The Weekend Read: April 4

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


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: Mar 7

I hope you enjoy this jet-lag fueled edition of The Weekend Read, as I have just returned from a busy and productive week in London. I would like to thank Paul Gordon, Adam Cleary, Cecile Baird, Pinar and Erika for their help in organizing Tuesday’s Coinscrum event, which was a wonderful opportunity for the R3 team to meet and mingle (and argue) with the London blockchain crowd.

1. Bitcoin’s major media hits

There were quite a few crypto-related stories from the major media outlets this week, starting with the NY Times penning a love note to the blockchain: Data Security Is Becoming the Sparkle in Bitcoin

Entrepreneurs worldwide are now working to harness that technology for use beyond Bitcoin transactions. The block chain, they say, could ultimately upend not only the traditional financial system but also the way people transfer and record financial assets like stocks, contracts, property titles, patents and marriage licenses — essentially anything that requires a trusted middleman for verification.

WSJ’s debate Do Cryptocurrencies Such as Bitcoin Have a Future? features two authors arguing slightly different questions, yet both continue to shower praise on the blockchain. And finally CNBC notes how the Bitcoin Investment Trust has achieved FINRA approval to list BIT on the pink sheets, potentially opening up BTC investment to a much wider audience. The author also notes that a similar launch of the largest gold ETF preceded a very long rally in bullion prices. Speaking of price, action there has been improving, with the above news setting a bid under the market even in the face of another US Marshalls auction. As previously stated, any close above the previous support band top (and spike high of Coinbase Exchange euphoria) of $300-310 would be bullish medium term.

2. Gendal + (de) Central Bankers

My man Richard Brown published yet another excellent post this week, extending the recent discussions on central bank issued digital currency (such as FedCoin) to how government backed cryptocurrency could be the key to unlocking the utility of smart contracts:

Think back to the Andolfatto piece. He mused about building “FedCoin” on a distributed ledger. On its face, that doesn’t seem to make much sense. But if we open the topic of distributed ledgers, it also brings Smart Contracts into play. In my recent piece on the topic, I suggested a definition for a smart contract as follows: “A smart-contract is an event-driven program, with state, which runs on a replicated, shared ledger and which can take custody over assets on that ledger.”

Implicit in my definition was that these “assets” could be native assets to the ledger (e.g. Bitcoin). But , more likely, they would be representations of real-world assets: GBP tokens issued by Barclays or HSBC or Coop, say. [snip] And this is where I think a central bank digital currency could make sense on a distributed ledger. It would clear away all that complexity.

You could simply write the contract to demand payment in the central bank token.

ECB joined the fray this week with an update to their previous report on cryptocurrencies, or as they like to call them Virtual Currency Schemes (I can’t help but think that the choice of “scheme” is more than a bit pejorative).  Bloomberg has a good review of the ECB’s lack of enthusiasm, as well as a sobering counter to any optimism for official adoption (or co-option) of digital currency:

[The BOE] proposal sums up how central banks are likely to deal with Bitcoin in the future. They’d clearly prefer virtual currencies to die a natural death. Absent that outcome, they’ll attempt to drag the digital platforms into existing oversight frameworks, and smother them in the suffocating embrace of rules, codification and administration.

Ensnaring digital currencies in a web of officialdom would destroy their principal attraction to users — the fact that they’re not part of the existing financial infrastructure, operating instead in a digital hinterland removed from government interference. That would be a pity.

3. The Crypto-Technology and Bitcoin Landscape

William Mougayar continues his quest to identify and codify the crypto landscape with an open source database of crypto-related companies:

crypto landscape

We do our best to keep up with this ever expanding universe and very much appreciate William’s efforts. Speaking of the startup universe, two interesting entrants were featured in stories this week. First, Abra emerged from stealth with their Uber-meets-hawala app that uses reputation scoring plus crypto rails to bring low cost remittances to the consumer. Second, CoinDesk featured decentralized prediction market startup Augur and their attempt to create a platform for anyone to forecast any measurable event. There are lots of issues with running such prediction markets, as Intrade can attest, but I do have a soft spot for these types of markets…even though I still have scars from being caught long Intrade John Kerry contracts on the 2004 election day headfake.

4. Continued Dis-aggregation of the Bank

As the Economist points out, banks continue to face a lot of pain in their core businesses. Meanwhile, fintech startups have not let up in their attempt to peel away and improve delivery of singular banking services. Some banks have chosen to adapt/adopt the upstart’s tactics, especially BBVA, and this FT article highlights their extreme focus on digital banking. Some banks have admitted the challenge they face in attracting talent, especially via this too-self-aware job posting by JP Morgan: “You have an opinion on bitcoin and other cryptocurrencies, and you are probably ambivalent about the prospect of working for a large financial institution.” Comments at a recent SWIFT conference further laid out the proposed threats:

“We really can’t close our eyes,” said Cheryl Gurz, managing director of the emerging technology segment at Bank of New York Mellon Treasury Services. “If we as traditional correspondent bankers don’t keep looking and determining where [cryptocurrency technology] will take us, new entrants will completely take our space.”

Happy w/e.


The Weekend Read: Jan 30

Bitcoin started the week with the wind at its back, buoyed by fawning press (see WSJ story below) and the surprise announcement of the first US regulated bitcoin exchange from Coinbase. Unfortunately the Coinbase-fueled price spike was aggressively faded, as underwater longs used the $300 price resistance level to cut out of sour positions. As stated previously, the 300 area will prove tough to overcome in the short term due to all the damage that has been done in the market. And regarding the Coinbase exchange…perhaps we didn’t see the air quotes from Coinbase when they made their announcement, as there were concerns raised on both the first and the regulated part of their press release. On to the links…

1. White Paper of the Week: Fed Edition

The paper, entitled Strategies for Improving the U.S. Payment System by the Federal Reserve, lays out four options for further study on how best to improve the speed of the payment network. One suggestion would look a bit familiar to the careful reader. American Banker was able to read between the lines (and include an Oscar Wilde reference) in their post titled The Cryptocurrency that Dare Not Speak Its Name:

[the paper] coins a new euphemism for Internet cryptocurrencies (of which Bitcoin is by far the best known): “Digital Value Transfer Vehicles.” These are defined as “decentralized digital stores of value that can be exchanged.” One such transfer vehicle, which goes unnamed in the paper, “was not considered a sufficiently mature technology at this time, but was identified for further exploration and monitoring given significant interest in the marketplace,” the Fed said. Of the hundreds of cryptocurrencies that have sprouted up in the last few years, we’re pretty sure the Fed is not referring to HoboNickels or PhilosopherStone.

2. From the Wall Street Journal: Bitcoin and the Digital-Currency Revolution

This story from Michael J. Casey and Paul Vigna, staff writers at WSJ and the authors of the new book The Age of Cryptocurrency, was prominently displayed in the paper’s weekend edition. The article does a good job of describing the high level optimistic case for bitcoin, but their example to explain the benefits of bitcoin-as-retail-payment (the cup of coffee) conveniently skips over the biggest pain point for comsumers: the high cognitive costs associated with buying and managing bitcoins for day to day payments. They end on a strong note though:

In the end, the rise of digital currency may be a matter of evolutionary destiny. The Internet has disrupted and decentralized much of the world economy, but the centralized world of finance remains stuck in the 15th century. Digital currency can help it adapt and survive.

3. The bastard child of the blockchain and the internet of things: the identiverse by Dave Birch

Another exploration on how blockchains can lead to new, efficient forms of identity, especially in the realm of “things.” I especially liked this embeded quote from Eric Schmidt, Google Chairman:

Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value

4. Bitcoin and the False Dichotomy

This article builds upon the point made last week by Joichi Ito. It also successfully uses the word “dichotomy” in a sentence, which is always impressive…as my college friend Fish used to say, if you could sneak in the phrase “the dichotomy is obvious” into your term paper you were guaranteed at least a grade of B-

An often quoted example of a false dichotomy was when the Internet first gained media attention in the early to mid-nineties. Back then, many people thought it was a fad, hard to understand and a waste of time and money. They simply couldn’t get their head around the fact that there were more than just two possibilities: A (success) or Z (failure).

And therein lies the fallacy of the false dichotomy around Bitcoin.

5. PayPal’s John Lunn on how digital currencies will disrupt the way “inefficient 30-year-old banking services move money”

I’m fascinated with the concept of digital currencies and a shared ledger. I think it’s important and there’s so many things you could do with it, which aren’t necessarily how it’s being used at the moment. I think it’s going to disrupt the way a lot of inefficient 30-year-old banking services move money.

6. A model to make sense of beliefs and associated Crypto-finance platforms

Meher Roy describes a mental model to explain the levels of beliefs within the crypto ecosystem:


He then slots in a few of the current companies and projects to the various levels (below). While I would quibble a bit at some of his descriptions and choices, I think this framework is very helpful in trying to make sense of the ever changing and increasingly complex world of decentralization.

coins 2

…and finally

As we get ready for the unofficial US holiday also known as The Super Bowl, some unsolicited and most likely faulty advice. Fade the “there will be a safety in the Super Bowl” prop as Vegas dropped the odds too low after it has hit the last three years. Grab the over on the national anthem (only 2:01 that is too low!). And Go Pats. Enjoy the game.