In honor of our recent Thanksgiving feast, here are your weekly links, dinner-course style.
Just as you can;t skip right to dessert, we can't go right to the click-bait and Reddit threads...best to start by eating our vegetables. The Bank for International Settlements (BIS) released a paper (via the Committee on Payments and Market Infrastructures) on digital currencies earlier this week. The report is an excellent overview of the implications of digital currency to central banks and also highlights the promise of distributed ledger tech applied across financial markets:
Impact on financial market infrastructures:
The distributed ledger technology underlying many digital currency schemes could have a much broader application beyond payments. Decentralised mechanisms that exchange value based on a distributed ledger technology alter the basic setup of aggregation and netting on which many FMIs rely. In particular, it is conceivable that distributed ledgers could have an impact on the pledging of collateral or on the registration of shares, bonds, derivatives trades and other assets. The use of distributed ledgers may also induce changes in trading, clearing and settlement as they could foster disintermediation of traditional service providers in various markets and infrastructures. These changes may result in a potential impact on FMIs beyond retail payment systems, such as large-value payment systems, central securities depositories, securities settlement systems or trade repositories. The development of “smart” contracts based on distributed ledger technology capable of executing payments under certain conditions may create the possibility of making variation margin payments on an individual contract basis. This could significantly alter how bilateral margining and clearing works today, with net positions and collateral pools.
The report also includes some helpful diagrams on the taxonomy of money and the current regulatory action. Worth a read in full.
Our other healthful serving comes from the Swift Institute, as they published a report on how cryptocurrencies may (or may not) fit into the European payment framework. No pull quotes from this one, as I haven't read it yet...volunteers welcome.
2. Selection of Sides
Everyone knows that the turkey main course is an afterthought. Here we serve up three "sides" from three startups.
First, Chain.com shared the first in a planned series of posts on The Magic of The Blockchain. The key point of the post is that "the record of trades is the money," and for the first time in the history of money, that record-keeping vehicle can scale beyond the borders of a small or trusted ecosystem:
The blockchain is a ledger that is immutable, distributed, and cryptographically secure...When you commit to the idea that the record of trades is the money, there is no separate clearing or settlement step needed. The trade is its own settlement.
Next, Adam Krellenstein of Symbiont gives a wide ranging interview to the IB Times about his company's approach to smart contracts and financial markets. He also takes an opportunity to throw some shade on Ethereum:
Krellenstein said of Ethereum: "It's a very interesting project; they've accomplished a lot. But it's not well suited for permissioned ledgers and financial applications in general. Writing smart contracts in Solidity and then running them on the Ethereum blockchain is not ideal by a long shot for the kind of markets that we are targeting. For that you want a smart contract system more like ours, and you want it to be ledger agnostic, and you want a more stable, secure codebase."
Finally, oft-cited Gideon Greenspan logs another well written entry with Avoiding the pointless blockchain project:
Blockchains are overhyped. There, I said it. From Sibos to Money20/20 to cover stories of The Economist andEuromoney, everyone seems to be climbing aboard the blockchain wagon...You see, a large proportion of these incoming projects have nothing to do with blockchains at all. Here’s how it plays out. Big company hears that blockchains are the next big thing. Big company finds some people internally who are interested in the subject. Big company gives them a budget and tells them to go do something blockchainy. Soon enough they come knocking on our door, waving dollar bills, asking us to help them think up a use case. Say what now?
As for those who do have a project in mind, what’s the problem? In many cases, the project can be implemented perfectly well using a regular relational database. You know, big iron behemoths like Oracle and SQL Server, or for the more open-minded, MySQL and Postgres. So let me start by setting things straight: If your requirements are fulfilled by today’s relational databases, you’d be insane to use a blockchain.
In Greenspan's view, blockchains "make sense for databases that are shared by multiple writers who don’t entirely trust each other, and who modify that database directly [and] where there is some interaction [ed note: dependence?] between the transactions created by these writers."
Finally we have made it to the good bits: videos and info-graphics. Let's Talk Payments lays out an updated Blockchain Activity of FIs & Banks:
We end with a palate-cleansing video on what 60 Minutes dubs "The Future of Money": an examination of M-Pesa mobile money in Kenya. Hope you enjoy.
Now for the best part of Thanksgiving day: a nap.