t stomach it, but for the rest that have an interest in what legal and financial professionals have to say about smart contracts, please see this excellent summary of R3’s recent Smart Contract Templates summit by Burges Salmon.

RegTech (cont.)

The Federal Reserve released a paper this week called Distributed ledger technology in payments, clearing, and settlement:

In the context of payments, DLT has the potential to provide new ways to transfer and record the ownership of digital assets; immutably and securely store information; provide for identity management; and other evolving operations through peer-to-peer networking, access to a distributed but common ledger among participants, and cryptography.

I asked Tim Swanson for his views on the paper: “The new paper provides a good objective overview on what distributed ledger technology is and what it is being used for., as well as a number of interesting data points. For instance, “In the aggregate, U.S. PCS systems process approximately 600 million transactions per day, valued at over $12.6 trillion.”  I actually ended up citing this number several times this past week at an event in Korea. The paper also makes a distinction between the settlement finality that permissioned ledgers can provide versus the probabilistic finality that un-permissioned / public blockchains provide.”

The Fed also provides a comment to add to the Smart Contract debate above:

DLT has also raised the possibility of writing terms and conditions between parties into computer code to be executed automatically. In order for these “smart contracts” to be enforceable, they must have a sound legal basis. Contract law is an established set of rules that govern the basic principles of contracting, including formation, amendment, termination, and dispute resolution.

Open Development and Other News Across the Industry

I had the pleasure of attending the Hyperledger Annual Member Summit this past week. It was a great opportunity to connect with folks from across the globe and to hear more about the projects underway underneath the Hyperledger umbrella. Chris Ferris, head of the Hyperledger Technical Steering Committee, put together his reflections in this blog post.

One highlight for me was to watch our CTO Richard Brown keep the audience in rapt attention with his overview of Corda and some of its unique design decisions. The R3 tech team has continued to post to the blog with more updates on their thinking behind the code. ICYMI, click here for James Carlyle on distributed ledgers as a ‘truth layer’ and click here for Mike Hearn on ‘why UTXO?’ We also had the chance to catch up with our friends at Digital Asset, who released their non-technical white paper earlier this week, which I believe Richard will share some thoughts on in the coming weeks.

The folks at Circle made a splash with their announcement this week of their open source platform Spark and their intention to focus exclusively on “global social payments” that happen to use blockchain(s) as rails. Or, if you are r/bitcoin, totally betraying the Bitcoin community…And for those with a penchant for oral histories of ‘cryptographic ceremonies’, be sure to check out this article on the launch of Zcash. Or if you like Bloomberg articles with all the snark of Matt Levine yet with none of his wit or deep understanding of financial markets, click here (but I wouldn’t recommend it).

…and finally, many thanks to my colleague Tim Grant for letting me crash his set for the debut of Project dR3am, and to the thousands dozens of folks who turned out to support us. Rock on.

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 Weekend Read: April 17

Greetings to an abbreviated Read, as your author has contracted a severe case of Spring Fever. I will be attending Monday’s Barclays Accelerator Demo Day in London, so if you are there please find me in the crowd (or follow the action here).

I had the pleasure to attend the IIF’s Blockchain Roundtable this past Thursday. One of the views presented was from U.S. Federal Reserve Board of Governors member Lael Brainard. You can find a transcript of her speech here as well as a CoinDesk summary here:

The resulting Internet of Value holds out the promise of addressing important frictions and reducing intermediation steps in the clearing and settlement process. For example, in cross-border payments, faster processing and reduced costs relative to current correspondent banking are cited as specific potential benefits. Reducing intermediation steps in cross-border payments may help reduce costs and counterparty risks and may additionally improve financial transparency.

In securities clearing and settlement, the potential shift to one master record shared among participants has some appeal. Having one immutable record may have the potential to reduce or even eliminate the need for reconciliation by avoiding duplicative records that have different details related to a transaction that is being cleared and settled. This also can lead to greater transparency, reduced costs, and faster securities settlement. Likewise, digital ledgers may improve collateral management by improving the tracking of ownership and transactions.

For derivatives, there is interest in the potential for digital ledger protocols to enable self-execution and possibly self-enforcement of contractual clauses, in the context of “smart contracts.”

As we engage with industry and stakeholders to assess the potential applications of digital ledger and related technologies in the payment, clearing, and settlement arena, we will be guided by the principles of efficiency, safety and integrity, and financial stability.

Interoperability was a constant theme at the roundtable and in the above comments:

[D]etermining exactly how the different distributed ledger technologies interoperate with each other, and legacy systems, will be critical. New and highly fragmented “shared systems” may create unintended consequences even as they aim to address problems created by today’s siloed operations. Since distributed ledgers often involve shared databases, it will also be important to effectively manage access rights as information flows back and forth through shared systems. There may well be a tradeoff between the privacy of trading partners and competitors on the one hand, and the ability to leverage shared transactions records for faster and cheaper settlement on the other hand.

Couple this with the proposal this week by Standards Australia to ISO to start work on tech and interop standards.

The speech above also touched on multilateral and bilateral clearing via distributed ledger. Colin Platt of DPactum weighed in with a post this week to describe how things would, and most likely wouldn’t, change as the technology evolves:

Smart contracts could embed the logic of what was to be paid and under which circumstances, and more blockchain transactions could facilitate the settlement and highlight whether that had been paid or not.  A trusted third party would still be beneficial in calculating how much money needs to be paid to reduce credit risks.  Less likely to go would be the more nuanced defaulting role, a central counterparty plays a strong role in ensuring that defaults happen in an orderly manner which causes the least detriment to the market. Also unlikely to be wrapped into a heartless smart contract is the management of systemic risks, not only do these require some amount of discretion but they are largely based on scenarios of events that may or may not play out in the future. In time other technologies may improve our ability to anticipate these scenarios and mitigate their potential impact, but they will almost definitely sit within some centralised structure, even if that structure does speak to a blockchain.

And finally, Bruce Pon of Ascribe wrote about the age of decentralized computing in this LSE Business Review post. The article raises some interesting concepts, especially as a riff on distributed systems being phase two to the internet’s phase one, and the LAMP stack comparisons to today’s emerging architectures, yet in the end it seems to be a not-so-indirect plug for BigchainDB. But then again, if you don’t talk your own book…who will?


The Weekend Read: Mar 13

1. Bitcoin’s positive news cycle

It was party time for bitcoin this week. The company formerly known as 21e6 announced a $116m funding round, topping the recent bitcoin record of $75 from Coinbase. The same day, DA Holdings announced that former JP Morgan global head of commodities Blythe Masters will be their CEO. And later Goldman Sachs released a report explaining how cryptocurrencies could be part of a “megatrend” that fundamentally changes the global payments industry. All of this feel good news helped BTC test the important 300/310 resistance level.

2. (de) Central Banking (cont.)

A “sources say” report from Reuters dishes on a proposal from IBM to build out infrastructure for FedCoin-like digital currency:

Unlike bitcoin, where the network is decentralized and there is no overseer, the proposed digital currency system would be controlled by central banks, the source said. “These coins will be part of the money supply,” the source said. “It’s the same money, just not a dollar bill with a serial number on it, but a token that sits on this blockchain.”

3. Three Reasons Why Bitcoin Won’t Be the New Internet

In a similar vein to the above central bank story, Sidney Zhang does an excellent job of arguing what blockchains could do, or perhaps better said what they shouldn’t do. These points echo quite a few of the thoughts often put forward by Richard Brown. They also capture the spirit of the constant internal debate at R3 about the role and value of trust and the costs associated with the trust-minimization inherent in bitcoin:

The benefit of blockchain technologies is not to replace the central parties. Instead, it should be to make an industry far more competitive. [snip] The future is not going to be one without centralized, trusted parties. To remove trust is expensive. It requires a lot of costly trade-offs. Trust is also something that we can establish in the real world. Unlike the world of drug dealers.

bitcoin spectrum


4. and finally…

A somewhat oddball article from Fusion on the “young stars of bitcoin.” By far the best part (even better than the inexplicable body painting) is the mention of Vitalik Buterin’s t shirt, which reads: “You read my t-shirt. That’s enough social interaction for one day.” Classic. He even tries to decentralize his human interactions…



The Weekend Read: Feb 28

bitcoin jet
1. To The Moon…or maybe just to Greece: The Bitcoin Jet, Or, How Does Cryptocurrency Go Mainstream?

So is Bitcoin doomed to become a niche curiosity, used for remittances and international purchases by the bold, and for illicit goods by the wary? (Large niches, granted, but niches nonetheless.) How and when could it actually enter the day-to-day life of anything more than a small minority of people? What is the Bitcoin killer app?

I don’t know — yet — but I suspect it will emerge from arguably the most remarkable thing about Bitcoin: it’s not just electronic money, it’s programmable money. (Every Bitcoin transaction is actually a fragment of code written in Bitcoin’s scripting language.) It’s a chicken-and-egg problem, though; how will programmable money matter if almost no one is using it outside of a few very clearly delineated use cases?

2. After The Bitcoin Gold Rush

Very well put together piece from The New Republic on how the original decentralized dreams of bitcoin aren’t being realized:

The prospects for democracy in the system have grown dimmer still. By the middle of last year, the largest mining pools came within reach of a 50 percent market share—making it possible for them to endanger the whole system by falsifying transactions. What prevents them from actually doing so, apparently, is that it would reduce confidence in the value of the bitcoins they invest so much to mine. They also prevent changes to the Bitcoin software that would lessen their dominance. A distributed network of users now has to trust an oligarchy of capital-intensive miners.

3. (De) Central Bankers

Central bankers continue their long-distance love affair with the concept of digital money. First up is Bank of England, which raises some interesting questions around the issuance of government-backed digital currency in their One Bank Research (direct link to digital currency section here). This debate caught the eye of the mainstream press as well as a few bloggers, including Ken Tindell’s excellent post:

In one sense the Bank of England is asking the same QTWTAIN that others have posed in response to Bitcoin: “Can we have a centralised decentralised system that has all the advantages of Bitcoin but none of the disadvantages?” But a better question which the Bank is hinting at is “Can a central bank be inspired by Bitcoin to create an egalitarian payment system that has features that the Internet Age needs?” Answering that question will be fascinating.

Back in the US, the authors of the Boston Fed research paper Bitcoin as Money? (Stephanie Lo and J. Christina Wang) gave an interview to CoinDesk where they reiterate all their concerns about bitcoin the currency, such as the perverse tendency to centralization in mining as well as the bug (feature?) that bitcoin has no backer (which strikes me as a bit of book-talking). I did find myself nodding at this section:

Further, they suggested that the technology has been effective at least at waking up the financial world to new ideas on how payments can work. “Bitcoin’s presence has demonstrated that a separate system outside the existing established payment system is a very real possibility, and it has emboldened potential entrants as well as galvanized at least some incumbents,” the researchers said. They went on to suggest that bitcoin, even if unlikely to succeed, will prove “valuable in stimulating innovations”.

Bitcoin Magazine continues the debate on Fedcoin that we highlighted a few weeks back in their article Fedcoin Rising:

Bitcoin transactions are faster and cheaper than traditional transactions, which is an important incentive not only for end users but for government agencies as well, as shown by the recent Bitcoin bills in Utah, New Hampshire and New York City. It seems likely that governments will try to appropriate selected aspects of digital currencies, and eliminate undesired aspects such as anonymity and volatility, to create efficient and cost-effective but fully regulated digital economies.

4. The Promise of Digital Currency

Ecuador becomes the first country to roll out its own digital cash

The project initially created buzz in in the bitcoin blogosphere, but that interest faltered once it was clear that Ecuador’s project would not present a competing alternative. Not only is the technology importantly different, but Ecuador’s electronic money system currently can be accessed only by qualifying citizens and residents.

In fact, Ecuador’s project is more similar to M-Pesa, a mobile phone-based money transfer service started by Vodafone, according to Pete Rizzo, the U.S. editor for cryptocurrency site CoinDesk.

In many ways, the new system will be a government-run version of Venmo—users will be able to make payments with the aid of a cellphone and store value in their accounts. But unlike the popular smartphone application, the Ecuadorean version will be able to run on “dumb” mobile devices too.

Banking Africa’s Unbanked Population is Not the Solution to Improved Inclusion

This article’s title is a bit misleading, as it makes the point that the “unbanked” don’t need access to banking but to financial services, which can be delivered outside of a traditional bank:

A paper by a Development Research Group of the World Bank concludes that only 24 percent of adults in sub-Saharan Africa have formal bank accounts and 18 percent in the Middle East & North Africa. Researchers reported a strong correlation between income levels and financial product penetration. However, the 2010 report by McKinsey, titled Half the World is Unbanked noted that the fact these people are unbanked does not mean they are unservable. The report clearly stated that serving adults who live on less than $5 a day is not only possible at scale, but it is already happening.

From the insurance perspective, Hollard notes in its 2014 Integrated Report, that low income communities are not uninsured because they face uninsurable risks; but rather because very few insurers truly understand their needs.

Bitcoin-Inspired Digital Currency to Power Mobile Savings App

For now, the foundation is the only organization of any size publicly known to be making use of Stellar. Praekelt hopes that will change after companies and other nonprofits see the savings account service in action.

However, digital currencies have yet to see much take-up from conventional financial institutions or companies anywhere in the world. Kentaro Toyama, an associate professor at the University of Michigan who studies technology and development, says that even if Stellar does make it easier to build new financial services for poor people, it will still need to win the approval of regulators.