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The Weekend Read: Oct 3

R3 has its own meme...

R3 has its own meme...

1. R3 Announcement

We were proud to announce an 13 additional global banks joining our initiative. For additional coverage you can visit our newsroom page.

2. Blockchains for Banks

Anthemis Group's David Galbraith had this week's must read with this post on why banks are so interested in distributed ledgers. In short, if Marc Andreessen is correct that software is eating the world, then banks have realized that blockchains and their ilk could potentially 'eat' the need for third party bank infrastructure:

This updated model can be done much more efficiently with blockchains, which could replace 3rd party consortium entities with software alone. By removing a middle man from doing this, the constraint (that the consortium cannot threaten the banks) that ringfences the consortia from not encroaching outside of their designated territories disappears and would allow blockchain based systems software to fulfil their potential to innovate and do more than existing cooperatives like SWIFT can.
As a side note, the Napster or Bitcoin style model of truly decentralized systems with no entity in overall control of any portion will probably not happen in Financial Services unless there is a fundamental shift in how societies work, triggered by them.
Who knows, maybe this could happen, but not in the short term. The reasons for this are that decentralized systems can’t be governed by anyone, so they end up being either compromised or outlawed and secondly, they decentralize revenue. It’s difficult (not impossible) to imagine a decentralized Facebook usurping them because Facebook centralizes revenue and therefore may be able to compete more effectively. Both of these reasons are why the last wave of decentralization faded.
In summary, the ‘multiple entities tied together by software only consortia’ model will be where banking innovation for back end processes and infrastructure happens, and blockchain technology will certainly be the initial focus.

I cannot quote the article enough in this post to do it justice, so please read the whole thing. His thoughts on distributed ledgers being "Consortia-as-a-service" strongly echo a lot of our thinking internally.

Another read-in-full piece is this post by Dwolla CEO Ben Milne, giving his views on when and where a blockchain-ish ledger would be the best fit for financial services. His views are especially insightful, since he and his company began hands-on work in the fintech and ledger field well before everyone caught the blockchain bug:

I personally feel that a blockchain as a ledger is the irrefutably best form of storage when:
  • A view-all permission is best.
  • Speed of the ledger is not a major concern.
  • Confirmation of the ledger information is used as the source of truth only after some time has passed.
Blockchains are fascinating but have inherent limitations like any technology. [snip]
When applying new ledger technologies to banking there are banking specific concerns to deal with and these are just some of them. Solving for short/long term memory, compliance, and providing the necessary interface to regulated entities are all problems third parties have solved in many cases with different ledgers. The intricacies of understanding how all this stuff works is kind of confusing but banks are just trying to solve a problem, not create a whole bunch of new ones for themselves.

3. Ethereum Project is Vibrant and/or Broke

Ethereum Godfather Vitalik Buterin gave a lengthy and informative update on the Ethereum platform earlier this week. The post employs the tried and true "sandwich" technique, leading and ending with many of the recent successes for the Ethereum platform and community. Yet the "meat" of the post describes the less-than-positive state of finances for the Ethereum Foundation:

First of all, it is indeed true that the foundation’s finances are limited, and a large part of this was the result of our failure to sell nearly as much of our BTC holdings as we were planning to before the price dropped to $220; as a result, we suffered roughly $9m in lost potential capital [ed. note: the "lost potential" equals half the funds raised in the quasi-IPO], and a hiring schedule that was meant to last over three years ended up lasting a little under two (although bolstered by a “second wind” from our ETH holdings).
The foundation and its subsidiaries alone simply do not have the manpower to push the entirety of this vision through to its ultimate completion...although the foundation and its subsidiaries can, and will, continue to be the primary driver of technology at the core, a highly community-driven model is necessary and essential, both to help the Ethereum ecosystem maximally grow and flourish and to establish Ethereum as a decentralized project which is ultimately owned by all of humanity, and not any one group.

4. Fintech Ledger Startups in the News

This week's article Meet the new kids on the blockchain does a very good albeit brief job reviewing four startups focused on bringing ledger solutions to financial institutions: Symbiont, Clearmatics, SETL and Eris. Worth a read, if only to get a peak at the Eris team posing in a London back alley:

Which Eris team member is Brick Tamland?

Which Eris team member is Brick Tamland?

Speaking of Anchorman-style alley fights, Symbiont CEO Mark Smith took the gloves off regarding his competition in the article Smart securities issuer Symbiont fires shots in the private blockchain arms race:

"But from a business standpoint we are way ahead of [Digital Asset Holdings]. They are probably a year behind us on all fronts." Referring to Digital Asset Holdings' recent issuance for Pivit, Smith said: "We had done something substantially more difficult over a month prior. So we were the first to do it and we are the only firm to do it with a smart contract. So again, they are behind us and then what they did wasn't even really that impressive." Smith said DAH is very skillful in the media and has a big budget and can scale quickly from a company standpoint. "But there is no substitute for experience in the market and that's really what we have," he added.

In the words of Ron Burgundy: "Boy, that escalated quickly."