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!