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The Weekend Read: Mar 26

When they say 'Blockchain' just close your eyes and think 'DLT DLT DLT'...

First up, some Corda love. This Australian Financial Review article (paywalled) highlights how our bank partner CBA used Corda in collaboration with their customer, Colonial First State, and a delivery partner, Hewlett Packard Enterprise, to show how it could help solve a key business problem of capital costs:

Colonial First State is re-engineering the process of buying units in the $2.2 trillion market for managed funds in a move it says will "dramatically" reduce the amount of capital banks will have to hold against wealth operations. A recent experiment with Commonwealth Bank of Australia's emerging technology team and Hewlett Packard Enterprise using the R3 consortium's Corda 'distributed ledger' allowed Colonial to eliminate arduous paper application process for managed funds and the three-day wait for the delivery of units.
Corda, which is being developed by a consortium of global banks, can remove counter-party risk for intermediaries like CFS by allowing assets to be exchanged and transactions settled instantaneously. It also provides transparency on what each counter-party holds across geographies. By removing the risk of the issuer defaulting or the investor failing to settle, banks will be able to reduce the amount of regulatory capital required to provide cover for those risks.
"If [a blockchain] was adopted locally, regionally or globally, the capital the industry would need to hold could reduce dramatically," CBA's group executive for wealth management, Annabel Spring, told the APAC blockchain conference in Sydney last week.
CBA is confident about Corda's security protocols, which have been designed with input by dozens of banks around the globe. In the CFS trial, the units were transferred cryptographically with keys in the form of PIN numbers required to access the system through mobile apps.

We also got a nice shout out by our friend Michael Dowling of IBM with this in depth post on the evolution of Corda, along with some reference to the recent blockchain-not-blockchain kerfuffle. And since we have been, ahem, a few weeks between posts, here are some 'catch up' blockchain-y links:

And finally, a big congrats to ATB Financial as our newest Canadian member!

RegTech (cont.)

R3 was happy to announce another member recently, as we welcomed the State of Illinois to our growing list of Regulator Members. Read about this here and here, along with their overall plans to leverage DLT. Our CEO David Rutter and R3 world traveller Isabelle Corbett followed up with this conversation with CoinDesk that lays out some of the concepts behind the R3 'RegNet'.

The efforts and interest of regulators extends across the US, both at the State (see Delaware is Drafting Law That Would Recognize Blockchain Records) and Federal level; Acting (and now Nominated) Chairman of the CFTC J. Christopher Giancarlo recently gave a speech on his overall agenda. Of note was the section dedicated to FinTech, both due to its substance and to the fact that the Chairman gave the topic proper airtime even with his quite package agenda. Full text is here, quick pull quote below:

[M]arket regulation by the CFTC has not kept pace. In too many ways, it remains an analog regulator of an increasingly digital marketplace, curtailing its effectiveness in overseeing the safety and soundness of markets. But it doesn’t have to be this way, especially in an industry that is synonymous with innovation. The CFTC must be a leader in adopting the “do no harm” approach to financial technology similar to the US approach to the early Internet. We must cultivate a regulatory culture of forward thinking.

Couple the above with this post from ISDA on the 'past and future' of ISDA agreements, particularly on the role of Master Agreements in the world of smart contracts. As a reminder, our third Smart Contract Template Summit (suggestions for a new name welcome!) will be coming up this June.

MAS continues to push an aggressive fintech agenda of their own. A few weeks back, MAS announced the successful completion of the interbank payments projects that they executed with R3 and a collection of local banks. See here and here. And this past week they announced more details on their plan to roll out a national KYC utility.

Another organization at the intersection of regulation, infrastructure and fintech is CLS. This IBTimes article gives an interesting look at some of their thinking. The article also lays out the differences between ledger approaches, namely that of IBM's Fabric vs R3's Corda.

Get the Papers Get the Papers

Our Research team and amazing collaborators have been busy recently, with three new papers:

  1. R3's Survey of Confidentiality and Privacy Techniques, with an accompanying piece in American Banker
  2. R3's Report on Fedcoin with JP Koning
  3. R3's Bridging the Gap Between Investment Banking Architecture and Distributed Ledgers by my good friend Martin Walker

Others have been busy as well. BIS recently release The Quest for Speed in Payments (summary article here), while G20 Insights released The G20 Countries Should Engage with Blockchain Technologies to Build an Inclusive, Transparent, and Accountable Digital Economy for All

R3 Report on Fedcoin

Central bank digital currency (CBDC) has become an increasingly discussed topic over the past few years, with multiple central banks examining and in some cases publicly discussing the implications of creating or backing one.  At R3, we are working with both the Bank of Canada ("CAD-coin") and the Monetary Authority of Singapore on CBDC-related projects, along with other efforts yet to be announced.

There are roughly two different models for CBDC that are commonly conflated. The first is "The CAD-coin Model" (note: it is not an actual coin), where a central bank issues a currency against some of its assets.  The second model is popularly known as "Fedcoin", where a central bank issues a new type of currency that becomes a liability on its balance sheet.  This Fedcoin model is the topic covered by the new R3 "Fedcoin" paper by JP Koning, which we have released publicly today (see below).

Koning "coined" the term Fedcoin in 2014.  While Fedcoin and "CBDC" have been used interchangeably, they are distinct. Especially as Fedcoin has some of the same characteristics of physical cash today, namely in terms of pseudonymity and potential anonymity.

The R3 Research team enjoyed collaborating with JP Koning on this paper, which was released to our members in November of last year. We would also like to thank Rod Garratt, a member of the R3 Academic Advisory Board, for his help in putting this paper together.

Below is a link to Koning's paper as well as a companion piece written by Antony Lewis, who is our APAC Director of Research.

American Banker got a first look.


Fedcoin: A Central Bank-issued Cryptocurrency

JP Koning

Download


Fedcoin: A Central Bank-issued Cryptocurrency - R3 Perspective

Antony Lewis

Download


Survey of Confidentiality and Privacy Preserving Technologies for Blockchains

Over the past 18 months, one of the topics that we have discussed and brainstormed with our members has been around privacy and confidentiality.  Specifically, who is able to see transactions on a chain or ledger.

While there have been a number of proposals pitched by various groups posted on social media and internet forums, there has been no long form, systematic survey of the privacy and confidentiality tool kit.

Last fall we collaborated with the Zcash team led by Zooko Wilcox O'Hearn and Jack Gavigan, as well as Danny Yang, the founder of Blockseer, to provide a survey on this burgeoning space.  We also asked Mike Ward from our APAC team to put together a short view point on their output.

Below are the finished documents originally sent to our members this past November.  American Banker got a first look of it and put together an article on the paper as well.


Survey of Confidentiality and Privacy Preserving Technologies for Blockchains

Danny Yang, Jack Gavigan, Zooko Wilcox-O'Hearn, R3 Research

Download


Summary of the Confidentiality and Privacy Report

Mike Ward

Download


The Weekend Read: Mar 5

Enterprise Ethereum Alliance

The Enterprise Ethereum Alliance formally kicked off earlier this week with an all day meet up in JP Morgan's Brooklyn offices. The group consists of Ethereum-focused startups and large companies, with a focus on developing standards for private Ethereum deployments. The reaction by the press was curious, as many picked up a theme of Microsoft and IBM waging a proxy war via EEA (Microsoft) and the Hyperledger project (IBM). For example, American Banker noted "the IBM-led Linux Foundation Hyperledger Project" and their use of "a mainframe in a cloud" vs Microsoft as "more focused on openness — letting organizations choose the combinations of technology that work best for them." Coindesk followed up with an article on the decentralized nature of the new group:

Still, while the board is also designed to give members a sense of accountability, more experimental governance models are also being considered. "Everything starts as an idea, with one person," said Lubin. "That happened. But Ethereum is moving towards decentralization."

The press loves a simple narrative (see below for a fine example), but both groups are very diverse and seek to move the whole industry forward, as we ALL have a lot of work to do to make this technology real for business users. One theme that did persist at Tuesday's EEA launch was the desire to keep aligned, and in some minds perhaps eventually merged, with the public Ethereum chain (not to be confused with Ethereum Classic, or Ethereum Classic Classic!). This and Bitcoin's recent price surge are most likely what is behind the recent ramp up in the price of ether. For an older, somewhat related article on public Ethereum, I recommend this Aeon article.

Et Tu, Blockchain?

The only good thing to come out of the R3 non-story was this new Tim Swanson meme...

The only good thing to come out of the R3 non-story was this new Tim Swanson meme...

Over the last two weeks, a blockchain butterfly flapped its wings, and the next thing we knew, R3 was caught in the oddest of fake-news hurricanes. In short: a tweeted pic from a Corda meetup was coupled with the quote "GAME OVER" (perhaps an early tribute to the great Bill Paxton?) and the next thing we knew, there were all sorts of nonsense articles and blog posts. For a run down, you can read Chris Skinner's take (and yes, his is an intentional fake news headline...) and this Bank Innovation piece (Dave Birch: I would love to meet your tailor). In shorter: it was all complete BS. Which was disappointing, but not surprising. I just finished the Michael Lewis book The Undoing Project and the one thing the book taught me was that we are all "confirmation bias" machines. Or as The New Yorker put it: Why Facts Don't Change Our Minds

As David Rutter pointed out in his blog post last week:

Humans are creatures of habit. As time went on, the term blockchain came to be associated with any type of distributed ledger, even as the technology matured and evolved to meet the needs of different groups of users. This isn’t an issue unique to our space. The marketing team at Canon must have spent countless hours working out how to stop people referring to all copy machines as Xeroxs.

We can see this in two other thoughtful articles that were recently published. Our very own Antony Lewis has a great take on Distributed Ledger Technology for post trade published in Tabb Group...yet the title chosen by the editors was "Applying Blockchain to Post-Trade Derivatives Processing." Another from CFO magazine includes yours truly and does a great job in explaining why CFOs should pay attention to distributed ledger technology...which they term "Betting on Blockchain." 

Lost in the noise was the release of an 80 page report by the Aite Group. This Coindesk review of the report gives a flavor of the market landscape that Aite explored, including this key quote:

"A growing trend, adopted by five chaintech platforms and spearheaded by R3," writes Paz, "calls for consensus taking place at the transaction level, requiring the consent of at least two counterparty nodes."

Another bit lost was our new intro video to Corda, which declares in very plain language what Corda is (and isn't):

But don't just trust our word on it. Sign up for Corda training or sign up to our Slack, and see (and debate) for yourself!

Links

When is a blockchain not a blockchain?

We’ve been flattered by all the attention Corda has received this past week. It’s just too bad the story isn’t a story.
 

The issue of semantics is always a challenge as new ideas, technologies and cultural phenomena work their way into mainstream consciousness and the media. Rewind a few years and who would have thought the Oxford English Dictionary’s definition of ‘meme’ would be updated to refer to a picture of a grumpy cat or a sad Michael Jordan on Instagram?
 

When we launched R3 in 2015, we were among a handful of companies inspired by the technology underpinning bitcoin, known as blockchain, and its potential application to wholesale financial markets. Conversations in boardrooms and the media revolved around blockchain, which at that point was the most pertinent example of distributed ledger technology in the mainstream consciousness.
 

Humans are creatures of habit. As time went on, the term blockchain came to be associated with any type of distributed ledger, even as the technology matured and evolved to meet the needs of different groups of users. This isn’t an issue unique to our space. The marketing team at Canon must have spent countless hours working out how to stop people referring to all copy machines as Xeroxs.
 

While we were almost certainly guilty of slipping into this semantics trap now and again, we’ve said from the beginning that Corda is a distributed ledger platform, not a traditional blockchain platform. It was never designed to be one.
 

At the outset our architecture team identified its first priority to be to decide whether to adopt, adapt or build. Put simply, if we found another platform currently in the market that was fit for purpose for regulated financial institutions, such as a traditional blockchain, we would have had no need to build our own and we would have gladly adopted it wholesale or adapted it as necessary.
 

Blockchains are specific pieces of software originally built to handle transactions of virtual currencies such as bitcoin and ether. Together with our bank members, we realised early on that this technology could not be applied blindly to wholesale financial markets without careful consideration: changes must be made to satisfy regulatory, privacy and scalability concerns. And that is what we have done with Corda.
 

Corda’s open source distributed ledger technology was designed from the ground up to address the specific needs of the financial services industry. It is heavily inspired by and captures the benefits of blockchain systems, but with design choices that make it able to meet the needs of regulated financial institutions.
 

Crucially, Corda restricts access to data within an agreement to only those explicitly entitled to it, rather than the entire network. And financial agreements on Corda are intended to be enforceable, linking business logic and data to associated legal prose in order to ensure that the financial agreements on the platform are rooted firmly in law.
 

Corda was designed from the ground up to address the specific needs of the financial services industry. There are currently very few tangible examples of distributed ledger platforms in the market – and none that were developed with over 70 global institutions from all corners of the financial services industry. It is unique and its launch was a landmark moment for the market.
 

When is a blockchain not a blockchain? When it’s Corda.

 

ブロックチェーンがブロックチェーンじゃなくなるときはいつ?

これまでCordaを応援して下さっているみなさまに大変感謝しております。しかし、真実ではない噂が流れていることは非常に残念に思います。

物事の正当性はいつの時代も問題になります。新しいアイデア、テクノロジーや文化的現象が主流になるとき、常にメディアの目に晒されます。数年を巻き戻して、オックフォード英語辞典で”meme”という単語の意味を調べてみると、それがInstagramの可愛くない猫か残念なマイケルジョーダンの写真に更新されていると、誰が想像していたでしょう?

私たちが2015年にR3を立ち上げたとき、ビットコインやブロックチェーンを支えられる技術、そして金融市場への適用の可能性に触発された会社は一握りでした。役員会の会話やブロックチェーン絡みのメディアが使う言葉が、当時、分散台帳技術を最も良く表現していました。

人間は習慣の生き物です。時が経つにつれて、ブロックチェーンという用語はあらゆる分散台帳を示すようになってきました。テクノロジーが成熟し、異なるユーザーのニーズを満たすように進化しているにも関わらずです。これは私たちの業界だけの話ではありません。Canonのマーケティングチームは、人々がコピー機をゼロックスと呼ぶのを止めるよう、もっと時間を費やすべきでした。

しかしながら私たちは今、また同じ正当性の罠にはまってしまいそうになっています。Cordaは、当初から分散台帳プラットフォームであり、これまでのブロックチェーンプラットフォームではないと言い続けてきました。またブロックチェーンに似せようとしたこともありません

当初、私たちのアーキテクチャーチームは、既存のブロックチェーンを採用するか、適用するか、一から作るか、の選択が最優先であると考えました。別の言い方をすると、もし現在市場にある伝統的なブロックチェーンのようなプラットフォームが、規制された金融機関の目的にフィットするのであれば、私たちは一から独自のプラットフォームを構築する必要はありませんでした。喜んでそれを採用するか、必要な範囲内で適用していたでしょう。

ブロックチェーンはビットコインやイーサのような仮想通貨の取引をハンドリングするために構築されたソフトウェアです。コンソーシアムのメンバーである銀行と共に調査・研究していく中で、私たちはこのテクノロジーを深く考えず盲目的に金融市場へ適用することは出来ないと、早い段階で気が付きました。規制上の問題やプライバシーやスケーラビリティの問題を無視して進めるわけにはいきません。それがCordaを開発した理由です。

オープンソースである分散台帳技術Cordaは、金融業界の特定のニーズに対応するために一から設計されました。ブロックチェーンの良い面に強く影響されていますが、設計上の判断は、規制された金融機関のニーズを満たすようされています。

決定的な違いは、Cordaでは取引当事者だけにしかデータへのアクセスを認めていない点です。データをネットワーク全体で共有しません。Corda上の金融取引は執行力を持ち、ビジネスロジックと関連する法律文書のデータにリンクしています。これにより、プラットフォーム上での金融取引を法律に根付いたものとしているのです。

Cordaは金融業界の特定のニーズに対応するために一から設計されました。現在、分散台帳プラットフォームの構築事例は数件しかありません。そして、金融業界を横断縦断して70社以上のグローバル企業によって開発された例は一つもありません。Cordaは唯一であり、その発表はマーケットにとって画期的な出来事でした。

ブロックチェーンがブロックチェーンじゃなくなるときはいつ?それはCordaがCordaと呼ばれるときでしょう。

The Weekend Read: Feb 19

R3 in the News

Our CEO David 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

Credit Suisse completes global distributed ledger hackathon using R3 technology

Credit Suisse recently completed a global hackathon event to find cost savings and efficiency applications using R3’s Corda distributed ledger platform.

Teams from India, the United States, Great Britain and Poland competed to find cost savings under a 20:20 framework, meaning winning solutions needed to show the potential to reduce costs by twenty percent within twenty months.

“We see Blockchain as a disruptive technology that has real potential to reduce the bank’s operating costs and risk,” said Ray Mulligan, Chief Architect for Credit Suisse’s Global Markets division.  “The recent Credit Suisse blockchain hackathon reinforced that idea.  In just two days, we saw how quickly our developers were able to design and build blockchain-enabled applications that show the potential for this technology to drive significant efficiency and savings gains for the bank.” 

The bank’s developers began work on January 24 in India to build distributed ledger applications across a variety of business lines and back-office functions. Work transitioned from Pune, Bangalore and Mumbai to London, Wroclaw, New York and Raleigh, North Carolina over the course of the first day, and continued through January 25. Credit Suisse committed to fund the leading solutions that showed 20:20 potential for further development and implementation.

Corda was designed specifically to address the cost and efficiency issues that have plagued banks and other financial institutions for decades. We made the platform available for open source development in order to encourage collaborative thinking and innovation, and this hackathon is the perfect example of what can be achieved when open communities combine expertise to address the real-world pain points affecting the industry.

Now, with the technology maturing, firms can find ways to drive additional benefits that might be more specific to their businesses. In just two days, Credit Suisse’s developers were able to design and build distributed ledger-enabled applications that show the potential for this technology to drive significant efficiency and savings gains for banks. 

A big thanks to all involved at Credit Suisse for making this hackathon a tremendous success!

The Weekend Read: Feb 5

R3 in the News

The R3 team enjoyed a few days this week to 'geek out' at the Construct 2017 conference in SF. We were glad to share the insights of our very own Clemens Wan with the wider blockchain world:

In remarks yesterday at CoinDesk’s developer conference, Construct 2017, R3 associate director and former Credit Suisse blockchain architect, Clemens Wan, predicted that 2017 will be defined by DLT pilots, while 2018 will see the technology migrate to production.
The comments come just months after the open-source release of its custom distributed ledger technology (DLT), Corda, became a part of the Linux Foundation-led Hyperledger blockchain project’s collection of enterprise technologies.
Corda (and Intel's Sawtooth) via penchain

Corda (and Intel's Sawtooth) via penchain

Since then, R3 said it has attracted more than 600 users to its slack channel, and more than 19,000 visitors to its website, Corda.net, as it seeks to reach its next milestone, the release of a test version of its DLT system in the first or second quarter.
In this light, Wan framed R3’s technology as one that requires broader buy-in from enterprises and corporates to achieve a strong network effect and top-level applications. Wan said: "Corda is the Xbox Live, it’s the ecosystem, it’s the connectivity. We want to focus on the platform and services."

As Clemens points out, R3 will be very focused on building an ecosystem of partners in 2017 and beyond, which follows on from a few of our 2016 announcements of partnerships with the likes of Microsoft and Calypso Technologies. Our goal is to bring both the value of our network and our foundational technology to that partner application ecosystem, so that all participants benefit. If anyone has interest to learn more about our partnership approach, please contact partner@r3.com

We are very pleased to announce the addition of Africa's largest bank to the R3 family: welcome aboard Standard Bank!

“Collaboration will be critical to unlocking value and we want to be actively involved in exploring and testing how technology like blockchain can be adopted by financial institutions. Being a partner member of the R3 network will provide us with an excellent opportunity to accelerate and enhance our adoption of this new technology,” says Peter Schlebusch, Standard Bank’s Chief Executive for Personal & Business Banking.

And if anyone happens to be attending the FIA-SIFMA Asset Management Derivatives Forum this week, please feel free to stop by and say hello.

Member Spotlight: ING

We are very fortunate to have the chance to work closely with ING across many of our DLT efforts. This article is a very nice overview of not only the hard work being done, but it also gives some well deserved attention to Mariana Gomes de la Villa and the Blockchain Innovation team:

“For us, 2016 was about experimentation and getting to know the technology: how it works, how we can use it and what the pitfalls and limitations are. This technology wasn’t built for the financial industry so there are constraints and it doesn’t always cover our requirements,” Gomes de la Villa explained.
In trade finance, too, where processes are largely paper-based, labour intensive and open to fraud, a proof-of-concept was completed in August. It demonstrated that shared ledger technology could reduce operational and compliance costs of trade financing by 10 to 15 percent and increase bank revenues by as much as 15 percent.
Mariana Gomes de la Villa and the Blockchain Innovation team

Mariana Gomes de la Villa and the Blockchain Innovation team

Blockchain has the potential to profoundly change the financial services structure", said Ivar Wiersma, head of Innovation at Wholesale Banking. He compares blockchain to that other ‘foundational technology’ that changed the world; the internet. It all started with the birth of email in the 70s, but it took decades before the internet became the basis for many of today’s business models. 
“Blockchain started eight years ago with bitcoin. Now we need new developments like smart contracts and digital identity so blockchain can become the technology standard for the next generation.” Wiersma added: “Collaboration is a given. It’s a network, so working on your own is useless. It’s like being the only one with a mobile phone.”

We look forward to highlighting more of our member stories throughout 2017

The Week (or two) in Links

...and completely unsolicited advice for the Big Game: guac over salsa, pilsner over IPA, and never bet against Brady and Belichick (unless the Giants are involved). Go Pats!