Posts

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: Back to School Edition

Summer is (un-officially) over and the Bitcoin livin’ aint easy
rodney-back-to-school-cameo1

1. Bitcoin Nerd Fight Update

Since our last posting, lots of e-ink has been spilled and reddit sock puppets besmirched over the Great Block Size Debate of 2015. There are countless articles and think pieces available on the topic; for a good high level review of both sides, see this New Yorker article. This week, the broadly anti-XT Bitcoin core dev crowd (representing roughly 90% of Bitcoin Core commits) penned an open letter to the community:

There will be controversy from time to time, but Bitcoin is a security-critical system with billions of dollars of users’ assets that a mistake could compromise. To mitigate potential existential risks, it behooves us all to take the time to evaluate proposals that have been put forward and agree on the best solutions via the consensus-building process.

In other words, you can stick your XT hard fork…Let’s see if anything constructive comes out of next weekend’s Scaling Bitcoin nerd summit in Montreal.

2. Blockchain on Wall St. (cont)

The ‘bank love for blockchain’ articles continued unabated during our brief hiatus. First up was this NY Times article, which features a mention of our own David Rutter and reviews the blockchain excitement across Wall St:

Many in the financial industry hope they can find a way to use the blockchain concept — what is often referred to as adistributed ledger — without using the blockchain associated with Bitcoin. Although the bankers working on the idea disagree on how this will happen, they show surprisingly little disagreement on whether it will happen. One of Goldman’s top Internet analysts, Heath Terry, said in a recent company podcast that “the whole blockchain tech behind Bitcoin has massive implications for really any kind of asset — and the ability to transfer ownership of digital goods.”

“It’s hard to see a world where that blockchain technology doesn’t end up changing the way we think about asset
ownership,” he said.

Next up is Bloomberg Markets magazine with their blockchain cover story on Blythe Masters and DAH (which also includes a pic of Sunil practicing for the Staring Contest finals). The always excellent and irreverent Matt Levine followed this up with one of the most on-point rundowns I have read in Blockchain for Banks Probably Can’t Hurt:

You could have a centralized model where the participants get together, set up a DTC-like entity, and let that entity keep track of ownership and transfers. Or you could have a semi-decentralized model where the participants get together, agree to run the same blockchain code, and keep track of ownership and transfers by consensus. There might be good technological or practical reasons to prefer one or the other, and certainly the blockchain excites many technologists. But the point is: Either of those models seems much better than waiting 20 error-prone days for a trade to clear.

Then for the banks themselves. Here is Aditya Menon, managing director of global digital strategy at Citigroup, quoted in The Economic Times: “For us it’s not so much about bitcoin because bitcoin is something that has very volatile value, questionable in terms of an entry in and entry out from a regulatory perspective. But if you think about the distributed ledger -that is extremely valuable.” Barclays also garnered some headlines, with ArsTechnica managing to over-interpret the announced charity pilot with Safello into the headline Barclays to become the first major bank to accept Bitcoin [later updated and somewhat softened to reflect the truth]. Chief Design and Digital Officer Derek White followed up in other stories with more updates on Barclay’s work: “We looked at how many experiments we wanted to do internally with the blockchain. The first wave led to 22 experiments, we’ve now got over 45 experiments our businesses want to do.” And finally, UBS made a big splash late in the week with an overview of their efforts in distributed ledger, which includes a smart bond prototype as well as a ‘settlement utility coin.’

3. Odds and Ends

ICYMI, in late August Richard Brown channeled Barclays’ Lee Braine in FREE ADVICE CAN BE VALUABLE… BUT ONLY IF YOU TAKE IT:

Thirdly, consider the complexity of banks’ existing IT environments. An idealised, “wouldn’t the world be perfect if…” solution is no use to anybody if it requires the whole world to move at once and/or if there is no credible migration path. This points to a need to listen to the incumbents when they object. Furthermore, consider the non-functional requirements which are simply a given in this space.

Fourthly, if we assume that today’s current hyperactivity will lead to a new understanding of the possibilities for banks but don’t assume that today’s blockchain platforms (permissioned or permissionless) are the (whole) answer, then surely we’re back in the land of engineering, architecture and hard work? Perhaps this means that the combination of persistence, data models, APIs, consensus, identity and other components that we need won’t all come from one firm. So a common language, some common vision and an ability to collaborate may become critical. Where is your distinct differentiation? Where would you fit in an overall stack?

And for something completely different…music royalties on the blockchain have been getting quite a bit of buzz lately. This Billboard article How ‘the Blockchain’ Could Actually Change the Music Industry gives a good overview. I bring this up for two reasons. One, this potential use case is one example where Bitcoin itself could ‘win’ as it is applying new principles to create new markets, as opposed to trying to optimize existing financial infrastructure. Second, it led me to read this very good reply to the hype by Alan Graham. The reply is meant to be specific to the music industry, but Graham does an excellent job of playing the optimistic skeptic for blockchain:

The blockchain, in theory, shows some promise as an immutable public ledger that provides some needed transparency when it comes to important transactions, whether they be purely financial or a public statement of fact. However, if it is going to get past the point where it is being funded for the sake of finding the next big thing (beyond bitcoin), to actually being the next big thing, it has to solve five main issues, Authority, Immutability, Scalability, Legacy, and Privacy.

I encourage you to read it in full. Enjoy!

The Weekend Read: July 24

Count me among the ‘many’:


1. Gimme a Blockchain…hold the Bitcoin

The “you can’t have blockchain without bitcoin” debate continues…Fred Wilson of USV kicks things off in this short post, in response to a room full of VCs sitting on their hands when asked if they would invest in a Bitcoin startup: “Maybe the distinction is bitcoin vs blockchain. I understand that. But bitcoin and blockchain are joined at the hip. You don’t get one without the other. So I’m still scratching my head.”

Ryan Shea of Onename picks up this thread with another short read, making the valid distinction between a blockchain that is permissioned vs permissionless.

Gideon Greenspan wades in with the confident-sounding title Ending the bitcoin vs blockchain debate:

In bitcoin anonymous miners must perform expensive useless computations, and are incentivized to do so by the block rewards (and transaction fees) denominated in the blockchain’s native currency or token. Do we have any other options?

It turns out that we do. We can have a closed list of permitted miners, who identify themselves by signing the blocks that they create. Rules about distributed consensus (or “mining diversity” as we call it in MultiChain) provide a different way of preventing minority control of the blockchain, so long as you can accept that miners are pre-approved. Of course for bitcoin this is not acceptable, because part of the point is to permit anonymous mining, so there is no way to censor transactions centrally. But if, say, we had a highly regulated financial system, in which bitcoin’s model was inapplicable, perhaps we could accept a pre-approved list of miners after all? If we had enough of them, and spread them well enough between institutions, and had legal contracts with all of them, are they really likely to gang up and undermine the network they depend on, when doing so will land them in jail?

We close with the latest post by Richard Brown, riding to the rescue once again to save this debate, with his adapted speech Bitcoin and Blockchain: Two Revolutions for the Price of One?:

So… the blockchain revolution is so fascinating because it could actually be TWO completely different revolutions… both profound in their implications:

  • Censorship-resistant digital cash providing a new platform for open, permissionless innovation driven from the margins
  • And industry-level systems of record driving efficiencies for incumbents.

Neither of these are “sure things”… they are both high risk speculative bets… but they’re also very DIFFERENT bets…

2. Blockchain on Wall St. (cont.)

Greenwich Associates releases their survey Bitcoin, the Blockchain and Their Impact on Institutional Capital Markets, highlighted in this Bloomberg article:

Greenwich Associates found 94 percent of respondents say blockchain — the ledger that drives bitcoin — could be used in finance, according to a report to be released Wednesday. The software is touted as a way to speed up and simplify how trades of everything from stocks to loans and derivatives are processed.

“Revolution in the making — that’s what this feels like,” Kevin McPartland, a co-author of the study with Dan Connell, said in a phone interview. “There’s a real opportunity for some change here.”

greenw

Barclays Blockchain (and Beard Groomer) Subject Matter Expert Simon Taylor has a nice, wide ranging piece on the potential of distributed ledgers:

The key gap is education, we often conflate “The Blockchain” and “A Blockchain”. This terminology is especially tricky because the technology is so new, terms are emerging daily to try and understand and make sense of it.

This is a nascent technology and while the opportunities are exciting, certain obstacles will need to be overcome before some of these use cases can come into being. It’s also clear that the security and controls associated with blockchain technology will need development before many of these applications can become mainstream.

That said, the opportunities are so significant that it’s a question of when, not if, these applications will emerge. In order to smooth the way for greater development and adoption, financial service providers and start-ups will need to collaborate closely.

Level39’s Eric Van der Kleij backs up the assertion that banks are keenly interested in this interview: “The real powerful work being done in fintech is blockchain. I can tell you now with certainty that every major western bank we’ve spoken to, and some eastern ones, are looking at blockchain technology.” Level 39 resident and UBS Crypto 2.0 Lead Alex Batlin gives another excellent rundown of the inherent potential:

Bank’s operating efficiency is also likely to improve as you exercise the previously mentioned inversion of control – technology debt is replaced by common rails. If you couple that with a reduced need for intermediaries due to the smart and distributed nature of blockchain and thus cut market participation costs, you can improve margins and reduce customer fees at the same time.

As a bonus you reduce operational risk, as you no longer have a single point of attack and failure in a peer-to-peer network i.e. safer and more reliable systems that are always there when you need them.

Last but no least, as regulators can now see in near real-time all transactions, they can analyse system risk in a way that has never been possible before. They can also validate that asset’s business logic supports regulation as intended.

3. Bitcoin Bull and Bear Corner

r/bitcoin Redditors are cyber-high-fiving over this report from IB Times that BNP is considering adding Bitcoin to one of its currency funds. Meanwhile, the Winklevii have evidently filed for their (still to be opened) Gemini exchange to receive a NY trust charter. Meanwhile, the Justice Department has arrested the founders of Bitcoin exchange Coin.mx, accusing the two gentlemen with “[facilitating] transactions for hackers who would prevent innocent computer users from accessing their devices unless they paid a ransom.” Sounds like a fine business model.

4. And in case you missed it

Here is the R3 feature story from CoinDesk. Could have done with another choice of words than ‘plot’…makes us sound like Coin.mx employees!

The Weekend Read: June 20

bitcoin comic
 

1. Santander Innoventures Fintech 2.0 Paper: Rebooting Financial Services

Very well done high level summary of the opportunities in re-engineering financial services, with an emphasis on the collaborative uses of IoT, big data and distributed ledgers.

Screen Shot 2015-06-20 at 2.15.55 PM

In time, distributed ledgers will support “smart contracts” – computer protocols that verify or enforce contracts. This will lead to a wide variety of potential uses in securities, syndicated lending, trade finance, swaps, derivatives or wherever counterparty risk arises. For example,smart contracts could automate pay-outs by the counterparties to swap contracts.

Cutting operational costs is not the only benefit in securities trading. Distributed ledgers can increase investor confidence in products whose underlying assets are now opaque (such as securitisations) or where property rights are made uncertain by the role of central authorities. Our analysis suggests that distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15-20 billion per annum by 2022.

2. UBS Crypto 2.0 Legathon

Alex Batlin of UBS hosted an afternoon brainstorming session at UBS’s Level 39 Innovation Lab. You can read a review in his own words here, along with a list of attendees here. Ian Grigg expands a bit on the discussion to revisit his thought experiment of smart contracts as the genesis block of a new blockchain, where any legal dispute is settled by siding with the longest chain.

sum-of-all-chains-unchain

3. The Weekend Read Watch

4. Odds and Ends

The Weekend Read: April 4

DEA
It was just your normal bipolar week in the virtual currency world, as comically corrupt DEA agents and sketchy CEOs vied for the headlines against yet more positive signals from Wall Street.

1. Banks and the Blockchain

The week opened with the WSJ discussing the announcement of former NYSE CEO Duncan Niederauer joining Tera Exchange as an advisor, adding to the recent run of Wall Street veterans aligning themselves with virtual currencies. Banks continue to be excited and/or worried about the threat of the move to digital banking, with Barclays CEO Anthony Jenkins noting the potential disruptive force of banking  services being offered from non-banks.  His quote on the strategy behind the free Pingit service hit the three biggest potential benefits we are exploring with various distributed ledger applications:

We are looking for the ‘triple win’ – removing costs, improving control and enhancing the customer and client experience.

The week ended with UBS announcing the opening of a technology lab dedicated to the exploration of blockchain based protocols in processing financial transactions. Once again, their stated goal is identifying gains in efficiency and cost. Which makes sense when reading this post from JDX Consulting, claiming that Dodd Frank compliance costs the eight largest banks $34 billion annually, along with 60.7 paperwork burden hours (incidentally, “paperwork burden hours” is on a short list for one of the most soul-crushing phrases I have ever heard).

2. DEA Cray Cray

My favorite roundup of the bumbling shenanigans of DEA agent Carl Mark Force IV (incredible name) and Secret Service agent Shawn Bridges was Fusion’s story 5 other insane things a corrupt DEA agent did while allegedly stealing Bitcoin from Silk Road:

The complaint is an astonishing, and frankly amusing, tale of two bumbling agents who seemed to think that virtual currencies were confounding enough to the government that it would never figure out what they were up to. Force allegedly messed up in many ways, including signing his real name, “Carl,” to an unencrypted email from one of his monikers, “French Maid.” According to the government, Force blackmailed a suspect he was investigating, stole nearly a million dollars worth of bitcoin, and sold information about the investigation to Silk Road operator Dread Pirate Roberts for his own personal gain. That’s all pretty bad.

3. R3 Advisor Corner: Richard Gendal Brown Bitcoin As Smart Contract Platform

[In my talk] I observed that these two worlds also differ in one other respect: the Bitcoin-like systems could be disruptive to existing institutions if they gained widespread adoption, whereas Ripple-like systems seem, to me, to be far more closely aligned to how things work today and are, perhaps, a source of incremental innovation.

If this observation is correct, then firms looking at this space probably need to assess the technologies through different lenses. The question for banks for Ripple-like systems is: “how could we use this to reduce cost or improve our operations” whereas the question for Bitcoin-like systems is: “how would we respond if this technology gained widespread adoption?”

And to answer the last question, one must be sure to really understand what the system under analysis really is!

For me, it is a mistake to think about Bitcoin solely as a currency. Because the Bitcoin currency system is a masterclass in mirage: underneath the hood, it’s a fascinating smart contract platform.

4. Align Commerce Launches Public Beta of International Payments Platform

[Disclosure: this is a shameless plug, as I am an investor in Align]

Congrats to Marwan and team for this milestone. And I continue to like their approach in keeping the blockchain where it should be: behind the scenes:

“The key is that there are significant advantages for the businesses using the blockchain in terms of savings in time and money,” Forzley explained. “In addition, there is no change of behavior required. The blockchain is used behind the scene as a rail that moves fiat to fiat between two parties.”

5. IBM all in on IoT

Interesting overview of IBM’s Internet of Things strategy from Fortune, with the headline that they plan to invest $3 billion over the next four years in building out the IBM business unit. Too bad we have already ruined the Internet of Things