The Weekend Read: Feb 19


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: 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: 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.


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: July 24

1. Blockchain Report Bonanza

If only he had a blockchain

If only he had a blockchain

BoE has been exploring the topic of central bank digital currency (CBDC) for many months. Their report this week focused less on the technical aspects of CBDC in favor of exploring monetary policy implications. In short, would CBDC enable a central bank to perform quantitative easing (QE) directly to ‘end users’ and individuals? This could help prevent what some claimed happened in past QE episodes, especially during the Euro crisis, where banks were not “passing on” QE to the “real economy.” Said another way, blockchains could helps central bankers move beyond indiscriminate helicopter drops and instead deploy drone-like deliveries of QE goodness. Our research team has a much more nuanced review of the paper, so please contact us if you would like to learn more.

This is a very well done and welcomingly brief report that attempts to drag asset managers “off the sidelines” and into the blockchain arena. It is also novel in that it argues for both cost reductions and revenue generation.

Both of these reports serve as a nice review from different perspectives. The EY report highlights opportunity and risk from the perspective of tech companies instead of financial institutions. Couple it with this interview with Microsoft and IBM on their blockchain cloud strategies. The Bain piece reviews the payments opportunity, highlighting the oft-cited correspondent banking opportunity but also bringing into focus the ability to achieve cost savings in trade finance. This is an emerging area of focus for banks and for R3, as there is much room for improvement. This article gives just one example of commodity invoice fraud: “Trade misinvoicing is costing some developing countries two-thirds of the value of certain commodity exports.”

Taken together, the four reports show the potential and sketch out some of the challenges, all contributing to answer the “why?” that we hear often from financial institutions. Yet there was another short article that never even mentions “the B word” that answers the why (and why now) question most emphatically: a Reuters piece that highlights “the stubborn costs banks can’t erase.”

But as time marches on, it’s become increasingly difficult to find fat to trim. Long-suffering shareholders have gotten excited about these initiatives only to find they do not move the needle much. Banks are still struggling to meet targets they set, ranging from net interest margins to efficiency ratios and returns on equity.

“It’s tough to take out costs meaningfully from here,” said Patrick Kaser, a portfolio manager at Brandywine Global who invests in bank stocks.

As a result, bank executives are being forced to fundamentally rethink the way they operate and staff their businesses to make them less expensive – without also limiting the amount of revenue they can produce. As they hold the magnifying glass up to the expense ledger – especially in retail banking – they are finding some costs to be particularly rigid.

2. Ethereum Fork and the Death Throes of Classic

The Ethereum community has moved forward to execute the previously discussed hard fork. Our Tim Swanson weighed in on this earlier in the week in his post Archy and Anarchic Chains:

Perhaps the most controversial [issue] is that simply: there is no such thing as a de jure mainnet whilst using a public blockchain.  The best a cryptocurrency community could inherently achieve is a de facto mainnet.

What does that mean?

Public blockchains such as Bitcoin and Ethereum intentionally lack any ties into the traditional legal infrastructure.  The original designers made it a point to try and make public blockchains extraterritorial and sovereign to the physical world in which we live in.  In other words, public blockchains are anarchic.

As a consequence, lacking ties into legal infrastructure, there is no recognized external authority that can legitimately claim which fork of Bitcoin or Ethereum is the ‘One True Chain.’  Rather it is through the proof-of-work process (or perhaps proof-of-stake in the future) that attempts to attest to which chain is supposed to be the de facto chain.

However, even in this world there is a debate as to whether or not it is the longest chain or the chain with the most work done, that is determines which chain is the legitimate chain and which are the apostates.

Speaking of apostates, it looks like there is a bit of an internecine attack brewing against the “Ethereum Classic” chain. Never a dull moment!

[ed. note: I will be handing over this space to the deep bench of the R3 team through the end of the summer. Enjoy the attacks, forks and twitter battles without me and see everyone after Labor Day]